Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares in PDL BioPharma (NASDAQ:PDLI) fell by more than 10% earlier today after the company reported fourth quarter financial results yesterday. Shares ended up losing -6.54% on the day.
So What: PDL BioPharma holds a slate of patents that cover some of the top selling cancer medications.
Royalties from drugs such as Roche's (NASDAQOTH:RHHBY) Avastin, Herceptin, and Perjeta that are covered by those Queen et al patents, as well as other sources such as financing deals, totaled $117.1 million in the fourth quarter and $581.2 million for the full year, up 27% from 2013.
Revenue growth was driven by higher sales for drugs covered by the Queen et al patents and a higher fixed royalty rate from last year. PDL's fourth quarter and full year EPS were $0.32 and $1.86, respectively.
The company's profitability helped its cash and equivalents climb from $99.5 million exiting 2013 to $293.7 million coming out of 2014.
Overall, PDL's fourth quarter results missed analyst expectations by $41 million on the top-line and by $0.25 on the bottom line.
Now what: PDL's limited clinical stage activity means that the company is a cash flow generator; however, it also means that its royalty stream isn't likely to be easily replaced. The last of the patents covered by the Queen et al patents lost patent protection at the end of 2014, and as a result, sales could slow dramatically after 2015.
To help address this problem, the company has invested $780 million in non-dilutive growth capital and financing for clinical stage companies. Whether or not those investments can create enough shareholder value to replace the Queen et al revenue; however, is uncertain. For that reason, despite a healthy $0.15 quarterly dividend and a depressed valuation, I'm content to avoid this one.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.