UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, ~~2019~~2020



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For transition period from to

Commission File Number: 000-19756

PDL BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)



Delaware	94-3023969
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

932 Southwood Boulevard

Incline Village, Nevada 89451

(Address of principal executive offices and Zip Code)

(775) 832-8500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	PDLI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ý	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No ý

As of April 30, ~~2019~~2020, there were ~~120,654,947~~116,546,762 shares of the registrant’s Common Stock outstanding.

PDL BIOPHARMA, INC.

~~2019~~2020 Form 10-Q

Table of Contents



		Page
PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (unaudited)	3

	Condensed Consolidated Statements of ~~Income~~Operations for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	3

	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	4

	Condensed Consolidated Balance Sheets atas of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	5

	Condensed Consolidated Statements of Stockholders Equity for the Three Months Ended March 31, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	7

	Notes to the Condensed Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4140

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5356

ITEM 4.	CONTROLS AND PROCEDURES	5457

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	5558

ITEM 1A.	RISK FACTORS	5558

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5660

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5660

ITEM 4.	MINE SAFETY DISCLOSURES	5660

ITEM 5.	OTHER INFORMATION	5660

ITEM 6.	EXHIBITS	5660

SIGNATURES		5762

We own or have rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including PDL BioPharma and the PDL logo, each of which is considered a trademark. All other company names, product names, trade names and trademarks included in this Quarterly Report on Form 10-Q are trademarks, registered trademarks or trade names of their respective owners.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2019			2018			2020			2019
Revenues
Product revenue, net	$	26,686		$	23,324		$	5,985		$	6,726
Royalty rights - change in fair value	12,257			11,091
Royalties from Queen et al. patents	3			2,783			—			3
Interest revenue	—			749
License and other	(33		)	571			10			(33		)
Total revenues	38,913			38,518			5,995			6,696
Operating expenses
Cost of product revenue (excluding intangible asset amortization)	12,810			10,566			2,860			3,800
Amortization of intangible assets	1,572			6,293			302			318
Severance and retention							18,734			—
General and administrative	10,462			11,661			12,869			8,313
Sales and marketing	2,730			5,513			1,250			1,574
Research and development	869			793			1,856			910
Change in fair value of contingent consideration	—			(600		)
Total operating expenses	28,443			34,226			37,871			14,915
Operating income	10,470			4,292
Operating loss from continuing operations							(31,876		)	(8,219		)
Non-operating expense, net
Interest and other income, net	1,874			1,914			513			1,874
Interest expense	(2,955		)	(3,585		)	(474		)	(2,955		)
Equity affiliate - change in fair value							(13,797		)	—
Loss on extinguishment of convertible notes							(606		)	—
Total non-operating expense, net	(1,081		)	(1,671		)	(14,364		)	(1,081		)
Income before income taxes	9,389			2,621
Income tax expense	2,772			1,019
Net income	6,617			1,602
Loss from continuing operations before income taxes							(46,240		)	(9,300		)
Income tax benefit from continuing operations							(14,473		)	(848		)
Net loss from continuing operations							(31,767		)	(8,452		)
Income from discontinued operations before income taxes (including loss on classification as held for sale of $12,761 for the three months ended March 31, 2020)							75			18,689
Income tax expense of discontinued operations							319			3,620
(Loss) income from discontinued operations							(244		)	15,069
Net (loss) income							(32,011		)	6,617
Less: Net loss attributable to noncontrolling interests	(63		)	—			(288		)	(63		)
Net income attributable to PDL’s shareholders	$	6,680		$	1,602
Net (loss) income attributable to PDL’s shareholders							$	(31,723	)	$	6,680

Net income per share
Net (loss) income per share - basic
Net (loss) income from continuing operations							$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations							$	0.00		$	0.12
Net (loss) income attributable to PDL’s shareholders							$	(0.26	)	$	0.05
Net (loss) income per share - diluted
Net (loss) income from continuing operations							$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations							$	0.00		$	0.12
Net (loss) income attributable to PDL’s shareholders							$	(0.26	)	$	0.05
Weighted-average shares outstanding
Basic	$	0.05		$	0.01		122,896			128,799
Diluted	$	0.05		$	0.01		122,896			128,799
Weighted average shares outstanding
Basic	128,799			151,473
Diluted	129,390			152,579

See accompanying notes.

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands)

Three Months Ended
March 31,
2019 2018

Net income $ 6,617
$ 1,602

Other comprehensive income (loss), net of tax

Change in unrealized gains (losses) on investments in available-for-sale securities:
Change in fair value of investments in available-for-sale securities, net of tax —
(578 )
Adjustment for net gains realized and included in net income, net of tax —
(603 )
Total change in unrealized gains on investments in available-for-sale securities, net of tax^(a)
—
(1,181 )
Total other comprehensive income (loss), net of tax —
(1,181 )
Comprehensive income 6,617
421
Less: Comprehensive loss attributable to noncontrolling interests (63 ) —
Comprehensive income attributable to PDL’s shareholders $ 6,680
$ 421

~~______________________________________________~~

^(a) ~~Net of tax of $0 and $(314) for the three months ended March 31, 2019 and 2018, respectively.~~



	Three Months Ended
	March 31,
	2020			2019

Net (loss) income	$	(32,011	)	$	6,617

Other comprehensive loss, net of tax
Total other comprehensive loss, net of tax	—			—
Comprehensive (loss) income	(32,011		)	6,617
Less: Comprehensive loss attributable to noncontrolling interests	(288		)	(63		)
Comprehensive (loss) income attributable to PDL’s shareholders	$	(31,723	)	$	6,680

See accompanying notes.

PDL BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


	March 31,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
	(unaudited)			(Note 1)			(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	366,324		$	394,590		$	125,512		$	168,982
Accounts receivable, net	15,739			21,648			7,865			6,559
Notes receivable	63,056			63,042			52,577			52,583
Inventory	15,547			18,942			10,542			8,061
Assets held for sale (Note 2)							332,748			70,366
Prepaid and other current assets	16,880			18,995			22,012			7,344
Total current assets	477,546			517,217			551,256			313,895
Property and equipment, net	7,110			7,387			3,264			2,560
Royalty rights - at fair value	376,147			376,510
Notes receivables, long-term	648			771
Investment in equity affiliate							70,933			82,267
Notes receivable, long-term							722			827
Intangible assets, net	49,746			51,319			12,884			13,186
Long-term assets held for sale (Note 2)							—			281,087
Other assets	12,336			10,532			20,744			23,384
Total assets	$	923,533		$	963,736		$	659,803		$	717,206

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,430		$	13,142		$	5,229		$	2,675
Accrued liabilities	30,867			39,312			11,959			11,923
Accrued income taxes	21			16
Liabilities held for sale (Note 2)							24,554			31,095
Total current liabilities	43,318			52,470			41,742			45,693
Convertible notes payable	126,567			124,644			13,302			27,250
Liabilities held for sale, long-term (Note 2)							—			120
Other long-term liabilities	59,864			56,843			51,644			50,865
Total liabilities	229,749			233,957			106,688			123,928

Commitments and contingencies (Note 12)
Commitments and contingencies (Note 13)

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding	—			—			—			—
Common stock, par value $0.01 per share, 350,000 shares authorized; 123,817 and 136,513 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	1,238			1,365
Common stock, par value $0.01 per share, 350,000 shares authorized; 120,519 and 124,303 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							1,205			1,243
Additional paid-in capital	(96,869		)	(98,030		)	(66,867		)	(78,875		)
Treasury stock, at cost; 400 and 750 shares held at March 31, 2019 and December 31, 2018, respectively	(1,490		)	(2,103		)
Treasury stock, at cost; 769 and zero shares held at March 31, 2020 and December 31, 2019, respectively							(2,244		)	—
Retained earnings	790,396			828,547			621,131			670,832
Total PDL’s stockholders’ equity	693,275			729,779
Total PDL stockholders’ equity							553,225			593,200
Noncontrolling interests	509			—			(110		)	78
Total stockholders’ equity	693,784			729,779			553,115			593,278
Total liabilities and stockholders’ equity	$	923,533		$	963,736		$	659,803		$	717,206

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

~~(unaudited)~~(Unaudited)

PDL’s Stockholders’ Equity
Common Stock Treasury Stock
Additional
Paid-In
Capital
Retained Earnings
Accumulated
Other Comprehensive
Income (Loss)
Non-controlling Interest Total
Stockholders’ Equity
Shares Amount
Balance at December 31, 2018 136,512,522
$ 1,365
$ (2,103 ) $ (98,030 ) $ 828,547
$ —
$ —
$ 729,779
Issuance of common stock, net of forfeitures 764,785
8
—
(8 ) —
—
—
—
Stock-based compensation expense —
—
—
1,169
—
—
—
1,169
Repurchase and retirement of common stock (13,460,164 ) (135 ) 613
—
(44,831 ) —
—
(44,353 )
Transfer of subsidiary shares to non-controlling interest —
—
—
—
—
—
572
572
Comprehensive income:

Net income —
—
—
—
6,680
—
(63 ) 6,617
Total comprehensive income —
—
—
—
—
—
—
6,617
Balance at March 31, 2019 123,817,143
$ 1,238
$ (1,490 ) $ (96,869 ) $ 790,396
$ —
$ 509
$ 693,784



	PDL Stockholders’ Equity
	Common Stock					Treasury Stock			Additional Paid-In Capital			Retained Earnings			Non-controlling Interest			Total Stockholders’ Equity
	Shares		Amount			Treasury Stock			Additional Paid-In Capital			Retained Earnings			Non-controlling Interest			Total Stockholders’ Equity
Balance at December 31, 2019	124,302,616		$	1,243		$	—		$	(78,875	)	$	670,832		$	78		$	593,278
Issuance of common stock, net of forfeitures	1,781,197		18			—			(18		)	—			—			—
Stock-based compensation expense	—		—			—			14,453			—			—			14,453
Repurchase and retirement of common stock	(5,564,841	)	(56		)	(2,244		)	—			(17,978		)	—			(20,278		)
Transfer of subsidiary shares to non-controlling interest	—		—			—			683			—			100			783
Extinguishment of convertible notes	—		—			—			(3,911		)	—			—			(3,911		)
Capped call transactions	—		—			—			801			—			—			801
Comprehensive loss:
Net loss	—		—			—			—			(31,723		)	(288		)	(32,011		)
Total comprehensive loss	—		—			—			—			—			—			(32,011		)
Balance at March 31, 2020	120,518,972		$	1,205		$	(2,244	)	$	(66,867	)	$	621,131		$	(110	)	$	553,115

Accumulated
Other Comprehensive

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Net loss from continuing operations

See accompanying notes.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of PDL have been prepared in accordance with Generally Accepted Accounting Principles (United States) (“GAAP”) for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments), that management of the Company believes are necessary for a fair ~~presentation~~statement of the periods presented. These interim financial results are not necessarily indicative of results expected for the full fiscal year.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Significant Accounting Policies

~~The Company’s~~Assets Held for Sale

~~Adopted Accounting Pronouncements~~

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,~~ ~~Leases,~~ ~~that supersedes Accounting Standards Codification (“ASC”) 840,~~ ~~Leases. Subsequently, the FASB issued~~reported at

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Policy Elections and Practical Expedients Taken~~

For leases that commenced before the effective date of ASC 842, the Company elected the practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.

~~The Company adopted a policy of expensing short-term leases, defined as 12 months or less, as incurred.~~

The Company has a policy to exclude from the consideration in a lessor contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the Company from a lessee.

The Company determines if an arrangement is a lease or contains an embedded lease at inception. The Company has lease arrangements with lease and non-lease components, which are accounted for separately.

~~Lessee arrangements~~

~~Lessee operating leases are included in Other assets, Accrued liabilities, and Other long-term liabilities in~~ the Company’s Condensed Consolidated Balance ~~Sheet. The Company does not~~Sheets as Assets held for sale and Liabilities held for sale, respectively.

Discontinued Operations

Discontinued operations comprise those activities that were disposed of during the period or which were classified as held for sale at the end of the period, represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes and represents a strategic shift that has or will have ~~lessee financing leases.~~

~~Operating lease ROU assets represent~~a major effect on the Company’s ~~right to use an underlying asset for the lease term~~operations and ~~lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets~~financial results. The profits and ~~liabilities~~losses are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable at lease inception. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s remaining lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis as operating expense in the Condensed Consolidated Statements of Income over the lease term.

~~Lessor arrangements~~

~~The Company leases medical device equipment to customers in both operating lease and sales-type lease arrangements generated from its Medical Devices segment.~~

For sales-type leases, the Company derecognizes the carrying amount of the underlying asset and capitalizes the net investment in the lease, which consists of the total minimum lease payments receivable from the lessee, at lease inception. The Company does not estimate an unguaranteed residual value of the equipment at lease termination because the equipment transfers to the lessee upon completion of the lease. Selling profit or loss is recognized at lease inception. Initial direct costs are recognized as an expense, unless there is no selling profit or loss. If there is no selling profit or loss, initial direct costs are deferred and recognized over the lease term. The Company recognizes interest income in Interest and other income, netpresented on the Condensed Consolidated Statements of ~~Income from~~Operations as discontinued operations. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

Severance and retention

~~For operating leases, rental income is recognized on~~The Wind Down Retention Plan also provides that, consistent with the existing terms of our Amended and Restated 2005 Equity Incentive Plan (the “Equity Plan”), the vesting of all outstanding equity awards held by participants as of the date the Wind Down Retention Plan was adopted will be accelerated upon the earlier of: (i) a ~~straight-line basis over~~termination of the ~~lease term. The cost~~participant’s employment with the Company either by the Company without cause or by the participant for good reason or (ii) the consummation of ~~customer-leased equipment is recorded within Property and equipment, net~~a change in control (as defined in the ~~accompanying Condensed Consolidated Balance Sheets~~Equity Plan) of the Company. In addition, the post-termination exercise period for all outstanding stock options will be extended until their expiration date. In the first quarter of 2020, in connection with the Board adopting the Plan of Liquidation all of the stock options and ~~depreciated over~~restricted stock granted to our employees and executive officers accelerated and vested under the ~~equipment’s estimated useful life. Depreciation~~change in control definition in the Equity Plan, other than certain outstanding awards under the 2016/20 Long-Term Incentive Plan. The expense associated with the ~~leased equipment under operating lease arrangements~~accelerated vesting, totaling $15.7 million is ~~reflected in Cost of product revenue in~~reported as Severance and retention on the ~~accompanying~~Company’s Condensed Consolidated ~~Statements~~Statement of ~~Income. Some~~Operations.

For a discussion of other accounting policies, refer to the Company’s ~~operating leases include a purchase option~~Annual Report on Form 10-K for the ~~customer~~fiscal year ended December 31, 2019. Summarized below are the accounting pronouncements and policies adopted subsequent to ~~purchase the leased asset at the end of the lease~~

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

December 31, 2019 in addition to those described above.

arrangement. The Company manages its risk on its investment in the equipment through pricing and the term of the leases. Lessees do not provide residual value guarantees on leased equipment. Equipment returned to the Company after the initial lease term may be leased or sold to other customers. Initial direct costs are deferred and recognized over the lease term.

~~Leases are generally not cancellable until after an initial term and may or may not require the customer to purchase a minimum number of procedures and consumables throughout the contract term.~~

For lease arrangements with lease and non-lease components where the Company is the lessor, the Company allocates the contract’s transaction price to the lease and non-lease components on a relative standalone selling price basis using the Company’s best estimate of the standalone selling price of each distinct product or service in the contract. Allocation of the transaction price is determined at the inception of the lease arrangement. The Company’s leases primarily consist of leases with fixed lease payments. For those leases with variable lease payments, the variable lease payment is typically based upon use of the leased equipment or the purchase of procedure licenses and consumables used with the leased equipment. Non-lease components are accounted for under ASC 606, ~~Revenue from Contracts with Customers.~~ ~~For additional information regarding ASC 606, see Note 2,~~ ~~Revenue from Contracts with Customers.~~

~~Intangibles-Goodwill and Other~~

~~Recently Issued~~Adopted Accounting Pronouncements

Accounts and Notes Receivable

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. The new guidance modifies disclosure requirements related to fair value measurement. The ~~amendments in~~Company adopted ASU No. 2018-13 ~~are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Implementation~~ on ~~a prospective or retrospective basis varies by specific disclosure requirement. Early~~January 1, 2020. The adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of ASU No. 2018-13 while delaying adoption of the additional disclosures until their effective date. The Company is currently evaluating the impact of this guidancedid not have an effect on the ~~Company’s~~ Consolidated Financial ~~Statement disclosures.~~Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software. The new guidance reduces complexity for the accounting for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The Company adopted ASU No. 2018-15 on January 1, 2020 using the prospective transition option. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. For public companies, the amendments in ASU No. ~~2018-15~~2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2019,~~2020, with early adoption permitted. ~~Implementation should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.~~ The Company is currently evaluating the impact of this guidance on ~~the Company’s~~its Consolidated Financial Statements.

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

2. ~~Revenue from Contracts with Customers~~Discontinued Operations Classified as Assets Held for Sale

~~Nature of Goods and Services~~

~~Pharmaceutical~~statements of operations, the current and prior periods report the results of operations of the components in discontinued operations.

Novartis continued to distribute the Noden Products in all countries outside of the United States until August 31, 2017. Beginning on September 1, 2017, Noden DAC began distributing the Noden Products to select countries outside the United States. The Company presented revenue for Noden Products sold by Novartis outside of the United States on a “net” basis. As of the second quarter of 2018, Noden DAC recognized all revenue on a gross basis. Consequently, sales of branded prescription Noden Products outside the United States are presented on a gross basis in 2019 and a combination of gross and net basis in 2018, depending on the country in which the revenue was recognized and the timing of the marketing transfer from Novartis to Noden DAC.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~and, if over time, the appropriate method~~Components of ~~measuring progress for purposes of recognizing revenue~~amounts reflected in (Loss) income from ~~non-refundable, up-front license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.~~discontinued operations are as follows (in thousands):

The ~~Company offers an extended warranty~~carrying amounts of the major classes of assets reported as “Assets held for sale” consist of the following:



(in thousands)	March 31, 2020			December 31, 2019

Cash and cash equivalents	$	21,305		$	24,469
Accounts receivable, net	8,559			6,993
Inventory	30,083			31,712
Prepaid and other current assets	8,859			7,192
Property and equipment, net	2,908			2,960
Royalty rights - at fair value	262,021			266,196
Intangible assets, net	9,723			10,112
Other assets	1,773			1,819
Less: Estimated remaining cost to sell and fair value adjustment	(12,483		)	—
Total assets held for sale ⁽¹⁾	$	332,748		$	351,453

⁽¹⁾The assets of the disposal groups classified as held for sale are classified as current on the March 31, 2020 Balance Sheet because it is probable that ~~provides additional services beyond~~ the standard warranty. The Company recognizes Product revenue from the sale of extended warranties over the warranty period. Customers have the option of renewing the warranty period, which is considered a new and separate contract.

~~Income Generating Assets~~

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Disaggregation~~The carrying amounts of ~~Revenue~~the major classes of liabilities reported as “Liabilities held for sale” consist of the following:



(in thousands)	March 31, 2020		December 31, 2019

Accounts payable	$	7,432	$	14,695
Accrued liabilities	17,122		16,400
Other long-term liabilities	—		120
Total liabilities held for sale ⁽¹⁾	$	24,554	$	31,215

⁽¹⁾The liabilities of the disposal groups classified as held for sale are classified as current on the March 31, 2020 Balance Sheet because it is probable that the sales will occur and the proceeds will be collected within one year.

3. Investment in Evofem Biosciences, Inc.

As of March 31, 2020, the Company owned approximately 27% of Evofem’s common stock. The Company’s investment in Evofem qualifies for equity method accounting given its percentage ownership in Evofem and the ability to exercise significant influence. The Company elected the fair value method to account for its investment in Evofem as it believes it ~~best depicts how~~better reflects economic reality, the ~~nature, amount, timing~~financial reporting of the investment and ~~uncertainty~~the current value of ~~its revenue~~the asset. Changes in fair value of the Evofem equity investment are presented in Non-operating income (expense), net on the Consolidated Statement of Operations.

