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Research: Healthcare
PDL BioPharma reported Q119 revenues of $38.9, up 1.0% compared to Q118. Going forward, the company indicated that it would be working intensely to maximize its investment in Evofem, a women’s health company that is preparing to submit an NDA for Amphora, a non-hormonal female contraceptive, in Q419 with a launch expected in H120. The company also announced that it has bought back $80.3m worth of its shares since the beginning of the $100m stock repurchase program announced last September.
Written by
PDL BioPharma |
Q119 results |
Financial update |
Pharma & biotech |
15 May 2019 |
Share price performance
Business description
Next events
Analysts
PDL BioPharma is a research client of Edison Investment Research Limited |
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PDL BioPharma reported Q119 revenues of $38.9, up 1.0% compared to Q118. Going forward, the company indicated that it would be working intensely to maximize its investment in Evofem, a women’s health company that is preparing to submit an NDA for Amphora, a non-hormonal female contraceptive, in Q419 with a launch expected in H120. The company also announced that it has bought back $80.3m worth of its shares since the beginning of the $100m stock repurchase program announced last September.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
320.1 |
200.3 |
0.81 |
0.00 |
3.9 |
N/A |
12/18 |
198.1 |
78.8 |
0.45 |
0.00 |
7.0 |
N/A |
12/19e |
123.5 |
34.7 |
0.21 |
0.00 |
15.0 |
N/A |
12/20e |
125.7 |
37.5 |
0.24 |
0.00 |
13.1 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Investing in Evofem
PDL announced in April that it had entered into a securities purchase agreement with Evofem, a Nasdaq-listed women’s health company that is developing a non-hormonal contraceptive product. PDL will invest up to $60m in two tranches of $30m each, the first of which is already invested and the second expected to be invested by 10 June 2019 at the company’s discretion. Assuming the investment of both tranches, PDL will own approximately 29% of Evofem and will also have a board seat to help actively manage its investment and provide assistance/expertise.
Evofem targeting 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. Almost half of those use either short- or long-acting hormonal oral contraceptive pills or devices such as a ring or a patch. According to EvaluatePharma, $6.5bn worth of hormonal contraceptives were sold in 2018.
Tekturna generic launched in the US
The company announced that a generic version of Tekturna was recently launched by Anchen Pharmaceuticals, which is currently competing with the branded version of the product and the authorized generic that was launched by Prasco Laboratories in March. With this in mind, the company plans to terminate all promotional efforts in H219.
Valuation: $789m or $6.54 per share
We have adjusted our valuation from $816m or $6.37 per basic share to $789m or $6.54 per share. The decrease in value is mainly due to a lower net cash level, while the higher per-share value is due to the lower number of shares outstanding as a result of the share repurchase program.
Earnings update
PDL reported Q119 revenues of $38.9m, up 1.0% compared to Q118 and down 13.8% sequentially, partially due to chargeback payments associated with the Assertio royalties. Noden net revenue was $20m in the quarter, up 9.2% compared to Q118 and up 6.4% sequentially. The strength is mainly due to the US business as it also includes some stocking of the authorized generic ($2.8m out of the $12.2m in US sales was stocking at partner Prasco Laboratories). In total, $5.4m (44%) of US Tekturna sales were associated with the authorized generic. With both the generic from Anchen and authorized generic competing with branded Tekturna, the company has decided to eliminate all promotional activities associated with the product in the second half of this year to help maintain profitability (Noden generated $5.6m in profits in the quarter). Also, as a reminder, Lee’s Pharmaceutical Holdings, which has licensed the rights to Tekturna/Rasilez from Noden for China, Hong Kong, Macau and Taiwan, is on track to launch in China imminently. Our current forecasts do not include any revenues for Tekturna/Rasilez in China, so any meaningful sales there could provide additional upside.
Additionally, LENSAR generated revenues of $6.7m in Q418, up 35.0% compared to last year. However, profitability deteriorated slightly with a quarterly loss of $1.2m compared to a $0.6m loss in the same quarter last year.
