Q3 2020 PDL BioPharma Inc Earnings Call
Good afternoon, and welcome to the PDL Biopharma 2023rd quarter Conference call, all participants will be in listen only mode.
So do you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After todays presentation, there will be an opportunity to ask questions.
Ask a question you May press Star then one on your Touchtone phone to drive a question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over.
Over to Jody Cain. Please go ahead.
This is Jody Cain with L.A.J.. Thank you for participating in today's call. Please note that a slide presentation to accompany management's prepared remarks is available in the Investor Relations section of the PDL website at PDL Dot com.
Joining me today from PDL Biopharma, Dominique one day, President and CEO and board and brought no Vice President and CFO, and Chris don't Vice President and General Counsel.
Please turn to slide two and let me remind you that during this call management will be making forward looking statements regarding the company.
<unk> financial performance and other matters and actual results may differ materially from those expressed in or implied by the forward looking statements.
In particular, there is significant uncertainty about the duration and potential impact of the COVID-19 pandemic. This means that results could change.
Should any time and the impact of the COVID-19 pandemic on P. deals operations financial results and outlook is a best estimate based upon information available for todays discussion.
Factors that may cause differences between current expectations and actual results are described in the comm.
Companies SMC filings, which are available at SCC dot Gov and in the Investor Relations section of PDL Dot com. So.
Forward looking statements made during this conference call should be considered accurate only as of the day. The go live broadcast November 11 2020.
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The company they elect to update forward looking statements from time to time in the future. The company, specifically disclaims any duty or obligation to do so even as new information becomes available or other events occur in the future no.
Now I'd like to turn the call over to Dominic Monet.
Thanks, Jody and good afternoon, everyone and thank you for joining and we.
We have continued to make exceptional progress as we move toward dissolution of the company. We we'd begin by recapping transaction announced since our last quarterly conference call and then discuss where we are in the process of money tightening our remaining assets.
The path forward in dissolving the company.
Please turn to slide three.
This past quarter in recent weeks were indeed very productive.
With the closing of the sale of our no then pharmaceutical business in September and the spinosa blends out to PDL stockholders on October 1st we completed the monetization.
A voluntary team businesses.
I'll sell out the basket of royalties to its debit UK holdings considerably simplified our remaining asset portfolio and place PDN into position to take advantage of the tax beneath each provided by Ucas Act.
We entered into a settlement agreement.
We met with which started in August and we are confident that disagreement we enable as to reach closure and collect on these important receivable.
Finally, we received no decision to third quarter to convert $11.2 million par value of our convertible notes due in December 2021 represent.
Venting, 81% of the remaining 2021 notes.
After these conversions billiard only $3.6 million of the original $150 million of the 2021 and 2024 convertible notes in aggregate we remain outstanding.
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With Noden on slide four.
In early September we closed the sale of our previously wholly owned subsidiaries Noden pharma deck and Noden pharma USA to the private equity partnership Stanley capital.
We announced this agreement in late July with an anticipated total transaction value.
Moving up to 48 point $25 million.
We closed this transaction, we payments to PDL of up to 52 point $83 million, which is $4.6 million higher than originally announced due primarily to the incremental cash accumulated into business between the signing and closing.
Evaluates.
Under the terms of this transaction, we received a $12.2 million payment upon closing.
We are also due to receive an additional 0.5 $2 million for reimbursement of the 80 in 2021.
The transaction provides for an additional 30.
$83 million to be paid to PDL in 12, a core quarterly installments from January 2021 to October 2023, and two potential contingent payments totaling $3.25 million.
An additional $3.86 million is to be paid to PDL in for April.
Our quarterly installments from January 2023 to October 2020 free.
We anticipate that these future payments will be processed and distributed to stockholders during our three year post distribution period, which I will discuss in a moment.
In addition to the cash proceeds from the sale.
We believe this transaction may qualify for some favorable tax benefit and as the Kazakh.
