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Research: Healthcare
PDL BioPharma announced that the company is targeting either a complete sale or the monetization of its four key assets by the end of 2020, much faster than the two to three years previously communicated. To this end, the company has enlisted the help of three different advisors, namely Bank of America for the sale of the entire company or the royalty portfolio, Torreya for the sale of Noden and Evofem and SVB Leerink to investigate opportunities for LENSAR. The company will return the value to shareholders in as tax efficient a manner as possible likely via share repurchases or dividends.
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PDL BioPharma |
Accelerating asset monetization |
Financial update |
Pharma & biotech |
30 March 2020 |
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Business description
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PDL BioPharma is a research client of Edison Investment Research Limited |
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PDL BioPharma announced that the company is targeting either a complete sale or the monetization of its four key assets by the end of 2020, much faster than the two to three years previously communicated. To this end, the company has enlisted the help of three different advisors, namely Bank of America for the sale of the entire company or the royalty portfolio, Torreya for the sale of Noden and Evofem and SVB Leerink to investigate opportunities for LENSAR. The company will return the value to shareholders in as tax efficient a manner as possible likely via share repurchases or dividends.
Year end |
Revenue ($m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
198.1 |
78.8 |
0.45 |
0.0 |
6.0 |
N/A |
12/19 |
54.8 |
(65.6) |
(0.60) |
0.0 |
N/A |
N/A |
12/20e |
115.3 |
6.5 |
0.05 |
0.0 |
54.4 |
N/A |
12/21e |
126.0 |
12.2 |
0.09 |
0.0 |
30.2 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Timelines accelerated
The company now plans to either sell itself in its entirety or sell or spin off its assets separately by the end of 2020, a significant acceleration compared to the previous estimate of two to three years. PDL has stated that a major reason for this acceleration was to limit the time that PDL remains a public company as there is significant expense associated with that, which would reduce the amount that could be returned to shareholders.
LENSAR sales up 25% for the year
The LENSAR femtosecond cataract laser business had product revenue of $8.5m in the quarter, up 19% compared to Q418 and up 5% sequentially. For the full year 2019, sales are up 25%. Importantly, procedure volume for the year is up 33% compared to 2018, with over 100,000 procedures worldwide and 13% market share.
Significant Evofem catalyst expected in May
Evofem, a clinical-stage biopharmaceutical company, is developing Phexxi (previously Amphora), a hormone-free contraceptive gel that could address a very large market. According to the Centers for Disease Control and Prevention (CDC), 61.7% of the 60.9 million women aged 15–44 use contraception. Evofem re-submitted its New Drug Application (NDA) for Phexxi and a response from the FDA is expected by 25 May 2020.
Valuation: $689m or $5.57 per share
We have decreased our valuation of PDL from $713m or $5.73 per basic share, to $689m or $5.57 per share. This is mostly the result of lower net cash as well as a reduction in the value of the CareView asset, which the company has almost entirely written down. We will revise our model further as the company progresses through the monetization process.
Q4 results
PDL reported net product revenue (LENSAR and Noden) of $21.0m for the quarter, down 19.2% compared to Q418 due to weakness at Noden as a Tekturna generic has been available in the United States since March. Noden sales of $12.4m were down 33.8% compared to Q418 although slightly up compared to Q319. Additionally, the company has written down the value of the Noden asset to $10.1m, taking a $22.5m charge. The LENSAR femtosecond cataract laser business had product revenue of $8.5m in the quarter, up 18.8% compared to Q418 and up 5.5% sequentially. For the full year 2019, LENSAR sales are up 24.7%. Importantly, procedure volume for the year is up 33% compared to 2018, with over 100,000 procedures worldwide and 13% market share.
Royalty rights were a negative $26.8m for the quarter, mainly due to a $46.3m reduction in the value of the Assertio royalty assets. This reduction is mainly a result of weaker Glumetza sales as well as due to delays in the international launches of some of the other assets in the Assertio portfolio.
