PDL BioPharma, Inc.
2Q2010
July 28, 2010
The following document was compiled from public press releases for your convenience. This document, together with the press release issued today, provides information regarding PDL related to its second quarter 2010 financial and business results.
Non-GAAP Earnings per Share
An important component of our current strategy is the improvement of our capital structure and reducing the dilution associated with our convertible notes. To this end, in the second quarter of 2010, we repurchased $84.2 million face value of our 2.75% subordinated notes due in August 2023 at market prices at an average premium of 19% to face value for total consideration of $100.4 million in cash, plus accrued interest. This transaction resulted in a charge to non-operating expense of $16.3 million or $14.7 million net of tax. The effect of these transactions was to reduce net income per diluted share from $0.38 to $0.30.
During the second quarter of 2009, we repurchased at market prices $50.0 million face value of the 2023 Notes at approximately a 2% discount to face value for total consideration of $49.3 million in cash, plus accrued but unpaid interest, and $5.0 million face value of the 2012 Notes at a 10.75% discount to face value for total consideration of $4.5 million in cash, plus accrued but unpaid interest. These transactions resulted in a gain of $1.2 million or $0.8 million net of tax. The effect of these transactions was to increase net income per diluted share from $0.46 to $0.47.
The result of these repurchase transactions was to reduce shares used to compute net income per diluted share on an as converted basis by 14.9 million shares and 6.6 million shares in 2010 and 2009, respectively. Excluding these transactions, non-GAAP earnings per share was:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net Income | $ | 50,138 | $ | 77,237 | $ | 76,145 | $ | 114,694 | ||||||||
Add back loss (gain) on repurchase of convertible notes | 16,327 | (1,195 | ) | 16,327 | (1,195 | ) | ||||||||||
Deduct income tax expense (benefit) on repurchase of convertible notes | (1,590 | ) | 418 | (1,590 | ) | 418 | ||||||||||
Non-GAAP net income | 64,875 | 76,460 | 90,882 | 113,917 | ||||||||||||
Add back interest expense for convertible notes, net of estimated taxes | 1,360 | 1,819 | 2,995 | 3,761 | ||||||||||||
Non-GAAP income used to compute non-GAAP net income per diluted share | $ | 66,235 | $ | 78,279 | $ | 93,877 | $ | 117,678 | ||||||||
Non-GAAP net income per basic share | $ | 0.54 | $ | 0.64 | $ | 0.76 | $ | 0.95 | ||||||||
Non-GAAP net income per diluted share | $ | 0.38 | $ | 0.46 | $ | 0.52 | $ | 0.69 |
We will continue to look for opportunities to further limit and reduce dilution associated with these securities in future quarters as well as to improve our capital structure.
PDL BioPharma, Inc.
2Q2010
July 28, 2010
Licensed Product Regulatory Updates
Trastuzumab-DM1 (T-DM1)
On July 6, 2010, Genentech and Roche submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for T-DM1 in people with advanced HER2-positive breast cancer who have previously received multiple HER2-targeted medicines and chemotherapies. This submission is based on the results of a Phase 2 study, which showed T-DM1 shrank tumors in one-third of women who had received on average seven prior medicines for advanced HER2-positive breast cancer.1 According to analyst estimates, T-DM1 could reach peak sales of 2 to 5 billion Swiss francs and T-DM1 could win regulatory approval as early as 2011.2
Lucentis®(ranibizumab)
On June 22, 2010, Genentech and Roche announced the approval of Lucentis for an additional indication, the treatment of patients with macular edema (swelling in the retina) following retinal vein occlusion. The FDA approved the new indication after a six-month priority review.3
Avastin® (bevacizumab)
On July 20, 2010, ODAC voted that use of Avastin in combination with paclitaxel for previously untreated advanced HER2-negative breast cancer be removed from the US label. The FDA expects to make a final decision by September 17, 2010. If the FDA accepts the recommendation to remove approval for first line treatment in HER2-negative breast cancer, we would no longer receive royalties for this indication. Based on our internal model, we estimate that in 2009, this indication represented less than 5% of total global Avastin sales. The ODAC recommendation does not impact Avastin’s use in advanced colorectal, lung and kidney cancer, and glioblastoma.1
Mylotarg® (gemtuzumab ozogamicin)
On June 21, 2010, at the request of the FDA after results from a recent clinical trial raised new concerns about the product’s safety and the drug failed to demonstrate clinical benefit to patients enrolled in the trials, Pfizer, the parent company of Wyeth, voluntarily withdrew from the U.S. market the drug Mylotarg for patients with acute myeloid leukemia, a bone marrow cancer. Pfizer will continue to make Mylotarg available for current patients.5
Motavizumab
On June 2, 2010, the FDA’s Antiviral Drugs Advisory Committee voted 14 to 3 against the license to market MedImmune’s motavizumab for the prevention of serious respiratory syncytial virus (RSV) disease in high-risk infants.6
Foreign Currency Exchange Contracts
We hedge certain foreign currency exchange risk exposures related to our licensees’ product sales with foreign currency exchange contracts. In general, these contracts are intended to offset the underlying foreign currency market risk in our royalty revenues. Approximately 50% of our revenue is based on sales in currencies other than the US dollar. As such, when the US dollar strengthens by 10%, our revenues will decline by 5%.