Evofem
As a reminder, PDL recently announced that it had entered into a securities purchase agreement with Evofem, a Nasdaq-listed women’s health company that is developing a non-hormonal contraceptive product. PDL will invest up to $60m in two tranches of $30m each, with the first being invested in April and the second by 10 June 2019. Both tranches will have the same terms, a purchase price of $4.50 per share (a 26% premium to Evofem’s closing price on the day before the investment was announced, although approximately a 30% discount to the company’s current stock price) for 6,666,667 shares, with 1,666,667 warrants and an exercise price of $6.38 per share. Additionally, Woodford, which owns 9.6m shares (~34% of the company pre-PDL deal) of the company, and Invesco, which owns 9.2m shares (~33% of the company pre-PDL deal), have an opportunity to invest up to $10m each on the same terms as PDL (according to the agreement, if either declines to invest, the other partners, including PDL, could invest the non-participating investor’s portion at the same terms). Following the investment of the first tranche, PDL owns approximately 19% of the company and will own 29% of Evofem, assuming it, Woodford and Invesco all exercise their rights to invest in the second tranche. PDL will receive a board seat so that it can actively manage and assist Evofem, with regards to both business development and commercialization.
The company had previously indicated that it was looking at pre-commercial opportunities, with which this fits in well. The structure is especially appealing as it does provide the promise of substantial returns, but with the downside capped at either $30m or $60m if Evofem does not live up to expectations. However, PDL indicated that future deals may have different structures based on what is optimal in that instance.
Valuation
We have adjusted our valuation from $816m or $6.37 per basic share to $789m or $6.54 per share. The decrease in value is mainly due to a lower net cash level, while the per-share value has increased as the company is in the middle of a $100m share repurchase program, which was announced last September, and has so far deployed $80m of that to buy back 24.5m shares (it now has 8.1m fewer shares than at the time of the Q418 earnings release). We have also increased the Lensar NPV by $5.4m due to a slightly higher revenue run rate. Additionally, we have lowered Noden’s value by $4.2m due to advancing the NPV and as the cash flows of the business post-generic competition will be much lower.
Exhibit 1: PDL valuation table
Royalty/note |
Type |
Expiration year |
PDL balance sheet carrying value ($m) |
NPV ($m) |
Assertio (formerly Depomed) |
Royalty on Glumetza and other products |
2024 |
$263.8 |
$271.1 |
VB |
Royalty on Spine Implant |
Undisclosed |
$14.2 |
$14.7 |
University of Michigan |
Royalty on Cerdelga |
2022 |
$25.1 |
$12.8 |
Wellstat |
Note (Impaired) |
Unknown |
$50.2 |
$50.2 |
Hyperion |
Note (Impaired) |
Unknown |
$1.2 |
$1.2 |
Lensar |
Equity |
N/A |
$61.6 |
|
AcelRx |
Royalty on Zalviso |
2027 |
$72.5 |
$73.7 |
Careview |
Note (limpaired) |
2022 |
$11.5 |
$11.5 |
Noden |
Equity |
N/A |
$36.4 |
$15.7 |
Kybella |
Royalty |
Unknown |
$0.6 |
$0.7 |
Evofem |
Equity |
N/A |
N/A |
$89.0 |
Total |
|
|
|
$602 |
Net cash (Q119 less Evofem investment) ($m) |
$186.3 |
|||
Total firm value ($m) |
$789 |
|||
Total basic shares (m) |
120.7 |
|||
Value per basic share ($) |
$6.54 |
|||
Total options |
0.8 |
|||
Total number of shares |
121.4 |
|||
Diluted value per share ($) |
$6.49 |
|||
Source: Edison Investment Research
Financials
We have made minor adjustments to our revenue estimates, increasing them by $1.0m in FY19 and $1.2m in FY20 mainly due to slightly higher Lensar expectations. We have also increased our SG&A estimates from $35.2m to $49.7m for FY19 and from $36.6m to $51.6m for FY20 as SG&A spending has rebounded from Q418 and we are assuming a higher run rate going forward. The company ended the quarter with $366.3m in cash ($216.3m in net cash). Taking into account the $30m invested in Evofem, the net cash level is $186.3m.