PDL reported a net loss of $54.9m for Q419, which includes the $22.5m reduction in the value of Noden, the $46.3m reduction in the value of the Assertio assets and a $10.8m impairment charge on the CareView note. These one-time charges were partially offset by an $18.3m increase in the value of the Evofem asset due to an increase in its stock price during the period.
Valuation
We have not made any changes to our valuation approach based on the company’s strategy to divest/monetize assets or sell the company, but will do so as asset sales occur. We have decreased our valuation of PDL from $713m or $5.73 per basic share to $689m or $5.57 per share. The decrease is mostly the result of lower net cash and a reduction in the value in our model for the CareView asset (which was almost entirely written down by the company). There were smaller reductions in the values for the Viscogliosi Brothers (VB) and University of Michigan assets. The reductions were partly offset by an increase in the value of LENSAR. We are not reducing our estimated values for Noden and Assertio as our model already reflects some of the recent weakness in operating results. We will change our model further as the company progresses through the monetization process.
Exhibit 1: PDL valuation table
Royalty/note |
Type |
Expiration year |
PDL balance sheet carrying value ($m) |
NPV |
Assertio (formerly Depomed) |
Royalty on Glumetza and other products |
2024 |
$218.7 |
$216.3 |
VB |
Royalty on Spine Implant |
Undisclosed |
$13.6 |
$12.6 |
University of Michigan |
Royalty on Cerdelga |
2022 |
$20.4 |
$10.6 |
Wellstat |
Note (impaired) |
Unknown |
$50.2 |
$50.2 |
Hyperion |
Note (impaired) |
Unknown |
$1.2 |
$1.2 |
LENSAR |
Equity |
N/A |
$68.8 |
|
AcelRx |
Royalty on Zalviso |
2027 |
$13.0 |
$10.2 |
CareView |
Note (impaired) |
2022 |
$0.7 |
$0.7 |
Noden |
Equity |
N/A |
$10.1 |
$14.7 |
Kybella |
Royalty |
Unknown |
$0.6 |
$0.7 |
Evofem |
Equity |
N/A |
$82.3 |
$153.2 |
Total |
|
|
|
$539 |
Net cash (Q419 + debt transaction and stock buyback) ($m) |
$149.9 |
|||
Total firm value ($m) |
$689 |
|||
Total basic shares (m) |
123.6 |
|||
Value per basic share ($) |
$5.57 |
|||
Total options (m) |
0.0 |
|||
Total number of shares (m) |
123.6 |
|||
Diluted value per share ($) |
$5.57 |
|||
Source: Edison Investment Research
Financials
PDL ended Q419 with $193.5m in cash. Subsequent to the end of the quarter, the company repurchased approximately 3.8m shares for $12.9m and repurchased $13.7m worth of debt. Following the note repurchases, PDL is left with $17.0m in debt. We continue to believe PDL has enough capital to execute on the remainder of the repurchase program and will be able to initiate additional repurchase programs (or dividends) once assets are monetized successfully.
We have not changed our 2020 estimates markedly following Q419 earnings and are introducing 2021 estimates (though these do not include any asset sales as it would be difficult to know the timing and form of these upcoming transactions). For 2021, we are modelling $126.0m in sales, an increase of 9.3% over our estimated 2020 revenue number. We expect normalized profits of $12.2m, an increase from the $6.5m we expect in 2020.
