PDL BioPharma settles litigation with Genentech, Roche


PDL BioPharma (PDLI -1.9%) says it reached agreement with Genentech and Roche (RHHBF, RHHBY) which resolves all outstanding legal disputes between the parties, including Nevada litigation and arbitration proceedings related to the audit of royalties on sales.

Genentech will pay a fixed royalty rate of 2.125% on worldwide sales of Avastin, Herceptin, Lucentis Xolair, Kadcyla and Perjeta, rather than the previous tiered royalty rate in the U.S and the fixed rate on all ex-U.S. based manufactured and sold licensed products.

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Comments (3)
  • Donkey Kong
    , contributor
    Comments (184) | Send Message
     
    The CEO of PDLI stated in today's press release that the new fixed royalty agreement benefits shareholders. I did a quick calculation. Based on the new fixed royalty structure, worldwide sales of Avastin, Herceptin, Lucentis, Xolair, Kadcyla and Perjeta would need to exceed US $16 billion in order to generate more royalty revenue for PDLI than the previous agreement. I also assumed a U.S. and ex-U.S. sales split of 62% / 38% in order to calculate royalty revenue.

     

    I think a number of the momentum-style investors were anticipating a special dividend from the settlement which I think was a stretch (see my post of 12/3/13). The overall market is getting slammed today, but this announcement could also be putting some pressure on the stock.
    3 Feb 2014, 04:06 PM Reply Like
  • Jack Lance
    , contributor
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    Are you going short on PDLI Donkey Kong ? I just doubled down today at $9.88 and if it dips more I will buy more.
    3 Feb 2014, 10:45 PM Reply Like
  • Donkey Kong
    , contributor
    Comments (184) | Send Message
     
    Jack: Assumed you doubled down today at $8.88 a share. My comments above were essentially a follow-up to thoughts I shared back on 12/3/13 when PDLI was trading north of $10 and the stock was up almost 25% in less than six weeks. Expectations (e.g. $1 billion litigation settlement vs. Roche/Genentech resulting in a huge special dividend) seem grossly inflated at that time.
    We have been long PDLI since November 2010 at an average cost basis of $5.09 a share and are currently short the May 2013 $10 calls. I certainly understand the risks facing PDLI as management remakes the company given the roll-off of the Queens et al patent royalties by Q1 2016. Management has done an excellent job, but I'm not convinced the "new company" will generate returns commensurate with those achieved historically.
    At today's closing price of $8.90, I think PDLI offers average risk / reward with 20% potential upside excluding dividends and probably 10% downside. It's not an attractive short from our perspective given the 20%+ short interest and 6.75% dividend yield.
    We are sellers north of $10 a share (hence the short call position) which would represent a tripling of our investment on a total return basis over the past 3 years.
    3 Feb 2014, 11:36 PM Reply Like
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