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Another $145 Million For PDL BioPharma?


  • Current market capitalization is ~$375m.
  • Ongoing litigation between PDL BioPharma and Wellstat could result in a payment to PDLI of up to $145m.
  • Case is likely to be resolved by end of 2019.
  • The judge already decided in favor of PDLI but had their judgment remanded based on a procedural point. The same judge presides and is likely to come to the same decision once the appropriate procedure is followed.

There have been a host of articles over the past year that have talked about PDL BioPharma's (NASDAQ:PDLI) valuation, cash on hand, and possible acquisition of Neos. I'll leave it to astute readers to explore some of the basics that are covered in those articles and suffice to share a general summary of what other authors have already covered: PDL BioPharma is an undervalued company with significant cash on hand that has recently failed to secure the purchase of another company, Neos. They describe themselves as a "publicly traded private equity shop" and have a 15.9% internal rate of return on their historical debt and royalty deals. They are pursuing a new strategy of acquiring specialty pharma products and companies.

Again, all this and much more can be gleaned from many of the other articles written about PDLI. So I'll spare you the battering of more of the same information.

Instead, I wanted to write about the ongoing litigation between PDLI and Wellstat and the possibility of a judgment awarding PDLI up to $145m to add to their already substantial cash position of $532m. The origin of the case comes from a $40m loan PDLI made to Wellstat in 2012. Wellstat nearly immediately defaulted. Despite PDLI working with Wellstat to try and renegotiate multiple times, Wellstat continued to default again and again on the loan. After years of defaulting PDLI took Wellstat and the loan guarantors to court in 2015, at which time none of the loan had been paid back.

So to start, we have a $40m loan which has never been paid with a 5% interest rate originally and a higher interest rate in the instance of default according to PDLI's filings. PDLI motioned for summary judgment against Wellstat and the loan guarantors at an amount of $83.969m.

This article was written by

Ryan Bowen profile picture
Joined the Seeking Alpha team as a Senior Editor in 2023. As part of being an Editor I no longer can write for the site but instead focus on ensuring we curate quality content.
I am a self-taught value investor along the Graham and Dodd line. My first objective is to not lose money. I seek to do this by ensuring any position I enter has a discernible margin of safety. The second thing I aim for is above-average returns.

Always open to questions and dialogue as I believe it only serves to improve us all.

Analyst’s Disclosure: I am/we are long PDLI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

I wouldn't rely on what a judge has to say, especially one that doesn't like the constitution. Judges are making up their own laws as they go along because governments won't enforce existing laws and are primarily interested in their own power and money. I have no strong evidence, but it looks to me like more and more people are taking supplements instead of FDA approved impossibly expensive prescriptions.
Ryan Bowen profile picture
I'm fairly certain that the judge's comment about the constitution was tongue in cheek. That to the side, the judge's opinion happens to matter because they are the one presiding over the case.
Thank you for drawing our attention to this issue.I am afraid the appellate court remanded the case on more troubling reasons than a mere procedural glitch. The last part of the appellate judgment reads like "how to defend the case on legal grounds" instructions. Here is a link:


Legal issues apart, given that we do not know much about the creditworthiness of the defendants, other than that those guys were not able to just repay even the 10m they misappropriated, it seems doubtful that an amount ten times as high is recoverable from them. So I guess the 50m valuation of the claim is about right, if not even on the high side.

That said, I own a fair chunk of PDLI and I believe they have significant upward potential, albeit not resulting from the Wohlstadter claim.
Ryan Bowen profile picture
What you are highlighting is broadly what the defense has been arguing: that the guaranties are not in effect any longer due to a subsequent credit agreement. The appellate court is flagging this as an open question which depends on documentation outside of the scope of what is allowed in the summary judgment. And recent transcripts strongly suggest that the judge does not agree that this requires a difference of her opinion about the documents themselves, just that they have to be submitted in proper discovery before she can make the decision.

I'd be curious to hear more of specifics of what you find more troubling. All that this seems to be saying is that these documents must be reviewed and the summary judgment procedure did not allow for it. Judge Bransted did in fact review these documents already and came to a conclusion. That's why I say it is procedural because it is how they were reviewed that is the problem, not her ultimate opinion on them. They just need to be reviewed as part of discovery first. They state that pretty clearly themselves "Once issue is joined and any appropriate discovery is conducted, it will be appropriate to address the questions of whether issues of fact exist which preclude summary judgment"
up 14% today.
Ryan Bowen profile picture
They just reported earnings and here are some highlights:

-Book value per share increased to $5.54
-Earnings for the year are $0.71
-They used their mountain of cash to pay off $126.4m in outstanding 4% convertible notes (this was done last month so technically is not part of their reporting, but was included in the press release and conference call)
-$25m buyback is likely to commence soon after they submit their 10K

Seem like plenty of good things going on. No update on the Wellstat case though. That'll just be an additional value add in the coming year.
yes im in
beat by .13.
There is definitely value here but don’t want to hold through earnings. Need funds to get more vtvt shares ahead of Alzheimer’s readout and 4 bagger potential
Great article. Also notable is that Wellstat won a big judgement for $70mm ($55.8mm in damages plus interests/costs) against BTG Pharma, which has a 2.6bn market cap. PDL is a goldmine!