The care that was passed into law in late March and still meet taxpayers' teekay by five years any net ordinary losses arising the taxable year, beginning in 2018 2019 or 2020.
In connection with our Monetizations process, we expect to recognize ordinary tax tax losses that under the Capex Act could be applied to prior tax years in which PDL was a substantial tax payer.
Ed will discuss this in greater detail in a moment.
I wish to thank our financial advisors, and a toy our partners and SDB Leerink, along with PDL Board of directors and our management team for executing the Noden transaction.
You may recall that Toyota was retained by PDL to explore potential strategic transactions and assay in the disposition of Notre Dame.
While as.
The Leerink was engaged to advise on overall liquidation and distribution strategies.
Turning to Lanza on slide five.
Following a comprehensive strategy process conducted in partnership with SVB Leerink Pds Board reached the decision to spin of PDL, 81%.
The building in LENSAR to all stockholders.
Net assets attributable to LENSAR on September Thirtyth, 2020 were $112.4 million.
We affected the spinoff in the form of a dividend involving the distribution of all outstanding shares held by PDL to holders.
As of PDL common stock.
We completed the distribution on October 1st one day prior to LENSAR, becoming a publicly traded entity on the NASDAQ.
Similar to our share distribution in April same biosciences last may that prove to serve PDR stockholders very well the distribution of.
Hotel share enables our stockholders.
To reach their own they see rig.
Regarding the investment in LENSAR.
We believe that LENSAR is appropriately resourced to pursue the development and launch of this next generation system ally Andy two at the end, but it will be well positioned to resume its growth project.
Back to repurpose COVID-19.
Now on slide six.
We announced a settlement agreement this past August resolving the previously reported litigation relating to loans made to Westell diagnostics by PDL.
The loans totaling 40 totaling 44 point.
$1 million were made in August 2013, and the notes were carried on PD of balance sheet for $51.4 billion as of the end of the second quarter.
Under the terms of the settlement agreement the west at parties paid PDR $7.5 million at the time of signing.
The west.
Third parties have the option of paying user $5 million by February 10, 2021, and $55 million by July 26, 2021, or paying $67.5 million by July 26 2021.
If the west that party sales to make payments in fooled.
By July 26, 2021, the company shall be authorized to record and confessed judgment against the west at parties for an amount of $92.5 million or a lesser amount as may be owed under the agreement.
We are pleased very pleased to have reached the settlement.
He is a waste at parties I comment our legal team at PDL for their tenacity in bringing the west that litigation to be successful resolution.
Let's now review progress, we've all royalty assets on slide seven.
In August we announced the sale of our Kybella sell visa and conflicts royalty right.
And two as WK Holdings Corporation for four point $35 million in cash.
In addition to the cash proceeds from the sale two MW UK. We believe this transaction may also qualify for federal tax benefit and does the cares Act.
Our remaining weighty portfolio includes.
Still mid summer.
John Twod jumped activate or exile, invokamet, XR and Synjardy, XR, which are collectively call. They assess your royalties as.
As well as our royalty interest in Delta.
These remaining royalties have performed well generating cash earnings of 17.4 million.
Boys in Q3 versus $11.2 million in Q2 and $13.2 million in Q1 of this year.
We continue to evaluate a sale of these high value assets under advisement of B of a securities.
I doubt negatively if we are unable to secure appropriate value for sale at.
End of time, we may retain these assets and ultimately distribute royalty revenues to our stockholders.
We hold 3.3 million able from warrants each well and can be exercise for one sales growth and common stock at $6.38 per share.
April families in the early phase of commercializing sexy for the prevention of pregnancy.
We are monitoring able feynman, we determined the disposition of the wells added time, we believe will maximize value for our stockholders.
Turning to next steps on slide eight.
The article 2020 annual meeting of stockholders LT in August we announced approval for proposal to find for certificate of distribution with the state of Delaware.
