PDLI

PDL BioPharma, Inc. (PDLI)

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PDL BioPharma Inc. (PDLI)

Q3 2011 Earnings Call

November 9, 2011 4:30 PM ET

Executives

Jennifer Williams – IR

John McLaughlin – President and CEO

Christine Larson – VP and CFO

Analysts

Charles Duncan – JMP Securities

Brian Klein – Lazard Capital Markets

Phil Nadeau – Cowen & Co

Adnan Butt – RBC Capital Markets

Presentation

Operator

Good afternoon, and welcome to PDL BioPharma’s Third Quarter 2011 Earnings Conference Call. Today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Jennifer Williams.

Jennifer Williams

Thank you all for joining us today. Before we begin, let me remind you that the information we will cover today contains forward-looking statements regarding our financial performance and other matters and our actual results may differ materially from those expressed or implied in the forward-looking statements.

Factors that may cause differences between current expectations and actual results are described in our filings with the Securities and Exchange Commission, copies of which may be obtained in the Investor section on our Web site at pdl.com.

The forward-looking statements made during this conference call should be considered accurate only as of the date of this call, and although we may elect to update forward-looking statements from time to time in the future, we specifically disclaim any duty or obligation to do so, even as new information becomes available or other events occur in the future.

I’ll now turn the call over to John McLaughlin, President and CEO of PDL BioPharma.

John McLaughlin

Thanks, Jennifer, and good afternoon, everyone. Also with me today is Chris Larson, our Vice President and Chief Financial Officer. I’ll begin with a brief business update and then turn the call over to Chris to discuss our financial results.

During the third quarter, we continued to actively manage our intellectual property assets and evaluate new royalty assets, which would improve return to our stockholders. As we previously announced, we are pursuing commercial stage assets in the range of $75 million to $150 million in purchase price. We believe we are well positioned to execute this business strategy and we’ve retained two key consultants to expand our efforts.

At this time, I’d like to turn the call over to Chris Larson to discuss our third quarter financial results.

Chris Larson

Thank you, John. Total revenues for the third quarter of 2011 were $83.8 million compared to $86.4 million in the third quarter of 2010, a 3% decrease. Total revenues for the nine months ended September 30, 2011, were $289.2 million compared to $268.8 million for the same period in 2010, an 8% increase.

Included in both the third quarter and the nine months ended September 30, 2011, is a $400,000 milestone payment from Roche for progress in the clinical trial. Also included in the nine months ended September 30, 2011, is a $10 million settlement from UCB Pharma resolving all disputes between our companies. Excluding these one-time payments, royalty revenue was $278.8 million for the first nine months of 2011 compared to $268.8 million for the first nine months of 2010, a 4% increase. The decrease in revenues for the third quarter was driven primarily by reduced sales of Avastin, partially offset by increased sales of Herceptin, Lucentis and Tysabri.

Also contributing to the decrease is a lower average royalty rate on sales of the Genentech products that were either made or sold in the United States due to the effects of the tier growth restructures that we have for these products and higher 2011 year-to-date sales.

Turning to expenses, general and administrative expenses for the third quarter of 2011 were $4 million compared to $11.1 million for the third quarter of 2010. General and administrative expenses for the nine months ended September 30, 2011, were $13.5 million compared to $29.3 million for the same period of 2010. The decrease in expenses for both the third quarter and the nine months ended September 30, 2011, was primarily due to the conclusion of several legal matters in early 2011 and the resulting reduction in our legal expenses.

Our total other expense net for the third quarter of 2011 was $8.9 million compared to $12.1 million for the third quarter of 2010. Total other expense net for the nine months ended September 30, 2011, was $28.2 million compared with $52.4 million for the same period of 2010. The reduction in our other expenses net for the third quarter and nine months ended September 30, 2011, is primarily due to lower interest expense on our non-recourse notes payable, for which the current balance is $115 million, as compared with $225 million at September 30, 2010.

Also contributing to the decrease on a year-to-date basis is $17.9 million year-over-year decrease in costs associated with retirement or conversion of our convertible notes.

Net income for the third quarter of 2011 was $45.9 million, or $0.28 per diluted share, compared with net income of $40.2 million, or $0.24 per diluted share, for the third quarter of 2010. Net income for the nine months ended September 30, 2011, was $160.4 million, or $0.88 per diluted share, compared to $116.3 million, or $0.67 per diluted share, for the same period of 2010.

On a non-GAAP basis, net income for the third quarter of 2011 was $46.6 million, or $0.28 per diluted share, compared with $42.5 million, or $0.25 per diluted share, in the third quarter of 2010. Non-GAAP net income for the nine months ended September 30, 2011, was $162 million, or $0.89 per diluted share, compared with $133.4 million, or $0.77 per diluted share, for the same period of 2010.

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