PDL BioPharma |
First quarter results |
Financial update |
Pharma & biotech |
22 May 2018 |
Share price performance
Business description
Next events
Analysts
PDL BioPharma is a research client of Edison Investment Research Limited |
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PDL’s recent Q118 results reported that revenues of $38.5m were down 15.2% compared to Q117 as the company transitioned away from royalties related to the Queen et al. patents to product revenue related to its Noden and LENSAR subsidiaries as well as royalties from the Depomed assets. Excluding Queen et al. royalties, revenues were up 14.2%. Also, while the revenues associated with the Tekturna assets sold by Noden continue to be weak, LENSAR is now EBITDA positive. PDL has also repurchased approximately $12.6m of stock since March 2018 and has $12.4m available under its current repurchase program.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
244.3 |
175.5 |
0.78 |
0.10 |
3.5 |
3.6 |
12/17 |
320.1 |
200.3 |
0.81 |
0.00 |
3.4 |
N/A |
12/18e |
156.6 |
47.6 |
0.28 |
0.00 |
9.9 |
N/A |
12/19e |
158.8 |
54.9 |
0.31 |
0.00 |
8.9 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Noden yet to bottom out
The Noden franchise continues to be weak with net revenue of $18.3m in Q118 ($10.5m in the US and $7.8m in the rest of the world), down 27.1% sequentially (up 46% year-on-year). This was partly due to an adjustment related to prior quarters and partly due to de-registering the product in geographies where it was unprofitable, which lowered revenue but improved margins.
LENSAR now EBITDA positive
The company announced that its LENSAR subsidiary was EBITDA positive for the quarter. Although there was a $0.6m operating loss this was down from $2.5m in the previous quarter as expenses related to LENSAR fell from $10m in Q417 to $5.6m.
$25m share repurchase program implemented
Since March 2018, the company has repurchased 4.2m common shares for a total of $12.6m and has $12.4m remaining under its current repurchase program. With a book value ($5.60 per share as of the end of Q118) that is much higher than the current stock price, share repurchases are strongly earnings accretive and the company has indicated that it may consider accelerating and/or expanding the share repurchases.
Valuation: $846m or $5.62 per share
We have adjusted our valuation to $846m or $5.62 per basic share from $858m or $5.58 per share. The lower total valuation was mainly due to lower Tekturna sales estimates as well as slightly lower net cash. This was mitigated in part by a higher value for LENSAR due to the better than expected expense control. The higher per share value was due to the implementation of the share repurchase program, which has resulted in a reduction in the number of shares outstanding.
Q118 results
PDL recently reported Q118 results and provided an update on its assets. For the quarter, revenues were down 15.2% to $38.5m compared to Q117. That decline was entirely due to lower royalties related to the already expired Queen et al. patents which provided $14.2m in revenues in Q117 but only $2.8m in Q118. Not counting those royalties, revenues were up 14.2% compared to last year.
Noden revenues were $18.3m ($10.5m in the US and $7.8m in the rest of the world), down 27.1% sequentially although up 46% year-on-year. Part of this was due to a jump in sales in Q417 thanks to a one-time adjustment related to the gross-to-net discount, compared to Q317 (which did not have the adjustment); Q118 US sales were only down 8.7%. Sales in the rest of the world were down as the product has been de-registered in geographies where it was unprofitable (such as France), which lowered revenue but improved margins. The company is continuing to work on improved patient targeting and reimbursement and has reported that it is making some headway on the latter as Medicare coverage improved to 69% in Q118 from 62% in 2017.
LENSAR, which was acquired in May 2017, saw Q118 revenues of $5m down from $7.5m in Q417 which had benefited from several large transactions in China. Importantly, expenses related to LENSAR fell from $10m to $5.6m compared to the previous quarter, which brought the company close to a positive margin and also helped it achieve a positive EBITDA.
Valuation
We have adjusted our valuation to $846m or $5.62 per basic share from $858m or $5.58 per share. The lower total valuation was mainly due to lower Tekturna sales estimates as well as slightly lower net cash. We have also removed the Avinger royalty from our valuation as it concluded per the credit and royalty agreement in April 2018. This was mitigated in part by a higher value for LENSAR due to better than expected expense control. The higher per share value was due to the implementation of the share repurchase program leading to fewer shares outstanding.