We were very pleased to receive the overwhelming support of our stockholders as we believe these schools will allow for the efficient wind down of the company.
Companys operations.
I am now pleased to announce that the PDL Board has decided to add a certificate of dissolution filed on January 4th 2021.
Let me highlight a few important points associated with the decision process, which we noted in our earnings release.
Bear Delaware.
Okay PDL will continue its existence for a minimum of three years after filings a certificate of dissolution solidly for wind down purposes.
Including managing potential litigations, resolving any claims and disputes monetizing any remaining assets and distributing to its stockholders the proceeds of the liquidity.
Relation process.
Before distributions are made to PDL stockholders, we will follow the safe Harbor, Porsche Jews and the Delaware low to resolve current contingent and likely unknown claims against the company.
Generally and importantly to safe Harbor post reduced.
Allow me to reduce the potential liability of the company stockholders and directors from future claims.
And as a safe harbor passages PDL will petition the Delaware court of Chancery to determine the amount and form of security that will be set aside before distributions are made to PDL stockholders.
As we upon completion of the Safe Harbor packages, we plan to distribute pds remaining assets to our stockholders.
Please note that we do not anticipate making any distribution to all stockholders before the safe Harbor passage use are completed.
The safe Harbor passage used usually take 12.
To 18 months to complete but it could take longer.
This solution will allow the company to reduce overhead expenses as PDL will no longer be a publicly traded company it.
It is important to emphasize that we continue to work hard to reduce operating expenses, even before we enter this solution.
Also that the first 12 to 18 months. Following the solution will continued to require appropriate resources to complete the safe Harbor procedures.
The filing of the FCC reported tax return the monetization of remaining assets as a resolution of various issues in the liabilities.
Including the audit of our.
Tax returns for the year 2009 through 2018 by the California franchise tax board.
Finally, we will engage with NASDAQ regarding the dating of the company's common stock after market close on December 31st Twentytwenty.
We do not anticipate transferring into Tc trading.
But our transfer book will close as a filing of the certificate of dissolution.
Expected as mentioned to a Q on January 4th 2021.
And this will be the final record date.
It is anticipated that early distribution made in connection with the solution will.
We'll be made poor high tied to the stock.
Holders of record as of the final record date.
No further trading of Pds common stock relocate here after the final record date.
Turning to slide nine.
As Ed will discuss the approval of the plan of dissolution shifted the reporting of our financial to liquidity.
Colin basis of accounting starting on September 1st.
Let me provide a top lines of our net assets in liquidation.
At the end of the third quarter, just prior to lend our spinoff PDL net asset in liquidation were $494.7 million.
David assets attributable to lenses on September Thirtyth were $112.4 million.
So excluding lens out assets and liabilities PDF net assets in liquidations were $382.3 million or three point $35 per share of Cummins PDL stockouts.
Net R&D.
Of course, there is no guarantee that we will be able to fully capture this value and distributed to all stockholders, but this remains our focus.
Now I'd like to turn the call over to Ed Imbrogno to discuss our financials in greater details added.
Thank you.
Ultimately.
As a result of stockholder approval to pursue liquidation or dissolution on September onest.
We transitioned our accounting from the going concern basis of accounting liquidation basis of accounting in accordance Npls generally accepted accounting principles.
Broadly speaking asset values under the guidance.
Downturn basis referenced historical cost with some notable exceptions as it pertains to PDL to apply fair value accounting.
Under liquidation basis.
All assets or sales at their estimated liquidation value contractual liabilities are measured in accordance with applicable GAAP and all other.
His liabilities are recorded at their estimated settlement settlement amounts over the expected liquidation period. This.
This includes cost issues associated with implementing the wind down of the company.
Again, some concrete examples to this transition.
In summary of how certain assets and liabilities for value.
Previously under the going concern basis of accounting to holiday are now valued under liquidation basis of accounting.