Ryan Bowen profile picture
That's also super helpful information. Thanks for that!
Xenogears23 profile picture
that was more in depth than I expected about the case. Thanks. Do you know what the cash burn is? I'm trying to decide between this and RKDA
Adam Stich profile picture
No cash burn. FCF positive as of Q3 2017.
They report earnings on 3/8/2018 for full year 2017. So you may want to wait until Thursday to see if there is any cash burn for the year. My guess is none to minimal.

Adam Stich profile picture
They are buying back shares. They have a $25 million buyback program (see slide 11) that they haven't initiated due to a blackout period. If someone knows when that program would start, that would be valuable information. Shares are down substantially from the recent high of $3.50. I started buying at this time in 2017 - shares around $2 - and I'm surprised the stock hasn't gone closer to book value over the course of the year. Although, there were few catalysts in 2018, aside from the Kaleo deal and the failed Neos deal. If anything, the failed NEOs deal drove the stock price down.
Ryan Bowen profile picture
I'm also surprised why it hasn't gone closer to book value. And perhaps a good mental exercise is to try and define what the bear case is. A few things that come to mind:

1. Cynicism about the change in strategy. Leadership may have been able to make good returns on debt and royalty deals but they are trying to operate specialty pharma companies now.
2. Management will not be effective stewards of the mountain of cash and thus will erode value in the company. This is really part of point 1, but I'm highlighting it because of the sheer amount of cash they do have.
3. A write down on the assets. Royalty rights or intangibles may be inflated, thus inflating book value. I think the highest risk here is a write down on LENSAR intangibles but also possible with Noden.

You have any thoughts on the bear case?
with the market cap you could almost buy PDLI with their own cash. I assume they have a poison pill clause to protect themselves.Alternatively they could buy back stock. Either way they have been smart . I have been under water on this but am going to hang around....gotta feeling.
retiredpharma profile picture
Hi Ryan,

I appreciate your value investing and in this case w/ PDLI you are correct that the cash pos is good and could get better...but again in this case the WS LOAN is now 6 years old and not one penny is paid back on $40M upfront...all the while the cost of LITIGATION is carried by PDLI for 6 years...

WS is only one issue...they have the LENSAR issue too...they own all the LENSAR machines now but they need to get eye docs to use them and PAY THE FEES back to PDLI for laser eye surgery cases..there are some other less than secure deals but i forget....

The old PDLI gave us the fast and furious days of the Queen et al patents and DIVIDENDS galore that attracted so many including me...but I fear that those days are long gone...as I see it now they are living LARGE on their HISTORY and pos reputation of old...but that's getting long in the tooth now!!

Ive written to management asking good questions mainly about NODEN and their product in ADHD called Daytrana for ex., which is a patch but has had supply and failure issues...many wrote about the NODEN ADHD patch saying it worked well when it stayed attached to the skin so I asked what was the issue there and and not one word back to me?

Slow metered clonidine absorption through the skin is ideal in kids who go to school or adults on the run, for obvious reasons!

Look its clear they wanted NEOS because they had a Sales Force selling a FAILED ADHD PATCH PRODUCT called DAYTRANA, but when the NEOS M&A failed than why not work hard to get the patch RIGHT and working?


I wrote to PDLI about this and not even a ""hello RP thanx for your support in the past"...""this is what we are doing today to win back LOYALTY....or the Daytrana Patch is this or that""...something for me to hang a hat on..

but I got NADDA!

and I think this is why the stk is tanking today even w/ all the cash..its looked upon by the market as DEAD MONEY!

So imo the BRAINTRUST of PDLI is very COCKY and FULL of THEMSELVES out there in Colorado, in all that Pristeen Mountain Snow and Beauty its a wonder they get any work done...Id be skiing 24/7 if that's where I was work located....or drinking Coors..LOL!

Nope I'm sorry but PDLI has not only lost the old guard like me, they lost all the new people who came along late to the party thinking maybe they will cut the divi back in half but not do away w/ it entirely which is what they did...that soured a very SELFISH but LOYAL CONSERVATIVE SHDR base including me...they/we will never come back until PDLI shows they are backing another ROCHE/DNA type investment w/ drugs like Herceptin, Avastin, Lucentis and Xolair.