Exhibit 1: PDL valuation table
Royalty/note |
Type |
Expiration year |
PDL balance sheet carrying value ($m) |
NPV ($m) |
Queen et al |
Royalty |
2015 |
N/A |
N/A |
Depomed |
Royalty on Glumetza and other products |
2024 |
$222.6 |
$281.8 |
VB |
Royalty on Spine Implant |
Undisclosed |
$14.5 |
$16.5 |
University of Michigan |
Royalty on Cerdelga |
2022 |
$26.6 |
$14.4 |
Wellstat |
Note (Impaired) |
Unknown |
$50.2 |
$50.2 |
Hyperion |
Note (Impaired) |
Unknown |
$1.2 |
$1.2 |
Lensar |
Equity |
N/A |
$53.1 |
|
Acelrx |
Royalty on Zalviso |
2027 |
$75.1 |
$75.2 |
Careview |
Note |
2022 |
$19.4 |
$20.5 |
Noden |
Equity |
N/A |
N/A |
$46.4 |
Kybella |
Royalty |
Unknown |
$2.8 |
$0.9 |
Total |
|
|
|
$560 |
Net cash (Q118) ($m) |
$285.9 |
|||
Total firm value ($m) |
$846 |
|||
Total basic shares (m) |
150.6 |
|||
Value per basic share ($) |
$5.62 |
|||
Total options (m) |
1.1 |
|||
Total number of shares (m) |
151.7 |
|||
Diluted value per share ($) |
$5.58 |
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Source: Edison Investment Research
Financials
We have lowered our estimated FY18 revenues to $156.6m from $173.8m and our estimated FY19 revenues to $158.8m from $180.9m as we have decreased our revenue estimates for Noden and for LENSAR (although we have also lowered our expectations for LENSAR operating expenses due to better than expected expense control). We have increased our SG&A estimates to $69.7m from $65.9m for FY18 and to $72.5m from $68.5m for FY19 due to a higher than expected run rate. The company ended the quarter with $405.1m in cash ($285.9m net cash), which is lower than the $527.3m balance last quarter as the company paid back the principal ($126.4m) plus $2.6m in accrued interest on its 2018 convertible notes in February.
Since March 2018, the company has repurchased 4.2m shares of common stock for a total of $12.6m and has $12.4m remaining under its current repurchase program. With a book value ($5.60 per share as of the end of Q118) that is much higher than the current stock price, share repurchases are strongly earnings accretive and the company has indicated that it may consider accelerating and/or expanding the share repurchases.
Exhibit 2: Financial summary
$000s |
2015 |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
590,448 |
244,301 |
320,060 |
156,645 |
158,772 |
Cost of Sales |
0 |
(4,065) |
(30,537) |
(37,027) |
(32,443) |
||
Gross Profit |
590,448 |
240,236 |
289,523 |
119,619 |
126,330 |
||
General & Administrative |
(36,090) |
(43,287) |
(63,324) |
(69,733) |
(72,523) |
||
EBITDA |
|
|
550,379 |
193,129 |
218,818 |
46,666 |
50,587 |
Operating Profit (before amort. and except). |
550,379 |
193,129 |
218,818 |
46,666 |
50,587 |
||
Intangible Amortisation |
0 |
(12,028) |
(24,689) |
(25,172) |
(25,172) |
||
Other |
(3,979) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(51,699) |
(349) |
600 |
0 |
||
Operating Profit |
550,379 |
129,402 |
193,780 |
22,094 |
25,415 |
||
Net Interest |
(26,691) |
(17,679) |
(18,562) |
978 |
4,297 |
||
Other |
6,450 |
(2,353) |
9,309 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
530,138 |
175,450 |
200,256 |
47,644 |
54,884 |
Profit Before Tax (FRS 3) |
|
|
