PDL BioPharma: Buy or Sell

It’s not unusual for a biopharma company, given enough time, to have its ups and downs. But PDL BioPharma’s roller-coaster ride has been more dramatic than most. From mid-2014 and the end of 2016, the company lost almost 80 percent of its market cap. Keith Speights, writing for The Motley Fool, takes a look at the pros and cons of investing in this company.

PDL BioPharma acquires and manages a portfolio of companies, products, royalty agreements and debt facilities in the biotech, pharmaceutical and medical device industries. Formerly known as Protein Design Labs, it changed its name in 2006.

At one time, its patent portfolio included drugs such as Avastin and Herceptin. After the shares plunged from 2014 to 2016, it appears to be recovering, up more than 40 percent in the past 12 months.

One of the interesting, and odd, things about the company is that its market cap is currently about $440 million. However, at the end of the year, it reported cash, cash equivalents, and short-term investments of about $532 million. Which means the company holds more cash than it is worth.

Speights notes, "The company also appears to be moving past the devastating impact of the expiration of most of its Queen et al. patent royalties. For the first time in several years, PDL BioPharma grew year-over-year revenue and earnings in 2017."

One of the company’s biggest growth drivers is a majority ownership of Noden Pharma. The company markets Tekturna for blood pressure.

If those and the company’s abilities to make deals are positives, the negatives are the company’s difficulties in growing future revenue. Speights writes, "The biggest factor behind PDL’s top- and bottom-line success last year was an increase in the fair value estimate of PDL’s Depomed royalty asset. In 2013, PDL acquired rights to receive royalties and milestone payments on type 2 diabetes products licensed by Depomed. These products include Glumetza, Janumet XR, and Invokamet XR. However, this was only a one-time benefit."

The diabetes market is fiercely competitive and, in the U.S., is facing severe downward pricing pressures. Teva Pharmaceuticals launched a generic for Glumetza in the U.S. last year, and Janumet is facing competition from newer SGLT-2 diabetes drugs.

On March 8, the company released its fourth-quarter and year end financial results. Total revenue for the quarter was $68 million, and $320.1 million for the year. Total revenues for the quarter increased by 2 percent from the same period in 2016, and total year revenues increased by 31 percent for the year compared to 2016.

"2017 was a great year for us and one where we experienced a 31 percent increase in revenue from the previous year," said John McLaughlin, chief executive officer of PDL, in a statement. "Since 2012, we have built a rich portfolio of income generating assets and products to replace revenues from our expired Queen et al patents. We expect the revenues from these assets, whose net book value is $5.54 per share, to fuel the building of our specialty pharma business. It’s important to note that $264 million, or 83 percent of our 2017 revenues, came from sources other than the Queen et al patents. In 2018, we need to continue to execute successfully on our business model as well as close the gap between our share price and our book value per share."

Is it worth buying? Perhaps in small amounts, Speights suggests, noting that it’s not his favorite biopharma stock pick. "Depsite continuing to face serious challenges," he writes, "I think buying a small position in the stock could pay off over the long run. The company has moved past the worst damage from expiration of the Queen et al. patents. Its stock is cheap. And although the Neos acquisition didn’t pan out, PDL will make more deals in the future."

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