It looks like another biotech is off the selling block. Yesterday, PDL BioPharma (Nasdaq: PDLI ) announced that it had failed to find an acquirer; instead, it will launch another round of restructuring.
As a consolation prize, PDL's press release yesterday and conference call today did include word that the company would be returning to shareholders at least $500 million it stands to receive from the recent sales of its commercial drug assets, and at least 50% of its future royalty revenue.
The royalty revenue PDL receives from its monoclonal antibody patents grew 20% last year to $221 million, and it will last until the 2013 to 2014 time frame. If its royalty revenue grows another 20% in 2008, then PDL shareholders will stand to gain at least $130 million this year, should PDL distribute at least 50% of this royalty stream in the form of a dividend.
After finding no acquirer for any of the three compounds it hasn't fully outlicensed yet, PDL decided to cut its workforce again. It will further reduce its operating costs to a $150 million annual run rate. This compares to the $340 million in operating expenses PDL incurred in 2007, when it still had its manufacturing facility and commercialized drugs.
PDL didn't indicate how it would distribute its future royalty revenue, or the remainder of the $525 million in up-front cash it will receive from the sale of its former drugs and manufacturing plant. It could distribute the cash through a combination of one-time or ongoing dividends; some sort of modified "Dutch auction" share buyback, like companies such as Agilysys (Nasdaq: AGYS ) or Wendy's (NYSE: WEN ) have done in the past years; or even a partial sale of its future royalty stream, like Enzon (NYSE: ENZN ) has done, if it can find any takers.
The news that no buyer was found for its remaining assets is definitely not what most PDL shareholders (myself included) were hoping for, as the 30% decline in its shares today demonstrates. PDL's still-incredible cost structure is also worrisome. The company will spend $150 million in ongoing cash expenditures this year on what amounts to ownership in half of one late-stage phase 3 drug candidate, and three other early-stage compounds.
I'm not ready to write PDL shares off yet, provided the company can further reduce its cost structure by out-licensing the remaining compounds, and efficiently distribute its antibody royalty revenue to shareholders. The bright spot from this continued saga? As PDL stated on its conference call, we'll know how at least some of its cash will be distributed "in the next few months."
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