PDL BioPharma's (PDLI) CEO John McLaughlin on Q4 2016 Results - Earnings Call Transcript

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PDL BioPharma, Inc. (NASDAQ:PDLI) Q4 2016 Earnings Conference Call March 1, 2017 4:30 PM ET

Executives

Jennifer Williams – Investor Relations

John McLaughlin – Chief Executive Officer

Peter Garcia – Chief Financial Officer

Analysts

Phil Nadeau – Cowen & Company

Adnan Butt – RBC Capital Markets

Max Jacobs – Edison Group

Jason Adler – GMP Securities

Operator

Good afternoon, and welcome to PDL BioPharma's Fourth Quarter 2016 Earnings Call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Jennifer Williams.

Jennifer Williams

Thank you and thank you all for joining us today. I would like to first point out that there is a slide presentation associated with today's earnings call, and you'll see that in the Investor Relations section of the PDL website, which you'll find at pdl.com.

Before we begin, let me remind you that the information we will cover today contains forward-looking statements regarding our financial performance and other matters, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that may cause differences between current expectations and actual results are described in our filings with the Securities and Exchange Commission, copies of which may be obtained in the Investor section of our website at pdl.com.

The forward-looking statements made during this conference call should be considered representative only as of the date of this call, and although we may elect to update forward-looking statements from time-to-time in the future, we specifically disclaim any duty or obligation to do so, even as new information becomes available or other events occur in the future.

I will now turn the call over to John McLaughlin, President and CEO of PDL BioPharma.

John McLaughlin

Thanks, Jennifer, and good afternoon, everyone. With us today is Peter Garcia, our Vice President and Chief Financial Officer. As always on this call, I'll provide an overview recent events and Pete will review our financial performance for the quarter. Please turn with me now to Slide number 3. As you know, our primary focus at PDL is on our growth as we continue to build value for our shareholders.

Since setting out in late 2012, to build a portfolio of income generating assets, we have committed over $1.4 billion and deployed $1.1 billion in this program. We are satisfied with our rich portfolio investments to-date and continue to benefit from returns on these investments and have expanded our strategy with the completion our first significant equity investment in specialty pharma company Noden Pharma DAC.

PDL continues to pursue investments in additional specialty pharmaceutical products and companies because they can offer attractive returns in both the short-term and the intermediate term. These products are typically already approved and offer near-term returns when acquired on attractive terms. Many have had little recent marketing and thus could offer intermediate returns when appropriately and effectively promoted. We believe that these attractive returns can build value for our stockholders.

The Noden transaction provides us with a strong platform upon which to build Noden as a specialty pharmaceutical company not only are there initial products that are already on market but going forward Noden will act as a platform for additional spec pharma products in a tax efficient manner.

There are many assets that large pharmaceutical companies are looking to divest, which could represent significant growth opportunities for Noden and PDL. As a reminder, our transaction with Noden was immediately accretive on a cash basis and due to our 98.8% ownership as of now in Noden their financials are consolidated in ours.

By way of review, which you'll see on Slide number 4, Noden Pharma is a global specialty pharmaceutical company domiciled in Dublin, Ireland and with affiliated U.S. and E.U. operations. It is focused on acquiring and optimizing established medicines. Noden closed an asset purchase agreement with Novartis AG, whereby it acquired exclusive worldwide rights to manufacture and commercialize Tekturna and Tekturna HCT as they are known in the U.S., and Rasilez and Rasilez HCT as they are known in rest of the world. More on the Noden products in a minute.

Over the past six months, Noden has filled critical positions including a Chief Operating Officer, a Head of U.S. Sales and Marketing, market access person, marketing person, regulatory person. As a reminder, three of the five board seats are held by PDL’s management team.

Please turn with me now to Slide number 5. Tekturna is Noden's first acquired product, and it is a branded prescription medicine containing the active ingredient aliskiren, which is indicated for the treatment of hypertension. Tekturna HCT is a fixed-dose combination of Tekturna and the diuretic hydrochlorothiazide. Aliskiren is the only approved direct renin inhibitor.

As you will see on Slide number 6, we are actively transitioning responsibilities relating to the Tekturna products from Novartis to Noden, at it relates to the commercialization of the Tekturna products, Noden assumed commercialization responsibilities for the U.S. in early October 2016. And has hired a contract sales force of approximately 40 reps and four district managers. Dedicated solely to these products, that began commercialization efforts at the end of last month.