PDL BioPharma, Inc.
2Q2010
July 28, 2010
In January and May 2010, we entered into a series of foreign currency exchange contracts covering the 12 quarters in which our licensees’ sales occur through December 2012. We did not have foreign currency exchange contracts prior to January 2010. We have designated the foreign currency exchange contracts as cash flow hedges. At the inception of the hedging relationship and on a quarterly basis, we assess hedge effectiveness. The aggregate unrealized gain or loss on the effective component of our foreign currency exchange contracts net of estimated taxes is recorded in stockholders’ deficit as accumulated other comprehensive income. Gains or losses on cash flow hedges are recognized as royalty revenue in the same period that the hedged transaction (royalty revenue) impacts earnings.
PDL BioPharma, Inc.
2Q2010
July 28, 2010
Business Expansion through Acquisition of New Royalty Assets
PDL is exploring options to acquire additional royalty assets to diversify its business beyond the Queen et al patent estate. The Company has evaluated numerous opportunities, but will only proceed with transactions that fit the Company’s criteria. PDL’s primary targets are commercial-stage products with the opportunity for new indications consistent with our current portfolio. PDL is evaluating products that are first- in-class, or the gold standard of their treatment group.
Litigation Updates
European Opposition to ‘216 Patent
In November 2003, in an appeal proceeding of a prior action of the Opposition Division of the EPO, the Technical Board of Appeal of the EPO ordered that certain claims in our ‘216 Patent be remitted to the Opposition Division for further prosecution and consideration of issues of patentability, that is, entitlement to priority, novelty, enablement and inventive step. The Technical Board of Appeal has scheduled a hearing for the appeal with respect to the ‘216 Patent to begin on February 28, 2011. PDL intends to vigorously defend the ‘216 Patent in this proceeding.
Action for Declaratory Judgment by MedImmune
In December 2008, MedImmune filed a lawsuit against us in the United States District Court for the Northern District of California. MedImmune’s complaint seeks a declaratory judgment that the U.S. Queen et al. patents are invalid and/or not infringed by its Synagis and motavizumab products and, that therefore, MedImmune owes no royalties under its license agreement with us. A jury trial is scheduled to begin on January 25, 2011.
Forward-looking Statements
This document contains forward-looking statements. Each of these forward-looking statements involves risks and uncertainties. Actual results may differ materially from those, express or implied, in these forward-looking statements. Factors that may cause differences between current expectations and actual results include, but are not limited to, the following:
-- The expected rate of growth in royalty-bearing product sales by PDL's existing licensees;
-- The relative mix of royalty-bearing Genentech products manufactured and sold outside the U.S. versus manufactured or sold in the U.S.;
-- The ability of our licensees to receive regulatory approvals to market and launch new royalty-bearing products and whether such products, if launched, will be commercially successful;
-- Changes in any of the other assumptions on which PDL's projected royalty revenues are based;
-- The outcome of pending litigation or disputes;
-- The change in foreign currency exchange rate; and
-- The failure of licensees to comply with existing license agreements, including any failure to pay royalties due.
PDL BioPharma, Inc.
