PDL BioPharma Inc. (PDLI) recently announced that it expects to generate third-quarter 2010 (ending September 30) revenue of $86.0 million, representing an increase of 20% over the year-ago revenue of $71.4 million.
The increase is primarily attributable to higher sales of Avastin, Herceptin, Lucentis and Tysabri during the second quarter, on which PDL BioPharma will receive royalties in the third quarter. The Zacks Consensus Estimate for the third quarter is $3 million below the company’s revenue guidance.
The third quarter revenue outlook is inclusive of the $2.9 million earned by the company on Eurodollar foreign currency hedging contracts, initiated in January 2010.
PDL BioPharma derives royalty revenue from the worldwide net sales of humanized antibody products, which include Roche Holdings Ltd.’s (RHHBY) Avastin, Herceptin, Xolair, and Lucentis Elan Corporation plc’s (ELN) Tysabri.
PDL BioPharma also has agreements with Eli Lilly and Co. (LLY) and Pfizer Inc. (PFE) for antibodies for the treatment of Alzheimer’s disease. These candidates are currently in late-stage clinical trials. Another candidate in Eli Lilly’s pipeline, teplizumab, which is being evaluated for the treatment of newly-diagnosed type I diabetes, has been licensed to PDL BioPharma, who will receive royalties on drug sales, when approved.
We currently have a Neutral recommendation on PDL BioPharma, which is supported by a Zacks #3 Rank (short-term Hold rating). The company currently derives a significant portion of its revenue from licenses granted to other companies under the Queen patents, covering the humanization of antibodies.
However, we are concerned about PDL BioPharma’s dependence on its collaborative agreements for revenue. A dispute with any of these companies would be a major setback for the company. PDL BioPharma currently has an ongoing lawsuit against AstraZeneca plc (AZN) claiming patent infringement and breach of contract. The trial date for this litigation is set for January 2011.