The deal provides that Novartis distributes the four products on behalf of Noden worldwide and Noden will receive a profit split on such sales for fixed periods of time. In the United States, the duration of the profit transfer ran from July 01, 2016 to October 04, 2016.

Outside the United States Novartis companies will continue to distribute the products through the first half of 2017 and Noden Pharma DAC will receive the profit transfer from Novartis. Novartis and Noden Pharma DAC are working to transfer the marketing authorizations from Novartis companies to Noden Pharma DAC.

The primary focus, of Noden Pharma DAC’s commercialization efforts will be the EU, Switzerland and Canada. Noden Pharma DAC will likely seek distributors for certain territories such as Japan and Latin America. The profit transfer arrangement terminates upon the transfer of the marketing authorizations from Novartis to Noden.

Novartis has not promoted these products for a number of years, and while sales have been declining we’ve conducted significant market research on the hypertension market and Tekturna specifically. Based on our findings we’ve included a targeted promotional efforts, which we've just launched have the potential to stabilize sales and then increase sales of the Noden products. So we remain optimistic about the future growth potential of these products.

Please turn with me now to Slide number 7. As mentioned we are pleased with the portfolio of investments that we have built since launching this strategy in 2012, we have reported that our five concluded deals have yielded an averaged annualized internal rate of return of 18.4% pretax. We will update this chart upon the conclusion of our investment in ARIAD Pharmaceuticals.

While we have previously made three types of investments to build value for our stockholders, royalty monetization’s, debt structures and hybrids of the two. It is our intent to prioritize investments in specialty pharmaceuticals over royalty monetizations and to largely reduce debt investments for the near-term.

As I mentioned our synthetic royalty transaction with ARIAD is nearing conclusion. Please turn with me, now to slide number 8, for additional details. PDL entered into a synthetic royalty transaction with ARIAD in July of 2015. We funded $100 million of a possible $140 million to date, with $50 million funded on July 2015 and another $50 million funded on July 2016. As a result of the acquisition of ARIAD by Takeda Pharmaceuticals, which closed on February 16, 2017, we exercised our put option, which will result in the repayment of a 1.2X multiple of the $100 million that has already been funded less royalty payments already received by us.

The net repayment is estimated to be around $110 million. Since the put option has been exercised, the ability to draw the additional $40 million, will terminate upon repayment of our investment, and its unlikely that ARIAD will take down the additional $40 million in the short interim period.

We are pleased with the outcome of this transaction which we currently estimate to be about an 18% annualized return on investment on a pretax basis. More importantly, this repayment gives us additional cash to pursue our investments in specialty pharmaceutical products.

Turning to Slide 9, and to discuss the investment that has been less positive, Direct Flow Medical or DFM, a medical device company with an approved catheter based system to replace stenotic aortic heart valves and a similar system under development for stenotic mitral valves.

As previously reported a potential lead equity investor unexpectedly withdrew it’s term sheet for tranched equity investment and is certain ex-U.S. rights to DFM products. Due to a lack of funding DFM, shut down operations on December 2016. At that time, the carrying value of the loan to DFM was $61.1 million.

PDL initiated foreclosure proceedings in January 2017, which resulted in obtaining ownership of substantially all of DFM’s assets through a wholly owned PDL subsidiary. While we are pursuing a sale or license of the assets of DFM, we have made a decision to take an impairment charge of $51.1 million to ordinary income in the fourth quarter of 2016, partially offsetting the income related to the Queen patents in the first quarter of 2016 reducing our 2016 federal tax payments.

In January 2017, we monetized $7 million of the DFM assets, with respect to rights to China. We have commenced a process to monetize the DFM assets with respect to rights outside of China. While we are disappointed in the outcome of our investment with DFM we will update you on the results of our ongoing monetization efforts.

Advancing to Slide number 10, to update you on where we are with legal matters pertaining to Wellstat Diagnostics. As you may remember, we initially financed a total of $44 million to Wellstat under a hybrid debt royalty structure. Unfortunately owners of the company initially, diverted funds in violation of the terms of a loan-contract and have since refused to repay PDL principal and accrued interest.

So we have in litigation to recover what is rightfully owed to PDL. In a New York court action commenced by PDL to collect from related parties who are guarantors of the loan the judge ruled in favor of PDL and appointed a magistrate to determine PDL’s damages. Wellstat appealed that ruling and the appeal was heard in January 2017.