I don't see that in the current mix and when one looks at NODEN we see a small Co w/ an HBP drug in Tekturna (aliskiren) a NVS castoff w and w/o HCT...now this is a specialty med and its in a very crowded field and the standbys like the CCBs and ARBs and ACEs etc are ALL GENERIC today and dosed Q day meaning take once a day...so that's hard to compete in that space..it takes SCIENCE/SALESMANSHIP which means one needs to be adept at the NUANCES of aliskiren and I rather doubt that the reps today are that CAPABLE of discerning the Renin-Angiotensin-Aldo... system....

Now I'm not entirely negative on PDLI and to be fair they made some good deals like DURATA, but my fears now going foreword have more to do w/ the Current Management Team and their Inability to close a good deal like NEOS...they should never have lost that deal....

they were OUTPLAYED!

Now they must HUNT down other meds that will compliment Tekturna..I have a whole slew of cos and products but PDLI does not return my emails!

I still hold my old shares and fortunately I traded them over the years into a low cost (still under water today on my pos), but like U say the cash alone is valuable and may get more valuable by eoy, if I just get my orig pos back I will be happy and that is the cash pos of the co as it stands today, not the current sp!

NEOS at $8 may be a better buy imo!

Ryan Bowen profile picture
Thanks for the comment RP. You've got a whole article's worth of thoughts! Some reflections and questions for you.

1. As far as the WS loan, not getting anything back thus far, and cost of litigation I'd say that the fact that they have been continuing to grow book value even with this as an issue speaks to management's ability. It seems highly likely that they will win the case and in that they will also be compensated for their litigation costs. So all that money will come back to them, and likely more.

2. With regard to your thoughts around strategy, have you thought about joining their conference call on March 8th? You could pose your questions there and it would be interesting to see their response.

3. I have very little expertise in pharma, biotech, or medical devices and so I can't say what makes sense or what doesn't moving forward in that realm. What are some of the companies and products that you think would make sense for PDLI?

4. What I am looking at is an asymettric risk profile. They have a ton of cash waiting to be put to work and management is being intentional about how to deploy this cash. I actually really applaud management for having a valuation metric in mind and pretty much sticking to it in the Neos situation. In my judgment, they didn't lose the deal, the deal changed to a degree that they thought it wasn't worth it. And on top of the cash waiting to be deployed we have a profitable company as is, the WS case and a likely payout, a track record of growing book value, a pretty sizable amount of NOLs, and active share repurchase program.

My number one investment criteria is having a margin of safety to protect my downside. If we look at a book value figure of $5.40 we get a margin of safety of over 100%. Even in a situation of a 50% writedown on royalty rights and intangible assets I calculate a ~35% margin of safety. And I'd say there's some pretty significant room for growth with $500m cash waiting to be deployed if done intentionally.

Are there scenarios you are concerned with going forward which will reflect a deterioration in book value?

5. And much of what you say about losing the old guard actually reads as an opportunity for me. What I'm hearing is that we had a host of motivated sellers due to the stock changing from a dividend play. That sounds like a market inefficiency to me rather than a true valuation of the company itself.
retiredpharma profile picture
Hello again Ryan!

First let me compliment you on writing a good and factual article. I agree w/ you that the BV of PDLI is much higher than the sp would reflect and by Double if we can believe all the accounting measures..Ive not taken the time to look at things like GOODWILL or where exactly the valuations are on each asset, how much of said asset is correctly valued etc....so I could be throwing out this BABY w/ the BATH WATER and that is not my intention.

Instead I wanted to give you and readers more of the BEAR CASE that I think reflects the markets attitude towards PDLI.So in that light I would say at $2.54/sh it very bearish, as that is clearly about 1/2 the Book Value. Why?

I think the market likes PDLI as an Investment Company that makes outstanding INVESTMENTS..those that are GROWTH driven like the old Queen et al patents which were about 70% of the value of PDLI! Today when we look at PDLI we see a mix of assets and we hear mngmnt describe them in as positive a light as they can but the market sees another story..they see PDLI as an Investment Co that RETAINS most of its CASH today and has changed its STRIPES to PROVIDER. And the provider is NODEN! And the only drug NODEN has is Tekturna! This is for HBP! Do you know how many HBP meds are available to Docs! I mean its at least 25-50 meds by now! I'm retired out of Pharma now 11 years so I know all the old 1990s meds are still used like MRKs ACE which is Lisinopril(Vestril)! This drug was a powerhouse back in the day..its still quite commonly used today, its Q day dosing, has few side effects, its not metabolized by the liver where many meds go and its GENERIC so its cheap! Its been used by 10s of Millions of people around the world...how would you like to go up against that w/ your Tekturna pitch? Or maybe the Tekturna folks want to sell against a CCB like Nifedipine? Thats PFEs old drug called Procardia another Powerhouse back in the day! Works quite well in AA people particularly where we see lots of HBP! Its cheap as cheap can be, one dose a day in the XL form and the old Procardia was used in ERs for Malignant HBP to get pressures down quickly,safely and ORALLY.

