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What happened

Shares in PDL BioPharma (PDLI) are tumbling 14.8% at 12:30 p.m. EST Wednesday after management closed on a $150 million convertible notes offering and Eli Lilly & Co. (LLY -1.00%) reported a phase 3 disappointment that derails PDL's chances for royalty revenue.

So what

In the past, PDL BioPharma made its money from royalty revenue associated with top-selling drugs that relied upon its monoclonal antibody patents. However, these patents expired in 2014, and agreements that allowed the company to collect royalties on some of the world's top-selling medicines expired this year.

As a result, PDL BioPharma's future success relies upon financing deals and new royalty streams.

PDL BioPharma is already providing financing to a slate of healthcare companies and has acquired royalty rights to drugs from both Depomed and Ariad Pharmaceuticals.

In tapping investors with its notes offering, PDL BioPharma will pocket $145.8 million, after fees, of which $121.5 million will be used to repurchase $120 million of outstanding 4% convertible senior notes due 2018, plus interest. The new financing was done at 2.75% and is due to mature on Dec. 1, 2021.

Ultimately, this refinancing is good news; however, any optimism tied to this move was more than offset by the failure of Eli Lilly's Alzheimer's disease drug solanezumab. Eli Lilly reported earlier today that it was shelving solanezumab after it failed to outperform placebo. That's bad news for PDL BioPharma investors because the company was slated to receive a 2% royalty on future solanezumab sales.

Now what

PDL BioPharma was once a top dividend-paying stock, but the expiration of royalty agreements -- which represented the majority of its revenue -- forced the company's board to discontinue its dividend payment this summer.

The company is attempting to reboot itself by providing financing at favorable terms to smaller companies that are working on promising healthcare solutions, but revenue from those deals isn't very big yet. In the third quarter, its interest revenue from financing deals totaled only $8.6 million. Acquired royalty streams kicked in a bit more money, generating revenue of $16.1 million last quarter. And the company pocketed another $15 million from legacy royalty deals in the quarter. However, even with all these moving pieces, revenue was still down 57% year over year, and for that reason, I don't think it's advisable to step up and buy PDL BioPharma's shares.