Last month the appellate division of New York Court reversed our procedural grounds, a portion of the decision granting PDL summary judgment and affirmed the portion of the decision denying that Wellstat Diagnostics guarantors defend it’s motion for summary judgment, in which they sorted a termination of the guarantees had been released.

As a result the litigation is being returned to the Supreme Court in New York to proceed our PDL’s claims as a plenary action. What this effectively mean is that there will be at least a five to seven month delay in a final decision. Separate from the New York action PDL has commenced a non-judicial foreclosure process to collect on the sale of certain Virginia real estate assets owned by the guarantors of the Wellstat loan.

While the Wellstat loan is impaired and we are no longer accruing interest on our books the carrying value of the loan at $50.2 million is based upon the available collateral from Wellstat and it guarantors. We will continue to update you on our progress to collect what is owed to us.

The last investment that I will update you on with respect to our progress is LENSAR. So please turn with me now to Slide number 11. In December of 2015 ALPHAEON acquired substantially all of the assets of LENSAR and assumed $42 million in loans as part of the borrowings under our prior credit agreement with LENSAR.

In addition, ALPHAEON issued 1.7 million shares of its Class A common stock to us. In December 2016, as a result of ALPHAEON subsidiaries not being in compliance with covenants of the credit agreement and at the request of ALPHAEON, LENSAR re-acquired it’s assets from ALPHAEON on PDL entered into an amended and restated credit agreement with LENSAR, whereby LENSAR assumed all obligations outstanding under the amended credit agreement from ALPHAEON Subsidiary.

With our support in December 2016, LENSAR filed for bankruptcy under Chapter 11 of the bankruptcy code. In January 2017, we agreed to provide debtor in possession financing of up to approximately 2.8 million dollars to LENSAR, so they can continue to operate the business during the remainder of the bankruptcy proceeding.

Ultimately subject to a bankruptcy court approval, it is expected that LENSAR will become one of our operating subsidiaries. LENSAR has an established base of installed high speed lasers, which incorporate cutting edge technologies and can provide an important source of revenue to PDL if properly managed.

LENSAR has an estimated $135 million of available net operating losses. We estimate that the bankruptcy proceeding will be concluded in the second quarter of 2017.

Lastly before we turn to financial results, I would like to highlight our announcement today that for the first time our Board of Directors authorized the repurchase of PDL common stock with up to $30 million, a million excuse me expected to be repurchased over the next twelve months.

Given our expected infusion of cash, the stock repurchase program is an appropriate use of the Company's cash. It will create shareholder value while still maintaining flexibility for our strategic investments going forward.

At this point I'll turn the call over to Pete to discuss our financials.

Peter Garcia

Thank you John, please turn with me now to our financial results on Slide number 12. For the three months, ended December 31 2016 our net loss attributable to PDL shareholders was $10.3 million dollars or $0.06 per share. The net loss in the quarter was a result of a $51.1 million, impairment charge relating to our Direct Flow Medical or DFM note receivable investment.

Total revenues of $66.5 million for the three months ended December 31, 2016 included: Royalties from PDL's licensees to the Queen et al. patents of $15.5 million, which consisted of royalties earned on sales of Tysabri under our license agreement. Net royalty payments from acquired royalty rights and a change in fair value of the royalty rights assets of $28.1 million, which consisted of the change in estimated fair value of our royalty right assets, primarily related to the Depomed, University of Michigan, ARIAD and AcelRx. Interest revenue from notes receivable financings to kaléo and CareView Communications were $5.5 million; and Product revenues of $17.5 million were from sales of Tekturna and Tekturna HCT in the United States and Rasilez and Rasilez HCT in the rest of the world which we call the Noden Products.

Total revenues decreased by 63% for the three months ended December 31, 2016, when compared to the same period in 2015. The decrease in royalties from PDL's Queen et al. patents is due to the expiration of the patent license agreement with Genentech, which ended in Q1 2016.

The decrease in royalty rights, change in fair value was primarily due to the $27.8 million decrease in fair value of the University of Michigan Cerdelga royalty right asset and the decrease in fair value of the Zalviso AcelRx royalty rights asset, partially offset by an increase in the fair value of the ARIAD royalty rights asset.