530,138 |
109,370 |
184,527 |
23,072 |
29,712 |
Tax |
(197,343) |
(45,711) |
(73,826) |
(5,314) |
(6,239) |
||
Deferred tax |
(0) |
(0) |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
332,795 |
129,739 |
126,430 |
42,330 |
48,644 |
||
Profit After Tax (FRS 3) |
332,795 |
63,659 |
110,701 |
17,758 |
23,472 |
||
Minority interest |
0 |
(53) |
(47) |
0 |
0 |
||
Profit After Tax less Minority Interest (FRS 3) |
332,795 |
63,606 |
110,654 |
17,758 |
23,472 |
||
Average Number of Shares Outstanding (m) |
163.4 |
163.8 |
155.4 |
152.0 |
155.0 |
||
EPS - normalised ($) |
|
|
2.04 |
0.78 |
0.81 |
0.28 |
0.31 |
EPS - FRS 3 ($) |
|
|
2.04 |
0.39 |
0.71 |
0.12 |
0.15 |
Dividend per share (c) |
60.17 |
10.03 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
100.0 |
98.3 |
90.5 |
76.4 |
79.6 |
||
EBITDA Margin (%) |
93.2 |
79.1 |
68.4 |
29.8 |
31.9 |
||
Operating Margin (before GW and except.) (%) |
93.2 |
79.1 |
68.4 |
29.8 |
31.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
733,468 |
818,949 |
611,827 |
544,953 |
449,057 |
Intangible Assets |
0 |
228,542 |
215,823 |
194,307 |
194,307 |
||
Tangible Assets |
31 |
1,631 |
16,369 |
11,287 |
13,524 |
||
Royalty rights |
399,204 |
402,318 |
349,223 |
312,336 |
224,882 |
||
Other |
334,233 |
186,458 |
30,412 |
27,023 |
16,345 |
||
Current Assets |
|
|
279,731 |
395,147 |
631,296 |
574,243 |
689,596 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
40,120 |
31,183 |
22,646 |
22,646 |
||
Cash |
218,883 |
147,154 |
527,266 |
482,389 |
597,742 |
||
Other |
60,848 |
207,873 |
72,847 |
69,208 |
69,208 |
||
Current Liabilities |
|
|
(36,662) |
(130,315) |
(193,109) |
(50,963) |
(50,963) |
Creditors |
(394) |
(7,016) |
(19,785) |
(9,954) |
(9,954) |
||
Short term borrowings |
(24,966) |
0 |
(126,066) |
0 |
0 |
||
Other |
(11,302) |
(123,299) |
(47,258) |
(41,009) |
(41,009) |
||
Long Term Liabilities |
|
|
(283,485) |
(329,649) |
(204,124) |
(210,764) |
(210,764) |
Long term borrowings |
(232,835) |
(232,443) |
(117,415) |
(123,601) |
(123,601) |
||
Other long term liabilities |
(50,650) |
(97,206) |
(86,709) |
(87,163) |
(87,163) |
||
Net Assets |
|
|
693,052 |
754,132 |
845,890 |
857,470 |
876,927 |
Minority Interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholder equity |
|
|
693,052 |
754,132 |
845,890 |
857,470 |
876,927 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
301,465 |
101,718 |
40,624 |
1,023 |
9,699 |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(9) |
(109,963) |
(1,297) |
(2,298) |
(1,588) |
||
Acquisitions/disposals |
(71,593) |
13,082 |
128,415 |
77,332 |
102,754 |
||
Financing |
0 |
0 |
0 |
0 |
0 |
||
Dividends |
(98,307) |
(16,583) |
(222) |
0 |
0 |
||
Other |
(8,046) |
(47,629) |
212,592 |
5,513 |
4,488 |
||
Net Cash Flow |
123,510 |
(59,375) |
380,112 |
81,570 |
115,353 |
||
Opening net debt/(cash) |
|
|
160,347 |
38,918 |
85,289 |
(283,785) |
(358,788) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
0 |
||
Other |
(2,081) |
13,004 |
(11,038) |
(6,567) |
(0) |
||
Closing net debt/(cash) |
|
|
38,918 |
85,289 |
(283,785) |
(358,788) |
(474,141) |
Source: Company accounts, Edison Investment Research
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