Undergoing concern accounting PDL royalty assets were value based on discounted cash flow models royalty assets are now valued using and discounting.
Cash receipts and challenging sales date currently expected in the first half of 2021 plus.
Plus a discounted value for the expected consideration to be received upon sale.
The receivable from the sales no with discounted under the going concern basis, but is now undiscounted.
Second liquidation basis.
Going concern basis with generally require expensing cost as they are incurred.
Under liquidation basis of accounting the estimated cost to be incurred dissolution have been accrued.
In certain assets that will not be converted to cash such as prepaid expenses.
Our written off.
And very specific to PDL.
Because the spinoff of LENSAR did not occur until early Q4.
Historical cost basis in lens are under the going concern basis of accounting has been written up under liquidation basis of accounting curate and estimated enterprise value point.
On a spinoff.
This increase in value is reflected in intangible assets as of September thirtyth.
With this as background given the adoption of the liquidation basis. The results of operations for the three and nine months ended September 32020.
Comparable to prior year period.
Periods or with other interim periods in the current year presented under the going concern basis, primarily due to differing accounting methods.
Now turning to the financial statements.
Slide 10 includes the results of operations for the two and eight months ended August 31 2000.
Slide 20 in the three and nine months ended September 32000, 1900 that going.
Concern basis of accounting.
In the classification of certain assets and liabilities as held for sale and as discontinued operations.
Numbers presented for continuing operations in this table for most of the revenue.
Certain of our operating expenses reflect almost exclusively lenders operations Luxor.
Exceptions to this our general and administrative costs, which include corporate costs.
And to a lesser degree lenders to in a cost.
And the severance and retention operating expense, which is exclusively attributable to corporate.
We have continued to incur higher Gina expenses due to higher professional fees associated with our monetization plan.
We expect these costs to decrease going forward with the significant progress made in executing our plan.
For non operating expenses.
Decreases in interest income and interest expense.
That's reflect reduced cash on hand, and lower outstanding debt.
The loss on investment for the two and eight months ended August 31, 2020 reflects the write down of our investment in LCR, which came to us via our investment in Landstar.
Our pre tax income from this.
Continued operations was not significant in a two month period ending August 31.
As operations classified as discontinued were adjusted to the lower carrying value or their expected value less selling costs in prior periods.
As it related assets were disposed there were no significant adjustments to record.
Forward.
Our income tax provision for both current year periods ended August 30, Onest reflects a benefit due to current year losses, and the expected utilization of our annual sales under the care SAP.
On slide 11 is a condensed consolidated statement of net.
Assets presented under the liquidation basis of accounting.
The values of PDL is assets include our estimate of income to be generated from the remaining assets until they assume data sale Dan.
And the expected sales proceeds.
The value of Pts liabilities include estimates for operated.
Operating expenses and expected amounts required to settle liabilities.
It is important to note that as loans over is not spinoff until October onest, many of the assets and liabilities presented in the consolidated statement of net assets include both LENSAR in non LENSAR mobs or in some cases or.
Or solely attributable to LENSAR prior to the spin off.
For this reason and due to the significance of these amounts we have presented a pro forma statement of net assets excluding LENSAR.
Total consolidated assets as of September 32020 were $604 million and primarily.
Consist of our remaining royalty assets cash and cash equivalents.
In a tax receivable, reflecting both amounts expected to be refunded under the cares Act.
And an anticipated refunds from prior year overpayment.
LENSAR is assets totaled $115.2 million of this amount.
Cures Act receivable included in the consolidated statement of net assets as of September 32020 is $80.5 million and includes in addition to the losses from operations.
Ordinary losses incurred on the Noden transaction and on the sales and royalty assets.
Please.
With that this figure does not reflect the impact of the expected gain to be recorded by PDL as part of the lens our spinoff as this gain will be accorded in the fourth quarter.
By itself this gain from lens, our spinoff is expected to reduce our cares act receivable by $11.8 million that.