PDL received $25.3 million in net cash royalty and milestone payments from its royalty rights in the fourth quarter of 2016, compared to $34.4 million for the same period of 2015. The decrease in interest revenues was primarily due to early repayment of the Paradigm Spine, notes receivable investment and Product revenues were derived from sales of the Noden Products which include net sales in the U.S. and profit transfer from Novartis for the rest of the world.

Our operating expenses were $74.2 million for the three months ended December 31, 2016, compared to $16.5 million for the same period of 2015. The increase in operating expenses in 2016, as compared in 2015, was primarily a result of a $51.1 million impairment charge relating to our DFM note receivable investment and $11.4 million in expenses related to our new Noden product operations.

Turning to the full-year 2016 results for the twelve months ended December 31, 2016 our net income attributable to PDL shareholders was $63.6 million or $0.39 per share. Total revenues were $244.3 million. Total revenues decreased by 59% for the 12 months ended December 31, 2016 when compared to 2015.

The decrease in royalties from PDL's Queen et al. patents is due to the expiration of the patent license agreement with Genentech. The decrease in royalty rights change in fair value was driven by a $36.6 million decrease in fair value of the University of Michigan royalty rights assets, a $23.1 million decrease in the fair value of the Depomed royalty rights asset and a $3 million decrease in the fair value of the Viscogliosi Brothers royalty right asset, partially offset by the $14.8 million increase in fair value of the ARIAD

royalty right asset.

For the 12 months ended 2016 PDL received $72.6 million in net cash royalty payments and milestone payments from its acquired royalty rights compared to $43.4 million for the same period of 2015. Our interest revenues were $30.4 million in 2016 and our product revenues on the Noden products were $31.7 million.

Our operating expenses were $114.9 million compared to $40.1 million for the same period of 2015. The increase in operating expenses in 2016 was a result of the DFM impairment charge and $25.6 million in expenses related to the acquisition of the Noden Products and its operations.

Turning to our balance sheet results, PDL had cash, cash equivalents, and investments of $242.1 million at the end of 2016, compared to $220.4 million at the end of 2015. And in 2016 our total assets increased approximately $200 million to $1.2 billion.

To give you some updates on recent events, that will impact our results in the first quarter of 2017, PDL received a royalty payment for the first quarter of 2017 in the amount of $14.2 million, for royalties earned on Biogen’s fourth quarter 2016 sales of Tysabri. The duration of this royalty payment is based upon the sales of product manufactured prior to the patent expiry, the amount of which is uncertain. However, this appears to be a full quarter of royalties which suggest we may receive additional royalties past the first quarter of 2017. In addition, as John mentioned in January, we received $7 million for the sale of rights to assets of DFM in China. And we’ve exercised our put option with ARIAD and we repaid an estimate of $110 million in late March or early April of 2017.

With these additional infusions of cash, we expect our cash balance including restricted cash to exceed $350 million in the next month. As John highlighted, we plan to repurchase up to $30 million of PDL common stock between now and March 2018. Purchases maybe made in open-market transactions, block transactions, privately negotiated transactions or other means as determined by PDL’s management. And in accordance with the regulations of the SEC including a Rule 10b5-1 buying plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so because of trading black-out periods.

The timing and actual number of – shares to be repurchased will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions. We will update you in the progress of our stock repurchase program in our future quarterly financial results filings.

Operator, at this time, we’d like to turn the call over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Phil Nadeau of Cowen & Company. Your line is now open.

Phil Nadeau

Good afternoon and thanks for taking my questions. Just first one on Tekturna and the Noden business are you in a position to give some broad guidance on Tekturna’s revenue expectations for 2017 or the operating expenses associated with it?

John McLaughlin

Yes, Phil. Hi, good to talk to you. This is John McLaughlin. So with respect to financial guidance in terms of revenues, we are not prepared to give guidance at this point, the sales force of 40 dedicated reps and four managers really just hit the ground about a week or so ago and the third week in February. I think we want to get a little bit of a sense of what kind of traction they are having and at that point, will be a little more comfortable providing. I think will be more reliable guidance than will be able to do right now. So we’ll hold off on that for a little while.

Phil Nadeau

Okay, understood.

