PDL BioPharma Inc. (PDLI) posted fourth quarter earnings of 24 cents per share, 4 cents above the year-ago figure of 20 cents. Lower general and administrative expenses offset the decline in revenue to drive earnings in the quarter. Earnings were however in line with the Zacks Consensus Estimate.
Quarter in Detail
PDL BioPharma currently derives a significant portion of its revenue from licenses granted to other companies under the Queen et al patents, covering the humanization of antibodies. The patents are set to expire in 2014.
At present PDL BioPharma receives royalty on worldwide net sales of Roche Holdings Ltd.‘s (RHHBY) Avastin, Xolair and Herceptin; Roche and Novartis’ (NVS) Lucentis; and Elan Corporation (ELN) and Biogen Idec‘s (BIIB) Tysabri. While the royalty payments are tiered in the US, PDL BioPharma receives a flat 3% royalty if a product is both manufactured and sold outside the US. However, Tysabri royalties are calculated at a flat rate as a percent of sales, irrespective of the manufacturing or sales location. In the fourth quarter PDL BioPharma received royalties on sales achieved by the above mentioned drugs during the third quarter of 2011.
PDL BioPharma generated fourth-quarter 2011 revenue of $72.8 million, representing a 4.0% decline from $76.0 million in the prior-year period. Revenue was barely below the Zacks Consensus Estimate of $73 million and exceeded the preliminary revenue of $72 million announced by the company in December 2011. Increased royalties in the quarter from higher sales of Lucentis and Tysabri were offset by reduced royalty from Avastin and Herceptin sales. Effective from the second quarter of 2011, PDL BioPharma pays back a portion of royalties it receives on Lucentis sales outside the US to Novartis under its settlement agreement with the latter, which the companies had entered into in February 2011. The fourth quarter revenue is net of this payment.
Avastin sales suffered due to the reimbursement uncertainty surrounding the metastatic breast cancer indication of the drug as well as pricing pressures in EU. Royalties on Herceptin sales were affected by a lower-than-expected proportion of revenue being derived from sales made or sold ex US, which generates higher royalties than US sales.
General and administrative (G&A) expenses were $4.8 million in the reported quarter, down approximately 60.0% from $12.1 million in the prior-year quarter due to lower legal expenses.
Annual Results
In full year 2011, PDL BioPharma generated earnings of $1.17 per share, up from 97 cents in the prior year and also beating the Zacks Consensus Estimate of $1.14. PDL recorded revenue of $362 million in the full year, in line with the Zacks Consensus Estimate and slightly above the preliminary revenue of $361 million.
Our Recommendation
Currently, we have a Neutral recommendation on PDL BioPharma. The stock carries a Zacks #3 Rank (“Hold”) in the short term. We prefer to remain on the sidelines due to a lack of specific timelines for the resolution of the Roche dispute.
The PDL BioPharma management is looking for commercial stage products in the range of $75 million to $150 million in purchase price to increase shareholder value. We would also like to have a better visibility on PDL BioPharma’s business extension plans with the Queen patent portfolio set to expire in 2014
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