Can be no assurance as to when and to what extent such tax benefits may be realized.
Total consolidated liabilities as of September 32020 were $109.3 million and consisted primarily of market crude for ongoing.
For an ongoing audit by the California.
Franchise tax board for the tax years 2009 to 2015 amounts owed under our convertible notes in amounts accrued for estimated operating expenses to be incurred through dissolution.
As of September 32020, net assets and liquidation excluding LENSAR totaled 382.
$2.2 million.
It is important to note that the actual materialize for assets and settlement of liabilities and the actual cost of liquidation could differ materially from the estimated amounts.
Pursuant to the stockholders approval of a plan of dissolution a fundamental change provision under PDL is convertible.
You will note indentures, we triggered that enabled bond holders to tender their bonds for cash settlement or alternatively to exercise your conversion rights under the indentures no bonds were tendered to us prepayment the bondholders holding led point $2 million par value of the 2021 convertible note.
Exercise their conversion rates we.
We intend to settle the conversion of these notes entirely with cash on hand, which will occur near the end of the fourth quarter of 2020.
After these bonds are repaid we will have $3.6 million par value of convertible notes outstanding.
Now on slide 12 is a breakdown by product of net cash while royalty rates for the three months ended September 32020 cash from royalty rights was $17.6 million, which is down 31% from $25.6 million for the prior year three month period.
Excluding the cash received from those.
Those royalties that were sold in the third quarter to as WK holdings.
Cash received was $17.4 million for three months ended September 32020, compared to $25.2 million for the three months ended September 32019.
For the nine months ended September 32020.
Cash from royalty rights was $42.6 million, which is down 27% from $58.3 million for the prior year nine months period.
Excluding those royalties that were sold in Q3 desks WK holdings.
Cash received in the nine months ended September 32020 was 40.
The $1.8 million as compared to $57.2 million in the nine months ended September 32019.
As you May remember from earlier calls the decrease in cash receipts in the current year periods relative to the prior year periods largely reflects the reduced net selling price per square metre.
Okay, operator, we are ready to take questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone. Please pick up your handset for pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pass momentarily to assemble our roster.
Thank you operator, obviously is to make money, while we are waiting for the first question I want to thank our team at PDL, Our board and our advisors for the significant progress we have made quite a short time to execute our strategy and.
I like to thank our stockholders for their support and analyst also for their support in improving and.
Accompanying as again, along this journey and for shareholders seen approving the plan of dissolution of VC setting out a roadmap for an orderly liquidation process.
Okay operator.
And then I think we are ready for questions.
Our first question will come from Phil Nadeau of Cowen and company.
Hello, Phil Hi, Good afternoon. Thanks for taking my question and congrats on all the progress in executing on the liquidation.
I should add it sounds like this is going to be the last quarter recall that is correct.
If you guys over the years.
Likewise.
Just two questions from me first is on the tax asset.
Is any portion of that independently tradable from your other assets is there any value that can be extracted away from.
The other assets that you have or is.
Great are you in relation to reducing the taxes on the assets in Europe for the rest of the assets in your portfolio.
Hey, do you want to take the question I'd be happy to build comeback fed them.
Yeah, so from tracking correctly with the question net and oil you usually as.
The vision is we had a loss is it been occur without the ability to offset but now that we can go back under this cares act seek a refund PD.
PDL paid a significant amount of taxes in earlier years that asset is somewhat stand alone, but it was a.
Predicated on or off.
Great and then on the sales of our certain of our assets. So by itself up I don't know that you would consider it treatable separately.
You know as we go forward.
Our ability to use the remaining anywhere else. It will depend of course on when an income that we may generate but.
That's that's how I see it and I'm not sure if I'm, specifically answered your question, but see part and parcel to our operations right now.
I see okay. So if I.
I heard you correctly, the sale of ones I was going to reduce the asset by about 11 million.