Because the mark to market valuation occurs at the end of each quarterly reporting period, changes in fair value will vary based upon the volatility of the stock price. The Evofem equity investment is presented on the Consolidated Balance Sheets as an Investment in equity affiliate and ~~cash flows are affected by economic factors. In~~reflects the ~~following table, revenue is disaggregated by segment and primary geographical market for~~fair value of the equity investment at the end of the reporting period.

Three Months Ended Three Months Ended
March 31, 2019 March 31, 2018
(in thousands) Medical Devices Pharmaceutical Medical Devices Pharmaceutical

Primary geographical markets:
North America $ 2,084
$ 12,138
$ 1,704
$ 10,931
Europe 1,017
5,582
615
5,991
Asia 2,269
2,241
1,114
1,420
Other 119
—
113
—
Total revenue from contracts with customers¹
$ 5,489
$ 19,961
$ 3,546
$ 18,342

¹ The table above does not include lease revenue from the Company’s Medical Devices segment. For the three-month periods ended March 31, 2019 and 2018, revenue accounted for under Topic 842 and 840, Leases,$2.5 million was ~~$1.2 million and $1.4 million, respectively. For additional information, see Note 11,~~ ~~Leases.~~

~~Contract Balances~~related to Evofem warrants.

(in thousands) March 31, 2019 December 31, 2018

Receivables, current and noncurrent, net $ 15,867
$ 20,655
Contract assets $ 5,360
$ 2,595
Contract liabilities $ 5,452
$ 8,938
the SEC at www.sec.gov.

(in thousands) Medical Devices Pharmaceutical Total

Contract assets at December 31, 2018 $ —
$ 2,595
$ 2,595
Payments received —
(26 ) (26 )
Contract assets recognized —
2,791
2,791
Contract assets at March 31, 2019 $ —
$ 5,360
$ 5,360

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

(in thousands) Medical Devices Pharmaceutical Total
��
Contract liabilities at December 31, 2018 $ 1,167
$ 7,771
$ 8,938
Additions 282
3,347
3,629
Amounts recognized into revenue (344 ) (6,771 ) (7,115 )
Contract liabilities at March 31, 2019 $ 1,105
$ 4,347
$ 5,452

~~Transaction Price Allocated to Future Performance Obligations~~

~~3. Net Income per Share~~4. Cash and Cash Equivalents

(in thousands, except per share amounts)

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Anti-Dilutive Effect of Restricted Stock Awards and Stock Options~~



(in thousands)	March 31, 2020		December 31, 2019

Cash⁽¹⁾	$	43,704	$	37,718
Money market funds	81,808		131,264
Total	$	125,512	$	168,982

⁽¹⁾The amounts above exclude $21.3 million and ~~1.2~~$24.5 million ~~shares underlying restricted stock awards, respectively, calculated on a weighted-average basis, from its net income per diluted share calculations because their effect was anti-dilutive.~~

Inventories consisted of the following:



(in thousands)	March 31, 2020		December 31, 2019

Raw materials	$	4,204	$	3,739
Work in process	1,894		1,170
Finished goods	4,444		3,152
Total inventory ⁽¹⁾	$	10,542	$	8,061

No ⁽¹⁾4. The amounts above exclude $30.1 million and $31.7 million of inventory at Noden classified as held for sale as of March 31, 2020 and December 31, 2019, respectively. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

6. Fair Value Measurements

Level 1 – based on quoted market prices in active markets for identical assets and liabilities;

Level 2 – based on observable inputs other than quoted ~~market~~ prices in active markets for ~~similar~~identical assets and liabilities, ~~using~~quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable ~~market-based inputs~~ or ~~unobservable market-based inputs~~can be corroborated by observable market ~~data;~~data for substantially the full term of the assets or liabilities; and

Level 3 – based on unobservable inputs using management’s best estimate and assumptions when inputs are unavailable.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Contingent consideration, current¹

¹ ~~Contingent consideration, current is classified as “Accrued liabilities” on the Condensed Consolidated Balance Sheet.~~


⁽¹⁾	Corporate securities are classified as “Investment in equity affiliate” on the Condensed Consolidated Balance Sheets.


⁽²⁾	Warrants are included in “Other assets” on the Condensed Consolidated Balance Sheets.

There have been no transfers between levels during the periods presented in the table above. The Company recognizes transfers between levels on the date of the event or change in circumstances that caused the transfer.

~~Warrants~~Money Market Funds - The fair values of cash equivalents approximate their carrying values due to the short-term nature of such financial instruments.

Corporate Securities - Corporate securities consists of common stock shares of Evofem, a clinical-stage biopharmaceutical company listed on Nasdaq (EVFM). For additional information on the Evofem investment, see Note 3, Investment in Evofem Biosciences, Inc.

Warrants - Warrants consist ~~primarily~~ of ~~purchased call options~~rights to ~~buy U.S. corporate equity holdings~~purchase shares of common stock in Evofem and ~~derivative assets acquired as part of a note receivable investment.~~CareView Communications, Inc. (“CareView”), see Note 3, Investment in Evofem Biosciences, Inc. and Note 7, Notes and Other Long-Term Receivables. The fair value of the warrants is estimated using recently quoted market prices of the underlying equity security and the Black-Scholes option pricing model.

Royalty Rights - At Fair Value

Assertio (Depomed) Royalty Agreement

On October 18, 2013, the Company entered into the Royalty Purchase and Sale Agreement (the “Assertio Royalty Agreement”) with Assertio Therapeutics, Inc. (formerly known as as Depomed, Inc.), and Depo DR Sub, LLC (together, “Assertio”), whereby the Company acquired the rights to receive royalties and milestones payable on sales of five Type 2 diabetes products licensed by Assertio in exchange for a $240.5 million cash payment. Total consideration was $241.3 million, which was comprised of the $240.5 million cash payment to Assertio and $0.8 million in transaction costs.

The rights acquired include Assertio’s royalty and milestone payments accruing from and after October 1, 2013: (a) from Santarus, Inc. ~~(“Santarus”)~~, which was subsequently acquired by Salix Pharmaceuticals, Inc. ~~(“Salix”)~~, which itself was acquired by Valeant Pharmaceuticals International, Inc. (“Valeant”), which, in July 2018, changed its name to Bausch Health Companies Inc. (“Bausch Health”) with respect to sales of Glumetza (metformin HCL extended-release tablets) in the United States; (b) from Merck & Co., Inc. with respect to sales of Janumet^® XR (sitagliptin and metformin HCL extended-release tablets); (c) from Janssen Pharmaceutica N.V. with respect to potential future development milestones and sales of its approved fixed-dose combination of Invokana^® (canagliflozin, a sodium glucose cotransporter 2 (SGLT2) inhibitor) and extended-release metformin tablets, marketed as Invokamet XR^®; (d) from Boehringer Ingelheim and Eli Lilly (“Lilly”) and Company with respect to potential future development milestones and sales of the investigational fixed-dose combinations of drugs and extended-release metformin subject to Assertio’s license agreement with Boehringer Ingelheim, including its approved products, Jentadueto XR^®

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

and Synjardy XR^®; and (e) from ~~LG Life Sciences and~~ Bausch Health for sales of extended-release metformin tablets in Korea and Canada, respectively.

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~In February 2013, a generic equivalent to Glumetza was approved by the U.S. Food and Drug Administration (“FDA”) and in August 2016, two additional generic equivalents to Glumetza were approved by the FDA. In February 2016, Lupin Pharmaceuticals, Inc., in August 2017, Teva Pharmaceutical Industries Ltd., and in July 2018, Sun Pharmaceutical, Inc. (“Sun”) each launched a generic equivalent approved product. In May 2017, the Company received notification that a subsidiary of Valeant had launched an authorized generic equivalent product in February 2017, and the Company received royalties on such authorized generic equivalent product under the same terms as the branded Glumetza product, retroactive to February 2017. The Company continues to monitor whether the generic competition further affects sales of Glumetza and thus royalties on such sales paid to the Company, and the impact of the launched authorized generic equivalent. Due to the uncertainty around Bausch Health’s marketing and pricing strategy, as well as Sun’s recently launched generic product and limited historical demand data after generic market entrance, the Company may need to further evaluate future cash flows in the event of more rapid reduction or increase in market share of Glumetza and its authorized generic equivalent product and/or a further erosion in net pricing.

The Company determined that its royalty purchase interest in Depo DR Sub, LLC represented a variable interest in a variable interest entity. However, the Company did not have the power to direct the activities of Depo DR Sub, LLC that most significantly impact Depo DR Sub, LLC’s economic performance and was not the primary beneficiary of Depo DR Sub, LLC; therefore, Depo DR Sub, LLC was not subject to consolidation by the Company.

On August 2, 2018, PDL Investment Holding, LLC (“PDLIH”), a wholly-owned subsidiary of the Company and assignee from the Company under the Assertio Royalty Agreement, entered into an amendment to the Assertio Royalty Agreement with Assertio. Pursuant to the amendment, PDLIH purchased all of Assertio’s remaining interests in royalty and milestone payments payable on sales of Type 2 diabetes products licensed by Assertio for $20.0 million. Prior to the amendment, the Assertio Royalty Agreement provided that the Company would have received all royalty and milestone payments due under license agreements between Assertio and its licensees until the Company received payments equal to two times the cash payment it made to Assertio, or approximately $481.0 million, after which all net payments received by Assertio would have been shared equally between the Company and Assertio. Following the amendment, the Assertio Royalty Agreement provides that the Company will receive all royalty and milestone payments due under the license agreements between Assertio and its licensees. ~~The~~After the amendment, the Company ~~has~~ elected to continue to ~~elect~~follow the fair value option and carry the financial asset at fair value.

The Assertio Royalty Agreement terminates on the third anniversary following the date upon which the later of the following occurs: (a) October 25, 2021, or (b) at such time as no royalty payments remain payable under any license agreement and each of the license agreements has expired by its terms.

During the third quarter of 2018, the Company determined that its royalty purchase interest in Depo DR Sub, LLC represented a variable interest in a variable interest entity. However, the Company did not have the power to direct the activities of Depo DR Sub, LLC that most significantly impact Depo DR Sub, LLC’s economic performance and was not the primary beneficiary of Depo DR Sub, LLC; therefore, Depo DR Sub, LLC was not subject to consolidation by the Company. As of March 31, 2019, the Company’s variable interest entity assessment remains unchanged.

As of December 31, 2018, in conjunction with the amendment described above, the Company was provided the power to direct the activities of Depo DR Sub, LLC and is the primary beneficiary of Depo DR Sub, LLC; therefore, Depo DR Sub, LLC is subject to consolidation by the Company. As of March 31, ~~2019,~~2020, Depo DR Sub, LLC did not have any assets or liabilities of value for consolidation with the Company.

The financial asset acquired represents a single unit of accounting. ~~The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected future cash flows to be generated by each licensed product.~~ This financial asset is classified as a Level 3 asset within the fair value hierarchy, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future commercialization for products not yet approved by regulatory agencies outside of the United States. The estimated fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected future cash flows to be generated by each licensed product. The discounted cash flows are based upon expected royalties from sales of licensed products over approximately a nine-year period. The discount rates utilized range from 10% to 24%. Significant judgment is required in selecting appropriate discount rates. At March 31, 2019, an evaluation was performed to assess those rates and general market conditions potentially affecting the fair market value of the financial asset. Should these discount rates increase or decrease by 2.5%, the fair value of the asset could decrease by $22.6 million or increase by $26.8 million, respectively. A third-party expert was engaged to assist management develop its original estimate of the expected future cash flows, which was updated after the acquisition of Assertio’s reversionary interest in August 2018. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from ~~those~~the Company’s estimates. The Company periodically assesses the expected future cash flows and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than the original estimates, the Company will adjust the estimated fair value of the asset. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by ~~$6.6~~$5.4 million, respectively. Significant judgment is required in selecting appropriate discount rates. The discount rates utilized range from 10% to 24%. Should these discount rates increase or decrease by 2.5%, the fair value of the asset could decrease by $17.1 million or increase by $20.0 million, respectively.

When the Company acquired the Assertio royalty rights, Glumetza was marketed by Santarus. In January 2014, Salix acquired Santarus and assumed responsibility for commercializing Glumetza, which was generally perceived to be a positive development because of Salix’s larger sales force and track record in the successful commercialization of therapies. In late 2014, Salix made a number of disclosures relating to an excess of supply at the distribution level of Glumetza and other drugs that it commercialized and the practices leading to this excess of supply which were under review by Salix’s audit committee in relation to the related accounting practices. Because of these disclosures and the Company’s lack of direct access to information as to the levels of inventory of Glumetza in the distribution channels, the Company commenced a review of all public statements by Salix, publicly available historical third-party prescription data, analyst reports and other relevant data sources. The Company also engaged a third-party expert to specifically assess estimated inventory levels of Glumetza in the distribution channel and to ascertain the potential effects those inventory levels may have on expected future cash flows. Salix was acquired by Valeant in early April 2015. In mid-2015, Valeant implemented two price increases on Glumetza. At year-end 2015, a third-party expert was engaged by the Company to assess the impact of the Glumetza price adjustments and near-term market entrance of generic equivalents to the expected future cash flows. Based on the analysis performed, management revised the

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

underlying assumptions used in the discounted cash flow analysis at year-end 2015. In February 2013 a generic equivalent to Glumetza was approved by the U.S. Food and Drug Administration (“FDA”) and in August 2016, two additional generic equivalents to Glumetza were approved to enter the U.S. market. In February 2016, Lupin Pharmaceuticals, Inc., in August 2017, Teva Pharmaceutical Industries Ltd., and in July 2018, Sun Pharmaceutical, Inc. (“Sun”) each launched a generic equivalent approved product.

In May 2017, the Company received notification that a subsidiary of Valeant had launched an authorized generic equivalent product in February 2017, and the Company received royalties on such authorized generic equivalent product under the same terms as the branded Glumetza product, retroactive to February 2017.

In February 2016, at the Company’s request and pursuant to the Assertio Royalty Agreement, Assertio exercised its audit right with respect to Glumetza royalties. The independent auditor engaged to perform the royalty audit completed it in July 2017, and based upon the results of the audit, Assertio, on behalf of the Company, filed a lawsuit on September 7, 2017, against Valeant and one of its subsidiaries, claiming damages for unpaid royalties, fees and interest. Valeant (now Bausch Health), Assertio and the Company entered into a settlement agreement on October 27, 2017 whereby the parties agreed to dismiss the litigation, with prejudice, and Valeant agreed to pay to Assertio $13.0 million. The full amount of the settlement payment was transferred to the Company under the terms of the Assertio Royalty Agreement in November 2017. In October 2018, PDL submitted notice of its intent to exercise its audit right under the Assertio Royalty Agreement with respect to the period beginning January 1, 2016 and ending December 31, 2018.

At September 30, 2018, management re-evaluated, with assistance of a third-party expert, the market share data, the gross-to-net revenue adjustment assumptions and Glumetza demand data. These data and assumptions are based on available but limited information. At March 31, 2019, management updated the expected future cash flows based on the current period demand and supply data of Glumetza and the authorized generic equivalent product launched by Bausch Health.

As of March 31, ~~2019,~~2020, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date ~~including future cash flows~~ for the authorized generic equivalent product. The Company continues to monitor whether the generic competition further affects sales of Glumetza and thus royalties on such sales paid to the Company, and the impact of the launched authorized generic equivalent. Due to the uncertainty around Bausch Health’s marketing and pricing strategy, as well as Sun’s recently launched generic product and limited historical demand data after generic market entrance, the Company may need to further evaluate future cash flows in the event of more rapid reduction or increase in market share of Glumetza and its authorized generic equivalent product and/or a further erosion in net pricing.

On May 31, 2016, the Company obtained a notification indicating that the FDA approved Jentadueto XR for use in patients with Type 2 diabetes. In June 2016, the Company received a $6.0 million milestone upon FDA approval pursuant to the terms of the Assertio Royalty Agreement. The product approval was earlier than initially expected. Based on the FDA approval and anticipated timing of the product launch, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at June 30, 2016. At year-end 2017, management re-evaluated, with assistance of a third-party expert, the cash flow assumptions for Jentadueto XR and revised the discounted cash flow model. As of March 31, 2019, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

On September 21, 2016, the Company obtained a notification indicating that the FDA approved Invokamet XR for use in patients with Type 2 diabetes. The product approval triggered a $5.0 million approval milestone payment to the Company pursuant to the terms of the Assertio Royalty Agreement. Based on the FDA approval and timing of the product launch, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at December 31, 2017.

On December 13, 2016, the Company obtained a notification indicating that the FDA approved Synjardy XR for use in patients with Type 2 diabetes. The product approval triggered a $6.0 million approval milestone payment to the Company pursuant to the terms of the Assertio Royalty Agreement. Based on the FDA approval and the April 2017 launch of Synjardy XR by Boehringer Ingelheim, the Company adjusted the timing of future cash flows and discount rate used in the discounted cash flow model at December 31, 2017.

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

above described royalty streams.

As of March 31, ~~2019,~~2020, the fair value of the asset acquired as reported in “Assets held for sale” on the Company’s Condensed Consolidated Balance Sheet was ~~$263.8~~$210.8 million and the maximum loss exposure was ~~$263.8~~$210.8 million, which reflects an estimated cost to sell of $4.7 million.

Viscogliosi Brothers Royalty Agreement

On June 26, 2014, the Company entered into a Royalty Purchase and Sale Agreement (the “VB Royalty Agreement”) with Viscogliosi Brothers, LLC (“VB”), whereby VB conveyed to the Company the right to receive royalties payable on sales of a spinal implant that has received pre-market approval from the FDA held by VB and commercialized by Paradigm Spine, LLC (“Paradigm Spine”), in exchange for a $15.5 million cash payment, less fees. Paradigm Spine was acquired in March 2019 by RTI Surgical Holdings, Inc.

The royalty rights acquired include royalties accruing from and after April 1, 2014. Under the terms of the VB Royalty Agreement, the Company receives all royalty payments due to VB pursuant to certain technology transfer agreements between VB and Paradigm Spine until the Company has received payments equal to 2.3 times the cash payment made to VB, after which all rights to receive royalties will be returned to VB. VB’s ability to repurchase the royalty right for a specified amount expired on June 26, 2018.

The estimated fair value of the royalty rights at March 31, ~~2019,~~2020, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over approximately a ten-year period. The ~~discount rate utilized was 15.0%.~~estimated fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. The Company periodically assesses the expected future cash flows and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than the original estimates, the Company will adjust the estimated fair value of the asset. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.3 million, respectively. Significant judgment is required in selecting the appropriate discount rate. The discount rate utilized was 15.0%. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $1.3 million or increase by ~~$1.6~~$1.5 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.4 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. At each reporting period, an evaluation is performed to assess those estimates, discount rate utilized and general market conditions affecting fair market value.

As of March 31, ~~2019,~~2020, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

As of March 31, 2020, the fair value of the asset acquired as reported in “Assets held for sale” on the Company’s Condensed Consolidated Balance Sheet was ~~$14.2~~$13.5 million and the maximum loss exposure was ~~$14.2~~$13.5 million, which reflects an estimated cost to sell of $0.3 million.