Exhibit 2: Financial summary
$000s |
2017 |
2018 |
2019e |
2020e |
||
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
320,060 |
198,110 |
123,545 |
125,697 |
Cost of Sales |
(30,537) |
(48,460) |
(31,629) |
(29,814) |
||
Gross Profit |
289,523 |
149,650 |
91,917 |
95,883 |
||
General & Administrative |
(63,324) |
(62,559) |
(49,655) |
(51,641) |
||
EBITDA |
|
|
218,818 |
84,136 |
39,047 |
41,027 |
Operating Profit (before amort. and except.) |
|
|
218,818 |
84,136 |
39,047 |
41,027 |
Intangible Amortisation |
(24,689) |
(15,831) |
(6,288) |
(6,288) |
||
Other |
0 |
0 |
0 |
0 |
||
Exceptionals |
(349) |
(118,899) |
0 |
0 |
||
Operating Profit |
193,780 |
(50,594) |
32,759 |
34,739 |
||
Net Interest |
(18,562) |
(5,328) |
(4,324) |
(3,574) |
||
Other |
9,309 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
200,256 |
78,808 |
34,723 |
37,452 |
Profit Before Tax (FRS 3) |
|
|
184,527 |
(55,922) |
28,435 |
31,164 |
Tax |
(73,826) |
(12,937) |
(8,486) |
(6,545) |
||
Deferred tax |
(0) |
(0) |
(0) |
(0) |
||
Profit After Tax (norm) |
126,430 |
65,871 |
26,237 |
30,908 |
||
Profit After Tax (FRS 3) |
110,701 |
(68,859) |
19,949 |
24,620 |
||
Minority interest |
(47) |
0 |
0 |
0 |
||
Profit After Tax less Minority Interest (FRS 3) |
110,654 |
(68,859) |
19,949 |
24,620 |
||
Average Number of Shares Outstanding (m) |
155.4 |
145.7 |
123.6 |
128.5 |
||
EPS - normalised ($) |
|
|
0.81 |
0.45 |
0.21 |
0.24 |
EPS - FRS 3 ($) |
|
|
0.71 |
(0.47) |
0.16 |
0.19 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Gross Margin (%) |
90.5 |
75.5 |
74.4 |
76.3 |
||
EBITDA Margin (%) |
68.4 |
42.5 |
31.6 |
32.6 |
||
Operating Margin (before GW and except.) (%) |
68.4 |
42.5 |
31.6 |
32.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
602,680 |
446,519 |
374,177 |
324,271 |
Intangible Assets |
215,823 |
51,319 |
49,746 |
49,746 |
||
Tangible Assets |
7,222 |
7,387 |
7,236 |
8,493 |
||
Royalty rights |
349,223 |
376,510 |
274,211 |
223,048 |
||
Other |
30,412 |
11,303 |
42,984 |
42,984 |
||
Current Assets |
|
|
640,443 |
517,217 |
517,022 |
614,721 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
31,183 |
21,648 |
15,739 |
15,739 |
||
Cash |
527,266 |
394,590 |
405,800 |
503,499 |
||
Other |
81,994 |
100,979 |
95,483 |
95,483 |
||
Current Liabilities |
|
|
(193,109) |
(52,470) |
(43,318) |
(43,297) |
Creditors |
(19,785) |
(13,142) |
(12,430) |
(12,430) |
||
Short term borrowings |
(126,066) |
0 |
0 |
0 |
||
Other |
(47,258) |
(39,328) |
(30,888) |
(30,867) |
||
Long Term Liabilities |
|
|
(204,124) |
(181,487) |
(186,431) |
(186,431) |
Long term borrowings |
(117,415) |
(124,644) |
(126,567) |
(126,567) |
||
Other long term liabilities |
(86,709) |
(56,843) |
(59,864) |
(59,864) |
||
Net Assets |
|
|
845,890 |
729,779 |
661,450 |
709,264 |
Minority Interests |
0 |
0 |
0 |
0 |
||
Shareholder equity |
|
|
845,890 |
729,779 |
661,450 |
709,264 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
40,624 |
(13,425) |
(2,363) |
(3,370) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(1,297) |
(4,523) |
(168) |
(1,257) |
||
Acquisitions/disposals |
128,415 |
57,969 |
89,100 |
102,325 |
||
Financing |
0 |
0 |
0 |
0 |
||
Dividends |
(222) |
(48) |
0 |
0 |
||
Other |
212,592 |
(46,202) |
(75,359) |
0 |
||
Net Cash Flow |
380,112 |
(6,229) |
11,210 |
97,699 |
||
Opening net debt/(cash) |
|
|
85,289 |
(283,785) |
(269,946) |
(279,233) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Exchange rate movements |
0 |
0 |
0 |
0 |
||
Other |
(11,038) |
(7,610) |
(1,923) |
(0) |
||
Closing net debt/(cash) |
|
|
(283,785) |
(269,946) |
(279,233) |
(376,932) |
Source: Edison Investment Research, PDL BioPharma reports
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Research: Financials
OTC Markets Group’s first quarter figures were affected by the one-off costs of its headquarters move and investment in additional headcount and IT infrastructure, in part supporting incremental acquisitions. These investments are set to support future growth and, following more recent share price weakness and despite a reduction in our EPS estimates, the prospective P/E rating is now below that of peers.