PDL BioPharma Inc.(PDLI) recently announced that it expects to generate second-quarter 2011 revenues of $128.0 million, representing an increase of 7% over the year-ago revenues of $120.0 million.
Presently, PDL receives royalty on worldwide net sales of Roche Holdings Ltd.'s (RHHBY) Avastin and Herceptin; Roche and Novartis AG’s (NVS) Lucentis, and Elan Corporation (ELN) and Biogen Idec’s (BIIB) Tysabri. While the royalty payments are tiered in the US, PDL 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.
The bullish guidance primarily emanates from higher sales of Herceptin, Lucentis and Tysabri during the first quarter of 2011, on which PDL will receive royalties in the second quarter. The guidance, however, includes the payment due to PDL under its settlement agreement with Novartis entered into in February 2011. The estimated payment will be based on outside US sales of Lucentis made by Novartis in the first quarter.
Our Recommendation
Currently, we have a Neutral recommendation on PDL BioPharma. The recommendation is supported by a Zacks #3 Rank (short-term “Hold” rating). Overall, we are encouraged by PDL’s recent progress in resolving multiple disagreements with Novartis, UCB Pharma (UCBJF) and European Patent Office’s decision to uphold the validity of the European patents. The litigation with Roche, however, continues. The resolution of the Roche issue is not expected in the near term. A trial date is not likely before late 2011 or early 2012. We, therefore, prefer to remain on the sidelines until a decision is reached in this case. The near-term patent expiration of the Queens patents also concerns us.
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