University of Michigan Royalty Agreement

On November 6, 2014, the Company acquired a portion of all royalty payments of the Regents of the University of Michigan’s (“U-M”) worldwide royalty interest in Cerdelga^® (eliglustat) for $65.6 million pursuant to the Royalty Purchase and Sale Agreement with U-M (the “U-M Royalty Agreement”). Under the terms of the U-M Royalty Agreement, the Company receives 75% of all royalty payments due under ~~U-M’s~~the U-M license agreement with Genzyme Corporation, a Sanofi company (“Genzyme”) until expiration of the licensed patents, excluding any patent term extension. Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme. Cerdelga was approved in the United States in August 2014, in the European Union (“EU”) in January 2015, and in Japan in March 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities. While marketing applications have been approved in the United States, the ~~European Union~~EU and Japan, national pricing and reimbursement decisions are delayed in some countries. A third-party expert is engaged by the Company to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Based on the analysis performed, management revised the underlying assumptions used in the discounted cash flow analysis. As of March 31, 2019, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

discounted cash flow was based upon expected royalties from sales of licensed product over approximately a two-year period. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. An evaluation of those estimates, discount rate utilized and general market conditions affecting fair market value is performed in each reporting period. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.5 million, respectively. Significant judgment is required in selecting the appropriate discount rate. The discount rate utilized was approximately 12.8%. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease or increase by $0.5 million, respectively. As of March 31, 2020, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows.

As of March 31, ~~2019,~~2020, the fair value of the asset acquired as reported in “Assets held for sale” on the Company’s Condensed Consolidated Balance Sheet was ~~$25.1~~$18.6 million and the maximum loss exposure was ~~$25.1~~$18.6 million, which reflects an estimated cost to sell of $0.4 million.

AcelRx Royalty Agreement

On September 18, 2015, the Company entered into a royalty interest assignment agreement (the “AcelRx Royalty Agreement”) with ARPI LLC, a wholly-owned subsidiary of AcelRx Pharmaceuticals, Inc. (“AcelRx”), whereby the Company acquired the rights to receive a portion of the royalties and certain milestone payments on sales of Zalviso^® (sufentanil sublingual tablet system) in the ~~European Union,~~EU, Switzerland and Australia by AcelRx’s commercial partner, Grünenthal, in exchange for a $65.0 million cash payment. Under the terms of the AcelRx Royalty Agreement, the Company receives 75% of all royalty payments and 80% of the first four commercial milestone payments due under AcelRx’s license agreement with Grünenthal until the earlier to occur of (i) receipt by the Company of payments equal to three times the cash payments made to AcelRx and (ii) the expiration of the licensed patents. Zalviso received marketing approval by the European Commission in September 2015. Grünenthal launched Zalviso in the second quarter of 2016 and the Company started to receive royalties in the third quarter of 2016.

As of March 31, ~~2019,~~2020, and December 31, ~~2018,~~2019, the Company determined that its royalty rights under the AcelRx Royalty Agreement represented a variable interest in a variable interest entity. However, the Company does not have the power to direct the activities of ARPI LLC that most significantly impact ARPI LLC’s economic performance and is not the primary beneficiary of ARPI LLC; therefore, ARPI LLC is not subject to consolidation by the Company.

The estimated fair value of the royalty right at March 31, ~~2019~~2020 was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over approximately a ~~fourteen-year~~thirteen-year period. The discount rate utilized was approximately 13.4%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $9.9 million or increase by $12.2 million, respectively. Should the expected royalties increase or decrease by 2.5%, theestimated fair value of the asset ~~could increase or decrease by $1.8 million, respectively.~~is subject to variation should those cash flows vary significantly from the Company’s estimates. An evaluation of those estimates, discount rate utilized and general market conditions affecting fair market valuation is performed for each reporting period. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. ~~The~~Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by $0.3 million, respectively. Significant judgment is ~~subject to variation should those cash flows vary significantly from~~required in selecting the ~~Company’s estimates. At March 31, 2019, management performed an evaluation of those estimates,~~appropriate discount rate. The discount rate utilized ~~and general market conditions to determine~~was approximately 13.4%. Should this discount rate increase or decrease by 2.5%, the fair ~~market~~ value of ~~the~~this asset ~~and such an evaluation is performed for each reporting period.~~could decrease by $1.2 million or increase by $1.4 million, respectively. As of March 31, ~~2019,~~2020, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

As of March 31, ~~2019,~~2020, the fair value of the asset acquired as reported in “Assets held for sale” on the Company’s Condensed Consolidated Balance Sheet was ~~$72.5~~$12.9 million and the maximum loss exposure was ~~$72.5~~$12.9 million, which reflects an estimated cost to sell of $0.3 million.

Kybella Royalty Agreement

On July 8, 2016, the Company entered into a royalty purchase and sales agreement with an individual, whereby the Company acquired that individual’s rights to receive certain royalties on sales of KYBELLA^® by Allergan plc in exchange for a $9.5 million cash payment and up to $1.0 million in future milestone payments based upon product sales targets. The Company started to receive royalty payments during the third quarter of 2016.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The estimated fair value of the royalty right at March 31, ~~2019,~~2020, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as the Company’s valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of a licensed product over approximately a ~~seven-year~~six-year period. The discount rate utilized was approximately 14.4%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by less than $0.1 million or increase by less than $0.1 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by less than $0.1 million, respectively. A third-party expert is engaged to assist

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~management with the development of its estimate of the expected future cash flows, when deemed necessary. The~~estimated fair value of the asset is subject to variation should those cash flows vary significantly from the Company’s estimates. An evaluation of those estimates, discount rate utilized and general market conditions affecting fair market value is performed in each reporting period. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase or decrease by less than $0.1 million, respectively. Significant judgment is required in selecting the appropriate discount rate. The discount rate utilized was approximately 14.4%. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease or increase by less than $0.1 million, respectively.

As of March 31, ~~2019,~~2020, the Company’s discounted cash flow analysis reflects its expectations as to the amount and timing of future cash flows up to the valuation date.

As of March 31, 2020, the fair value of the asset acquired as reported in “Assets held for sale” on the Company’s Condensed Consolidated Balance Sheet was ~~$0.6~~$0.5 million and the maximum loss exposure was ~~$0.6~~$0.5 million, which reflects an estimated cost to sell of less than $0.1 million.

The following tables summarize the changes in Level 3 Royalty Right Assets and the gains and losses included in earnings for the three months ended March 31, ~~2019:~~2020:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Rights Assets

(in thousands)
Royalty Rights -
At Fair Value
Fair value as of December 31, 2018 $ 376,510

Financial instruments purchased —
Total net change in fair value for the period
Change in fair value of royalty rights - at fair value $ 12,257

Proceeds from royalty rights - at fair value $ (12,620 )
Total net change in fair value for the period (363 )

Fair value as of March 31, 2019

$ 376,147



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Right Assets

(in thousands)			Royalty Rights - At Fair Value
Fair value as of December 31, 2019					$	266,196

	Total net change in fair value for the period
		Change in fair value of royalty rights - at fair value	9,394
		Proceeds from royalty rights	(13,569	)
		Total net change in fair value for the period			(4,175		)

Fair value as of March 31, 2020					$	262,021

The table above does not include the aggregate remaining estimated cost to sell the royalty right assets of $5.8 million.


Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Rights Assets
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Right Assets								Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Royalty Right Assets

	Fair Value as of		Royalty Rights -			Fair Value as of			Fair Value as of		Royalty Rights -			Fair Value as of
(in thousands)	December 31, 2018		Change in Fair Value			March 31, 2019			December 31, 2019		Change in Fair Value			March 31, 2020 ⁽¹⁾

Assertio (formerly Depomed)	$	264,371	$	(552	)	$	263,819
Assertio									$	218,672	$	(3,161	)	$	215,511
VB	14,108		128			14,236			13,590		206			13,796
U-M	25,595		(536		)	25,059			20,398		(1,391		)	19,007
AcelRx	70,380		2,088			72,468			12,952		200			13,152
KYBELLA	2,056		(1,491		)	565			584		(29		)	555
	$	376,510	$	(363	)	$	376,147		$	266,196	$	(4,175	)	$	262,021

________________

⁽¹⁾Excludes the aggregate remaining estimated costs to sell of $5.8 million.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~The following table summarizes the changes in Level 3 Liabilities and the gains and losses included in earnings for the three months ended March 31, 2019:~~

Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Liabilities

(in thousands) Contingent Consideration
Fair value as of December 31, 2018 $ (1,071 )

Financial instruments purchased —

Settlement of financial instrument¹
1,071
Total net change in fair value for the period —

Fair value as of March 31, 2019 $ —

~~______________~~


¹	~~Represents the final conversion consideration and earn out liability for the LENSAR acquisition of assets from Precision Eye Services.~~

Gains and losses from changes in Level 3 assets included in earnings for each period are presented in “Royalty rights - change in fair value” and gains and losses from changes in Level 3 liabilities included in earnings for each period are presented in “Change in fair value of anniversary payment and contingent consideration” as follows:

Three Months Ended
March 31,
(in thousands) 2019 2018

Total change in fair value for the period included in earnings for royalty right assets held at the end of the reporting period $ 12,257
$ 11,091

Total change in fair value for the period included in earnings for liabilities held at the end of the reporting period $ —
$ 600

Assets/Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets consist of long-lived assets, including property and equipment and intangible assets and the ~~1.7 million~~ shares of Alphaeon Class A common stock, received in connection with the loans made to LENSAR by the Company prior to its acquisition of LENSAR. During the three months ended June 30, 2018, the Company recorded an impairment charge of $152.3 million for the Noden intangible assets related to the increased probability of a generic form of aliskiren being launched in the United States. As a result of this impairment charge, which was based on the estimated fair value of the assets, the remaining carrying value of these intangible assets was determined to be $40.1 million. The fair value calculation included level 3 inputs. The Company’s carrying value of the ~~investment in~~1.7 million shares of Alphaeon common stock as of both March 31, ~~2019~~2020 and December 31, ~~2018~~2019 is $6.6 million based on an estimated per share value of $3.84, which was established by a valuation performed when the shares were acquired. The value of the Company’s investment in Alphaeon is not readily determinable as Alphaeon’s shares are not publicly traded. The Company evaluates the fair value of this investment by performing a qualitative assessment each reporting period. If the results of this qualitative assessment indicate that the fair value is less than the carrying value, the investment is written down to its fair value. There have been no such write downs since the Company acquired these shares. This investment is included in Other long-term assets. For additional information on the Alphaeon investment, see Note 7,6, Notes and Other Long-Term Receivables.

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

During the quarter ended March 31, 2020 it was determined that Noden met the criteria as an asset held for sale, see Note 2, Discontinued Operations Classified as Assets Held for Sale. Assets classified as held for sale are reported at the lower of carrying value or fair value less costs to sale. As a result of our analysis of the fair value of Noden we recorded a loss on classification as held for sale of $6.7 million of which $1.8 million relates to the estimated costs to sell Noden and $4.9 million relates to the difference in carrying value versus fair value. The fair value calculation was made using a discounted cash flow model, utilizing a discount rate of approximately 19%, and included level 3 inputs.

Assets/Liabilities Not Subject to Fair Value Recognition

The ~~following tables present the fair~~Company has two notes receivable assets with an aggregate carrying value of ~~assets and liabilities not subject to fair value recognition by level within the valuation hierarchy:~~

March 31, 2019 December 31, 2018
(in thousands) Carrying Value
Fair Value
Level 2

Fair Value
Level 3
Carrying Value
Fair Value
Level 2

Fair Value
Level 3

Assets:
Wellstat Diagnostics note receivable $ 50,191
$ —
$ 58,779
$ 50,191
$ —
$ 57,322
Hyperion note receivable 1,200
—
1,200
1,200
—
1,200
CareView note receivable 11,458
—
11,458
11,458
—
11,458
Total $ 62,849
$ —
$ 71,437
$ 62,849
$ —
$ 69,980

Liabilities:

February 2018 Notes $ —
$ —
$ —
$ —
$ —
$ —
December 2021 Notes 126,567
171,864
—
124,644
151,356
—
Total $ 126,567
$ 171,864
$ —
$ 124,644
$ 151,356
$ —

~~During the year ended December 31, 2018 the Company recorded an impairment loss~~$52.1 million as of ~~$8.2 million to the note receivable with CareView Communications, Inc. (“CareView”). There were no impairment losses on notes receivable in the period ended~~ March 31, ~~2019.~~

~~As of~~ ~~March 31, 2019~~2020 and December 31, 2018, the estimated fair values of the Hyperion Catalysis International, Inc. (“Hyperion”) note receivable, and CareView note receivable were determined using one or more discounted cash flow models, incorporating expected principal and interest payments. In addition, during the year ended December 31, 2018, the fair value of the CareView note receivable also considered the recoverability of the note receivable balance utilizing third-party revenue multiples for small cap healthcare technology companies. As of March 31, 2019 and December 31, 2018, the2019. The estimated fair value of these notes receivable of $57.3 million exceeded the ~~Wellstat Diagnostics note receivable~~carrying value as of December 31, 2019 and was ~~determined by using an asset approach and discounted cash flow model related~~substantially equivalent to the ~~underlying collateral and adjusted to consider estimated costs to sell the assets.~~

carrying values as of March 31, 2020. The ~~Company engages a third-party valuation expert when deemed necessary to assist~~notes receivable are classified as Level 3 in ~~evaluating its investments and the related inputs needed to estimate~~ the fair value ~~of certain investments.~~hierarchy. The Company determined its notes receivable assets are Level 3 assets as the Company’s valuations utilized significant unobservable inputs, including estimates of future revenues, discount rates, expectations about settlement, terminal values, required yield and the value of underlying collateral. ~~To provide support for~~The Company engages third-party valuation experts when deemed necessary to assist in evaluating its investments and the related inputs needed to estimate the fair value of certain investments.

As of March 31, 2020 and December 31, 2019, the estimated fair value ~~measurements,~~of the ~~Company considered forward-looking performance~~CareView note receivable was determined using a liquidation analysis. A liquidation analysis considers the asset side of the balance sheet and adjusts the value in accordance with the relative risk associated with the asset and the probable liquidation value. The asset recovery rates varied by asset. As of March 31, 2020 and December 31, 2019, the estimated fair value of the Wellstat Diagnostics and Hyperion Catalysis International, Inc. (“Hyperion”) notes receivable were determined by using an asset approach and discounted cash flow model related to the ~~investment~~underlying collateral and ~~current measures associated with high yield indices and reviewed~~adjusted to consider estimated costs to sell the ~~terms and yields of notes placed by specialty finance and venture firms both across industries and in similar sectors.~~assets.

The CareView note receivable is secured by substantially all assets of, and equity interests in CareView. The Wellstat Diagnostics note receivable is secured by substantially all assets of Wellstat Diagnostics and is supported by a guaranty from the Wellstat Diagnostics Guarantors (as defined in Note 7, Notes and Other Long-Term Receivables).

On March 31, ~~2019,~~2020, the carrying value of one of the Company’s notes receivable assets differed from its estimated fair value. This is the result of inputs used in estimating the fair value of the collateral, including appraisals, projected cash flows of collateral assets and discount rates used when performing a discounted cash flow analysis.

The Company’s liabilities not subject to fair value recognition consist of its 2021 and 2024 convertible notes. The fair values of the Company’s convertible senior notes were determined using quoted market ~~pricing.~~pricing and are classified as Level 2 in the fair value hierarchy. The aggregate carrying value of the convertible notes was $13.3 million and $27.3 million as of March 31, 2020 and December 31, 2019, respectively. The aggregate fair values of the convertible notes was $15.9 million and $33.9 million as of March 31, 2020 and December 31, 2019, respectively.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table represents significant unobservable inputs used in determining the estimated fair value of ~~impaired notes~~the Wellstat Diagnostics note receivable ~~investments:~~investment:

Asset
Valuation
Technique

Unobservable
Input
March 31, 2019 December 31, 2018

Wellstat Diagnostics
Wellstat Guarantors intellectual property Income Approach
Discount rate 12% 12%
Royalty amount $21 million $21 million
Settlement Amount Income Approach
Discount rate 15% 15%
Settlement amount $34 million $34 million

Real Estate Property Market Approach
Annual appreciation rate 4% 4%
Estimated realtor fee 6% 6%
Estimated disposal date 9/30/2019 9/30/2019

CareView
Note receivable cash flows Income Approach
Discount rate 30% 30%

~~5. Cash and Cash Equivalents~~

~~As of~~ ~~March 31, 2019~~ ~~and December 31, 2018the Company had invested its excess cash balances primarily in cash and money market funds.~~

The following tables summarize the Company’s cash and cash equivalents’ amortized cost and fair value by significant investment category reported as cash and cash equivalents as of March 31, 2019 and December 31, 2018:

(in thousands) Amortized Cost Estimated Fair Value

March 31, 2019
Cash $ 138,712
$ 138,712
Money market funds 227,612
227,612
Total $ 366,324
$ 366,324

December 31, 2018
Cash $ 167,871
$ 167,871
Money market funds 226,719
226,719
Total $ 394,590
$ 394,590

~~The Company recognized zero and $0.8 million of gains on sales of available-for-sale securities in the three months ended March 31, 2019 and March 31, 2018, respectively.~~

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~6. Concentration of Credit Risk~~

~~Product Line Concentration~~

~~The percentage of total revenue recognized, which individually accounted for 10% or more of the Company’s total revenues in one or more of the periods presented below, was as follows:~~

Three Months Ended March 31,
Licensee 2019 2018
Noden 51% 48%
Assertio 27% 19%
LENSAR 17% 13%



Asset	Valuation Technique	Unobservable Input	March 31, 2020	December 31, 2019

Wellstat Diagnostics
Wellstat Guarantors intellectual property	Income Approach
		Discount rate	12%	12%
		Undiscounted royalty amount	$21 million	$21 million
Settlement Amount	Income Approach
		Discount rate	15%	15%
		Undiscounted settlement amount	$25 million	$28 million
Real Estate Property	Market Approach
		Annual appreciation rate	—%	—%
		Estimated realtor fee	6%	6%
		Undiscounted market value	$16 million	$16 million

7. Notes and Other Long-Term Receivables

Notes and other long-term receivables included the following significant agreements:

Wellstat Diagnostics Note Receivable and Credit Agreement and Related Litigation

On November 2, 2012, the Company and Wellstat Diagnostics entered into a $40.0 million credit agreement pursuant to which the Company was to accrue quarterly interest payments at the rate of 5% per annum (payable in cash or in kind). In addition, the Company was to receive quarterly royalty payments based on a low double-digit royalty rate of Wellstat Diagnostics’ net revenues, generated by the sale, distribution or other use of Wellstat Diagnostics’ products, if any, commencing upon the commercialization of its products. A portion of the proceeds of the $40.0 million credit agreement were used to repay certain notes receivable which Wellstat Diagnostics entered into in March 2012.

In January 2013, the Company was informed that, as of December 31, 2012, Wellstat Diagnostics had used funds contrary to the terms of the credit agreement and breached Sections 2.1.2 and 7 of the credit agreement. The Company sent Wellstat Diagnostics a notice of default on January 22, 2013, and accelerated the amounts owed under the credit agreement. In connection with the notice of default, the Company exercised one of its available remedies and transferred approximately $8.1 million of available cash from a bank account of Wellstat Diagnostics to the Company and applied the funds to amounts due under the credit agreement. On February 28, 2013, the parties entered into a forbearance agreement whereby the Company agreed to refrain from exercising additional remedies for 120 days. During such forbearance period, the Company provided approximately $1.3 million to Wellstat Diagnostics to fund ongoing operations of the business. During the year ended December 31, 2013, approximately $8.7 million was advanced pursuant to the forbearance agreement.

On August 15, 2013, the Company entered into an amended and restated credit agreement with Wellstat Diagnostics. The Company determined that the new agreement should be accounted for as a modification of the existing agreement.

