|
ý
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
For the quarterly period ended September 30, 2013
|
¨
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
For transition period from to
|
|
|
Delaware
|
94-3023969
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification Number)
|
|
Large accelerated filer
x
|
Accelerated filer
¨
|
Non-accelerated filer
¨
|
Smaller reporting company
¨
|
(Do not check if a smaller reporting company)
|
|
Page
|
|
GLOSSARY OF TERMS AND ABBREVIATIONS (as used in this document)
|
||
|
||
PART I - FINANCIAL INFORMATION
|
||
|
|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
|
|
|
|
|
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2013 and 2012
|
|
|
|
|
|
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012
|
|
|
|
|
|
Condensed Consolidated Balance Sheets at September 30, 2013, and December 31, 2012
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012
|
|
|
|
|
|
Notes to the Condensed Consolidated Financial Statements
|
|
|
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
|
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
|
|
||
PART II - OTHER INFORMATION
|
||
|
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
|
|
|
|
ITEM 1A.
|
RISK FACTORS
|
|
|
|
|
ITEM 6.
|
EXHIBITS
|
|
|
|
|
SIGNATURES
|
Abbreviation/term
|
|
Definition
|
|
|
|
'216B Patent
|
|
European Patent No. 0 451 216B
|
'761 Patent
|
|
U.S. Patent No. 5,693,761
|
2012 Notes
|
|
2.0% Convertible Senior Notes due February 15, 2012, fully retired at June 30, 2011
|
ASC
|
|
Accounting Standards Codification
|
ASU
|
|
Accounting Standards Update
|
Avinger
|
|
Avinger, Inc.
|
AxoGen
|
|
AxoGen, Inc.
|
Biogen Idec
|
|
Biogen Idec, Inc.
|
Chugai
|
|
Chugai Pharmaceutical Co., Ltd.
|
Depomed
|
|
Depomed, Inc.
|
Direct Flow Medical
|
|
Direct Flow Medical, Inc.
|
Durata
|
|
Durata Therapeutics Holding C.V. and Durata Therapeutics International B.V. and Durata Therapeutics, Inc. (parent company)
|
Elan
|
|
Elan Corporation, PLC
|
ex-U.S.-based Manufacturing and Sales
|
|
Products that are both manufactured and sold outside of the United States
|
ex-U.S.-based Sales
|
|
Products that are manufactured in the United States and sold outside of the United States
|
EBITDA
|
|
Earnings before interest, taxes, depreciation and amortization
|
EMA
|
|
European Medicines Agency
|
Facet
|
|
Facet Biotech Corporation. In April 2010, Abbott Laboratories acquired Facet and later renamed the company Abbott Biotherapeutics Corp., and in January 2013, Abbott Biotherapeutics Corp. was renamed AbbVie Biotherapeutics, Inc. and spun off from Abbott Laboratories as a subsidiary of AbbVie Inc.
|
FASB
|
|
Financial Accounting Standards Board
|
FDA
|
|
U.S. Food and Drug Administration
|
February 2015 Notes
|
|
2.875% Convertible Senior Notes due February 15, 2015, fully retired at September 30, 2013
|
GAAP
|
|
U.S. Generally Accepted Accounting Principles
|
Genentech
|
|
Genentech, Inc.
|
Genentech Products
|
|
Avastin
®
, Herceptin
®
, Lucentis
®
, Xolair
®
, Perjeta
®
, Kadcyla
®
|
KMPG
|
|
KPMG, LLP
|
LENSAR
|
|
LENSAR, Inc.
|
Lilly
|
|
Eli Lilly and Company
|
May 2015 Notes
|
|
3.75% Senior Convertible Notes due May 2015
|
Merus Labs
|
|
Merus Labs International, Inc.
|
Non-Recourse Notes
|
|
QHP PhaRMA
SM
Senior Secured Notes due March 15, 2015, issued through our wholly-owned subsidiary, QHP Royalty Sub LLC, in November 2009, fully repaid in September 2012
|
Novartis
|
|
Novartis AG
|
OCI
|
|
Other Comprehensive Income (Loss)
|
PDL, we, us, our, the Company
|
|
PDL BioPharma, Inc.
|
Queen et al. patents
|
|
PDL's patents in the United States and elsewhere covering the humanization of antibodies
|
Roche
|
|
F. Hoffman LaRoche, Ltd.
|
Royalty Agreement
|
|
Revenue Interests Purchase Agreement between PDL and AxoGen.
