On May 7, 2020 PDL BioPharma, Inc. ("PDL" or "the Company") (Nasdaq: PDLI) reported financial results for the three months ended March 31, 2020 and provides a business update (Press release, PDL BioPharma, MAY 7, 2020, View Source [SID1234557280]):
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In March 2020, the Company announced that its Board of Directors (the "Board") approved a Plan of Complete Liquidation and passed a resolution to seek stockholder approval at its next Annual Meeting of Stockholders to dissolve the Company under Delaware state law in the event the Board concludes that the whole Company sale process is unlikely to maximize the value that can be returned to the stockholders. The Company has not set a definitive timeline to file for dissolution and intends to pursue its monetization strategy in a disciplined and cost-effective manner seeking to maximize returns to stockholders. The Company recognizes, however, that accelerating the timeline, while continuing to seek to optimize asset value, could increase returns to stockholders due to reduced general and administrative ("G&A") expenses as well as potentially providing faster returns to stockholders. While the Company cannot provide a definitive timeline for the liquidation process, it has been targeting the end of 2020 for completing the monetization of its key assets. However, the Company recognizes that the duration and extent of the public health issues related to the COVID-19 pandemic make it possible, and perhaps probable, that the timing may be delayed. As announced previously, the Company has engaged financial advisors and initiated processes either to sell these assets separately or to transact the Company as a whole.
"We continue to execute on the strategy of monetizing our assets to unlock the full value of the company for our stockholders," said Dominique Monnet, president and CEO of PDL. "Our plan is to follow a disciplined approach with a focus on maximizing net proceeds. We remain confident in the high quality of our assets, and we believe that they are attractive acquisition targets.
"Earlier this week we announced Board of Director approval for a distribution of all of PDL’s shares of Evofem Biosciences common stock via a special one-time dividend to PDL stockholders as our first distribution under the Plan of Complete Liquidation," he added "We previously stated the ambitious goal of completing the monetization of our key assets by the end of 2020. While we are encouraged by our progress, we recognize that the impact of the COVID-19 pandemic on our assets and the businesses of potential buyers of those assets could cause some delays, which makes it possible, and perhaps probable, that the timing of the sale or sales may be delayed. Again, our intent is to pursue monetization in a disciplined and cost-effective manner and to distribute the net proceeds to stockholders in a tax-efficient manner in the form of share repurchases and dividends, or by other means."
Discontinued Operations Classified as Assets Held for Sale
As a result of these decisions and the actions put in place in the first quarter of 2020, at March 31, 2020 the assets held for sale and discontinued operations criteria were met for the Company’s royalty assets and for Noden Pharma, its pharmaceutical segment. The royalty assets are a component of the Income Generating Assets segment.
During the period in which a component meets the assets held for sale and discontinued operations criteria, an entity must present the assets and liabilities of the discontinued operation separately in the asset and liability sections of the balance sheet for the current and comparative reporting periods. The prior period balance sheet is reclassified for the held for sale items. For statements of operations, the current and prior periods report the results of operations of the component in discontinued operations. While the current period and prior period are presented herein on a comparative basis in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the presentation has changed from the reporting of GAAP financial results in our fourth quarter 2019 earnings release.
First Quarter Financial Highlights
Total revenues were $6.0 million, consisting primarily of LENSAR product revenue.
LENSAR revenues were $6.0 million, a decrease of 11% over the prior-year period, with procedure volume declining 6%.
Net cash from all royalty rights was $13.6 million, up 8% from $12.6 million for the prior-year period.
U.S. market share for branded Tekturna and the authorized generic of Tekturna of approximately 68% at March 31, 2020 declined from 73% as of December 31, 2019.
GAAP net loss was $31.7 million. Non-GAAP net loss was $6.7 million. A reconciliation of GAAP to non-GAAP financial results can be found in Table 4 at the end of this news release.
Revenue Highlights
Total revenues for the first quarter of 2020 were $6.0 million and consisted primarily of LENSAR product revenue.
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Product revenue from LENSAR was $6.0 million, an 11% decrease from the first quarter of 2019. LENSAR procedure volume for the first quarter of 2020 declined 6% from the prior-year period, primarily due to lower system sales and procedures driven by the negative impact of the COVID-19 pandemic and the associated deferral of elective medical procedures, primarily in South Korea and China. While LENSAR U.S. operating results for the first quarter of 2020 were not impacted as significantly by the COVID-19 pandemic, beginning in late March and into the second quarter of 2020 the pandemic resulted in the cancellation of practically all elective cataract surgeries. LENSAR operating results are expected to improve as elective medical procedures gradually open throughout the remainder of 2020.
