PDL recently reported Q218 results with revenues of $46.6m, up 20.9% compared to Q118. This increase was mainly due to strong sequential revenue growth from Noden products, which increased by 45.1% from $18.3m to $25.9m. Orphan Pacific’s launch in Japan in March is the main driver behind this growth. Asia is becoming progressively more important for Noden, with Asian sales accounting for 33.7% of Noden product sales in the quarter, up from 7.7% of sales last quarter. This percentage is likely to rise as the Japan launch continues and with Lee’s Pharmaceutical Holdings, which has licensed the rights to Tekturna/Rasilez in China, Hong Kong, Macau and Taiwan, expected to launch in China in H119. We don’t currently include any revenues for Tekturna/Rasilez in China, so any meaningful sales there could provide additional upside. With regard to patent protection in Japan and China, Noden has formulation patents in both areas that expire in March 2025. There is also a composition of matter patent in Japan that expires in November 2021.
While Tekturna/Rasilez is currently doing well in Asia, its future in the US is in doubt. In June, the company entered into a settlement agreement with Anchen Pharmaceuticals, a subsidiary of Par Pharmaceuticals, and the sole abbreviated new drug application (ANDA) filer for a generic version of the product. As per the settlement agreement, Anchen Pharmaceuticals may market its generic version of Tekturna after March 1, 2019. However, this agreement only covers its proprietary formulation of the drug, which is not an identical copy to the currently marketed version, making it unclear if it would be substitutable or if it would require a specific prescription from the doctor. Also, the FDA has yet to approve Anchen’s ANDA and it is unclear if Anchen will actually launch the product due to the difficulty of manufacturing it.
Due to the settlement, and greater likelihood for a generic entry, the company has written down $152.3m of the value of the Noden intangible asset, leaving $40.1m in value at the end of Q218. This was partially offset by a $22.5m decrease in the fair value of the contingent liability as the company is less likely to need to pay certain milestones to Novartis, from which it acquired Tekturna/Rasilez.
The company has taken additional action by restructuring the commercial organization. Previously relying on a 60+ person contract salesforce, PDL has now decided to contract with Archer Healthcare and focus on email, direct mail and telesales. This change will be effective in August so there should be a boost in profitability going forward. It is unclear what the impact of discontinuing the contract salesforce will have on Tekturna/Rasilez sales in the US, but as it seems to have made little headway in reversing the exponential decline in prescriptions, the impact may be minimal.
Additionally, LENSAR, which was acquired in May 2017, saw Q218 revenues of $5.9m up 18% compared to Q118. Profitability, however, declined with a loss of $1.9m for the quarter compared to $0.6m in Q118. Also, PDL amended its agreement with Depomed related to the Depomed royalties that cover a variety of type 2 diabetes products. In the original agreement, once total cash received by PDL totals $481m (twice what PDL originally invested), Depomed is entitled to half of the future royalties from the products covered by the agreement. Originally, the company expected to hit the $481m milestone in 2023 but now expects it to occur in late 2020 and has paid $20m to Depomed to eliminate that royalty sharing so that PDL can fully benefit from the product royalties.
PDL continues to actively pursue additional products for the Noden franchise. Multiple sets of negotiations are currently underway, although the company has terminated several discussions due to price or information uncovered in due diligence. However, the prospects of PDL completing an additional acquisition are uncertain. With markets near the highs, asset prices are anything but cheap and this management has historically been very price-sensitive with regard to acquisitions. It is possible that it may need to wait for a significant downturn in order to get a deal on favourable terms. Also, the logic of doing a deal following the restructuring of the Noden commercial franchise is unclear, as there would have been operational synergies in using one salesforce for multiple products – but those synergies are not there now, as there is no salesforce. Instead, the company may decide to focus more on stock buybacks that would be strongly earnings accretive and would make sense with the company trading far below its book value ($4.85 per share as of end-Q218). So far, PDL has completed two stock repurchase programs totalling $55m, lowering shares outstanding by approximately 11% since the first repurchase program in March 2017. And certain investors, such as activist SevenSaoi, have publicly called on the company to accelerate the pace of its buyback program.