|
SEC
|
|
Securities and Exchange Commission
|
Series 2012 Notes
|
|
2.875% Series 2012 Convertible Senior Notes due February 15, 2015
|
SPCs
|
|
Supplementary Protection Certificates
|
SPC Products
|
|
Avastin
®
, Herceptin
®
, Lucentis
®
, Xolair
®
and Tysabri
®
|
Spin-Off
|
|
The spin-off by PDL of Facet
|
U.S.-based Sales
|
|
Products sold in the United States or manufactured in the United States and used or sold anywhere in the world
|
VWAP
|
|
Volume weighted average share price
|
Wellstat Diagnostics
|
|
Wellstat Diagnostics, LLC
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
Revenues
|
|
|
|
|
|
|
|
|
||||||||
Royalties
|
|
$
|
96,314
|
|
|
$
|
85,231
|
|
|
$
|
331,778
|
|
|
$
|
288,479
|
|
License and other
|
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
||||
Total revenues
|
|
97,314
|
|
|
85,231
|
|
|
332,778
|
|
|
288,479
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative
|
|
7,925
|
|
|
5,647
|
|
|
21,894
|
|
|
17,737
|
|
||||
Operating income
|
|
89,389
|
|
|
79,584
|
|
|
310,884
|
|
|
270,742
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Non-operating expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest and other income, net
|
|
2,917
|
|
|
1,867
|
|
|
11,718
|
|
|
2,385
|
|
||||
Interest expense
|
|
(6,118
|
)
|
|
(6,514
|
)
|
|
(18,169
|
)
|
|
(23,087
|
)
|
||||
Total non-operating expense, net
|
|
(3,201
|
)
|
|
(4,647
|
)
|
|
(6,451
|
)
|
|
(20,702
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Income before income taxes
|
|
86,188
|
|
|
74,937
|
|
|
304,433
|
|
|
250,040
|
|
||||
Income tax expense
|
|
29,963
|
|
|
26,362
|
|
|
100,995
|
|
|
87,779
|
|
||||
Net income
|
|
$
|
56,225
|
|
|
$
|
48,575
|
|
|
$
|
203,438
|
|
|
$
|
162,261
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic
|
|
$
|
0.40
|
|
|
$
|
0.35
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Diluted
|
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
$
|
1.31
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic
|
|
139,848
|
|
|
139,715
|
|
|
139,830
|
|
|
139,693
|
|
||||
Diluted
|
|
154,593
|
|
|
149,626
|
|
|
155,366
|
|
|
150,678
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Cash dividends declared per common share
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.60
|
|
|
$
|
0.60
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
Net income
|
|
$
|
56,225
|
|
|
$
|
48,575
|
|
|
$
|
203,438
|
|
|
$
|
162,261
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized gains (losses) on investments in available-for-sale securities
(a)
|
|
1,091
|
|
|
(14
|
)
|
|
1,085
|
|
|
(1
|
)
|
||||
Unrealized gains (losses) on cash flow hedges
(b)
|
|
(3,327
|
)
|
|
(3,126
|
)
|
|
(46
|
)
|
|
(853
|
)
|
||||
Total other comprehensive income (loss), net of tax
|
|
(2,236
|
)
|
|
(3,140
|
)
|
|
1,039
|
|
|
(854
|
)
|
||||
Comprehensive income
|
|
$
|
53,989
|
|
|
$
|
45,435
|
|
|
$
|
204,477
|
|
|
$
|
161,407
|
|
|
September 30,
|
|
December 31,
|
||||
|
2013
|
|
2012
|
||||
|
(unaudited)
|
|
(Note 1)
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
319,596
|
|
|
$
|
131,212
|
|
Restricted investment
|
—
|
|
|
20,000
|
|
||
Short-term investments
|
6,862
|
|
|
17,477
|
|
||
Receivables from licensees
|
900
|
|
|
366
|
|
||
Deferred tax assets
|
2,416
|
|
|
1,613
|
|
||
Notes receivable
|
—
|
|
|
7,504
|
|
||
Prepaid and other current assets
|
3,180
|
|
|
4,813
|