Operating Expense Highlights
Operating expenses from continuing operations of the Company include G&A expenses for corporate overhead as these costs have historically not been allocated to individual segments.
Operating expenses for the first quarter of 2020 were $37.9 million, a $23.0 million increase from the first quarter of 2019. The increase was primarily a result of an acceleration of equity awards and the accrual for cash severance and retention payments under our wind-down retention plan totaling $18.7 million, and for increased professional service costs. The vesting of equity awards was accelerated when the Board approved a Plan of Complete Liquidation in February 2020 as this action constituted a change in control.
There were decreases in cost of product revenue and sales and marketing expenses in our Medical Devices segment due to a decline in revenue, while G&A and research and development expenses reflected modest increases.
Net loss from continuing operations for the first quarter of 2020 was $31.8 million, a $23.3 million increase from the first quarter of 2019.
Discontinued Operations Highlights
Discontinued operations consist of the following items:
Net royalty revenues from acquired royalty rights, which include cash royalties received and a change in fair value of the royalty rights assets, were $9.4 million compared with $12.3 million in the prior-year period. The decrease is primarily related to the anticipated decrease in fair value of the royalty rights for the Type 2 diabetes products acquired from Assertio Therapeutics. PDL received $13.6 million in net cash from all its royalty rights in the first quarter of 2020, up from $12.6 million in the prior-year period. See Table 3 for a rollforward of royalty assets for the first quarter of 2020 compared with the comparable period in 2019.
The asset held for sale classification requires the Company to record the estimated cost to sell the asset as a deduction to the carrying value of the asset. In the first quarter of 2020, the Company recorded $6.0 million as the estimated cost to sell the royalty assets.
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Product revenue from Noden was $15.0 million compared with $20.0 million in the prior-year period. Revenues for the U.S. and the rest of the world were $3.9 million and $11.1 million, respectively, compared with $12.2 million and $7.8 million, respectively, in the prior-year period. The decline in U.S. revenue is primarily a result of the launch of an authorized generic of Tekturna as well as the launch of a third-party generic form of aliskiren in March 2019. U.S. market share for branded Tekturna and authorized generic of Tekturna of approximately 68% declined from the market share of 73% as of December 31, 2019.
In the first quarter of 2020, the Company recorded $1.9 million as the estimated cost to sell Noden.
Net loss from discontinued operations for the first quarter of 2020 was $0.2 million, a $15.3 million decrease from the first quarter of 2019. The decrease was primarily due to the estimated cost to sell the assets classified as held for sale of $7.9 million and the write down of Noden to reflect fair value upon its reclassification as an asset held for sale.
Other Financial Highlights
As of March 31, 2020, the Company’s investment in Evofem had a market value of $82.6 million, a decrease of $13.8 million from December 31, 2019. The Company acquired its investment in Evofem in two tranches in the second quarter of 2019, for a total of $60.0 million.
On a GAAP basis, the net loss attributable to PDL’s stockholders for the first quarter of 2020 was $31.7 million, or $0.26 per share, compared with GAAP net income attributable to PDL’s stockholders of $6.7 million, or $0.05 per diluted share, for the prior-year period. Non-GAAP net loss attributable to PDL’s stockholders was $6.7 million for the first quarter of 2020, compared with non-GAAP net income of $11.9 million for the first quarter of 2019.
PDL had cash and cash equivalents from continuing operations of $125.5 million as of March 31, 2020, compared with $169.0 million as of December 31, 2019.
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The $43.5 million reduction was primarily the result of common stock repurchases of $19.2 million, the net cash used for the repurchase of convertible debt of $18.0 million and net cash used in operations of $14.6 million. This reduction was partially offset by the proceeds from royalty rights of $13.6 million.
Stock Repurchase Programs
In January 2020, PDL began repurchasing shares of its common stock in the open market pursuant to the
10b5-1 program entered into in December 2019. In the first quarter of 2020, the Company acquired 6.3 million shares for $20.3 million, at an average cost of $3.20 per share, including commissions.
Under this same program, in the first quarter of 2020, the Company also repurchased $15.9 million par value of convertible notes.
As of April 30, 2020, the Company had approximately 116.5 million shares of common stock outstanding.
Conference Call and Webcast
PDL will hold a conference call to discuss financial results and provide a business update at 4:30 p.m. Eastern time today. Slides to accompany the conference call will be available in the Investor Relations section of View Source
To access the live conference call via phone, please dial 844-535-4071 from the U.S. and Canada or 706-679-2458 internationally. The conference ID is 7238226. A telephone replay will be available for one week beginning approximately one hour after the completion of the call and can be accessed by dialing 855-859-2056 from the U.S. and Canada or 404-537-3406 internationally. The replay passcode is 7238226.