Peter Garcia

Phil, this is Pete. I can give you a little bit of guidance on operating expenses and whether you want those for both PDL and Noden, you asked about Noden specifically. So for Noden…

Phil Nadeau

Both would be perfect

Peter Garcia

Yes, okay for Noden, we expect the SG&A to be about $23 million for the full year of 2017 and there will be R&D expense, if you recollect there is a pediatric label expansion study ongoing and that will be about $7 million. And then there will be about $24 million, which is in the operating expense line for the amortization of the intangible asset which is noncash. So total of $54 million of which $24 million is noncash for Noden.

Phil Nadeau

Got it. PDL?

Peter Garcia

For PDL, we expect our expenses to be kind of consistent about $7.5 million a quarter or $30 million for the year with the exception of legal expenses. So it doesn’t include legal expenses which could vary depending on how we move forward with Wellstat in our market litigation.

Phil Nadeau

Great. That’s helpful. Just one additional question on Noden, so the cost of goods for the quarter was 23%, does that a number that’s likely to continue or are there one-time items in this quarter’s cost of goods or other things we should think about as the European sales were actually reflected on your top line rather than just a profit, how that cost of goods number could vary?

Peter Garcia

Yes. Our actual cost of goods was about 32%. So we might – the numbers maybe reflected if you take the total revenue number remember that includes ex-U.S. profit transfer from Novartis which is net of cost of goods in their profit transfer fee which is a small single-digit fee.

Phil Nadeau

But is it fair Pete, to say that some of that also reflects inventory we purchased from Novartis in both Europe and U.S. is that which makes it probably higher than it would be for – distributing ourselves or is that incorrect?

Peter Garcia

I think we just – it’s a little bit too early to tell right now in terms of how the sales are playing out. This was the first quarter of commercialization of when Noden took over the product about the fourth quarter in U.S. So the third quarter was a similar profit transfer agreement.

Phil Nadeau

Okay, that’s very helpful. And then second on LENSAR, you mentioned that could become a wholly-owned or a subsidiary of PDL beginning in Q2? Could you give some sense of what type of revenue they are recognizing now over half historically before the disruption with the ongoing bankruptcy?

Peter Garcia

Sure. We are not prepared to do that today. The first part of your question is again, if approved by the bankruptcy court, we think that’s likely, yes, we will be an operating subsidiary. They are pretty close to breakeven. There’s probably some money we put in terms of some additional investments in it, we can’t. But they reasonably modest we can’t do that right now and there's some things we probably would restructured to make it more profitable. So on the other side of the bankruptcy proceeding will be in a better position to give you some guidance on that which you deserve.

Phil Nadeau

Okay. And then just last question is on the share buyback, how do you prioritize share buybacks versus new spec pharma deals or is that even a relevant question because you feel like you've plenty of capital for both?

John McLaughlin

Yes, I think the last – the latter, as I mentioned we should have about approximately $350 million depending if we get the ARIAD money before the end of the quarter or after the board and management are committed to buying up to $30 million, which still gives us a lot of leeway to do things in the spec pharma space.

Phil Nadeau

That’s great. Thanks for taking my questions.

John McLaughlin

Sure. Thank you.

Peter Garcia

Thank you.

Operator

Thank you. And our next question comes from Adnan Butt of RBC Capital Markets. Your line is now open.

Adnan Butt

Thanks for the question. First on Tekturna, would you be able to give us the U.S. versus ex-U.S. sales breakdown for the fourth quarter?

Peter Garcia

Adnan, I don’t know that we had at our disposal book, but we’ll happy to do is share with you after the call and anybody else who’s interested in, I don’t know that we have that actually broken out that way…

John McLaughlin

So again, it’s a little bit of a mixture. So the U.S. sales are approximately low – and the quarter were approximately $13 million. The difference for the quarter was really again the profit transfer from the rest of the world. So what the actual revenue number is, it’s not disclosed for ex-U.S.

Adnan Butt

Did the U.S. sales that’s what – Noden, as you recognizing now that’s the full quarter that’s what – really what the picture is in the U.S.?

John McLaughlin

Yes, $13 million.

Adnan Butt

Okay, that’s helpful. And then in terms of Noden, has the PDLI identified any products that could be added to Noden at this stage?

John McLaughlin

We have – whether we – you want the long answer, Adnan? So we have, obviously the question is can we actually acquire them at attractive terms and of course that’s always the trick. So are there someone looking at, yes, of course there are, yes we are seeing some very attractive ones that fold in and we see some that are complementary. Bear in mind, the sales force is a GP sales force, the call point is about 90% GPs and about 10% cardiology. So there are some other products that would fit within the bag quite nicely but as you know, yes, and I can hear you laughing too, we are all laughing. The trick is not finding – the trick is can you actually get the deal done on attractive terms and that’s what we are working on.