2Q2010
July 28, 2010
Other factors that may cause PDL's actual results to differ materially from those expressed or implied in the forward-looking statements in this document are discussed in PDL's filings with the SEC, including the "Risk Factors" sections of its annual and quarterly reports filed with the SEC. Copies of PDL's filings with the SEC may be obtained at the "Investors" section of PDL's website at www.pdl.com. PDL expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in PDL's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based for any reason, except as required by law, even as new information becomes available or other events occur in the future. All forward-looking statements in this press release are qualified in their entirety by this cautionary statement.
Royalty Revenue by Product ($ in 000's) *
Avastin | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 16,870 | 44,765 | 61,635 | ||
2009 | 13,605 | 35,161 | 21,060 | 15,141 | 84,966 |
2008 | 9,957 | 30,480 | 19,574 | 12,394 | 72,405 |
2007 | 8,990 | 21,842 | 17,478 | 9,549 | 57,859 |
2006 | 10,438 | 15,572 | 15,405 | 12,536 | 53,952 |
Herceptin | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 23,402 | 38,555 | 61,957 | ||
2009 | 16,003 | 32,331 | 26,830 | 18,615 | 93,779 |
2008 | 14,092 | 34,383 | 28,122 | 20,282 | 96,880 |
2007 | 19,035 | 28,188 | 22,582 | 14,802 | 84,608 |
2006 | 15,142 | 28,188 | 21,557 | 20,354 | 85,241 |
Lucentis | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 7,220 | 19,091 | 26,310 | ||
2009 | 4,621 | 12,863 | 8,123 | 6,152 | 31,759 |
2008 | 3,636 | 11,060 | 7,631 | 4,549 | 26,876 |
2007 | 2,931 | 6,543 | 6,579 | 3,517 | 19,570 |
2006 | - | - | 6,579 | 3,335 | 9,914 |
Xolair | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 3,723 | 6,386 | 10,110 | ||
2009 | 2,665 | 5,082 | 4,085 | 3,722 | 15,553 |
2008 | 1,488 | 4,866 | 3,569 | 2,927 | 12,850 |
2007 | 1,684 | 3,942 | 3,332 | 2,184 | 11,142 |
2006 | 2,263 | 2,969 | 3,041 | 2,495 | 10,768 |
Raptiva | Q1 | Q2 | Q3 | Q4 | Total |
2010 | (150) | 142 | (8) | ||
2009 | 477 | 589 | 22 | 150 | 1,238 |
2008 | 405 | 1,618 | 1,111 | 802 | 3,937 |
2007 | 588 | 1,246 | 1,160 | 738 | 3,733 |
2006 | 776 | 1,060 | 1,069 | 874 | 3,780 |
Synagis | Q1 | Q2 | Q3 | Q4 | Total |
2010 | - | - | - | ||
2009 | 17,145 | 18,869 | 1,568 | 3,159 | 40,741 |
2008 | 16,268 | 17,376 | 2,278 | 4,251 | 40,173 |
2007 | 14,352 | 16,747 | 1,608 | 4,042 | 36,748 |
2006 | 14,171 | 14,689 | 1,608 | 3,664 | 34,131 |
Tysabri | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 8,791 | 8,788 | 17,579 | ||
2009 | 6,656 | 7,200 | 7,642 | 8,564 | 30,062 |
2008 | 3,883 | 5,042 | 5,949 | 6,992 | 21,866 |
2007 | 839 | 1,611 | 2,084 | 2,836 | 7,370 |
2006 | - | - | - | 237 | 237 |
Actemra | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 1,587 | 1,950 | 3,538 | ||
2009 | 585 | 537 | 909 | 1,197 | 3,228 |
2008 | 44 | 116 | 179 | 369 | 708 |
2007 | 32 | 326 | 32 | 34 | 425 |
2006 | - | - | - | - | - |
Mylotarg | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 366 | 153 | 519 | ||
2009 | 293 | 370 | 805 | 453 | 1,921 |
2008 | 314 | 132 | 288 | 209 | 943 |
2007 | 276 | 137 | 292 | 426 | 1,131 |
2006 | 309 | 168 | 311 | 568 | 1,355 |
