PDLI Guides Q3 Royalty Rev to $85M

PDL BioPharma Inc. ( PDLI - Analyst Report ) recently announced that it expects to generate third quarter 2012 royalty revenues of $85 million, up 2% year over year.

PDL BioPharma receives royalties on worldwide net sales of Roche Holdings Ltd.'s ( RHHBY ) Avastin and Herceptin; Roche/Novartis’ ( NVS - Snapshot Report ) Lucentis and Xolair; and Elan Corporation/Biogen Idec’s ( ELN - Snapshot Report ) / ( BIIB - Analyst Report ) Tysabri. The company will also receive royalties on Roche’s Perjeta (pertuzumab), which was launched in the US in June 2012.

Royalty payments for all Roche’s products are tiered in the US, while PDL BioPharma receives a flat 3% royalty if a product is both manufactured and sold outside the US. Tysabri royalties are calculated at a flat rate as a percentage of sales, irrespective of the manufacturing or sales location.

The anticipated growth in royalty revenues primarily emanates from the higher sales of Herceptin (up 1%), Lucentis (up 4%) and Xolair during the second quarter of 2012, on which PDL will receive royalties in the third quarter. The company is also expected to benefit from the inclusion of Perjeta royalties in the third quarter of 2012.

Effective from the second quarter of 2011, PDL BioPharma started paying back a portion of the royalties it receives on Lucentis sales outside the US to Novartis. The payment is made in accordance with a settlement agreement, which the companies had entered into in February 2011. The third quarter 2012 revenue guidance is net of this payment.

In the second quarter of 2012, PDL’s royalty revenues of $125.9 million represented an increase of 3.1% from the year-ago period. Increased royalties on sales of Herceptin, Lucentis, Xolair and Tysabri drove second quarter 2012 royalties.

Our Recommendation

Currently, we have a Neutral recommendation on PDL BioPharma. The stock carries a Zacks #3 Rank (“Hold”) in the short term.