|
||
Total current assets
|
332,954
|
|
|
182,985
|
|
||
|
|
|
|
||||
Property and equipment, net
|
47
|
|
|
59
|
|
||
Notes and other receivables, long-term
|
90,815
|
|
|
85,704
|
|
||
Long-term deferred tax assets
|
3,835
|
|
|
4,552
|
|
||
Other assets
|
2,021
|
|
|
6,666
|
|
||
Total assets
|
$
|
429,672
|
|
|
$
|
279,966
|
|
|
|
|
|
||||
Liabilities and Stockholders' Equity (Deficit)
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Accounts payable
|
$
|
1,469
|
|
|
$
|
1,074
|
|
Accrued liabilities
|
33,524
|
|
|
9,400
|
|
||
Accrued income taxes
|
3,231
|
|
|
—
|
|
||
Convertible notes payable
|
171,066
|
|
|
—
|
|
||
Total current liabilities
|
209,290
|
|
|
10,474
|
|
||
|
|
|
|
||||
Convertible notes payable
|
147,015
|
|
|
309,952
|
|
||
Other long-term liabilities
|
20,480
|
|
|
27,662
|
|
||
Total liabilities
|
376,785
|
|
|
348,088
|
|
||
|
|
|
|
||||
Commitments and contingencies (Note 8)
|
|
|
|
|
|
||
|
|
|
|
||||
Stockholders' equity (deficit):
|
|
|
|
|
|
||
Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01 per share, 350,000 shares authorized; 139,848 and 139,816 shares issued and outstanding at September 30, 2013, and December 31, 2012, respectively
|
1,399
|
|
|
1,398
|
|
||
Additional paid-in capital
|
(233,523
|
)
|
|
(234,066
|
)
|
||
Accumulated other comprehensive loss
|
(4,049
|
)
|
|
(5,088
|
)
|
||
Retained earnings
|
289,060
|
|
|
169,634
|
|
||
Total stockholders' equity (deficit)
|
52,887
|
|
|
(68,122
|
)
|
||
Total liabilities and stockholders' equity (deficit)
|
$
|
429,672
|
|
|
$
|
279,966
|
|
|
Nine Months Ended September 30,
|
||||||
|
2013
|
|
2012
|
||||
Cash flows from operating activities
|
|
|
|
||||
Net income
|
$
|
203,438
|
|
|
$
|
162,261
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Amortization of convertible notes offering costs
|
9,921
|
|
|
10,507
|
|
||
Other amortization, depreciation and accretion of embedded derivative
|
(360
|
)
|
|
804
|
|
||
Hedge ineffectiveness on foreign exchange contracts
|
(9
|
)
|
|
(372
|
)
|
||
Stock-based compensation expense
|
559
|
|
|
675
|
|
||
Tax expense from stock-based compensation arrangements
|
(15
|
)
|
|
(42
|
)
|
||
Deferred taxes
|
(663
|
)
|
|
6,523
|
|
||
Changes in assets and liabilities:
|
|
|
|
|
|
||
Receivables from licensees
|
(534
|
)
|
|
600
|
|
||
Prepaid and other current assets
|
3,312
|
|
|
5,266
|
|
||
Accrued interest on notes receivable
|
(6,587
|
)
|
|
—
|
|
||
Other assets
|
1,173
|
|
|
(1,163
|
)
|
||
Accounts payable
|
395
|
|
|
285
|
|
||
Accrued legal settlement
|
—
|
|
|
(27,500
|
)
|
||
Accrued liabilities
|
1,302
|
|
|
2,028
|
|
||
Accrued income taxes
|
3,231
|
|
|
—
|
|
||
Other long-term liabilities
|
(5,483
|
)
|
|
(1,250
|
)
|
||
Net cash provided by operating activities
|
209,680
|
|
|
158,622
|
|
||
Cash flows from investing activities
|
|
|
|
|
|
||
Purchases of investments
|
(9,875
|
)
|
|
(25,992
|
)
|
||
Maturities of investments
|
42,098
|
|
|
36,799
|
|
||
Issuance of notes receivable
|
(48,708
|
)
|
|
(48,264
|
)
|
||
Repayment of notes receivable
|
58,134
|
|
|
—
|
|
||
Acquisition of property and equipment
|
(2
|
)
|
|
(18
|
)
|
||
Net cash provided by/(used in) investing activities
|
41,647
|
|
|
(37,475
|
)
|
||
Cash flows from financing activities
|
|
|
|
|
|
||
Repayment of non-recourse notes
|
—
|
|
|
(93,370
|
)
|
||
Payment of debt issuance costs
|
—
