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Source: PDL BioPharma

What: After reporting third quarter financial results that were lower than hoped, shares in PDL BioPharma (NASDAQ:PDLI) slid 12% lower today.

So what: In the third quarter, PDL BioPharma delivered top line revenue of $124.6 million and bottom line earnings per share of $0.42 that were down significantly from the prior year and that were below what industry watchers were projecting. Last year, PDL BioPharma's sales and earnings were $164.6 million and $0.61, respectively.

The drop-off in sales is being blamed in large part on Valeant Pharmaceuticals' (NYSE:VRX) failure to pay contractual royalties to PDL BioPharma during the quarter on sales of Glumetza, a drug Valeant acquired when it bought Salix Pharmaceuticals. Valeant Pharmaceuticals reported Glumetza sales of $53 million last quarter, but, according to PDL BioPharma, it failed to provide monthly reports or make any payments to PDL BioPharma until late October.

PDL BioPharma also saw its costs tick up in the quarter as total operating expenses increased to $8.5 million from $5.7 million last year. PDL BioPharma's increasing costs were mostly driven by $1.1 million in asset management expenses related to Wellstat Diagnostics' failure to pay money it owes PDL BioPharma and $1 million in compensation related costs.

Now what:  PDL BioPharma gets the vast majority of its revenue via royalties on patents covering top selling monoclonal antibodies; however, licensing deals tied to those patents are expiring, and that calls into question the company's long term revenue stream.

Ahead of the expected drop-off in royalty income, PDL BioPharma has been making a series of financing related investments in early stage companies, but it's uncertain to me that these investments will ultimately be able to offset the potential slowing of sales to the degree necessary to maintain its 13.4% dividend yield. Because PDL BioPharma's future remains unclear, it's far too risky of a company for me to consider buying on this drop. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. 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.