Except as otherwise described herein, the material terms of the amended and restated credit agreement are substantially the same as those of the original credit agreement, including quarterly interest payments at the rate of 5% per annum (payable in cash or in kind). In addition, the Company was to continue to receive quarterly royalty payments based on a low double-digit royalty rate of Wellstat Diagnostics’ net revenues. However, pursuant to the amended and restated credit agreement: (i) the principal amount was reset to approximately $44.1 million, which was comprised of approximately $33.7 million original loan principal and interest, $1.3 million term loan principal and interest and $9.1 million forbearance principal and interest; (ii) the specified internal rates of return increased; (iii) the default interest rate was increased; (iv) Wellstat Diagnostics’ obligation to provide certain financial information increased in frequency to monthly; (v) internal financial controls were strengthened by requiring Wellstat Diagnostics to maintain an independent, third-party financial professional with control over fund disbursements; (vi) the Company waived the existing events of default; and (vii) the owners and affiliates of Wellstat

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Diagnostics were required to contribute additional capital to Wellstat Diagnostics upon the sale of an affiliate entity. The amended and restated credit agreement had an ultimate maturity date of December 31, 2021 (but has subsequently been accelerated as described below).

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

In June 2014, the Company received information from Wellstat Diagnostics showing that it was generally unable to pay its debts as they became due, constituting an event of default under the amended and restated credit agreement.

On August 5, 2014, the Company delivered a notice of default ~~(the “Wellstat Diagnostics Borrower Notice”)~~ to Wellstat Diagnostics, which accelerated all obligations under the amended and restated credit agreement and demanded immediate payment in full in an amount equal to approximately $53.9 million, (which amount, in accordance with the terms of the amended and restated credit agreement, included an amount that, together with interest and royalty payments already made to the Company, would generate a specified internal rate of return to the Company), plus accruing fees, costs and interest, and demanded that Wellstat Diagnostics protect and preserve all collateral securing its obligations.

On August 7, 2014, the Company delivered a notice ~~(the “Wellstat Diagnostics Guarantor Notice”)~~ to each of the guarantors of Wellstat Diagnostics’ obligations to the Company (collectively, the “Wellstat Diagnostics Guarantors”) under the credit agreement, which included a demand that the guarantors remit payment to the Company in the amount of the outstanding obligations. The guarantors include certain affiliates and related companies of Wellstat Diagnostics, including Wellstat Therapeutics and Wellstat Diagnostics’ stockholders.

On September 24, 2014, the Company filed an ex-parte petition for appointment of receiver with the Circuit Court of Montgomery County, Maryland, ~~(the “Wellstat Diagnostics Petition”),~~ which was granted on the same day. Wellstat Diagnostics remained in operation during the period of the receivership with incremental additional funding from the Company. On May 24, 2017, Wellstat Diagnostics transferred substantially all of its assets to the Company pursuant to a credit bid. The credit bid reduced the outstanding balance of the loan by an immaterial amount.

On September 4, 2015, the Company filed in the Supreme Court of New York a motion for summary judgment in lieu of complaint which requested that the court enter judgment against certain of the Wellstat Diagnostics Guarantors for the total amount due on the Wellstat Diagnostics debt, plus all costs and expenses including lawyers’ fees incurred by the Company in enforcement of the related guarantees. On September 23, 2015, the Company filed in the same court an ex parte application for a temporary restraining order and order of attachment of the Wellstat Diagnostics Guarantor defendants’ assets. Although the court denied the Company’s request for a temporary restraining order at a hearing on September 24, 2015, it ordered that assets of the Wellstat Diagnostics Guarantor defendants should be held in status quo ante and only used in the normal course of business.

On July 29, 2016, the Supreme Court of New York granted the Company’s motion for summary judgment and held that the Wellstat Diagnostics Guarantor defendants are liable for all “Obligations” owed by Wellstat Diagnostics to the Company. After appeal by the Wellstat Diagnostics Guarantor defendants on February 14, 2017, the Appellate Division of the Supreme Court of New York reversed on procedural grounds a portion of the Memorandum of Decision granting the Company summary judgment in lieu of complaint, but affirmed the portion of the Memorandum of Decision denying the Wellstat Diagnostics Guarantor defendants’ motion for summary judgment in which they sought a determination that the guarantees had been released. As a result, the litigation has been remanded to the Supreme Court of New York to proceed on the Company’s claims as a plenary action. On June 21, 2017, the Supreme Court of New York ordered the Company to file a Complaint, which was filed by the Company on July 20, 2017. The Wellstat Diagnostics Guarantors filed their answer on August 9, 2017, including counterclaims against the Company alleging breach of contract, breach of fiduciary duty, and tortious interference with prospective economic advantage. ~~This case is currently pending and in the pre-trial phase.~~

On October 14, 2016, the Company sent a notice of default and reference to foreclosure proceedings to certain of the Wellstat Diagnostics Guarantors which are not defendants in the New York action, but which are owners of real estate assets over which a deed of trust in favor of the Company securing the guarantee of the loan to Wellstat Diagnostics had been executed. On March 2, 2017, the Company sent a second notice to foreclose on the real estate assets, and noticed the sale for March 29, 2017. The sale was taken off the calendar by the trustee under the deed of trust and has not been re-scheduled yet. On March 6, 2017, the Company sent a letter to the Wellstat Diagnostics Guarantors seeking information in preparation for a UCC Article 9 sale of some or all of the intellectual property-related collateral of the Wellstat Diagnostics Guarantors. The Wellstat Diagnostics Guarantors did not respond to the Company’s letter, but on March 17, 2017, filed an order to show cause with the Supreme Court of New York to enjoin the Company’s sale of the real estate or enforcing its security interests in the Wellstat Diagnostics Guarantors’ intellectual property during the pendency of any action involving the guarantees at issue. On February 6, 2018, the

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Supreme Court of New York issued an order from the bench which enjoins the Wellstat Diagnostics Guarantors from selling, encumbering, removing, transferring or altering the collateral pending the outcome of the proceedings before it. The Supreme Court of New York also issued an order precluding the Company from foreclosing on certain of the Wellstat Diagnostics

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Guarantors’ collateral pending the outcome of the proceedings before it. In September of 2018, discovery in the New York action was completed. Summary judgment motions were filed by Wellstat Diagnostics and the Company in ~~2018.~~2018 and a hearing was held on May 22, 2019. On September 11, 2019, the Supreme Court of New York granted the Company’s summary judgment motion, the court holding that the guarantees executed by the Wellstat Diagnostics Guarantors are valid and enforceable, and that the Wellstat Diagnostics Guarantors are liable for the amount owed under the loan agreement. The court ~~has~~ ordered a damages inquest before a special referee to calculate the amount owed under the loan agreement between Wellstat Diagnostics and the Company. On September 12, 2019, the Wellstat Diagnostics Guarantors filed a notice of appeal in relation to the court’s decision. On September 17, 2019, the Wellstat Diagnostics Guarantors requested a stay of the enforcement of the New York Supreme Court’s decision pending their appeal of the decision, which was denied on November 21, 2019. A damages hearing was scheduled to begin before a judicial hearing officer on December 17, 2019. At the ~~summary judgment motions for May 22, 2019.~~request of the judicial hearing officer, the parties agreed to mediate their dispute prior to the commencement of the damages hearing. As a result, no decision has been made by the hearing officer with respect to the amount of damages owed to the Company.

In an unrelated litigation, Wellstat Therapeutics filed a lawsuit against BTG International, Inc. for breach of contract (the “BTG Litigation”). In September 2017, the Delaware Chancery Court found in favor of Wellstat Therapeutics and awarded a judgment of $55.8 million in damages, plus interest. In October 2017, the Company filed a motion with the Supreme Court of New York requesting a pre-judgement attachment of the award. In June 2018, the Delaware Supreme Court largely affirmed the September 2017 decision of the Delaware Chancery Court, including the $55.8 million awarded in judgment. In August of 2018, in a letter to the Company’s counsel, Wellstat Diagnostics Guarantors’ counsel confirmed that the Wellstat Diagnostics Guarantors are preserving the BTG Litigation judgment award proceeds consistent with the New York Court’s prior directions.

On October 22, 2015, certain of the Wellstat Diagnostics Guarantors filed a separate complaint against the Company in the Supreme Court of New York seeking a declaratory judgment that certain contractual arrangements entered into between the parties subsequent to Wellstat Diagnostics’ default, and which relate to a split of proceeds in the event that the Wellstat Diagnostics Guarantors voluntarily monetize any assets that are the Company’s collateral, is of no force or effect. This case has been joined for all purposes, including discovery and trial, and consolidated with the pending case filed by the Company. The Wellstat Diagnostic Guarantors filed a summary judgment motion with regard to this case, which was also heard by the court at the hearing on May 22, 2019. The court, in its September 11, 2019 decision, denied in its entirety the Wellstat Diagnostics Guarantors’ motion for summary judgment.

Effective April 1, 2014, and as a result of the event of default, the Company determined the loan to be impaired and it ceased to accrue interest revenue. At that time and as of March 31, ~~2019,~~2020, it has been determined that an allowance on the carrying value of the note was not necessary, as the Company believes the value of the collateral securing Wellstat Diagnostics’ obligations ~~exceeds~~is in-line with the carrying value of the asset and is sufficient to enable the Company to recover the current carrying value of $50.2 million. The Company continues to closely monitor the timing and expected recovery of amounts due, including litigation and other matters related to Wellstat Diagnostics Guarantors’ assets. There can be no assurance that an allowance on the carrying value of the notes receivable investment will not be necessary in a future period depending on future developments.

Hyperion Agreement

On January 27, 2012, the Company and Hyperion (which is also a Wellstat Diagnostics Guarantor) entered into an agreement whereby Hyperion sold to the Company the royalty streams accruing from January 1, 2012 through December 31, 2013 due from Showa Denko K.K. (“SDK”) related to a certain patent license agreement between Hyperion and SDK dated December 31, 2008. In exchange for the lump sum payment to Hyperion of $2.3 million, in addition to any royalties from SDK, the Company was to receive two equal payments of $1.2 million on March 5, 2013 and March 5, 2014. The first payment of $1.2 million was paid on March 5, 2013, but the second payment that was due on March 5, 2014 has not been made by Hyperion. Effective as of such date and as a result of the event of default, the Company ceased to accrue interest revenue. As of March 31, ~~2019,~~2020, the estimated fair value of the collateral was determined to be in excess of the carrying value. There can be no assurance of realizing value from such collateral in the event of the Company’s foreclosure on the collateral.

PDL BIOPHARMA, INC.

~~Avinger Credit and Royalty Agreement~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

On April 18, 2013, the Company entered into a credit agreement with Avinger, Inc. (the “Avinger Credit and Royalty Agreement”). Under the terms of the Avinger Credit and Royalty Agreement, the Company received a low, single-digit royalty on Avinger’s net revenues until April 2018. Commencing in October 2015, after Avinger repaid $21.4 million pursuant to its note payable to the Company prior to its maturity date, the royalty on Avinger’s net revenues was reduced by 50%, subject to certain minimum payments from the prepayment date until April 18, 2018. The Company accounted for the royalty rights in accordance with the fair value option. As of April 18, 2018, there were no further obligations owed to the Company.

CareView Credit Agreement

On June 26, 2015, the Company entered into a credit agreement with CareView, under which the Company made available to CareView up to $40.0 million in loans comprised of two tranches of $20.0 million each, subject to CareView’s attainment of specified milestones relating to the placement of CareView Systems. On October 7, 2015, the Company and CareView entered into an amendment of the credit agreement to modify certain definitions related to the first and second tranche milestones and the Company funded the first tranche of $20.0 million, net of fees, based on CareView’s attainment of the first milestone, as amended. The second $20.0 million tranche was not funded due to CareView’s failure to achieve the related funding milestones

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

and there is no additional funding obligation due from the Company. Outstanding borrowings under the credit agreement bear interest at the rate of 13.5% per annum and are payable quarterly in arrears.

As part of the original credit agreement, the Company received a warrant to purchase approximately 4.4 million shares of common stock of CareView at an exercise price of $0.45 per share. The Company has accounted for the warrant as a derivative asset with an offsetting credit as debt discount. At each reporting period the warrant is marked to market for changes in fair value.

In connection with the October 2015 amendment of the credit agreement, the Company and CareView also agreed to amend the warrant to purchase common stock agreement by reducing the warrant’s exercise price from $0.45 to $0.40 per share.

In February 2018, the Company entered into a modification agreement with CareView (the “February 2018 Modification Agreement”) whereby the Company agreed, effective December 28, 2017, to modify the credit agreement before remedies could otherwise have become available to the Company under the credit agreement in relation to certain obligations of CareView that would potentially not be met, including the requirement to make principal payments. Under the February 2018 Modification Agreement, the Company agreed that (i) a lower liquidity covenant would be applicable and (ii) principal repayment would be delayed until December 31, 2018. In exchange for agreeing to these modifications, among other things, the exercise price of the Company’s warrants to purchase 4.4 million shares of common stock of CareView was repriced from $0.40 to $0.03 per share and, subject to the occurrence of certain events, CareView agreed to grant the Company additional equity interests. As a result of the February 2018 Modification Agreement, the Company determined the loan to be impaired and it ceased to accrue interest revenue effective October 1, 2017.

In September 2018, the Company entered into an amendment to the February 2018 Modification Agreement with CareView whereby the Company agreed, effective as of September 28, 2018, that a lower liquidity covenant would be applicable. ~~At March 31, 2019, the Company estimated the fair value of the warrants to be less than $0.1 million.~~

~~As a result of the February 2018 Modification Agreement, the Company determined the loan to be impaired and it ceased to accrue interest revenue effective October 1, 2017.~~

In December 2018, the Company further modified the loan by agreeing that (i) a lower liquidity covenant would be applicable, (ii) the first principal payment would be deferred until January 31, 2019, and (iii) the scheduled interest payment due December 31, 2018 would be deferred until January 31, 2019. ~~As of March 31, 2019, the principal repayment and interest payments were deferred until April 30, 2019. The principal repayment and interest payment were subsequently deferred until May 15, 2019.~~

In December 2018, and in consideration of the further modification to the credit agreement, the Company completed an impairment analysis and determined that the note was impaired and recorded an impairment loss of $8.2 million. For additional information see Note 4,6, Fair Value Measurements.

~~8. Inventories~~

~~Inventories consisted of the following:~~

March 31, December 31,
(in thousands) 2019 2018

Raw materials $ 6,125
$ 6,214
Work in process 1,089
549
Finished goods 8,333
12,179
Total inventory $ 15,547
$ 18,942

As of March 31, 2019, the principal repayment and ~~December 31, 2018,~~interest payments were deferred until April 30, 2019. The principal repayment and interest payment were subsequently deferred until May 15, 2019 under additional amendments. In May 2019, and in consideration of additional capital raised by CareView, the Company further modified the loan by agreeing that (i) the first principal and interest payments would be deferred ~~approximately $0.1 million~~until September 30, 2019 and ~~$0.5 million, respectively,~~(ii) the remaining liquidity covenant would be removed. In September 2019, the Company further modified the loan by agreeing that the first principal and interest payments would be deferred, and (iii) the interest rate would be increased to 15.5%. Pursuant to further amendments to the February 2018 Modification Agreement in September 2019, December 2019 and January 2020, the Company agreed to defer principal and interest payments until April 30, 2020.

In December 2019, and in consideration of ~~costs associated with inventory transfers made under~~ the ~~Company’s third party logistic provider service arrangement. These costs have been~~further modification to the credit agreement and February 2018 Modification Agreement, the Company updated its impairment analysis and determined that an additional impairment was necessary and recorded ~~as Prepaid and other current assets on the Company’s Condensed Consolidated Balance Sheets as~~an impairment loss of $10.8 million. At March 31, ~~2019 and December 31, 2018. The Company will recognize the cost of product sold as inventory is transferred from its third-party logistics provider to the Company’s customers.~~

~~During each of the three months ended March 31, 2019 and 2018,~~2020, the Company ~~recognized inventory write-downs of $0.1 million related to the Noden Products that the Company would not be able to sell prior to their expiration.~~

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~9. Intangible Assets~~

~~Intangible Assets, Net~~

On June 8, 2018, Noden DAC entered into a Settlement Agreement (the “Settlement Agreement”) with Anchen Pharmaceuticals, Inc. and its affiliates (“Anchen”) to resolve the patent litigation relating to infringement of U.S. Patent No. 8,617,595 (the “‘595 Patent”) based on their submission of an Abbreviated New Drug Application (“ANDA”) seeking authorization from the FDA to market a generic version of aliskiren, the active ingredient in the Tekturna and Tekturna HCT drug. Under the Settlement Agreement, Anchen, the sole ANDA filer of which the Company is aware, agreed to not commercialize its generic version of aliskiren prior to March 1, 2019. Per the Settlement Agreement, Anchen may commercialize their formulation of aliskiren, but is not permitted to commercialize a copy of Tekturna.

Accordingly, management evaluated the ongoing value of the Noden DAC asset group based upon the probability of Anchen’s market entry of a generic version of aliskiren in the United States and the associated cash flows and conducted a test for impairment. Due to the increased probability of a generic version of aliskiren being launched in the United States, the Company revised its estimates of future cash flows and as a result of this analysis, determined that the sum of undiscounted cash flows was not greater than the carrying value of the assets. Therefore, the Company performed a discounted cash flow analysis to estimateestimated the fair value of the ~~asset group in accordance with ASC Topic 360,~~ ~~Impairment or Disposal of Long-lived Assets. The cash flows used in this analysis are those expected~~warrant to be ~~generated by market participants, discounted~~less than $0.1 million.

In April 2020 the Company agreed to ~~reflect an appropriate amount~~a further amendment of ~~risk,~~the February 2018 Modification Agreement that deferred principal repayment and interest payments until September 30, 2020, which was determined to be 21%. The Company concluded that the Noden DAC acquired product rights and customer relationship long-lived assets, with a carrying amount of $192.5 million, were no longer recoverable and wrote them down to their estimated fair value of $40.1 million, resulting in an impairment charge of $152.3 million in the second quarter of 2018. This write-down is included in “Impairment of intangible assets” in the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

On March 4, 2019, the Company announced the U.S. commercial launch of an authorized generic form of Tekturna, with the same drug formulation as Tekturna. The Company performed an impairment assessment of the Noden asset group at this time by estimating the undiscounted future cash flows with respect to the asset against its carrying value and concluded a further impairment was not required.

On March 22, 2019, the FDA approved Anchen’s generic form of aliskiren. The Company performed an impairment assessment of the Noden asset group at this time and concluded no further impairment was required.

~~Future events, such as FDA approval of~~conditioned upon CareView raising additional ~~generic forms of aliskiren, or pricing or market share pressure resulting~~financing from ~~existing generic competition, may be further indicators of impairment which may require the Company to perform additional impairment testing.~~

~~The components of intangible assets as of March 31, 2019 and December 31, 2018 were as follows:~~

March 31, 2019 December 31, 2018
(in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-lived intangible assets:
Acquired products rights⁽¹⁾
$ 36,143
$ (3,389 ) $ 32,754
$ 36,143
$ (2,258 ) $ 33,885
Customer relationships^{(1) (2)}
8,028
(997 ) 7,031
8,028
(782 ) 7,246
Acquired technology^{(2) (3)}
11,011
(1,402 ) 9,609
11,011
(1,203 ) 9,808
Acquired trademarks⁽²⁾
570
(218 ) 352
570
(190 ) 380
$ 55,752
$ (6,006 ) $ 49,746
$ 55,752
$ (4,433 ) $ 51,319

~~________________~~

~~(1) The Company acquired certain intangible assets as part of the Noden transaction. They are being amortized on a straight-line basis over a weighted-average period of eight years.~~

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

(2) The Company acquired certain intangible assets as part of its acquisition of LENSAR in May 2017. They are being amortized on a straight-line basis over a weighted-average period of 15 years. The intangible assets for customer relationships are being amortized using a double-declining method of amortization as such method better represents the economic benefits to be obtained.


~~(3)~~	The Company acquired certain intangible assets as part of the foreclosure on certain of Direct Flow Medical assets. They are being amortized on a straight-line basis over a weighted-average period of 10 years.

