Current Price: $3.32
Offer Price: $4.15
Expected Timeline: end of 2020
This idea was shared by Brian.
PDLI has been a public company for nearly 30 years, with the stock essentially flat following the 3 decades. Following a strategic review in the fall of 2019, and after activists joined the board in February 2020, PDLI announced plans to liquidate on March 11, 2020, targeting dissolution by the end of 2020. The company is also open to a full company sale should such a path maximize shareholder returns. As with many biopharma companies, many legacy shareholders are not the types who are dumpster diving in micro-cap liquidations. Our experience has been that many such situations, particularly in pharma, can result in indifference thus and indiscriminate selling by legacy growth-focused pharma investors.
PDL filed their initial liquidation proxy and put out a range of $3-$6/share in total distributions. This is an unusually wide range, we think largely because of uncertainty around the royalty portfolio as well as the fact that some of their smaller investments are private or illiquid. That said, management has in calls expressed confidence in returning at least book value, which was $4.68/share at 1Q20 ($4.09 adjusted for Evofem shares already distributed).
PDL has thus far moved quickly. On May 21, they distributed out their 13.3 mil shares of EVFM. Shareholders received shares worth about $0.58 per PDLI share on that date. PDL also owns 3.3 mil EVFM warrants struck at $6.38.
PDL’s other assets are as follows:
- Cash $0.97/share: PDL had $112 mil, net of the remaining convertible debt, at 1Q20.
- Royalty portfolio $2.28/share: This is by far the largest piece of PDL. PDL receives royalties from 5 companies, the largest of which is from Assertio, the former Depomed. PDL received $79 milion in payments in 2019, up slightly from 2018. PDL valued these at $262 million at 1Q20, or around $2.28/share.
- Notes Receivable $0.43/share: PDl has $52 mil in notes receivable, most of which is in escrow and we have high confidence in coming back to PDL relatively soon.
- Lensar $0.3-$0.6/share: This is primarily a laser/technology for cataract surgery. Covid has resulted in most elective surgeries being delayed. However, something like cataracts, as opposed to Lasik or plastic surgery, is more likely to be deferred than dropped. Lensar has probably the widest range of potential values. This could be an attractive tuck-in acquisition for a number of buyers. Was on a run rate of $35 mil in revenue at the end of 2019, and had an in process next gen technology targeting commerical launch in 2022. We assume $0.3-$0.6/share based on 1x-2x sales, but this could be much higher.
- Noden $0.43/share: The largest piece of this is Tekturna, a drug which recently went generic but for which Noden retains 68% market share. This generated $3.7 mil in EBIT in the first quarter and the company also disclosed that the division has $21 mil in cash as part of the held for sale assets. We figure this is worth $50 million or 43 cents per share.
- Alphaeon $0.05/share: The company owns 1.7 mil shares of Alphaeon, a private company which PDL valued at $6.6 mil at YE19 or 5 cents per PDL share. Alphaeon itself has a number of assets including 8.7 mil shares of Evolus which they are distributing out per a 1/10/20 separation announcement.
PDL had $50 mil in accrued liabilities at 1Q20, net of the notes payable (already deducted above, net of cash) and liabilities held for sale or $0.43/share.
The net of all of this comes to a value of between $4.03/share and $4.28/share. The midpoint of this would be 30% upside from current prices, which allows both for a margin of safety should proceeds disappoint, and upside should the company match base-case expectations.
PDLI was aggressively repurchasing shares in late 2019 and apparently up until the EVFM distribution in the mid $3s (around $2.90 after adjusting for EVFM distribution). The disclosed distribution ratio indicates that PDL has continued to repurchase shares, and that shares outstanding are now 115 million, allowing for more per share value for the residual assets. This also speaks to management’s expectations about monetization.