Merrill
Reducing Actemra royalties on delay
Pursuant to the news that a potential US launch of Roche’s Actemra could be
delayed to mid-’10 at the earliest (see ML’s Sachin Jain note), we pushed out our
royalty estimates for PDL. Our prior royalty model included risk-adjusted Actemra
royalties of $7mn, $14mn and $16mn in ’09-’11. We removed the royalties in ’09
and reduced the estimates to $5m and $11mn in ’10-’11. That reduces our total
antibody royalty estimates for PDL to $301mn, $341mn and $372mn from
$308mn, $350mn and $377mn in ’09-’11. Separately, as a reminder, the spin-off
of Facet Biotech is expected on our about Dec. 18. Maintain Buy.
Spin-off of Facet Biotech coming soon
PDL continues to work toward the spin-off of Facet Biotech, to be traded under
the symbol “FACT,” and completed on or about Dec.18. Shareholders of record
as of Dec.3 would receive 1 share of FACT for every 5 shares of PDL. Recall, the
division of assets wil be as follows:
Facet Biotech (FACT): Headed by CEO Faheem Hasnain (formerly of BIIB) and
funded initially with $400mn in cash. Assets will include the Cardene IV royalties
(10%) from EKR and the pipeline, which includes: Daclizumab (phase ll multiple
sclerosis and M200 phase ll lung and ovarian cancer, both partnered with BIIB),
HuLuc63 (phase l multiple myeloma, partnered with BMS), and PDL192 (phase l
solid tumors). Any valuation higher than the basis in the assets will be taxed.
PDLI BioPharma (PDLI): Remains as a royalty holding company headed by CEO
John McLaughlin with minimal expenses. It will include the robust and growing
antibody royalty stream, convertible debt ($250mn 2% seniors due 2012, $250mn
2.75% subordinated due 2023), and NOLs (as of Sept. 30, Federal: $215mn and
credits $35mn, State: Calif. suspended use of NOLs for ’08-‘09 and limited use of
tax credits due to budget issues. PDL will relocate out of state (TBA) for better tax
treatment.
Investment thesis
Our Buy rating and P.O. of $15 assume the stock does not reflect the true value of the sum of the parts. |
