On August 7, 2019 PDL BioPharma, Inc. ("PDL" or "the Company") (Nasdaq: PDLI) reported financial results for the three and six months ended June 30, 2019 (Press release, PDL BioPharma, AUG 7, 2019, View Source [SID1234538342]):
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Second Quarter and Recent Financial Highlights
Generally Accepted Accounting Principles ("GAAP") net loss attributable to PDL’s shareholders of $4.4 million or $0.04 per share.
Non-GAAP net income attributable to PDL’s shareholders of $12.7 million. A reconciliation of GAAP to non-GAAP financial results can be found in Table 3 at the end of this news release.
Cash and cash equivalents of $284.9 million as of June 30, 2019.
Invested $60.0 million in Evofem Biosciences, Inc. ("Evofem") in the second quarter of 2019.
Investment in Evofem resulted in an unrealized gain of $45.5 million due to the significant increase in Evofem’s stock price at the end of the second quarter of 2019.
Repurchased 8.0 million shares of common stock in the open market during the second quarter of 2019 for $26.0 million. The $100 million share repurchase program was completed in July 2019.
"Our investment in Evofem reflects our strategic shift with a focus on applying our capital and expertise to support the successful development and commercialization of innovative therapeutics by our partner companies," said Dominique Monnet, president and CEO of PDL. "We are transitioning away from our legacy portfolio of passive investments to build a focused portfolio of actively managed companies with exciting revenue growth potential.
"Indeed, a highlight of the second quarter is the completion of our $60 million equity investment in Evofem Biosciences," he added. "We are committed to working with Evofem’s experienced and inspired management team to support the successful launch of its flagship product, Amphora, with the ultimate goal of building the company into a leader in women’s health. This investment is a strong fit with our mission of creating value for shareholders and patients alike by enabling partner companies to maximize the potential of their novel therapeutics that address underserved needs. We expect to have an active role in managing this investment, as I have been appointed to the Evofem board of directors and PDL also has a board observer.
"We see significant revenue potential with Evofem’s investigational non-hormonal, on-demand contraceptive, Amphora, which addresses a considerable market opportunity," Monnet continued. "Evofem is preparing for a U.S. commercial launch in 2020, subject to FDA product approval, and has a well-defined commercial strategy designed to maximize product adoption and a strong balance sheet to support precommercial activities.
"The disappointing non-cash writedown of the fair market value of the AcelRx royalty asset underlines the importance of shifting our business model from passive investments to actively managed assets. We are pleased with the continued performance of our operating companies, Noden and LENSAR, which are both on target with the execution of their 2019 plans. We continue to receive significant royalties from the Assertio royalty asset and have ample cash on hand to execute on our business strategy. We expect cash flow generated by our current business will be in excess of our operational needs, thereby providing additional cash to invest in our future. We continue to review numerous opportunities and consider a broad range of potential transactions to build our portfolio," concluded Monnet.
Revenue Highlights
Total revenues for the second quarter of 2019 of negative $22.5 million included:
Product revenue of $17.8 million, which consisted of $7.4 million of product revenue from the LENSAR Laser System and $10.4 million from the sales of the Company’s branded prescription medicine products Tekturna and Tekturna HCT in the U.S. and Rasilez and Rasilez HCT in the rest of the world, as well as revenue generated from the sale of an authorized generic form of Tekturna in the U.S. (collectively, "the Noden Products").
Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of negative $40.4 million, primarily related to the non-cash AcelRx royalty asset fair value decrease of $60.0 million in the second quarter of 2019.
Following is a brief discussion by business segment:
Medical Devices
The Medical Devices segment consists of revenue derived from the LENSAR Laser System sales made by the Company’s subsidiary, LENSAR, Inc. ("LENSAR") and associated costs of operating the business. LENSAR is a medical device company focused on the next generation femtosecond cataract laser technology for refractive cataract surgery.
Product revenue from the LENSAR Laser System was $7.4 million, a 26% increase from the second quarter of 2018, and a 10% increase from the first quarter of 2019. Revenue generated outside the U.S. accounted for the majority of the increases. LENSAR procedure volume for the three months ended June 30, 2019 increased by 28% from the prior-year period and 7% from the first quarter of 2019.