Adnan Butt

Okay. Do you foresee the situations to be competitive situations?

John McLaughlin

I think some of them are certainly in the case of Tekturna, it was a competitive situation it was also another party, so I guess what I would say is – or soon that there going to be competitive situations but what I add is we’ll be started looking at these things back in late 2014 through 2015 frankly even through kind of late 2015 there was a lot more competition. We are not seeing the same number of players in these bidding contests.

Adnan Butt

Okay. And lastly on LENSAR, I think you mentioned that there are NOLs outstanding, how the PDLI would be able to utilize those and when?

John McLaughlin

So that they have $135 million in NOLs outstanding, it obviously has to go through the bankruptcy proceeding, although I think we are reasonably confident that as largest creditor it will become a wholly-owned sub of PDL. Pete, you want to address the second part of that?

Peter Garcia

Yes, so there is a – as a senior secured creditor, we would be able to avail ourselves of a section of the IRS code called 382(l)(5). We are investigating that at this point, we mentioned the NOLs as being part of potentially taking advantage of that. But the reality is as John mentioned they’re generating revenue now. We think with a little bit of support, which they haven’t had from a financial point of view that we could expand upon that. And hopefully, build the value up to ultimately get the return of our initial investment, which is about $45 million.

Adnan Butt

Okay. And then last one, Pete. Has the company repurchased any shares at this time?

Peter Garcia

No, we haven’t. So we just announced today, and we are precluded from doing anything until the black-out period ends which would be two days from today, so effectively we could start next week.

Adnan Butt

Okay. Thank you.

Peter Garcia

Thank you, Adnan.

Operator

Thank you. And our next question comes from the line of Max Jacobs of Edison Group. Your line is now open.

Max Jacobs

Hi, guys. I just want to ask about – what are the assets that are left in – that are in LENSAR does they have a lot of salespeople, are there kind of fixed assets you might be able to sell off and also the same thing – same question with DFM?

John McLaughlin

Sure, good questions both. Thank you. So with respect to LENSAR, yes, there are fixed assets. So LENSAR is a business and what they do is they place – these very high speed powerful lasers called femtosec lasers, which are used for a variety of Ophthalmology surgical procedures, predominantly cataract. So that's the biggest driver. So what they do is they place the lasers in predominantly high volume surgical settings. And then they collect revenues based upon each use of the laser. So it's kind of a pay to click if you will business strategy. So they have a very nice installed base of laser so yes, there are hard assets there.

They have contracts where people pay for those lasers and they receive revenues based on the clicks, yes, they do have other hard assets in terms of IP, a sales force, a small group in manufacturing and support for all of that. And as I mentioned and as Pete mentioned as well, we think with a little bit of optimization. We've made – we supported some of their efforts to optimize it before going into bankruptcy. We have some other thoughts when they come out of bankruptcy.

Again assuming which we think it's likely that the bankruptcy court will grant us control over the company to how we can optimize it. So yes, we do, it's a nice business we'll look at it. There's some ways to – structure to make it perhaps even a little bit more revenue generating than it is and potentially profitable.

With respect to DFM, so yes, there are hard assets there but I think if we are going to see value it’s more likely to be in the intellectual property as you may be aware. Two of the hottest spaces right now in the medical device field are the replacement of stenotic heart valve, aortic valves. So previously these used to be patients we had open heart surgery and now more and more it's moving towards instead of really sick patients frankly, are going to moderately ill patients and probably at some point even less ill patients we are using this catheter based system, we will operate and open the chest. So they have some nice IP on that.

They also has some nice IP on mitral valve, which is the other hot area, these are catheter based to replace the mitral valve which sits more in the interior of the heart and that’s probably even bigger market than the aortic valve. I would speculate – it’s speculate an important word in these hands, so that if we are going to see additional value it probably comes from some of that IP, some of that know-how and some of their early development work in the mitral valve space, as well some of the clinical experience it’s probably going to be more in that category than at the manufacturing facility or something like that.

Max Jacobs

Okay. Great, that's all my questions. Thank you.

John McLaughlin

Thank you.

Operator

Thank you. And our next question comes from the line of Charles Duncan of Piper Jaffray. Your line is now open.