So versus the code 77 million on this record on September Thirtyth.
So just over about 66 million.
But could come back to you from.
From prior losses or is that too much because he had some record fuel.
Sure.
That's you know we do track.
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There is a table that shows our income tax receivable it might be worth looking at the little.
That is not exclusively in the wells, there's roughly $8 million or so that includes a separate receivable, but if you take whats left as of September thirtyth and reduce it by the $11.8 million for.
The expected decrease due to the LENSAR spin that would that would tell you what the hell out value. He has as of September 30 on a pro forma basis.
Okay that is very helpful. Thank you and then second question is actually on the assumptions that underlie the value of the royalty assets.
Like we mentioned the other products that have been evolving over time would you be able to give us some of the assumptions that you use in terms of future revs.
Revenue in durability of that revenue that underlie the 227 million shown on slide 11 or or is that something.
I'd, rather keep proprietary yeah, we haven't really shared our underlying assumptions before let's say this show that our model Weve always been looked at our cash flows up to the future and we inform them from time to time with an independent.
Third party to the extent, we feel its appropriate timing to do so in the.
This of transitioning to liquidation basis of accounting, we now have that model on an undiscounted basis, but were you know.
Under liquidation accounting, we stopped at certain point to say okay. It appears the sales. So then you add to the value that you would receive up until that point in time, and we look forward to remained.
Meaning estimated cash flows and you discount them back under the presumption that.
Thus, Florida third party would pay adept protect their point the attitude together to come up with your valuation, but you know we've had.
Discount rates, we've disclosed before we're certain of our assets, we havent really shared yes.
Estimated cash flows.
Previously something that I can certainly.
Some economic and others can can discuss but.
At this point, we were prepared to share the assumptions.
Fair enough.
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Yeah, No I would just echo that Dan.
We we have Houston it was driven by our financial teams as certain model, which we have kept constant updating it pretty much if we are using.
These external.
Resources, our research firm to be able to inform it when we engage into the sales process we adopted.
A similar process, but independent.
And new team is D., we Andy back Weve numbers, which we are quite similar these being said we are not sharing we haven't done that in the past and I don't think it helps very much to stop now to look at them that drug by drug I'm sure you're well informed of that there have been some fluctuations.
But I think what has been very.
I would say, which has increased our confidence or at least maintain our confidence in that portfolio of of asset value asset is that they have remained performing as we expected this year.
You know as as always a little jumpy it took some time.
Guys, a little bit higher sometime into lower we had a very good first quarter, but but again.
The major thing for US is when you draw the line I approve is free to patients you end up with pretty much where we expected the venue to be.
He said why would be if we kind of kept through these value as we have may sage.
And we would like to and I think we will continue to pursue a sale process.
And if we do not Dan we feel we would serve all shareholder well in keeping very I mean did you solved NTT and maybe low to mid teen liquidation pros to what degree is going to be able to minimize the cost associated with the management of was that.
Perfect. Thanks for taking my questions and again congrats on the progress.
In the Kurdish process.
Well, thank you feel and Matt and thanks to came to and I think as you say, it's probably going to be our last call and it was a pleasure to partner with you over the years. So thank you.
My question. Thank you.
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Once again, if you have a question.
Then one.
Seeing no further questions. This concludes the question and answer session I would now like to turn the conference back over to Dominic M&A for any closing remarks.
Well again, thank you all.
And for joining us today and for being shareholders and Oh of PDL over these years I think it is indeed that probably our last earnings call everything we do believe that as we get into the.
As a distribution, we probably will have further reporting.
You bet. Good we've continued to do have you see we'd keep everybody involved but I am not sure because we will no longer be a public company that we will be holding such calls we will as I said make sure that you can be capex informed and of the pro four months ago ongoing many times station process and decrease in process.
And in the meantime, we hope you and your families stay safe and we wish you a wonderful rest of your day.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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