Exhibit 2: Financial summary
$000s |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
198,110 |
54,757 |
115,251 |
125,952 |
Cost of Sales |
(48,460) |
(53,619) |
(53,106) |
(56,522) |
||
Gross Profit |
149,650 |
1,138 |
62,146 |
69,430 |
||
General & Administrative |
(62,559) |
(54,080) |
(56,243) |
(58,493) |
||
EBITDA |
|
|
84,136 |
(60,250) |
2,194 |
7,229 |
Operating Profit (before amort. and except.) |
|
|
84,136 |
(60,250) |
2,194 |
7,229 |
Intangible Amortisation |
(15,831) |
(6,306) |
(6,306) |
(6,306) |
||
Other |
0 |
0 |
0 |
0 |
||
Exceptionals |
(118,899) |
(33,258) |
0 |
0 |
||
Operating Profit |
(50,594) |
(99,814) |
(4,112) |
923 |
||
Net Interest |
(5,328) |
(5,374) |
4,295 |
4,958 |
||
Other |
0 |
31,448 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
78,808 |
(65,624) |
6,490 |
12,187 |
Profit Before Tax (FRS 3) |
|
|
(55,922) |
(73,740) |
184 |
5,881 |
Tax |
(12,937) |
3,049 |
(39) |
0 |
||
Deferred tax |
(0) |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
65,871 |
(62,575) |
6,451 |
12,187 |
||
Profit After Tax (FRS 3) |
(68,859) |
(70,691) |
145 |
5,881 |
||
Minority interest |
0 |
280 |
0 |
0 |
||
Profit After Tax less Minority Interest (FRS 3) |
(68,859) |
(70,411) |
145 |
5,881 |
||
Average Number of Shares Outstanding (m) |
145.7 |
118.6 |
124.4 |
129.4 |
||
EPS - normalised ($) |
|
|
0.45 |
(0.60) |
0.05 |
0.09 |
EPS - FRS 3 ($) |
|
|
(0.47) |
(0.59) |
0.00 |
0.05 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
75.5 |
2.1 |
53.9 |
55.1 |
||
EBITDA Margin (%) |
42.5 |
-110.0 |
1.9 |
5.7 |
||
Operating Margin (before GW and except.) (%) |
42.5 |
-110.0 |
1.9 |
5.7 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
446,519 |
402,224 |
358,934 |
324,421 |
Intangible Assets |
51,319 |
23,298 |
23,298 |
23,298 |
||
Tangible Assets |
7,387 |
5,520 |
6,673 |
7,932 |
||
Royalty rights |
376,510 |
266,196 |
221,753 |
185,981 |
||
Other |
11,303 |
107,210 |
107,210 |
107,210 |
||
Current Assets |
|
|
517,217 |
313,895 |
345,632 |
404,840 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
21,648 |
13,552 |
13,552 |
13,552 |
||
Cash |
394,590 |
193,451 |
225,188 |
284,396 |
||
Other |
100,979 |
106,892 |
106,892 |
106,892 |
||
Current Liabilities |
|
|
(52,470) |
(45,693) |
(45,676) |
(45,676) |
Creditors |
(13,142) |
(17,370) |
(17,370) |
(17,370) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Other |
(39,328) |
(28,323) |
(28,306) |
(28,306) |
||
Long Term Liabilities |
|
|
(181,487) |
(77,148) |
(77,148) |
(77,148) |
Long term borrowings |
(124,644) |
(27,250) |
(27,250) |
(27,250) |
||
Other long term liabilities |
(56,843) |
(49,898) |
(49,898) |
(49,898) |
||
Net Assets |
|
|
729,779 |
593,278 |
581,741 |
606,437 |
Minority Interests |
0 |
0 |
0 |
0 |
||
Shareholder equity |
|
|
729,779 |
593,278 |
581,741 |
606,437 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(13,425) |
(32,443) |
(10,299) |
(11,077) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(4,523) |
(2,463) |
(1,153) |
(1,260) |
||
Acquisitions/disposals |
57,969 |
79,272 |
69,788 |
71,545 |
||
Financing |
0 |
0 |
0 |
0 |
||
Dividends |
(48) |
0 |
0 |
0 |
||
Other |
(46,202) |
(143,190) |
(26,600) |
0 |
||
Net Cash Flow |
(6,229) |
(98,824) |
31,736 |
59,208 |
||
Opening net debt/(cash) |
|
|
(283,785) |
(269,946) |
(166,201) |
(197,938) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
||
Other |
(7,610) |
(4,921) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(269,946) |
(166,201) |
(197,938) |
(257,146) |
Source: company accounts, Edison Investment Research
|
|
Research: Financials
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