Unidentified Analyst

Thanks. Hi, this is Sara on for Charles. So heading onto the year were that pretty strong cash position, just curious to understand the range of investments you are considering, I mean is this limited to asset under the Noden umbrella, which could be marketed to GP, trying to understand the high level strategy of that one. Thanks.

John McLaughlin

Sure. Hi, Sara, it’s John. That’s obviously one field we're looking at that's one bucket we're looking at, the other point of your question there's some obvious synergies there in the cardiovascular field where that’s been promoted by GP sales force but there are also baskets of products and forgive me if – I don't want to necessarily get into therapeutic area. Because that might how people kind of figure it out but there are baskets of products in other therapeutic areas, where if we could get our hands on the basket of four or five products in a particular therapeutic area, where it’s a common therapeutic area for that basket. You could build Noden tool around it and we would be more than willing to do that.

So we're looking at both strategies. If we can, we'd like to find something we could fold-in Noden. But we are actually seeing a couple of baskets of pretty attractive assets that you probably set up in a similar structure to Noden, may be the subsidiary of Noden or something like that but its probably a different sales force. And probably a more targeted sales force in some respects, looking at both.

Unidentified Analyst

Great. Thanks. And then just the follow-up, sorry if I missed this, is there any chance here planning to get guidance at some point this year, is that more in 2018?

John McLaughlin

It's a fair question, with respect to Noden products, the sales force just really hit the ground. I want to say it’s like February 20 I think we want to give them a little bit of time to get some sense of how their efforts are resonating. I mean obviously we did some modeling before we purchased it. But I mean I think to give you some guidance it's reliable. We'd like to have a little bit of time in the field to see what's working maybe there's things that aren’t working to change them. So it's probably a little ways out yet and I'm sorry, I wish I could be more specific. We do want to give you guidance. We understand why you want it, and we want to give it you. But we kind of like it to be reliable too.

Unidentified Analyst

Great. Thanks for taking my questions.

John McLaughlin

Sure.

Operator

Thank you. And our next question comes from line of Jason Adler of GMP Securities. Your line is now open.

Jason Adler

Hi, thank you for taking the question. Just a couple of questions, I want to check my math on some stuff. The cash balance that you gave includes the 75 of restricted cash. Am I correct to assume that's for the anniversary payment to Novartis?

John McLaughlin

It’s for letter of credit that we put in place that would guarantee that payment whether that the all 75 is used or not is to be determined based upon how – what Noden does on their debt financing.

Jason Adler

Okay. That’s helpful. And so the unrestricted cash balance at the year-end was somewhere around $167 million, obviously at the convertible bond issue and the debt repurchase, are there any other large sources are used the cash during the quarter to help bridge from the operating cash flow that you provided to the unrestricted cash balance?

John McLaughlin

So we did get – called material but we did get when we recognized the royalty payment associated with Synjardy, which is a new product and new basket of products from Depomed royalty that actually got paid in the first week of 2017. But that was effectively one of the – that was actually two years ahead of when we had anticipated that product to be approved and start to get the milestone and royalties. Other than that I mean it was kind of business, as usual from a cash royalty basis.

Jason Adler

Okay. And that 75 of restricted cash that was held as restricted cash last quarter also, right?

John McLaughlin

Yes, that was long-term last quarter, as a long term an investment. It matures in August of 2017 within CD, right now.

Jason Adler

Got it. And then my last question, could you just let us know how you think about the remaining balance of 4% notes outstanding in terms of how you expect to address them in the coming year, either through refinancing or repurchase?

John McLaughlin

As you identified, we did do a partial repurchase based upon a new convert that we did. I’m not sure I mean we will look at those they're trading I believe around $0.98 on the dollar, we take a look at those. But at the same time, we have a balance of the stock buyback that we just announced and then also more importantly looking at spec pharma products and other investments.

Jason Adler

Okay. Thank you for taking the questions.

John McLaughlin

Sure.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. John McLaughlin for closing remarks.

John McLaughlin

Thank you for joining us on the call this afternoon. We are pleased with how things are progressing under our new strategy and look forward to sharing further development progress with you in the months ahead. We look forward to presenting at the Cowen Healthcare Conference in Boston on March 8, and at the Roth Healthcare Conference in Orange County, California on March 14. Hope to see some of you there. Have a great day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

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