Pharmaceutical
The Company’s Pharmaceutical segment consists of revenue derived from the Noden Products and associated costs of operating the business.
Product revenue from the Noden Products for the three months ended June 30, 2019 was $10.4 million, compared with $25.9 million in the prior-year period. Sales in the three months ended June 30, 2019 were comprised of $2.7 million in the U.S. and $7.7 million in the rest of the world, compared with $10.4 million and $15.5 million, respectively, in the prior-year period.
The decline in U.S. revenue in the three months ended June 30, 2019 is primarily due to the previously disclosed initial inventory stocking of the authorized generic launched late in the first quarter of 2019, which limited shipments of the authorized generic in the second quarter of 2019.
Sales of branded Tekturna in the U.S. declined due to both the Company’s launch of an authorized generic and the launch of a third-party generic form of aliskiren late in the first quarter of 2019.
Branded Tekturna and the authorized generic of Tekturna maintained a 74% U.S. market share at the end of the second quarter of 2019.
Sales of Rasilez and Rasilez HCT in the rest of the world declined primarily due to the initial inventory stocking in Japan in the second quarter of 2018 and to lower sales volume of Rasilez in other territories.
Income Generating Assets
The Company’s Income Generating Assets segment consists of revenue derived from (i) royalty rights – at fair value, (ii) notes and other long-term receivables, (iii) equity investments and (iv) royalties from issued patents in the U.S. and elsewhere covering the humanization of antibodies ("Queen et al. patents") and associated costs to manage these assets.
PDL recognized negative $40.4 million in revenue from royalty rights – change in fair value, compared with $12.8 million in the prior-year period.
The decrease is primarily related to a non-cash adjustment to the AcelRx royalty asset fair value of $60.0 million.
Due to the slower than expected adoption of Zalviso (sufentanil sublingual tablet system) since it was launched in Europe by Grünenthal relative to the Company’s estimates and the increased variance noted between the Company’s forecast model and actual results in the three months ended June 30, 2019, the Company utilized a third-party expert in the second quarter of 2019 to reassess the market and expectations of the product.
Key findings from the third-party study included: the post-surgical PCA (Patient-Controlled Analgesia) market was smaller than previously forecasted; the price of the product was higher relative to alternative therapies; the product was not being used as a replacement for systemic opioids; and, the design of the delivery device, which is pre-filled for up to three days of treatment, restricted its use for shorter recovery time procedures. The reduction in forecasted sales had a direct impact on both the sales-based royalties and the sales-based milestones expected to be received through 2033.
This decline was partially offset by higher royalty rights – change in fair value from the Assertio royalty asset.
PDL received $20.1 million in net cash royalties from all of its royalty rights in the three months ended June 30, 2019 compared with $19.4 million in the three months ended June 30, 2018.
Total revenues for the first half of 2019 were $16.4 million, compared with $85.1 million for the first half of 2018.
Following is a brief discussion by business segment:
Medical Devices
Product revenue from the LENSAR Laser System for the six months ended June 30, 2019 increased by $3.3 million, or 30%, to $14.1 million from $10.9 million for the six months ended June 30, 2018. Revenue generated outside of the U.S. was responsible for the majority of the increase. LENSAR procedure volume for the six months ended June 30, 2019 increased by 31% from the prior-year period.
Pharmaceutical
Product revenue from the Noden Products for the six months ended June 30, 2019 was $30.4 million, a $13.8 million decrease from $44.2 million for the prior-year period. Sales in the six months ended June 30, 2019 were comprised of $14.9 million in the U.S. and $15.5 million in the rest of the world, compared with $20.9 million and $23.3 million, respectively, in the prior-year period.
The decrease in sales of the Noden Products in the U.S. is due primarily to the launch and related initial inventory stocking of an authorized generic form of Tekturna in the U.S. and the launch of a third-party generic form of aliskiren late in the first quarter of 2019.
The decline in sales in the rest of the world is due to initial inventory stocking in Japan in the second quarter of 2018 and lower sales volume of Rasilez in other territories, in part reflecting additional measures to maximize the product profitability.
Income Generating Assets
Revenue from royalty rights – change in fair value was negative $28.1 million for the first half of 2019, compared with $23.9 million in the prior-year period.