~~For the three months ended March 31, 2019 and March 31, 2018, amortization expense was $1.6 million and $6.3 million, respectively.~~

Based on the intangible assets recorded at March 31, 2019, and assuming no subsequent additions to or impairment of the underlying assets, the remaining amortization expense is expected to be as follows (in thousands):

Fiscal Year Amount

2019 (Remaining nine months) $ 4,704
2020 6,240
2021 6,209
2022 6,104
2023 6,040
Thereafter 20,449
Total remaining amortization expense $ 49,746

~~10. Accrued Liabilities~~

~~Accrued liabilities consist of the following:~~

(in thousands) March 31,
2019 December 31,
2018

Accrued rebates, chargebacks and other revenue reserves $ 14,836
$ 20,133
Deferred revenue 5,370
8,811
Compensation 3,586
4,468
Interest 1,375
344
Legal 490
623
Dividend payable 15
15
Customer advances 4
1
Other 5,191
4,917
Total $ 30,867
$ 39,312

~~The following table provides a summary of activity with respect to the Company’s sales allowances and accruals for the three months ended March 31, 2019:~~

(in thousands) Discount and Distribution Fees Government Rebates and Chargebacks Assistance and Other Discounts Product Returns Total

Balance at December 31, 2018 $ 3,094
$ 8,901
$ 3,457
$ 4,681
$ 20,133
Allowances for current period sales 2,173
4,396
1,974
554
9,097
Allowances for prior period sales —
1,841
120
—
1,961
Credits/payments for current period sales (351 ) (1,028 ) (546 ) (31 ) (1,956 )
Credits/payments for prior period sales (2,483 ) (7,972 ) (2,887 ) (1,057 ) (14,399 )
Balance at March 31, 2019 $ 2,433
$ 6,138
$ 2,118
$ 4,147
$ 14,836
third parties.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~11.~~8. Leases

~~Lessee arrangements~~

The Company has operating leases for corporate offices and certain equipment. The Company’s operating leases have remaining lease terms of 1 to 8 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 3 years.

~~The components of lease expense are as follows:~~

Three Months Ended
March 31,
(in thousands) 2019 2018

Operating lease cost $ 233
$ 285
Short-term lease cost 25
12
Total lease cost $ 258
$ 297

~~Supplemental cash flow information related to leases is as follows:~~

Three Months Ended
March 31,
(in thousands) 2019 2018

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 215
$ 285
Right-of-use-assets obtained in exchange for lease obligations:
Operating leases $ 2,111
N/A

~~_______________~~

~~N/A = Not applicable~~

The following table presents the lease balances within the Condensed Consolidated Balance Sheet, weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases (in thousands):

Operating Leases Classification March 31, 2019

Operating lease ROU assets Other assets $ 1,882

Operating lease liabilities, current Accrued liabilities $ 855
Operating lease liabilities, long-term Other long-term liabilities 1,064
Total operating lease liabilities Total operating lease liabilities $ 1,919

Weighted average remaining lease term 2.25 years
Weighted average discount rate 6 %

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~Maturities of operating lease liabilities as of March 31, 2019 are as follows (in thousands):~~

Fiscal Year Amount

2019 (Remaining nine months) $ 707
2020 837
2021 473
2022 —
2023 —
Thereafter —
Total operating lease payments 2,017
Less: imputed interest (98 )
Total operating lease liabilities $ 1,919

~~Future minimum operating lease payments as of December 31, 2018 were as follows (in thousands):~~

Fiscal Year Amount

2019 $ 1,140
2020 1,003
2021 559
2022 —
2023 —
Thereafter —
Total $ 2,702

~~As of March 31, 2019, the Company had no additional significant operating or finance leases that had not yet commenced.~~

Lessor arrangements

The Company has operating and sales-type leases for medical device equipment generated from its medical devices segment. The Company’s leases have remaining lease terms of less than one year to five years, some of which include options to extend the leases on a month-to-month basis if the customer does not notify the Company of the intention to return the equipment at the end of the lease term. The Company typically does not offer options to terminate the leases before the end of the lease term.

The components of lease income are as follows:


		Three Months Ended						Three Months Ended
		March 31,						March 31,
(in thousands)	Classification	2019		2018			Classification	2020		2019

Sales-type lease selling price	Product revenue, net	$	—	$	151		Product revenue, net	$	—	$	—
Cost of underlying asset		—		(58		)		—		—
Operating profit		$	—	$	93			$	—	$	—

Interest income on the lease receivable	Interest and other income, net	$	12	$	12		Interest and other income, net	$	14	$	12

Initial direct costs incurred	Operating expense	$	—	$	(8	)	Operating expense	$	—	$	—

Operating lease Income	Product revenue, net	$	1,237	$	1,285		Product revenue, net	$	1,087	$	1,237

9. Intangible Assets

In April 2019, LENSAR acquired certain intellectual property from a third-party for $2.0 million in cash and obligations to pay a $0.3 million milestone payment and royalties upon the completion of certain events.

The components of intangible assets as of March 31, 2020 and December 31, 2019 were as follows:



	March 31, 2020							December 31, 2019
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount

Finite-lived intangible assets:
Acquired products rights⁽¹⁾	$	—	$	—		$	—	$	—	$	—		$	—
Customer relationships^{(1) (2) (3)}	4,045		(966		)	3,079		4,045		(884		)	3,161
Acquired technology^{(2) (4)}	11,500		(1,933		)	9,567		11,500		(1,741		)	9,759
Acquired trademarks⁽²⁾	570		(332		)	238		570		(304		)	266
	$	16,115	$	(3,231	)	$	12,884	$	16,115	$	(2,929	)	$	13,186

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

(in thousands) Classification March 31, 2019 December 31, 2018

Lease payment receivable, current Accounts receivable, net and Notes receivable, current $ 458
$ 533
Lease payment receivable, long-term Notes receivable, long-term and Other assets 639
475
Total lease payment receivable $ 1,097
$ 1,008
being amortized on a straight-line basis over a period of 15 years.

~~Maturities of sales-type lease receivables as of~~For the three months ended March 31, 2020 and 2019, ~~are~~amortization expense was $0.3 million and $0.3 million, respectively.

Based on the intangible assets recorded at March 31, 2020, and assuming no subsequent additions to or impairment of the underlying assets, the remaining amortization expense is expected to be as follows (in thousands):

10. Accrued Liabilities



(in thousands)	March 31, 2020		December 31, 2019

Compensation	$	5,704	$	6,823
Deferred revenue	933		959
Interest	136		70
Legal	929		921
Accrued rebates, chargebacks and other revenue reserves	4		5
Other	4,253		3,145
Total ⁽¹⁾	$	11,959	$	11,923

⁽¹⁾The amounts above exclude $17.1 million and $16.4 million of accrued liabilities at Noden classified as held for sale as of March 31, 2020 and December 31, 2019, ~~are~~respectively. See Note 2, Discontinued Operations Classified as ~~follows (in thousands):~~

Fiscal Year Amount

2019 (Remaining nine months) $ 1,694
2020 1,123
2021 304
2022 26
2023 —
Thereafter —
Total undiscounted cash flows $ 3,147
Assets Held for Sale, for additional information.

~~12. Commitments and Contingencies~~

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

~~Purchase Obligations~~

In addition, upon the termination of the supply agreement, which is the earlier of November 30, 2020 or upon transfer to another manufacturer of API, Noden must acquire within 60 days all remaining API inventory produced by Novartis. The supply agreement does not specify minimum quantities but details pricing terms.

~~Escrow Receivable~~

On April 1, 2014, the Company entered into a note purchase agreement with Accel 300, LLC (“Accel 300”), a wholly-owned subsidiary of kaléo, Inc. (“kaléo”), pursuant to which the Company acquired $150.0 million of secured notes due 2029 (the “kaléo Note”). The kaléo Note was issued pursuant to an indenture between Accel 300 and U.S. Bank, National Association, as trustee, and was secured by 20% of net sales of its first approved product, Auvi-Q^® ~~(epinephrine auto-injection, USP) (known as Allerject~~^® in Canada) and 10% of net sales of kaléo’s second proprietary auto-injector based product, EVZIO (naloxone hydrochloride injection) (the “kaléo Revenue Interests”), and a pledge of kaléo’s equity ownership in Accel 300. On September 21, 2017, the Company entered into an agreement (the “kaléo Note Sale Agreement”) with MAMKangaroo Lender, LLC, a Delaware limited liability company (the kaléo Purchaser”), pursuant to which the Company sold its entire interest in the kaléo Note for an aggregate cash purchase price of $141.7 million.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~13.~~11. Convertible Senior Notes

Principal Balance Outstanding Carrying Value
March 31, March 31, December 31,
Description Maturity Date 2019 2019 2018
(in thousands)
Convertible Senior Notes
December 2021 Notes December 1, 2021 $ 150,000
$ 126,567
$ 124,644
Total
$ 126,567
$ 124,644

~~February 2018 Notes~~

On February 1, 2018, upon maturity of the February 2018 Notes, the Company repaid a total cash amount of $129.0 million to the custodian, The Bank of New York Mellon Trust Company, N.A., which was comprised of $126.4 million in principal amount and $2.6 million in accrued interest, to retire the February 2018 Notes.

~~Interest expense for the February 2018 Notes on the Company’s Condensed Consolidated Statements of Income was as follows:~~

Three Months Ended
March 31,
(in thousands) 2019 2018

Contractual coupon interest $ —
$ 421
Amortization of debt issuance costs —
88
Amortization of debt discount —
293
Total $ —
$ 802



		Principal Balance Outstanding		Carrying Value
		March 31,		March 31,		December 31,
Description	Maturity Date	2020		2020		2019
(in thousands)
Convertible Senior Notes
December 2021 Notes	December 1, 2021	$	13,805	$	12,402	$	16,950
December 2024 Notes	December 1, 2024	1,000		900		10,300
Total		$	14,805	$	13,302	$	27,250

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

immediately preceding fiscal quarter, exceeds 130% of the conversion price for the notes on each applicable trading day;

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The carrying value and unamortized discount of the December 2021 Notes were as follows:

Interest expense for the December 2021 Notes onincluded in the Company’s Condensed Consolidated Statements of ~~Income~~Operations was as follows:

Capped Call Transaction

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

On December 17, 2019, in connection with the December Exchange Transaction, the Company repurchased $74.6 million in aggregate principal amount of its December 2024 Notes for $58.0 million in cash and 9.9 million shares of its common stock in privately negotiated transactions, resulting in a loss on extinguishment of $2.1 million was recorded at closing of the transaction.

During the three months ended March 31, 2020 the Company repurchased $10.5 million in aggregate principal amount of its December 2024 notes for $12.9 million in cash, resulting in a loss on extinguishment of $0.5 million.

The carrying value, accretion and unamortized discount of the December 2024 Notes were as follows:



(in thousands)	March 31, 2020			December 31, 2019

Principal amount of the December 2024 Notes	$	1,000		$	11,500
Unamortized discount of liability component	(100		)	(1,200		)
Net carrying value of the December 2024 Notes	$	900		$	10,300

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Interest expense for the December 2024 Notes included in the Company’s Condensed Consolidated Statements of Operations was as follows:



	Three Months Ended
	March 31,
(in thousands)	2020		2019

Contractual coupon interest	$	37	$	—
Accretion Interest on outstanding principal	33		—
Amortization of debt issuance costs	4		—
Amortization of conversion feature	23		—
Total	$	97	$	—

Capped Call Transaction

~~14.~~12. Other Long-Term Liabilities


	March 31,		December 31,		March 31,		December 31,
(in thousands)	2019		2018		2020		2019

Uncertain tax positions	$	32,047	$	31,706	$	37,993	$	37,574
Deferred tax liabilities	15,681		13,847		2,100		1,571
Accrued lease guarantee	10,700		10,700		10,700		10,700
Long-term incentive accrual	136		125
Dividend payable	4		4
Other	1,296		461		851		1,020
Total	$	59,864	$	56,843
Total ⁽¹⁾					$	51,644	$	50,865

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

⁽¹⁾The amounts above exclude $0.1 million of Other long-term liabilities at Noden classified as held for sale as of December 31, 2019. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

13. Commitments and Contingencies

Purchase Obligations

Noden DAC and Novartis entered into a supply agreement pursuant to which Novartis will manufacture and supply to Noden DAC a bulk tableted form of the Noden Products and active pharmaceutical ingredient (“API”). In May 2019, Noden DAC and Novartis entered into an amended supply agreement pursuant to which Novartis will supply to Noden DAC a bulk tableted form of the Noden Products through 2020 and API through June 2021. The supply agreement may be terminated by either party for material breach that remains uncured for a specified time period. Under the terms of the amended supply agreement, Noden DAC is committed to purchase certain quantities of bulk product and API that would amount to approximately $55.7 million through June 2021, of which $43.1 million is committed over the next twelve months, which are guaranteed by the Company. While the supply agreement provides that the parties will agree to reasonable accommodations with respect to changes in firm orders, the Company expects that Noden DAC will meet the requirements of the supply agreement, unless otherwise negotiated.

14. Stockholders’ Equity

Stock Repurchase Program

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

15. Stock-Based Compensation

Stock Options Restricted Stock Awards
(in thousands, except per share amounts) Number of Shares Outstanding Weighted Average Exercise Price Number of Shares Outstanding Weighted Average Grant-date Fair Value Per Share

Balance at December 31, 2018 7,869
$ 2.82
883
$ 2.87
Granted 4,783
$ 3.72
783
$ 3.71
Forfeited or canceled —
$ —
(18 ) $ 2.52
Balance at March 31, 2019 12,652
$ 3.16
1,648
$ 3.27



	Stock Options				Restricted Stock Awards
(in thousands, except per share amounts)	Number of Shares Outstanding		Weighted Average Exercise Price		Number of Shares Outstanding		Weighted Average Grant-date Fair Value Per Share

Balance at December 31, 2019	12,613		$	3.13	1,013		$	3.53
Granted	—		$	—	2,870		$	3.08
Exercised / vested	—		$	—	(2,695	)	$	3.12
Forfeited / canceled	(63	)	$	3.00	(1,089	)	$	3.39
Balance at March 31, 2020	12,550		$	3.13	99		$	3.11

~~Income tax expense~~Revenue

Nature of Goods and Services

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The Company offers an extended warranty that provides additional services beyond the standard warranty. The Company recognizes Product revenue from the sale of extended warranties over the warranty period. Customers have the option of renewing the warranty period, which is considered a new and separate contract.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Disaggregation of Revenue



	Three Months Ended				Three Months Ended
	March 31, 2020				March 31, 2019
(in thousands)	Medical Devices		Pharmaceutical ⁽¹⁾		Medical Devices		Pharmaceutical ⁽¹⁾

Primary geographical markets:
North America	$	2,718	$	4,186	$	2,084	$	12,138
Europe	923		5,759		1,017		5,582
Asia	1,120		5,086		2,269		2,241
Other	136		—		119		—
Total revenue from contracts with customers ⁽²⁾	$	4,897	$	15,031	$	5,489	$	19,961

The revenue from the Company’s Pharmaceutical segment for the three months ended March 31, 2020 and 2019 is included in (Loss) income from discontinued operations. For additional information, see Note 2, Discontinued Operations Classified as Assets held for sale.

The table above does not include lease revenue from the Company’s Medical Devices segment for the three months ended March 31, 2020 and 2019, of $1.1 million and $1.2 million, respectively. For additional information, see Note 8, Leases.



(in thousands)	March 31, 2020		December 31, 2019

Receivables, net	$	7,865	$	10,377
Contract assets	$	4,830	$	3,512
Contract liabilities	$	5,680	$	4,024

Receivables, Net—Receivables, net, include amounts billed and due from customers. The amounts due are stated at their net estimated realizable value and are classified as current or noncurrent based on the timing of when the Company expects to receive payment. The Company maintains an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, collateral to the extent applicable and reflects the possible impact of current conditions and reasonable forecasts not already reflected in historical loss information. Receivables, net for our Pharmaceutical segment are classified as a current asset and included in Assets held for sale. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)



(in thousands)	Medical Devices		Pharmaceutical			Total

Contract assets at December 31, 2019	$	—	$	3,512		$	3,512
Contract assets recognized	—		(2,341		)	(2,341		)
Payments received	—		3,659			3,659
Contract assets at March 31, 2020	$	—	$	4,830		$	4,830



(in thousands)	Medical Devices			Pharmaceutical			Total

Contract liabilities at December 31, 2019	$	1,075		$	2,949		$	4,024
Contract liabilities recognized	320			2,432			2,752
Amounts recognized into revenue	(377		)	(719		)	(1,096		)
Contract liabilities at March 31, 2020	$	1,018		$	4,662		$	5,680

Transaction Price Allocated to Future Performance Obligations

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

17. Segment Information

Information regarding the Company’s segments for the three months ended March 31, 2020 and 2019 is as follows:



Revenues by segment	Three Months Ended
	March 31,
(in thousands)	2020		2019

Medical Devices	$	5,985	$	6,726
Strategic Positions	—		—
Pharmaceutical	—		—
Income Generating Assets	10		(30		)
Total revenues	$	5,995	$	6,696

The table above excludes revenues related to discontinued operations. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.



(Loss) income by segment	Three Months Ended
	March 31,
(in thousands)	2020			2019

Medical Devices	$	(2,111	)	$	(1,215	)
Strategic Positions	(10,900		)	—
Pharmaceutical ⁽¹⁾	(2,067		)	5,645
Income Generating Assets ⁽¹⁾	(16,645		)	2,250
Net (loss) income attributable to PDL’s shareholders	$	(31,723	)	$	6,680

⁽¹⁾The (Loss) income by segment presented above includes amounts related to both continuing and ~~2018,~~discontinued operations. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.



Long-lived assets by segment
(in thousands)	March 31, 2020		December 31, 2019

Medical Devices	$	3,172	$	2,435
Strategic Positions	—		—
Pharmaceutical ⁽¹⁾	2,908		2,960
Income Generating Assets	92		125
Total long-lived assets ⁽¹⁾	$	6,172	$	5,520

⁽¹⁾The amounts above include Property and Equipment in the Pharmaceutical segment classified as Assets held for sale. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

18. Concentration of Credit Risk

Product Line Concentration



	Three Months Ended March 31,
	2020 ⁽¹⁾	2019 ⁽¹⁾
LENSAR	100%	100%

⁽¹⁾The amounts above exclude product sales in our Pharmaceutical segment and royalty rights in the Income Generating Assets segment, each of which is included in the Statements of Operations as (Loss) income from discontinued operations. See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information.

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

The uncertain tax positions did not change during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

PDL BIOPHARMA, INC.

~~17. Stockholders’ Equity~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

~~Stock Repurchase Program~~20. Net (Loss) Income per Share



	Three Months Ended
	March 31,
Net (Loss) Income per Basic and Diluted Share	2020			2019
(in thousands, except per share amounts)
Numerator
Net loss from continuing operations	$	(31,767	)	$	(8,452	)
(Loss) income from discontinued operations	$	(244	)	$	15,069
Net (loss) income attributable to PDL’s shareholders used to compute net (loss) income per basic and diluted share	$	(31,723	)	$	6,680

Denominator
Total weighted-average shares used to compute net (loss) income attributable to PDL’s shareholders, per basic share	122,896			128,799
Shares used to compute net (loss) income attributable to PDL’s shareholders, per diluted share	122,896			128,799

Net loss from continuing operations	$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations	$	0.00		$	0.12
Net (loss) income attributable to PDL’s shareholders per share - basic	$	(0.26	)	$	0.05
Net loss from continuing operations	$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations	$	0.00		$	0.12
Net (loss) income attributable to PDL’s shareholders per share - diluted	$	(0.26	)	$	0.05

~~On September 25, 2017,~~The Company computes net (loss) income per diluted share using the sum of the weighted-average number of common and common equivalent shares outstanding. Common equivalent shares used in the computation of net (loss) income per diluted share include shares that may be issued pursuant to outstanding stock options and restricted stock awards in each case, on a weighted-average basis for the period they were outstanding, including, if applicable, the underlying shares using the treasury stock method.

The December 2021 Notes and the December 2024 Notes allow for the settlement entirely or partially in cash, and are accounted for under the treasury stock method. Under the treasury stock method, the shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. The effect of which, for diluted earnings per share purposes, is that only the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are included in the computation.