So in a nutshell I guess what I'm saying is the Market looks at PDLI as a SHOW ME STOCK today..we are waiting for NODEN and Tekturna to show us the value of that move! So far the market is saying TOUGH MARKET TO COMPETE IN TODAY, its mostly driven by GENERIC MEDS like Nifedipine derivatives or Lisinopril or the ARBS like Losartan that work well and have 30+ year track records of safety! And the copay is like $5 for 30 days or FREE as in my case w/ my Medicare+ plan!!!

In fact today the Insurers like Aetna or BC/BS or Cigna use HBP as a Loss Leader Disease State so to speak. They are basically saying to Plan Members, if you take your BP meds daily and CONTROL your Pressures we see that as so "COST EFFECTIVE TO OUR PLAN" that we are willing to give you that med FREE!

So in that sense they are using HBP as a Loss leader!

I do not believe that PDLI has made a good or strong enough case that NODEN is capable of delivering the kind of GROWTH that investors will need to come back to the stock. Personally I saw the deal w/ NEOS as a smart move...the ADHD market is crowded now but there are clear cut Winners and Losers..the NEOS portfolio was IDEAL..plenty has been written on Adenzys etc so imo that failure to get NEOS is troubling even if they paid up some! They said NO and stuck to the $10.25 sp..some call that DISCIPLINE, I call its stupid! They could have offered up a kicker that cost them nothing like a CVR....which is what the AB plays do..including their DURATA play...its a MS based on future sales..if those future sales come in than that MS is paid! So far all my CVR plays like Durata have never been paid on!

PDLI is competing in a generics market w/ a drug that NVS gave up on long ago as their growth driver to encourage investors that the new PDLI can return to its Glory Days....I will be on the CC but they do not allow people like me to Q up! You must be an ANAL least and Bloggers like me who are REAL WORLD are not considered ANAL enough!


Ryan Bowen profile picture
Thanks for sharing your thoughts on the HBP market. That's helpful information to keep in mind. One of the things I noticed in their discussion of Tekturna is a focus on a specific part of the market: those who are ACEI and ARB intolerant. You can see this in their most recent investor presentation on slide 14 (http://bit.ly/2t47VEs). So while it seems the market may be crowded I think they at least appear to be carving out a niche, a niche research suggests includes ~12% of patients.

Do you have any thoughts or know anything about the market in this niche of products specifically for people who are ACEI and ARB intolerant?

I'd agree though, with Tekturna I think it remains to be seen whether this strategy will play out. To me it at least appears to be a reasonable one. And part of their argument for the product seems to echo what you are saying above. This is from the Q3 2017 conference call transcript (https://seekingalpha.c...)

"Many of you may be familiar with the dynamics of hypertension market. It is largely a generic market with a sizable unmet medical need with very little promotional activity. It is exactly the kind of market where relatively small commercial team can have an impact. Almost one out of two hypertension patients are not at goal and the target for blood pressure is likely to down for patients at risk. Close to one in eight patients cannot tolerate ACE inhibitors or ARBs, so this represents a large cohort where Tekturna is uniquely positioned to be the drug of choice.

Tekturna is an opportunity therapy for the treatment of hypertension because as the only approved direct renin inhibitor. It has a unique mechanism of action. This offered hope to the patients who are intolerable or unresponsive to other hypertension treatments. Based on recently completed market research with physicians who specialize in the treatment of hypertension, the Noden U.S. marketing is refining the positioning of Tekturna to focus on the specific types of patients who will benefit most from this treatment."

I'd be particularly interested to see more detailed information broken out around Noden profitability, yet it appears that their operations are already profitable based on some back of the envelope calculations. I'm hoping we'll get some more detail on that this week. The question remains whether they are able to grow sales in the way they believe they can, which I believe we will also get some more information on this week.
Adam Stich profile picture
Thanks for the article mention. And nice work analyzing the potential Wellstat case payout. Very helpful.
Ryan Bowen profile picture
Of course! Thanks for all your work on the name so far. Was a great way to get oriented when it came up in my screeners. Cheers!
Adam Stich profile picture
Cheers! Looks like you got in at the right time. Up 18% after hours today (March 8, 2018). According to the conference call, cash is up and $25 buyback will start shortly after 2017 10K comes out. More upside to comes with more buybacks.
Adam Stich profile picture
to clarify, $25 million in buybacks.
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