The decrease is primarily related to a non-cash adjustment to the AcelRx royalty asset fair value of $60.0 million.
PDL received $32.7 million in net cash royalties from its royalty rights in the first half of 2019.
Royalties from PDL’s licensees to the Queen et al. patents were less than $0.1 million for the first half of 2019, compared with $4.0 million for the prior-year period, reflecting the runout of the royalties on the sales of Tysabri.
Interest revenue decreased by $1.5 million from the prior-year period due to modifications to the Company’s agreement with CareView Communications which suspended interest payments for the first half of 2019.
Operating Expense Highlights
Operating expenses for the three months ended June 30, 2019 were $27.4 million, a $144.3 million decrease from $171.7 million for the three months ended June 30, 2018. The decrease was primarily a result of:
the $152.3 million impairment of the Noden Products intangible assets in the second quarter of 2018 due to the increased probability of a third-party generic version of aliskiren being launched in the U.S.,
a $4.8 million decline in amortization expense for the Noden intangible assets as a result of the 2018 impairment recorded for these intangible assets,
a $4.0 million, or 28%, decline in general and administrative expenses primarily due to lower professional fees,
a $3.3 million, or 62% decline in sales and marketing expenses, reflecting the cost savings from the change in the Company’s marketing strategy for the Noden Products, and
a $2.2 million decrease in cost of product revenue.
The decrease was partially offset by:
the $22.1 million reduction to the contingent liability in the second quarter of 2018 for future Noden products milestone payments that were less likely to be made with the increased probability of a third-party generic version of aliskiren being launched in the U.S., and
increased research and development expenses of $0.2 million associated with product development in our Medical Devices segment.
Operating expenses for the six months ended June 30, 2019 were $55.8 million, a $150.1 million decrease from $205.9 million for the prior-year period. The decrease was primarily a result of:
the net impact of the above-described impairment of the Noden Products intangible assets in the second quarter of 2018 and related reductions to the Noden Products contingent liability and amortization expense associated with those intangible assets, which, in aggregate, accounted for $139.1 million of the decrease,
a $5.2 million, or 20%, decline in general and administrative expenses primarily due to lower professional fees, and
a $6.1 million, or 56%, decline in sales and marketing expenses, reflecting the cost savings from the change in the Company’s marketing strategy for the Noden Products.
The decrease was partially offset by:
increased research and development expenses of $0.3 million associated with product development in our Medical Devices segment.
Stock Repurchase Programs
In November 2018, PDL began repurchasing shares of its common stock pursuant to the $100.0 million share repurchase program authorized by the Company’s board of directors in September 2018. During the second quarter of 2019, the Company repurchased 8.0 million shares for an aggregate purchase price of $26.0 million.
Subsequent to the close of the second quarter of 2019, the Company repurchased 1.3 million shares of its common stock for a total of $4.1 million. These repurchases concluded this share repurchase program. Under this program, the Company repurchased a total of 31.0 million shares for $100.0 million, at an average cost of $3.22 per share.
Since initiating its first stock repurchase program in March 2017, the Company has repurchased a total of 53.1 million shares for $155.0 million, at an average cost of $2.92 per share.
As of July 30, 2019, the Company had approximately 114.2 million shares of common stock outstanding.
Other Financial Highlights
PDL had cash and cash equivalents of $284.9 million as of June 30, 2019, compared with cash and cash equivalents of $394.6 million as of December 31, 2018.
The $109.7 million reduction in cash and cash equivalents during the first six months of 2019 was primarily the result of common stock repurchases of $71.3 million and the Company’s investment in Evofem of $60.0 million, partially offset by the proceeds from royalty rights.
In August 2019, PDL received a royalty payment from Bausch Health in the amount of $11.3 million for royalties earned on sales of Glumetza for the month of June. This royalty payment will be recognized in the third quarter of 2019.
Conference Call and Webcast Details
PDL will hold a conference call to discuss financial resultsand 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 www.pdl.com.
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 9787426. A telephone replay will be available beginning approximately one hour after the call through one week following 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 9787426.
To access the live and subsequently archived webcast of the conference call, go to the Investor Relations section of www.pdl.com and select "Events & Presentations."