December 2021 Notes and December 2024 Notes Capped Call Potential Dilution

In November 2016, the Company ~~announced~~issued $150.0 million in aggregate principal of the December 2021 Notes. The Company entered into an Exchange Transaction in September 2019 through which it exchanged a portion of the December 2021 Notes for the December 2024 Notes with a later maturity of December 2024. Both the notes that ~~its board~~mature in December 2021 and those that mature in December 2024 provide in certain situations for the conversion of ~~directors authorized~~ the ~~repurchase of issued and~~ outstanding principal amount into shares of the Company’s common stock ~~having an aggregate value~~at a predefined conversion rate. In conjunction with the issuance of ~~up to $25.0 million~~the December 2021 Notes and the issuance of the December 2024 Notes pursuant to the Exchange Transaction, the Company entered into capped call transactions with a hedge counterparty. The capped call transactions are expected generally to reduce the potential dilution, and/or offset, to an extent, the cash payments the Company may choose to make in excess of the principal amount, upon conversion of the December 2021 Notes or the December 2024 Notes. The Company has excluded the capped call transaction from the net (loss) income per diluted share ~~repurchase program. The repurchases under the share repurchase program were made from time to time~~computation as such securities would have an anti-dilutive effect and those securities should be considered separately rather than in the ~~open market~~aggregate in determining whether their effect on net (loss) income per diluted share would be dilutive or ~~in privately negotiated transactions~~anti-dilutive. For additional information regarding the conversion rates and ~~were funded from~~the capped call transaction related to the Company’s ~~working capital. All shares of common stock repurchased under this share repurchase program were retired~~December 2021 Notes and ~~restored to authorized but unissued shares of common stock. The Company repurchased 8.7 million shares of its common stock under the share repurchase program during the fiscal year ended~~ December ~~31, 2018, for an aggregate purchase price of $25.0 million, or an average cost of $2.86 per share, including trading commissions.~~

On September 24, 2018, the Company announced that its board of directors authorized the repurchase of issued and outstanding shares of the Company’s common stock having an aggregate value of up to $100.0 million pursuant to a share repurchase program. Repurchases under the share repurchase program will be made from time to time in the open market or in privately negotiated transactions and funded from the Company’s working capital. The amount and timing of such repurchases will depend upon the price and availability of shares, general market conditions and the availability of cash. Repurchases may also be made under a trading plan under Rule 10b5-1, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. All shares of common stock repurchased under this share repurchase program are expected to be retired and restored to authorized but unissued shares of common stock. The Company repurchased 13.1 million shares of its common stock under this share repurchase program during the three months ended March 31, 2019, for an aggregate purchase price of $44.4 million, or an average cost of $3.38 per share, including trading commissions. Since the inception of this share repurchase program through March 31, 2019, the Company has repurchased 21.8 million shares for an aggregate purchase price of $69.9 million, or an average cost of $3.21 per share, including trading commissions. The program may be suspended or discontinued at any time without notice. As of March 31, 2019, the Company had 400,000 shares held in treasury stock at a total cost of $1.5 million. Those shares were settled and retired on April 5, 2019.

~~18. Segment Information~~

~~Information regarding the Company’s segments for the three months ended March 31, 2019 and 2018 is as follows:~~

Revenues by segment Three Months Ended
March 31,
(in thousands) 2019 2018

Pharmaceutical $ 19,961
$ 18,342
Medical Devices 6,726
4,982
Income Generating Assets 12,226
15,194
Total revenues $ 38,913
$ 38,518
2024 Notes, see Note 11, Convertible Senior Notes.

PDL BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Income (loss) by segment Three Months Ended
March 31,
(in thousands) 2019 2018

Pharmaceutical $ 5,645
$ (1,716 )
Medical Devices (1,215 ) (584 )
Income Generating Assets 2,250
3,902
Total net income $ 6,680
$ 1,602
Anti-Dilutive Effect of Restricted Stock Awards and Stock Options

~~Information regarding~~For the ~~Company’s segments as of~~three months ended March 31, 2020 and 2019, the Company excluded approximately 0.1 million and ~~December 31, 2018 is as follows:~~

Long-lived assets by segment
(in thousands) March 31,
2019 December 31,
2018

Pharmaceutical $ 4,113
$ 3,682
Medical Devices 2,828
3,545
Income Generating Assets 169
160
Total long-lived assets $ 7,110
$ 7,387
0.4 million shares underlying restricted stock awards, respectively, calculated on a weighted-average basis, from its net (loss) income per diluted share calculations because their effect was anti-dilutive.

~~The operations for~~For the ~~Pharmaceutical~~three months ended March 31, 2020 and ~~Medical Devices segments are primarily located in Italy, Ireland~~2019, the Company excluded approximately 12.6 million and ~~the United States, respectively.~~7.8 million shares underlying outstanding stock options, respectively, calculated on a weighted-average basis, from its net (loss) income per diluted share calculations because their effect was anti-dilutive.

~~19.~~21. Subsequent Events

~~Equity Investment in Evofem BioSciences, Inc.~~

On April 10, 2019, the Company entered into a securities purchase agreement with Evofem Biosciences, Inc. (“Evofem”) and two other purchasers, pursuant to which the Company may purchase up to $60 million in a private placement of Evofem securities. The transaction is structured in two tranches.

The first tranche closed on April 11, 2019, pursuant to which the Company invested $30 million to purchase 6,666,667 shares of Evofem common stock at $4.50 per share and was also issued warrants to purchase up to 1,666,667 shares of Evofem common stock exercisable for seven years beginning six months after the issuance date at an exercise price of $6.38 per share. Following the closing of the first tranche, the Company holds approximately 19% of the common stock of Evofem.

In addition, the Company has the right until June 10, 2019, subject to customary closing conditions, to purchase an additional 6,666,667 shares of Evofem common stock at $4.50 per share and warrants to purchase an additional 1,666,667 shares of Evofem common stock, exercisable for seven years beginning six months after the issuance date at an exercise price of $6.38 per share, for a total additional investment of $30 million. The second tranche will occur alongside an investment from two existing Evofem shareholders, which have the right to invest up to an additional $10 million each on the same terms as the Company. If any of the purchasers elect not to participate in the second tranche, the other purchasers have a right to purchase the non-participating purchaser’s portion. These current shareholders have also agreed to cancel all of their warrants in Evofem issued and outstanding prior to the closing of the second tranche. These investments are expected to provide funding for Evofem's pre-commercial activities for Amphora^®~~, its investigational, non-hormonal, on-demand prescription contraceptive gel for women.~~

If the Company were to complete the second tranche, the Company would become one of the largest shareholders in Evofem, owning approximately 29% of the company's common stock, and would obtain the right to appoint one member to Evofem’s Board of Directors, as well as a right to appoint an additional board observer on customary terms. The closing of the second tranche and the exercise of any portion of the warrants that would increase the Company’s beneficial ownership to more than 19.99% of Evofem’s then outstanding common stock is subject to Evofem shareholder approval, as required by the applicable

~~PDL BIOPHARMA, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

rules of The Nasdaq Stock Market. The Company has registration rights on customary terms for all Evofem shares issued under the securities purchase agreement, including the shares underlying the warrants in both the first and second tranche.

Share Repurchase

Subsequent to March 31, ~~2019,~~2020, the Company repurchased approximately ~~2.8~~4.1 million shares of its common stock at a weighted-average price of ~~$3.77~~$3.11 per share for a total of ~~$10.4~~$12.8 million. The ~~amounts~~common stock repurchased by the Company under the ~~$100.0~~$275.0 million share repurchase program authorized by the Company’s board of directors total approximately ~~24.5~~10.4 million shares of its common stock for an aggregate purchase price of ~~$80.3~~$33.1 million, or an average cost of ~~$3.27~~$3.16 per share, including trading commissions.

Evofem Share Distribution

On May 5, 2020, the Company announced that the Board had approved a distribution of all of the Company’s 13,333,334 shares of common stock of Evofem via a special one-time dividend to PDL’s stockholders. The distribution by PDL of the Evofem shares will be made on May 21, 2020 to all PDL stockholders of record as of the close of business on May 15, 2020, subject to certain conditions.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, including any statements concerning new licensing, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue” or “opportunity,” or the negative thereof or other comparable terminology. The forward-looking statements in this quarterly report are only predictions. Although we believe that the expectations presented in the forward-looking statements contained herein are reasonable at the time they were made, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct. These forward-looking statements, including with regards to our future financial condition and results of operations, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below or incorporated by reference herein, and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

OVERVIEW

Throughout our history, our mission has been to improve the lives of patients by aiding in the successful development of innovative therapeutics and healthcare technologies. PDL BioPharma was founded in 1986 as Protein Design Labs, Inc. when it pioneered the humanization of monoclonal antibodies, enabling the discovery of a new generation of targeted treatments that have had a profound impact on patients living with different cancers as well as a variety of other debilitating diseases. In 2006, we changed our name to PDL BioPharma, Inc.

In September 2019, we engaged financial and legal advisors and initiated a review of our strategy. This review was completed in December 2019. At such time, we disclosed that we planned to halt the execution of our growth strategy, cease making additional strategic transactions and investments and pursue a formal process to unlock the value of our portfolio by monetizing our assets and ultimately distributing net proceeds to stockholders (the “monetization strategy”). Pursuant to our monetization strategy, we do not expect to enter into any additional strategic transactions or investments. We further announced in December 2019 that we would explore a variety of potential transactions in connection with the monetization strategy, including a sale of the Company, divestiture of our assets or businesses, a spin-off transaction, a merger or a combination thereof.

Over the subsequent months, our board of directors (the “Board”) and management analyzed, together with our outside financial and legal advisors, how to best capture value pursuant to our monetization strategy and best return the significant intrinsic value of the assets in our portfolio to the stockholders. In March 2020, we announced that the Board approved a plan of complete liquidation (the “Plan of Liquidation”) of our assets and passed a resolution to seek stockholder approval to dissolve the Company under Delaware law at its next annual meeting of the stockholders in the event that the Board concludes that a whole Company sale is unlikely to maximize the value that can be returned to the stockholders from our monetization process. We would, if approved by the stockholders, file a Certificate of Dissolution in Delaware and proceed to wind-down and dissolve the Company in accordance with Delaware law.

Pursuant to its monetization strategy, we are exploring a variety of potential transactions, including a whole Company sale, divestiture of assets, spin-offs of operating entities, merger opportunities or a combination thereof. In addition, we have analyzed, and continue to analyze, the optimal mechanisms for returning value to stockholders in a tax-efficient manner, including via share repurchases, cash dividends and other distributions of assets. We have not set a definitive timeline and intend to pursue monetization in a disciplined and cost-effective manner to maximize returns to stockholders. We recognize, however, that accelerating the timeline, while continuing to optimize asset value, could increase returns to stockholders due to reduced general and administrative expenses as well as provide ~~a significant return~~faster returns to stockholders. While, as noted herein, we are cognizant that an accelerated timeline may provide greater and faster returns to our stockholders, we also recognize 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 of the sale of all or substantially all of the Company’s assets, including the key assets, and therefore the timing of the Dissolution, may require additional time to execute. We will continue to assess the market for our stockholders by entering into strategic transactions involving late clinical or early commercial stage pharmaceutical products and companies with attractive revenue growth potential. Our leadership team has extensive experience in acquiring, commercializing and managingassets so as to determine the ~~life cycle~~appropriate time to sell each of ~~therapeutic products domestically and internationally across a number~~the assets of ~~indications and modalities. We intend to leverage this experience by pursuing~~ the ~~acquisition, growth and potential monetization of pharmaceutical products and companies.~~Company.

Historically, we generated a substantial portion of our revenues through the license agreements related to patents covering the humanization of antibodies, which we refer to as the Queen et al. patents. In 2012, we began providing alternative sources of capital through royalty ~~monetizations~~monetization and debt facilities, and, in 2016, we began acquiring commercial-stage products and launching specialized companies dedicated to the commercialization of these products. ~~As a result of the nature of these investments and how they are managed,~~In 2019, we ~~structured our operations in three segments designated as Pharmaceutical, Medical Devices and Income Generating Assets.~~

Prospectively, with our expected focus on consummating strategic transactions involving late clinical or early commercial stage pharmaceutical products or companies with attractive revenue growth potential, we anticipate that over time more of our revenues will come from our Pharmaceutical segment and, to a lesser extent, our Medical Devices segment, and less of our revenues will come from our Income Generating Assets segment.

~~On April 10, 2019, the Company~~ entered into a securities purchase agreement with Evofem, ~~Biosciences, Inc. (“Evofem”),~~ pursuant to which ~~it may invest a total of up to $60~~we invested $60.0 million in a private placement of securities. The transaction is structured in two tranches. The first tranche comprised $30 million, which was funded on April 11, 2019. In addition, the Company has the right to invest an additional $30 million in a second tranche, on or before June 10, 2019, alongside two existing Evofem shareholders, which have the right to invest up to an additional $10 million each. These investments ~~are expected to provide~~provided funding for ~~Evofem's~~Evofem’s pre-commercial activities for ~~Amphora~~Phexxi^®TM, its investigational, non-hormonal, on-demand prescription contraceptive gel for women. IfTo date, we ~~were to complete~~have consummated eighteen transactions, the ~~second tranche, we would obtain the right to appoint one member to Evofem's Board~~following ten of ~~Directors~~which are active and ~~a limited right to have one non-voting observer participate in Evofem board meetings.~~outstanding:

We believe this phased structure provides the Company the ability to take a significant position in a promising company at a critical stage of development where we can provide meaningful contributions through our capital and expertise. It also allows

us to continue our rigorous due diligence prior to expanding our ownership position by consummating the second tranche. Finally, it may enable us, if desired, to increase further our ownership interest in the future in line with our stated strategy for shareholder value creation.



Investment	Investment Type	Segment	Deployed Capital ⁴ (in millions)

LENSAR, Inc. (“LENSAR”)	Converted equity and loan	Medical Devices	$	47.0
Evofem	Equity	Strategic Positions	$	60.0
Noden ¹	Equity and loan	Pharmaceutical	$	191.2
CareView communications, Inc. (“CareView”)	Debt	Income Generating Assets	$	20.0
Wellstat Diagnostics, LLC (“Wellstat Diagnostics”) ²	Royalty/debt hybrid	Income Generating Assets	$	44.0
Assertio Therapeutics, Inc. (“Assertio”) ³	Royalty	Income Generating Assets	$	260.5
The Regents of the University of Michigan (“U-M”)	Royalty	Income Generating Assets	$	65.6
AcelRx Pharmaceuticals, Inc. (“AcelRx”)	Royalty	Income Generating Assets	$	65.0
Viscogliosi Brothers, LLC (“VB”)	Royalty	Income Generating Assets	$	15.5
KYBELLA	Royalty	Income Generating Assets	$	9.5

_______________


¹	Noden Pharma DAC and Noden Pharma USA, Inc. (together, and including their respective subsidiaries, “Noden”)


²	Also known as Defined Diagnostic, LLC. The Wellstat Diagnostics investment also includes our note receivable with Hyperion Catalysis International, Inc. (“Hyperion”).


³	Formerly Depomed, Inc.


⁴	Excludes transaction costs.

Our Medical Devices segment consists of revenue derived from the sale and lease of the LENSAR^® Laser System, which may include equipment, Patient Interface Devices (“PIDs”), procedure licenses, training, installation, warranty and maintenance agreements. Our Strategic Positions segment consists of an investment in Evofem. Our Evofem investment includes shares of common stock and warrants to purchase additional shares of common stock. Evofem is a pre-commercial company and, as such, is not yet engaged in revenue-generating activities. Our Pharmaceutical segment consists of revenue derived from branded prescription medicine products sold under the name Tekturna^® and Tekturna HCT^® in the United States, and Rasilez^® and Rasilez HCT^® in the rest of the world and revenue generated from the sale of an authorized generic of Tekturna in the United States (collectively, the “Noden Products”).

~~Our Medical Devices segment consists of revenue from the sale and lease of the LENSAR~~^® ~~Laser System, which may include equipment, Patient Interface Devices (“PIDs”), procedure licenses, and training, installation, warranty and maintenance agreements.~~

Our Income Generating Assets segment consists of revenue derived from (i) notes and other long-term receivables, (ii) royalty rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from issued patents in the United States and elsewhere covering the humanization of antibodies, which we refer to as the Queen et al. patents. As of March 31, 2020, the Pharmaceutical segment and the royalty right assets within the Income Generating Assets segment met the criteria to be classified as held for sale. Those investments are reported on the Condensed Consolidated Statement of Operations as discontinued operations and on the Condensed Consolidated Balance Sheets as Assets and Liabilities held for sale.

Medical Devices

LENSAR

LENSAR is a medical device company focused on delivering next generation femtosecond cataract laser technology used in refractive cataract surgical procedures. LENSAR’s femtosecond laser uses advanced imaging and laser technology to customize planning and treatments, allowing faster visual recovery and improved outcomes, as compared to conventional cataract surgery, a more manual procedure combined with ultrasound, referred to as phacoemulsification. LENSAR has developed the LENSAR^®Laser System, which is the only femtosecond cataract laser built specifically for refractive cataract surgery. LENSAR has over 85 granted patents in the United States and the rest of the world and over 60 pending patent applications in the United States and rest of the world.

Cataract surgery is the highest volume surgical procedure performed worldwide with 30 million surgeries projected in 2020, the majority of which use conventional phacoemulsification techniques. LENSAR is currently focusing its research and development efforts on an advanced integrated workstation combining an enhanced LENSAR^® Laser System and a phacoemulsification device in a single, compact workstation, designed to fit directly in the surgical theater. LENSAR’s recent acquisitions of certain intellectual property uniquely position LENSAR to develop a system that can perform all cataract surgeries in a single platform.

The LENSAR^® Laser System offers cataract surgeons automation and customization for their astigmatism treatment planning and other essential steps of the refractive cataract surgery procedure with the highest levels of precision, accuracy, and efficiency. These features assist surgeons in managing their astigmatism treatment plans for optimal overall visual outcomes.

The LENSAR^® Laser System has been cleared by the Food and Drug Administration (“FDA”) for anterior capsulotomy, lens fragmentation, corneal and arcuate incisions. The LENSAR Laser with Augmented Reality™ provides an accurate 3-D model of the relevant anatomical features of each patient’s anterior segment, allowing precise laser delivery and enhanced surgical confidence in performing accurate corneal incisions, precise size, shape and location of free-floating capsulotomies, and efficient lens fragmentation for all grades of cataracts. The LENSAR^® Laser System - fs 3D (LLS-fs 3D) with Streamline™ includes the integration with multiple pre-operative diagnostic devices, utilizing automated Iris Registration with automatic cyclorotation adjustment. IntelliAxis-C™ (corneal) and IntelliAxis-L™ (lens capsule) markers provide the surgeon tools for simple and precise alignment without errors associated with manually transposing the preoperative data, and marking the eye for incisions and implantation of Toric IOLs as well as treatment planning tools for precision guided laser treatments. The corneal incision-only mode, expanded remote diagnostics capabilities, additional pre-programmable preferences, thoughtful ergonomics, and up to 20 seconds faster laser treatment times with Streamline™ allow for seamless integration and maximum surgical efficiency with patient comfort.

Strategic Positions

Evofem

We invested $60.0 million in Evofem in the second quarter of 2019, representing approximately a 27% ownership interest in the company as of March 31, 2020. The transaction was structured in two tranches. The first tranche comprised $30.0 million, which was funded on April 11, 2019. We invested an additional $30.0 million in a second tranche on June 10, 2019, alongside two existing Evofem shareholders, who each invested an additional $10.0 million. These investments provided funding for Evofem’s pre-commercial activities for Phexxi^TM, its investigational, non-hormonal, on-demand prescription contraceptive gel for women. We believe this investment provided us the ability to take a significant position in a promising company at a critical stage of development where we could provide meaningful contributions through our capital and expertise.