* As reported to PDL by its licensees
Reported Net Sales Revenue by Product ($ in 000's) *
Avastin | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 1,586,093 | 1,596,892 | 3,182,984 | ||
2009 | 1,345,487 | 1,295,536 | 1,439,730 | 1,514,053 | 5,594,806 |
2008 | 980,715 | 1,084,930 | 1,180,427 | 1,239,382 | 4,485,454 |
2007 | 678,068 | 746,587 | 797,013 | 875,084 | 3,096,752 |
2006 | 439,318 | 516,052 | 570,551 | 592,897 | 2,118,817 |
Herceptin | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 1,337,732 | 1,349,512 | 2,687,244 | ||
2009 | 1,210,268 | 1,133,993 | 1,226,435 | 1,278,626 | 4,849,323 |
2008 | 1,105,426 | 1,195,215 | 1,211,982 | 1,186,806 | 4,699,428 |
2007 | 891,761 | 949,556 | 979,602 | 1,015,033 | 3,835,952 |
2006 | 529,585 | 659,719 | 761,099 | 803,576 | 2,753,979 |
Lucentis | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 759,965 | 698,890 | 1,458,855 | ||
2009 | 462,103 | 469,736 | 555,296 | 615,212 | 2,102,347 |
2008 | 363,615 | 393,682 | 460,167 | 454,922 | 1,672,386 |
2007 | 224,820 | 219,579 | 299,995 | 322,300 | 1,066,695 |
2006 | - | - | 10,689 | 157,742 | 168,431 |
Xolair | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 240,904 | 225,878 | 466,781 | ||
2009 | 184,669 | 181,086 | 211,006 | 219,693 | 796,454 |
2008 | 137,875 | 169,521 | 177,179 | 183,753 | 668,329 |
2007 | 129,172 | 130,700 | 144,250 | 147,754 | 551,876 |
2006 | 95,241 | 99,354 | 112,608 | 118,002 | 425,204 |
Raptiva | Q1 | Q2 | Q3 | Q4 | Total |
2010 | - | 14,224 | 14,224 | ||
2009 | 62,653 | 21,526 | 1,502 | - | 85,681 |
2008 | 55,541 | 57,601 | 66,992 | 65,216 | 245,349 |
2007 | 45,134 | 47,401 | 52,914 | 53,885 | 199,333 |
2006 | 32,672 | 35,458 | 39,610 | 41,353 | 149,093 |
Synagis | Q1 | Q2 | Q3 | Q4 | Total |
2010 | - | - | - | ||
2009 | 571,486 | 623,951 | 57,271 | 105,314 | 1,358,021 |
2008 | 542,283 | 574,207 | 80,930 | 141,696 | 1,339,116 |
2007 | 478,388 | 548,227 | 53,586 | 139,736 | 1,219,936 |
2006 | 472,362 | 489,634 | 30,185 | 124,629 | 1,116,811 |
Tysabri | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 293,047 | 287,925 | 580,972 | ||
2009 | 221,854 | 229,993 | 257,240 | 285,481 | 994,569 |
2008 | 129,430 | 163,076 | 200,783 | 233,070 | 726,359 |
2007 | 30,468 | 48,715 | 71,972 | 94,521 | 245,675 |
2006 | - | - | - | 7,890 | 7,890 |
Actemra | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 52,908 | 62,511 | 115,420 | ||
2009 | 19,504 | 17,920 | 30,313 | 39,888 | 107,627 |
2008 | 1,452 | 1,377 | 5,981 | 12,305 | 21,116 |
2007 | 2,388 | 873 | 1,071 | 1,137 | 5,470 |
2006 | - | - | - | - | - |
Mylotarg | Q1 | Q2 | Q3 | Q4 | Total |
2010 | 8,500 | 8,658 | 17,159 | ||
2009 | 8,367 | 8,406 | 8,813 | 8,654 | 34,240 |
2008 | 8,978 | 8,050 | 8,225 | 8,140 | 33,393 |
2007 | 7,879 | 8,202 | 8,345 | 7,878 | 32,304 |
2006 | 8,832 | 9,084 | 8,874 | 16,081 | 42,871 |
* As reported to PDL by its licensees
1 Genentech (July 6, 2010). “Genentech Submits Application to FDA for Trastuzumab-DM1 in Previously Treated Advanced HER2-Positive Breast Cancer.” Press release.
3 Genentech (June 22, 2010). “FDA Approves Lucentis® (Ranibizumab Injection) for the Treatment of Macular Edema Following Retinal Vein Occlusion.” Press release.