Zacks_Analysts' Blog : PDL BioPharma Guides Q3 Sales - Analyst Blog

PDL BioPharma Inc. (PDLI) recently announced that it expects to generate third-quarter 2011 revenues of $83 million, representing a 3% decline from year-ago revenues of $86.0 million. The Zacks Consensus estimate for the third quarter revenue is $86 million.

At present, PDL receives royalty on worldwide net sales of Roche Holdings Ltd.'s (RHHBY) Avastin, Xolair and Herceptin; Roche and Novartis AG’s (NVS) Lucentis, and Elan Corporation (ELN) and Biogen Idec’s (BIIB) Tysabri. While the royalty payments are tiered in the US, PDL receives a flat 3% royalty if a product is both manufactured and sold outside the US. However, Tysabri royalties are calculated at a flat rate as a percentage of sales, irrespective of the manufacturing or sales location.

Increased royalties in the quarter from higher sales of Herceptin, Lucentis and Tysabri were offset by reduced royalty from Avastin sales. Avastin sales were affected by the regulatory and reimbursement uncertainty surrounding the metastatic breast cancer indication of the drug. Also contributing to the decline was lower average royalty rate on Roche’s products, as a higher proportion was generated from products made or sold in the US, which generates lower royalties than sales outside the US.

In the third quarter, PDL BioPharma will receive royalties on second quarter 2011 sales achieved by the above mentioned drugs.

However, the guidance includes the payment from Novartis under PDL’s settlement with Novartis, which the companies had entered into in February 2011. The estimated payment will be based on sales of Lucentis outside the US made by Novartis in the second quarter.

Our Recommendation

Currently, we have a Neutral recommendation on PDL BioPharma. The stock carries a Zacks #3 Rank (“Hold”) in the short term. Overall, we are encouraged by PDL BioPharma’s recent progress in resolving multiple disagreements with Novartis, UCB Pharma (UCBJF) and European Patent Office’s decision to uphold the validity of the European patents. Nonetheless, the litigation with Roche continues.

The recent favorable Nevada ruling is encouraging, which could lead to a relatively swift resolution of the Roche challenge. Overall, we believe that PDL BioPharma has an upper hand in the case.