Evofem is a clinical-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women’s sexual and reproductive health. Evofem is leveraging its proprietary Multipurpose Vaginal pH Regulator (MVP-R™) platform to develop Phexxi^TM (L-lactic acid, citric acid and potassium bitartrate) for hormone-free birth control. In 2015, Evofem submitted a New Drug Application (“NDA”) for prevention of pregnancy to the FDA. In April 2016, the FDA issued a Complete Response Letter with respect to the NDA, citing certain clinical deficiencies. In the fourth quarter of 2019, Evofem resubmitted the NDA, which included results from a subsequent Phase 3 trial. In December 2019, the FDA acknowledged receipt of the NDA and assigned a six-month review period and a Prescription Drug User Fee Act goal date of May 25, 2020.

The MVP-R is also being studied for the prevention of urogenital transmission of chlamydia and gonorrhea in women. In December 2019, Evofem announced positive top-line results from AMPREVENCE, a Phase 2b clinical trial evaluating the efficacy and safety of its investigational MVP-R candidate, EVO100, for the prevention of urogenital transmission of chlamydia and gonorrhea in women. Further analysis is ongoing and final results are subject to change based on a comprehensive review by the company and the FDA.

Pharmaceutical

Our goal is to deliver shareholder value through the acquisition, growth and potential monetization of a portfolio of actively managed pharmaceutical assets. We are focused on investing in late clinical or early commercial stage pharmaceutical products and companies with attractive revenue growth potential. Our acquisition strategy focuses on our ability to add value to these assets by giving them access to our capital and commercialization expertise. We have a leadership team with a proven track record of consummating deals and putting businesses on the path to growth and profitability, and we have a strong, liquid balance sheet that can be deployed to finance the right transactions. Our goal is to build growing, profitable revenues from a balanced portfolio of operating companies’ cash flows and, when appropriate, to capture further market value through optimally timed exit strategies.

Noden

On July 1, 2016, our subsidiary, Noden Pharma DAC, entered into an asset purchase agreement (“Noden Purchase Agreement”) whereby it purchased from Novartis Pharma AG (“Novartis”) the exclusive worldwide rights to manufacture, market, and sell the Noden Products and certain related assets and assumed certain related liabilities (the “Noden Transaction”). Noden Pharma DAC and Noden Pharma USA, Inc., together, and including their respective subsidiaries represent deployed capital of $191.2 million.

Tekturna (or Rasilez outside of the United States) contains aliskiren, a direct renin inhibitor, for the treatment of hypertension. While indicated as a first line treatment, it is more commonly used as a third line treatment in those patients who are intolerant

of angiotensin-receptor blockers (“ARBs”) or angiotensin converting enzyme inhibitors (“ACEIs”). Studies indicate that approximately 12% of hypertension patients are ARB/ACEI ~~inhibitor-intolerant. It is~~intolerant. Tekturna and Rasilez are not indicated for use with ARBs and ACEIs in patients with diabetes or renal impairment and isare contraindicated for use by pregnant women. OnIn March 4, 2019, we ~~announced the U.S. commercial launch of~~launched an authorized generic (“AG”) form of Tekturna, aliskiren hemifumarate 150 mg and 300 mg tablets with the same drug formulation as Tekturna. The AG ~~launch~~ is ~~being carried out~~distributed by Prasco, LLC d/b/a Prasco Laboratories.

Tekturna HCT is a combination of aliskiren and hydrochlorothiazide, a diuretic, for the treatment of hypertension in patients not adequately controlled by monotherapy and as an initial therapy in patients likely to need multiple drugs to achieve their blood pressure goals. It is not indicated for use with ACEIs and ARBs in patient with diabetes or renal impairment, or for use in patients with known anuria or hypersensitivity to sulfonamide derived drugs and is contraindicated for use by pregnant women.

The Noden Products are protected by multiple patents worldwide, which specifically cover the composition of matter, the pharmaceutical formulations and methods of production. In the United States, the FDA Orange Book lists one patent, U.S. patent No. 5,559,111 (the “’111 Patent”), which covers compositions of matter comprising aliskiren. The ‘111 Patent expired on January 21, 2019, and was previously extended for six months through a pediatric extension. In addition, the Food and Drug Administration (the “FDA”) Orange Book for Tekturna lists U.S. Patent No. 8,617,595, which covers certain compositions comprising aliskiren, together with other formulation components, and will expire on February 19, 2026. The FDA Orange Book for Tekturna HCT lists U.S. patent ~~No.~~Nos. 8,618,172, which ~~covers~~expires on July 13, 2028 and 9,023,893, which expires March 3, 2022, which patents cover certain compositions comprising aliskiren and hydrochlorothiazide, together with

other formulation ~~components, and will expire on July 13, 2028.~~components. In Europe, European patent No. 678 503B (the “’503B Patent”) expired in 2015. However, numerous Supplementary Protection Certificates (“SPCs”) have been granted which are based on the ‘503B Patent and which ~~will~~ provide for extended protection. These SPCs generally expire in April of 2020.

~~The agreement between Novartis~~ European Patent Publication Number 2 305 232, which covers certain pharmaceutical compositions comprising aliskiren and Noden provides for various transition periods for development and commercialization activities relating to the Noden Products. Initially, Novartis distributed the Noden Products on behalf of Noden worldwide and Noden received a profit transfer on such sales. Generally, the profit transfer to Noden was defined as gross revenues less product cost and a low single digit percentage fee to Novartis. The profit transfer terminated upon the transfer of the marketing authorization from Novartis to NodenHCT, will expire in each country. In the United States, the duration of the profit transfer ran from July 1, 2016 through October 4, 2016. Outside the United States, the profit transfer ended in the first quarter of 2018.

Prior to the transfer of the marketing authorization, revenue was presented on a “net” basis; after the transfer of the marketing authorization, revenue is presented on a “gross” basis, meaning product costs are reported separately and there is no fee to Novartis. Except for the sales outside of the United States preceding the final profit transfer that occurred in the first quarter of 2018, revenues of the Noden Products for the periods herein are presented on a gross basis.

~~Medical Devices~~

~~LENSAR~~

In December 2016, LENSAR filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code (the “Chapter 11 case”). With our support, LENSAR filed a Chapter 11 plan of reorganization under which LENSAR would issue 100% of its equity interests to us in exchange for the cancellation of our claims as a secured creditor in the Chapter 11 case. On May 11, 2017, pursuant to the Chapter 11 plan of reorganization, most of LENSAR’s outstanding debt owed to us was converted to equity and LENSAR became our operating subsidiary. LENSAR represents deployed capital of $47.0 million.

LENSAR is a medical device company focused on the next generation femtosecond cataract laser technology for refractive cataract surgery. Femtosecond cataract surgery uses advanced laser technology as compared to conventional phacoemulsification cataract surgery which uses an ultrasonic device. Cataract surgery is the highest volume surgical procedure performed worldwide with over 27 million surgeries estimated to have been performed in 2018, the majority of which use the conventional phacoemulsification technique. The LENSAR^® Laser System offers cataract surgeons automation and customization for their astigmatism treatment planning and other essential steps of the refractive cataract surgery procedure with the highest levels of precision, accuracy, and efficiency. These features assist surgeons in managing their astigmatism treatment plans for optimal overall visual outcomes.

~~The LENSAR~~^® Laser System has been approved by the FDA for anterior capsulotomy, lens fragmentation, corneal and arcuate incisions. The LENSAR Laser with Augmented Reality™ provides an accurate 3-D model of the relevant anatomical features of each patient’s anterior segment, allowing precise laser delivery and to enhance the surgical confidence in performing accurate corneal incisions, precise size, shape and location of free-floating capsulotomies, and efficient lens fragmentation for all grades. The LENSAR^® Laser System - fs 3D (LLS-fs 3D) with Streamline™ includes the integration with various pre-op diagnostic devices, automated Iris Registration with automatic cyclorotation adjustment, IntelliAxis-C™ (corneal) and IntelliAxis-L™ (lens) markers for simple alignment without errors associated with manually marking the eye, of Toric IOLs as well as treatment planning tools for precision guided laser treatments. The corneal incision-only mode, expanded remote diagnostics capabilities, additional pre-programmable preferences, thoughtful ergonomics, and up to 20 seconds faster laser treatment times with Streamline allow for seamless integration and maximum surgical efficiency.

~~LENSAR has developed the LENSAR~~^®~~Laser System, which is the only femtosecond cataract laser built specifically for refractive cataract surgery. The LENSAR~~^®~~Laser System is protected by over 60 granted patents in the United States and the rest of the world and over 45 pending patent applications in the United States and rest of the world.~~2021.

Income Generating Assets

We have pursued income generating assets when such assets ~~could~~can be acquired on terms that we ~~believed would~~believe allow us to increase return to our stockholders. The income generating assets typically ~~consisted~~consist of (i) notes and other long-term receivables, (ii) royalty rights and hybrid notes/royalty receivables, (iii) equity investments and (iv) royalties from the Queen et. al patents. ~~We previously focused our~~While we currently maintain a portfolio of income generating ~~asset acquisition strategy~~assets, our intention is to no longer pursue these transactions while we focus on ~~commercial-stage therapies and medical~~

~~devices having strong economic fundamentals. To date, we have consummated fifteen transactions in this segment, eight of which are active and outstanding:~~our monetization strategy.

Investment Investment Type
Deployed Capital ⁴
(in millions)

Assertio ¹
Royalty $ 260.5
The Regents of the University of Michigan (“U-M”) Royalty $ 65.6
AcelRx Pharmaceuticals, Inc. (“AcelRx”) Royalty $ 65.0
Viscogliosi Brothers, LLC (“VB”) Royalty $ 15.5
KYBELLA^®
Royalty $ 9.5
CareView Communications, Inc. (“CareView^”)
Debt $ 20.0
Direct Flow Medical, Inc. (“DFM”) ²
Debt $ 59.0
Wellstat Diagnostics ³
Royalty/debt hybrid $ 44.0



Investment	Investment Type	Deployed Capital ⁽³⁾ (in millions)

Assertio ¹	Royalty	$	260.5
U-M	Royalty	$	65.6
AcelRx	Royalty	$	65.0
VB	Royalty	$	15.5
KYBELLA^®	Royalty	$	9.5
CareView	Debt	$	20.0
Wellstat Diagnostics ²	Royalty/debt hybrid	$	44.0

______________


¹⁽¹⁾	~~Assertio Therapeutics, Inc., formerly~~Formerly Depomed, Inc.


²⁽²⁾	DFM ceased operations in December 2016 and we subsequently foreclosed upon and obtained most of the assets of DFM and impaired them by $51.1 million. Since taking over the DFM assets, we have collected $8.7 million in cash and, as of March 31, 2019 an intangible asset with a carrying value of $1.6 million remains on our books. For further detail see Note 9, ~~Intangible Assets~~.


³	~~Wellstat Diagnostics, LLC (also~~Also known as Defined Diagnostic, ~~LLC)~~LLC. The Wellstat Diagnostics investment also includes our note receivable with Hyperion Catalysis International, Inc. (“~~Wellstat Diagnostics”~~Hyperion”).


⁴⁽³⁾	Excludes transaction costs.

Royalty Rights - At Fair Value

We have entered into various royalty purchase agreements with counterparties, whereby the counterparty conveys to us the right to receive royalties that are typically payable on sales revenue generated by the sale, distribution or other use of the counterparties’ products. ~~Certain of our royalty agreements provide the counterparty with the right to repurchase the~~

Our royalty rights ~~at any time~~are classified as held for ~~a specified amount.~~

sale. We record the royalty rights at fair value using discounted cash flows related to the expected future cash flows to be ~~received.~~received less estimated selling costs. We use significant judgment in determining our valuation inputs, including estimates as to the probability and timing of future sales of the licensed product. A third-party expert is generally engaged to assist us with the development of our estimate of the expected future cash flows. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation is performed to assess those estimates, discount rates utilized and general market conditions affecting fair market value.

~~While we currently maintain this portfolio of royalty rights, our intention is to no longer pursue these transactions while we focus on acquiring additional pharmaceutical products or companies.~~ At March 31, ~~2019,~~2020, we had a total of five royalty rights transactions outstanding.

Notes and Other Long-Term Receivables

We have entered into credit agreements with borrowers across the healthcare industry, under which we made available cash loans to be used by the borrower. Obligations under these credit agreements are typically secured by a pledge of substantially all the assets of the borrower and any of its subsidiaries. ~~While we currently maintain this portfolio of notes receivable, our intention is to no longer pursue these types of transactions.~~ At March 31, ~~2019,~~2020, we had two ~~notes~~note receivable transactions outstanding.

Equity Investments

In the past, we have received equity instruments, including shares of stock or warrants to acquire shares of stock, in connection with credit agreements we entered into with borrowers in the healthcare industry. Our investment objective with respect to these

equity investments is to maximize our return through capital appreciation and, when appropriate, to capture the value through optimally timed exit strategies. At March 31, 2020, we had one equity investment outstanding.

Royalties from Queen et al. patents and know-how

We have been issued patents in the United States and elsewhere, covering the humanization of antibodies, which we refer to as our Queen et al. patents. Our Queen et al. patents, for which final patent expiry was in December 2014, covered, among other things, humanized antibodies, methods for humanizing antibodies, polynucleotide encoding in humanized antibodies and methods of producing humanized antibodies.

We previously entered into licensing agreements under our Queen et al. patents with numerous entities that are independently developing or have developed humanized antibodies. Under our licensing agreements, we are entitled to receive a flat-rate royalty based upon our licensees’ net sales of covered antibodies, although the royalties under these agreements have substantially ended.

Solanezumab is a Lilly-licensed humanized monoclonal antibody being tested in a study of older individuals who may be at risk of memory loss and cognitive decline due to Alzheimer’s disease. Lilly has characterized the study as an assessment of whether an anti-amyloid investigational drug in older individuals who do not yet show symptoms of Alzheimer’s disease cognitive impairment or dementia can slow memory loss and cognitive decline. The study will also test whether solanezumab treatment can delay the progression of Alzheimer’s disease related brain injury on imaging and other biomarkers. If solanezumab is approved and commercialized pursuant to this clinical trial or another, we would be entitled to receive a royalty based on a “know-how” license for technology provided in the design of this antibody. The 2% royalty on net sales is payable for 12.5 years after the product’s first commercial sale. The above described study is currently in Phase 3 testing with results expected in July of 2022.

Economic and Industry-wide Factors

Various economic and industry-wide factors are relevant to our business, including changes to laws and interpretation of those laws that protect our intellectual property rights, our licensees’ ability to obtain or retain regulatory approval for products licensed under our patents, fluctuations in foreign currency exchange rates, the ability to attract, retain and integrate qualified personnel, as well as overall global economic conditions. We actively monitor economic, industry and market factors affecting our business; however, we cannot predict the impact such factors may have on our future results of operations, liquidity and cash flows.

On March 11, 2020, the World Health Organization declared a global pandemic, as the outbreak of a novel strain of coronavirus spread throughout the world. The outbreak of COVID-19 has disrupted our business operations and has adversely impacted LENSAR. Actions taken to mitigate coronavirus have had and are expected to continue to have an adverse impact on the geographical areas in which LENSAR operates. Cataract surgery is typically considered an elective surgery and as such the majority of LENSAR’s customers are not utilizing the LENSAR Laser Systems as they normally would at this time. LENSAR has also experienced minor supply chain disruptions. It is unclear at this time how severely our LENSAR and our other businesses may be impacted in the future.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law at the end of March 2020 and contains numerous forms of economic stimulus, including SBA guaranteed loans and certain income tax provisions. The tax provisions of the CARES Act, among other things, allows for a five year carryback of net operating losses for tax years 2018-2020.

See also the risk factors included herein in “Item 1A. Risk Factors” and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018~~2019 and in subsequent filings for additional factors that may impact our business and results of operations.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. The accounting estimates that require management’s most significant, difficult and subjective judgments include the valuation of royalty rights - at fair value, assets and liabilities held for sale, product revenue recognition and allowance for customer rebates and allowances, the valuation of notes receivable and inventory, the assessment of recoverability of intangible assets and their estimated useful lives, the valuation and recognition of stock-based compensation, the recognition and measurement of current and deferred income tax assets and liabilities, and the valuation of warrants to acquire shares of common stock. Furthermore, the impact on accounting estimates and judgments on the Company’s financial condition and results of operations due to COVID-19 has introduced additional uncertainties. We base our estimates, where possible, on our historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

~~In February 2016,~~During the ~~FASB issued ASU No. 2016-02,~~ ~~Leases,~~ ~~that supersedes Accounting Standards Codification (“ASC”) 840,~~ ~~Leases. Subsequently, the FASB issued several updates to ASU No. 2016-02, codified in ASC Topic 842 (“ASC 842”)~~

Effective January 1, 2019, the Company adopted the requirements of ASC 842 using the modified retrospective method for all leases not substantially completed as of the date of adoption. The reported results for the quarterthree months ended March 31, ~~2019 reflect~~2020, we reclassified our Pharmaceutical segment and the ~~application~~royalty right assets within the Income Generating Assets segment to assets held for sale. Assets and liabilities are classified as held for sale when all of ~~ASC 842 guidance while~~ the ~~reported results~~following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the assets; (2) the assets are available for immediate sale, in their present condition, subject only to terms that are usual and customary for sales of such assets; (3) an active program to locate a buyer and other actions required to complete the plan to sell the assets have been initiated; (4) the sale of the assets is probable and is expected to be completed within one year; (5) the assets are being actively marketed for a price that is reasonable in relation to their current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or the plan will be withdrawn. When all of these criteria have been met, the assets (and liabilities) are classified as held for sale in the balance sheet for the ~~quarter ended March 31, 2018 were prepared under~~current and comparative reporting periods. Assets classified as held for sale are reported at the ~~guidance~~lower of ~~ASC 840, which is also referred~~their carrying value or fair value less costs to ~~herein~~sell. Depreciation and amortization of assets ceases upon designation as ~~“legacy GAAP” or the “previous guidance”.~~held for sale. The ~~adoption did not have an effect~~assets and liabilities held for sale are recorded on our Condensed Consolidated Balance Sheets as Assets held for sale and Liabilities held for sale, respectively. The profits and losses are presented on the Condensed Consolidated Statements of ~~Income. However,~~Operations as discontinued operations for the ~~new standard required the Company to establish liabilities~~current and corresponding right-of-use assets on its Consolidated Balance Sheet for operating leases that exist as of January 1, 2019. The cumulative impact of the adoption of ASC 842 was not material, therefore, the Company did not record any adjustments to retained earnings.prior periods.

During the three months ended March 31, ~~2019,~~2020, there have not been any other significant changes to our critical accounting policies and estimates from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, that are of significance, or potential significance, to us. Summarized below are the accounting pronouncements and policies adopted subsequent to December 31, 2019.

Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The new guidance amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses. The Company adopted ASU No. 2016-13 on January 1, 2020 using a modified retrospective approach. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. As a consequence of adopting ASU 2016-13, the Company’s accounts receivable accounting policy has been updated, as follows:

Accounts and Notes Receivable

The Company makes estimates of the collectability of accounts receivable. In doing so, the Company analyzes historical bad debt trends, customer credit worthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for credit losses. Amounts are charged off against the allowance for credit losses when the Company determines that recovery is unlikely and the Company ceases collection efforts. The Company applies the practical expedient for its collateral-dependent notes receivable. Estimated credit losses are based on the fair value of the collateral (less costs to sell, as applicable).

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. The new guidance modifies disclosure requirements related to fair value measurement. The Company adopted ASU No. 2018-13 on January 1, 2020. The adoption did not have an effect on the Consolidated Financial Statements on the adoption date and no adjustment to prior year Consolidated Financial Statements was required.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. For public companies, the amendments in ASU No. 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its Consolidated Financial Statements.

