PDLI

PDL BioPharma, Inc. (PDLI)

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PDL BioPharma Inc (PDLI)

Q3 2012 Earnings Call

November 5, 2012 4:30 pm ET

Executives

Jennifer Williams – Cook Williams Communications, Inc.

John McLaughlin – President and Chief Executive Officer

Bruce Tomlinson – Vice President and Chief Financial Officer

Analysts

Adnan Butt – RBC Capital Markets

Philip Nadeau – Cowen and Company

Larkin Tinsley – Tinsley Family Partners

Presentation

Operator

Good afternoon and welcome to PDL BioPharma's Third Quarter 2012 Earnings Conference Call. Today's call is being recorded.

For opening remarks and introductions, I would now like to turn the call over to Jennifer Williams.

Jennifer Williams

Thank you all for joining us today. I'd like to first point out that there is a slide presentation associated with today's earnings call and you'll see that in the Investor Relations section of the PDL website which you'll find at pdl.com.

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 Investors Section on our website 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 Bruce Tomlinson, our Chief Financial Officer. As always in this call, I'll provide a summary of recent events, and then Bruce will review our quarterly financial results.

We have made solid progress in recent weeks and our initiative to bring additional revenue generating assets to PDL to create value for our shareholders. We were pleased to announce this afternoon a transaction with Wellstat Diagnostics, in early October, a transaction with AxoGen.

Before to discussing the specifics of these transactions, it may be useful to review why are considering such transactions. PDL's current revenues are generated by licenses under our Queen et al. patents. The last of those patents expire at the end of 2014.

PDL expect to be played for a period of time after patent expiration based on the sales of products made before the patents expired in those sales occur after patent expiration. At some point however almost all of PDL's licensees will no longer be obligated to pay royalties. In such event, PDL will be unable to pay further dividends and which is to operate.

As we have previously discussed our shareholders have told us that they want us to look for other revenue generating assets to allow us to continue to pay dividend beyond the expiration of the Queen et al. patents we have been doing so.

Some of the deals that we are evaluating are to buy royalties on drugs or medical devices while others are for loans secured by revenues generated by products, and still others are hybrid royalty loan structure. We are in different as to the structure what we are concerned about is the quality of revenue generating assets, the likelihood of being repaid and the return on investment for the benefit of our shareholders.

As you seen on slide 3, regarding today’s transaction, we loaned $40 million to Wellstat Diagnostics to be used in the development and commercialization of their small point of care diagnostic system. Wellstat is developing a small point of care diagnostic system that utilizes a disposable cartridge, requires no user interaction, relies on standard blood collection techniques and can achieve sensitivity comparable to or better than central testing laboratories.

It can be used to measure disease and monitor medical conditions consistent with the third generation of two previously successful iterations that was sold to Roche. Thus it is expected to be eligible for approval through the 510(k) process allowing for more rapid approval.

We like this transaction with Wellstat because of the impressive track record of their management team in creating value in the diagnostic space. Their founder, Sam Wohlstadter, the company’s Chief Executive Officer was also a founder of Amgen, Applied Biosystems which is now currently a division of Applera Corporation, IGEN International, BioVeris, and Hyperion Catalysis International.

Both IGEN and BioVeris are diagnostic systems companies and were sold to Roche for $1.4 billion and $600 million respectively. This loan matured upon certain events such as the sale of Wellstat Diagnostics. Upon sale of Wellstat Diagnostics, PDL will be paying a specific target internal rate of return that varies based upon repayment coursed before or after December 31, 2014.

Wellstat instead commercializes and sells the device. PDL will receive a low double digit royalty on Wellstat Diagnostics’ net revenues. Fred Frank, a PDL board member represented Wellstat in this transaction. Fred rescued himself from deliberations and resigned from the PDL Board prior to the completion of the transaction. We are pleased to announce that Fred has agreed to transition to a new role as special advisor to the Board. He will continue to participate in Board Meetings and will be focused on bringing new revenue-generating assets to PDL. Fred has over 50 years of experience on Wall Street and we greatly value his extensive connections. He will continue to help us create shareholder value.

Read the rest of this transcript for free on seekingalpha.com