Operating Results

As noted above, during the three months ended March 31, 2020, we reclassified our Pharmaceutical segment and the royalty right assets within the Income Generating Assets segment to assets held for sale. When the held for sale criteria have been met, depreciation and amortization of those assets is suspended and the profits and losses are presented on the Condensed Consolidated Statements of Operations as discontinued operations. The operating results presented below are segregated between continuing operations and discontinued operations. Results from the prior year comparative period are classified consistently with the current year presentation.

Three months ended March 31, ~~2019,~~2020, compared to three months ended March 31, ~~2018~~2019

Revenues


	Three Months Ended					Change from Prior	Three Months Ended					Change from Prior
	March 31,					Change from Prior	March 31,					Change from Prior
(dollars in thousands)	2019			2018		Year %	2020		2019			Year %

Revenues
Product revenue, net(1)	$	26,686		$	23,324	14%	$	5,985	$	6,726		(11%)
Royalty rights - change in fair value	12,257			11,091		11%
Royalties from Queen et al. patents	3			2,783		(100%)	—		3			N/M
Interest revenue	—			749		(100%)
License and other	(33		)	571		(106%)	10		(33		)	(130%)
Total revenues	$	38,913		$	38,518	1%	$	5,995	$	6,696		(10%)

~~higher royalty asset revenues, primarily related to Assertio, partially offset by,~~

~~Revenue from~~Product sales for our Pharmaceutical segment ~~for the three months ended March 31, 2019 was $20.0 million, an increase of 9%, compared to the same period of the prior year. We record revenue~~are included in (Loss) income from discontinued operations and are net of estimated product returns, pricing discounts, including rebates offered pursuant to mandatory federal and state government programs, chargebacks, prompt pay discounts, distribution fees and co-pay assistance for product sales each period. ~~The increase in revenue from~~See Note 2, Discontinued Operations Classified as Assets Held for Sale, for additional information on our Pharmaceutical ~~segment reflects higher net~~product sales.

Three Months Ended March 31, 2020

~~The following table provides a summary of activity with respect to our sales allowances and accruals for the three months ended March 31, 2019:~~

~~The following tables provides a summary of activity with respect to our royalty rights - change in fair value for the three months ended March 31, 2019:~~

Three Months Ended March 31, 2019

Change in Royalty Rights -
(in thousands) Cash Royalties Fair Value Change in Fair Value

Assertio $ 10,968
$ (552 ) $ 10,416
VB 267
128
395
U-M 1,267
(536 ) 731
AcelRx 68
2,088
2,156
KYBELLA 50
(1,491 ) (1,441 )
$ 12,620
$ (363 ) $ 12,257

Three Months Ended
March 31,
Licensee Product Name 2019 2018

Noden Tekturna, Tekturna HCT, Rasilez and Rasilez HCT 51% 48%

Assertio Glumetza, Janumet XR (2018), Jentadueto XR, Synjardy XR and Invokamet XR 27% 19%

LENSAR LENSAR Laser System 17% 13%

Three Months Ended March 31, 2020

Total general and administrative⁽¹⁾

~~Non-operating Expense, Net~~

Non-operating Expense, Net



	Three Months Ended						Change from Prior
	March 31,						Change from Prior
(dollars in thousands)	2020			2019			Year %

Interest and other income, net	$	513		$	1,874		(73%)
Interest expense	(474		)	(2,955		)	(84%)
Equity affiliate - change in fair value	(13,797		)	—			N/M
Loss on extinguishment of convertible notes	(606		)	—			N/M
Total non-operating expense, net	$	(14,364	)	$	(1,081	)	1,229%

Three Months Ended March 31, 2020

The uncertain tax positions did not change during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Assets held for sale and discontinued operations



	Three Months Ended
	March 31,
	2020			2019
Revenues
Product revenue, net	$	15,031		$	19,961
Royalty rights - change in fair value	9,394			12,257
Total revenues	24,425			32,218
Operating expenses
Cost of product revenue (excluding intangible asset amortization)	8,781			9,010
Amortization of intangible assets	389			1,253
General and administrative	2,302			2,151
Sales and marketing	117			1,156
Research and development	—			(41		)
Total operating expenses	11,589			13,529
Operating income from discontinued operations	12,836			18,689
Non-operating (expense) income, net
Loss on classification as held for sale	(12,761		)	—
Total non-operating (expense) income, net	(12,761		)	—
Income from discontinued operations before income taxes	75			18,689
Income tax expense from discontinued operations	319			3,620
(Loss) income from discontinued operations	$	(244	)	$	15,069

The following tables provides a summary of activity with respect to our royalty rights - change in fair value for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31, 2020
			Change in			Royalty Rights -
(in thousands)	Cash Royalties		Fair Value			Change in Fair Value

Assertio	$	11,177	$	(3,161	)	$	8,016
VB	266		206			472
U-M	2,005		(1,391		)	614
AcelRx	79		200			279
KYBELLA	42		(29		)	13
Total	$	13,569	$	(4,175	)	$	9,394



	Three Months Ended March 31, 2019
			Change in			Royalty Rights -
(in thousands)	Cash Royalties		Fair Value			Change in Fair Value

Assertio	$	10,968	$	(552	)	$	10,416
VB	267		128			395
U-M	1,267		(536		)	731
AcelRx	68		2,088			2,156
KYBELLA	50		(1,491		)	(1,441		)
Total	$	12,620	$	(363	)	$	12,257

Net (Loss) Income Per Share

Three Months Ended
March 31,
2019 2018

Net income per share - basic $ 0.05
$ 0.01
Net income per share - diluted $ 0.05
$ 0.01



	Three Months Ended
	March 31,
	2020			2019

Net (loss) income from continuing operations	$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations	$	0.00		$	0.12
Net (loss) income per share - basic	$	(0.26	)	$	0.05
Net (loss) income from continuing operations	$	(0.26	)	$	(0.07	)
Net (loss) income from discontinued operations	$	0.00		$	0.12
Net (loss) income per share - diluted	$	(0.26	)	$	0.05

Weighted-average basic and diluted shares used in the computation of Net (loss) income per share are as follows (in thousands):



	Three Months Ended
	March 31,
	2020	2019

Basic	122,896	128,799
Diluted	122,896	128,799


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Cash flows from operating activities
Net income	$	6,617		$	1,602
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of convertible notes	1,923			2,132
Net (loss) income							$	(32,011	)	$	6,617
Less: (Loss) income from discontinued operations							(244		)	15,069
Net loss from continuing operations							(31,767		)	(8,452		)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of convertible notes conversion option and debt issuance costs							280			1,923
Accreted interest on convertible note principal							33			—
Amortization of intangible assets	1,572			6,293			302			318
Change in fair value of royalty rights - at fair value	(12,257		)	(11,091		)
Change in fair value of derivative asset	33			(71		)
Change in fair value of contingent consideration	—			(600		)
Amortization of right-of-use assets							185			153
Change in fair value of equity affiliate							11,334			—
Change in fair value of derivative assets							2,453			33
Loss on extinguishment of convertible notes							606			—
Other amortization and depreciation	1,128			1,004			509			827
Gain on sale of available-for-sale securities	—			(764		)
Inventory obsolescence	97			114
Loss on disposal of property and equipment							300			—
Provision for bad debts	13			(12		)	50			—
Stock-based compensation expense	1,169			957			17,769			1,115
Deferred income taxes	1,770			794			(129		)	(602		)
Changes in assets and liabilities:
Accounts receivable	5,931			8,566			(1,245		)	1,472
Prepaid and other current assets	2,116			532			(14,666		)	1,048
Accrued interest on notes receivable	—			(74		)
Inventory	2,900			(4,919		)	(3,900		)	(788		)
Other assets	182			(1,720		)	—			173
Accounts payable	(712		)	(9,940		)	2,554			(65		)
Accrued liabilities	(7,944		)	(6,226		)	(238		)	570
Accrued income taxes	5			(505		)
Other long-term liabilities	(28		)	407			316			(28		)
Net cash provided by (used in) operating activities	4,515			(13,521		)
Net cash used in operating activities - continuing operations							(15,254		)	(2,303		)
Net cash (used in) provided by operating activities - discontinued operations							(3,765		)	6,818
Cash flows from investing activities
Proceeds from sales of available-for-sale securities	—			4,115
Proceeds from royalty rights - at fair value	12,620			18,623
Purchase of property and equipment	(42		)	(1,398		)	(93		)	(42		)
Net cash provided by investing activities	12,578			21,340
Net cash used in investing activities - continuing operations							(93		)	(42		)
Net cash provided by investing activities - discontinued operations							13,569			12,620
Cash flows from financing activities
Repayment of convertible notes	—			(126,447		)
Repurchase of convertible notes							(18,845		)	—
Net receipts for capped call transactions							801			—
Payment of contingent consideration	(1,071		)	—			—			(1,071		)
Repurchase of Company common stock	(44,288		)	(3,560		)	(19,226		)	(44,288		)
Net cash used in financing activities	(45,359		)	(130,007		)
Net settlement of stock-based compensation awards							(3,462		)	—
Net cash used in financing activities - continuing operations							(40,732		)	(45,359		)
Net cash used in financing activities - discontinued operations							(359		)	—
Net decrease in cash and cash equivalents	(28,266		)	(122,188		)	(46,634		)	(28,266		)
Cash and cash equivalents at beginning of the period	394,590			527,266			193,451			394,590
Cash and cash equivalents at end of period	$	366,324		$	405,078
Cash and cash equivalents at end of the period							146,817			366,324
Less: Cash and cash equivalents of discontinued operations							21,305			24,469
Cash and cash equivalents of continuing operations at end of period							$	125,512		$	341,855

Supplemental cash flow information
Cash (refunded) paid for income taxes	$	(2,773	)	$	644		$	(26	)	$	(2,773	)
Cash paid for interest	$	—		$	2,529		$	95		$	—

Supplemental schedule of non-cash investing and financing activities
Assets held for sale reclassified from other assets to intangible assets	$	—		$	1,811



	Nine Months Ended
(in thousands)	December 31, 2019		Thereafter		Total

Pharmaceutical product sales	$	2,500	$	—	$	2,500
Medical device sales	$	2,942	$	2,269	$	5,211



	PDL’s Stockholders’ Equity
	Common Stock					Treasury Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest			Total Stockholders’ Equity
	Shares		Amount			Treasury Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest			Total Stockholders’ Equity
Balance at December 31, 2018	136,512,522		$	1,365		$	(2,103	)	$	(98,030	)	$	828,547		$	—	$	—		$	729,779
Issuance of common stock, net of forfeitures	764,785		8			—			(8		)	—			—		—			—
Stock-based compensation expense	—		—			—			1,169			—			—		—			1,169
Repurchase and retirement of common stock	(13,460,164	)	(135		)	613			—			(44,831		)	—		—			(44,353		)
Transfer of subsidiary shares to non-controlling interest	—		—			—			—			—			—		572			572
Comprehensive income:
Net income	—		—			—			—			6,680			—		(63		)	6,617
Total comprehensive income	—		—			—			—			—			—		—			6,617
Balance at March 31, 2019	123,817,143		$	1,238		$	(1,490	)	$	(96,869	)	$	790,396		$	—	$	509		$	693,784


•	The Company’s Medical Devices segment consists of revenue derived from the LENSAR^® Laser System sales made by the Company’s subsidiary, LENSAR, Inc. (“LENSAR”), which may include equipment, Patient Interface Devices (“PIDs” or “consumables”), procedure licenses, training, installation, warranty and maintenance agreements.


•	~~The Company’s Medical Devices segment consists of revenue derived from the LENSAR~~^® Laser System sales made by the Company’s subsidiary, LENSAR, Inc. (“LENSAR”), which may include equipment, Patient Interface Devices (“PIDs” or “consumables”), procedure licenses, and training, installation, warranty and maintenance agreements.



	Three Months Ended
	March 31,
Net Income per Basic and Diluted Share	2019		2018
(in thousands, except per share amounts)
Numerator
Income attributable to PDL’s shareholders used to compute net income per basic and diluted share	$	6,680	$	1,602

Denominator
Total weighted average shares used to compute net income attributable to PDL’s shareholders, per basic share	128,799		151,473
Restricted stock outstanding	512		1,106
Stock options	79		—
Shares used to compute net income attributable to PDL’s shareholders, per diluted share	129,390		152,579

Net income attributable to PDL’s shareholders per share - basic	$	0.05	$	0.01
Net income attributable to PDL’s shareholders per share - diluted	$	0.05	$	0.01



Fair Value Measurements Using Significant Unobservable Inputs (Level 3) - Liabilities

(in thousands)		Contingent Consideration
Fair value as of December 31, 2018		$	(1,071	)

	Financial instruments purchased	—
	Settlement of financial instrument¹	1,071
	Total net change in fair value for the period	—

Fair value as of March 31, 2019		$	—




(in thousands)	Amortized Cost		Estimated Fair Value

March 31, 2019
Cash	$	138,712	$	138,712
Money market funds	227,612		227,612
Total	$	366,324	$	366,324

December 31, 2018
Cash	$	167,871	$	167,871
Money market funds	226,719		226,719
Total	$	394,590	$	394,590



	Three Months Ended March 31,
Licensee	2019	2018
Noden	51%	48%
Assertio	27%	19%
LENSAR	17%	13%



Fiscal Year	Amount

2019 (Remaining nine months)	$	4,704
2020	6,240
2021	6,209
2022	6,104
2023	6,040
Thereafter	20,449
Total remaining amortization expense	$	49,746



(in thousands)	March 31, 2019		December 31, 2018

Accrued rebates, chargebacks and other revenue reserves	$	14,836	$	20,133
Deferred revenue	5,370		8,811
Compensation	3,586		4,468
Interest	1,375		344
Legal	490		623
Dividend payable	15		15
Customer advances	4		1
Other	5,191		4,917
Total	$	30,867	$	39,312



(in thousands)	Discount and Distribution Fees			Government Rebates and Chargebacks			Assistance and Other Discounts			Product Returns			Total

Balance at December 31, 2018	$	3,094		$	8,901		$	3,457		$	4,681		$	20,133
Allowances for current period sales	2,173			4,396			1,974			554			9,097
Allowances for prior period sales	—			1,841			120			—			1,961
Credits/payments for current period sales	(351		)	(1,028		)	(546		)	(31		)	(1,956		)
Credits/payments for prior period sales	(2,483		)	(7,972		)	(2,887		)	(1,057		)	(14,399		)
Balance at March 31, 2019	$	2,433		$	6,138		$	2,118		$	4,147		$	14,836



Operating Leases	Classification	March 31, 2019

Operating lease ROU assets	Other assets	$	1,882

Operating lease liabilities, current	Accrued liabilities	$	855
Operating lease liabilities, long-term	Other long-term liabilities	1,064
Total operating lease liabilities	Total operating lease liabilities	$	1,919

Weighted average remaining lease term		2.25 years
Weighted average discount rate		6		%


⁽³⁾	LENSAR acquired certain intangible assets for customer relationships from PES, which are being amortized using a double-declining method over a period of 20 years.



	Nine Months Ended
(in thousands)	December 31, 2020		Thereafter		Total

Medical device sales	$	4,416	$	6,542	$	10,958
Pharmaceutical product sales	$	287	$	3,443	$	3,730



Income (loss) by segment	Three Months Ended
	March 31,
(in thousands)	2019			2018

Pharmaceutical	$	5,645		$	(1,716	)
Medical Devices	(1,215		)	(584		)
Income Generating Assets	2,250			3,902
Total net income	$	6,680		$	1,602


	Three Months Ended March 31, 2019								Three Months Ended March 31, 2018								Three Months Ended March 31, 2020								Three Months Ended March 31, 2019
(in thousands)	Pharmaceutical		Medical Device		Income Generating Assets		Total		Pharmaceutical		Medical Device		Income Generating Assets		Total		Medical Devices		Income Generating Assets			Total			Medical Devices		Income Generating Assets		Total
Compensation	$	492	$	956	$	3,448	$	4,896	$	440	$	688	$	3,324	$	4,452	$	983	$	23,807		$	24,790		$	956	$	3,448	$	4,404
Salaries and Wages (including taxes)	384		519		1,647		2,550		369		435		1,318		2,122		615		2,219			2,834			519		1,647		2,166
Bonuses (including accruals)	80		323		705		1,108		61		54		1,073		1,188		284		840			1,124			323		705		1,028
Severance and retention																	—		18,734			18,734			—		—		—
Equity	28		114		1,096		1,238		10		199		933		1,142		84		2,014			2,098			114		1,096		1,210
Asset management	—		—		450		450		—		—		1,503		1,503		—		1,978			1,978			—		450		450
Business development	—		—		129		129		—		—		400		400		—		(62		)	(62		)	—		129		129
Accounting and tax services	256		3		969		1,228		307		2		1,256		1,565		555		1,180			1,735			3		969		972
Other professional services	509		274		341		1,124		1,731		123		217		2,071		116		1,516			1,632			274		341		615
Other	892		583		1,160		2,635		87		318		1,265		1,670		516		1,014			1,530			583		1,160		1,743
Total general and administrative	$	2,149	$	1,816	$	6,497	$	10,462	$	2,565	$	1,131	$	7,965	$	11,661
Total general and administrative⁽¹⁾																	$	2,170	$	29,433		$	31,603		$	1,816	$	6,497	$	8,313



Fiscal Period			Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of a Publicly Announced Program	Approximate Dollar Amount of Shares That May Yet be Purchased Under the Program
January 1, 2019	to	January 31, 2019	4,754	$	3.13	13,428	$	59,566	⁽¹⁾
February 1, 2019	to	February 28, 2019	4,100	3.38		17,528	45,704
March 1, 2019	to	March 31, 2019	4,256	3.66		21,784	30,113
Total for the three months ended March 31, 2019			13,110	$	3.38	21,784	$	30,113



Exhibit Number	Exhibit Title

3.1	Restated Certificate of Incorporation effective March 23, 1993 (incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K filed March 31, 1993)

3.2	Certificate of Amendment of Certificate of Incorporation effective August 21, 2001 (incorporated by reference to Exhibit 3.3 to Annual Report on Form 10-K filed March 14, 2002)

3.3	Certificate of Amendment of Certificate of Incorporation effective January 9, 2006 (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed January 10, 2006

3.4	Certificate of Designation, Preferences and Rights of the Terms effective August 25, 2006 (incorporated by reference to Exhibit 3.4 to Registration Statement on Form 8-A filed September 6, 2006)

3.5	Third Amended and Restated Bylaws effective December 4, 2014 (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed December 9, 2014)

3.6	Certificate of Amendment of Restated Certificate of Incorporation effective May 22, 2013 (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-3 filed June 21, 2013)

10.1*4.1	~~Executive Severance Plan~~Indenture, dated September 17, 2019, between the Company, as Issuer and ~~Schedule~~The Bank of ~~Benefits~~New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed September 17, 2019)

4.2	Supplemental Indenture, dated September 17, 2019 by and between the Company, as Issuer and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed September 17, 2019)

10.1	Cooperation and Support Agreement, dated as of February 27, 2020, by and among PDL BioPharma, Inc., Engine Capital, L.P. and its affiliates (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed ~~on April 10, 2019)~~February 28, 2020)

~~10.2~~10.2#*	~~Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 10, 2019)~~

10.3#*	~~2019~~2020 Annual Bonus Plan

~~12.1#~~	~~Ratio of Earnings to Fixed Charges~~

31.1#	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2#	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1#+	~~Certifications~~Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase



Dated:	May ~~9, 2019~~8, 2020
PDL BIOPHARMA, INC. (REGISTRANT)


/s/ ~~Dominique Monnet~~DOMINIQUE MONNET
Dominique Monnet
President and Chief Executive Officer (Principal Executive Officer)



/s/ ~~Peter S. Garcia~~EDWARD A. IMBROGNO
~~Peter S. Garcia~~Edward A. Imbrogno
Vice President, Chief Financial Officer and Chief ~~Financial~~Accounting Officer (Principal Financial Officer and ~~Acting~~ Principal Accounting Officer)