|
|
|
(845
|
)
|
||
Cash dividends paid
|
(62,943
|
)
|
|
(62,886
|
)
|
||
Net cash used in financing activities
|
(62,943
|
)
|
|
(157,101
|
)
|
||
Net increase/(decrease) in cash and cash equivalents
|
188,384
|
|
|
(35,954
|
)
|
||
Cash and cash equivalents at beginning of the period
|
131,212
|
|
|
168,544
|
|
||
Cash and cash equivalents at end of period
|
$
|
319,596
|
|
|
$
|
132,590
|
|
|
|
|
|
||||
|
|
|
|
||||
Supplemental cash flow information
|
|
|
|
|
|
||
Cash paid for income taxes
|
$
|
101,000
|
|
|
$
|
76,000
|
|
Cash paid for interest
|
$
|
8,086
|
|
|
$
|
12,843
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
Licensee
|
|
Product Name
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||
Genentech
|
|
Avastin
®
|
|
33
|
%
|
|
30
|
%
|
|
34
|
%
|
|
31
|
%
|
|
|
Herceptin
®
|
|
32
|
%
|
|
36
|
%
|
|
33
|
%
|
|
35
|
%
|
|
|
Lucentis
®
|
|
14
|
%
|
|
15
|
%
|
|
17
|
%
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biogen Idec
1
|
|
Tysabri
®
|
|
12
|
%
|
|
14
|
%
|
|
11
|
%
|
|
12
|
%
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
Net Income per Basic and Diluted Share:
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
(in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
||||||||
Numerator
|
|
|
|
|
|
|
|
|
||||||||
Net income used to compute net income per basic share
|
|
$
|
56,225
|
|
|
$
|
48,575
|
|
|
$
|
203,438
|
|
|
$
|
162,261
|
|
Add back interest expense for convertible notes, net of estimated tax of approximately $7 and $4 for the three months ended September 30, 2013 and 2012, respectively, and $13 and $21 for the nine months ended September 30, 2013 and 2012, respectively (see Note 9)
|
|
12
|
|
|
6
|
|
|
25
|
|
|
40
|
|
||||
Net income used to compute net income per diluted share
|
|
$
|
56,237
|
|
|
$
|
48,581
|
|
|
$
|
203,463
|
|
|
$
|
162,301
|
|
|
|
|
|
|
|
|
|
|
||||||||
Denominator
|
|
|
|
|
|
|
|
|
|
|
||||||
Total weighted-average shares used to compute net income per basic share
|
|
139,848
|
|
|
139,715
|
|
|
139,830
|
|
|
139,693
|
|
||||
Restricted stock outstanding
|
|
80
|
|
|
110
|
|
|
76
|
|
|
93
|
|
||||
Effect of dilutive stock options
|
|
20
|
|
|
18
|
|
|
19
|
|
|
16
|
|
||||
Assumed conversion of Series 2012 Notes
|
|
9,674
|
|
|
7,008
|
|
|
10,141
|
|
|
7,427
|
|
||||
Assumed conversion of May 2015 Notes
|
|
4,910
|
|
|
2,609
|
|
|
5,160
|
|
|
2,825
|
|
||||
Assumed conversion of February 2015 Notes
|
|
61
|
|
|
166
|
|
|
140
|
|
|
624
|
|
||||
Weighted-average shares used to compute net income per diluted share
|
|
154,593
|
|
|
149,626
|
|
|
155,366
|
|
|
150,678
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Net income per basic share
|
|
$
|
0.40
|
|
|
$
|
0.35
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Net income per diluted share
|
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
$
|
1.31
|
|
|
$
|
1.08
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
||||||||||||||||||||
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
||||||||||||
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Money market funds
|
|
$
|
269,806
|
|
|
$
|
—
|
|
|
$
|
269,806
|
|
|
$
|
121,095
|
|
|
$
|
—
|
|
|
$
|
121,095
|
|
Certificates of deposit
|
|
—
|
|
|
1,682
|
|
|
1,682
|
|
|
—
|
|
|
26,128
|
|
|
26,128
|
|
||||||
Corporate securities
|
|
—
|
|
|
5,180
|
|
|
5,180
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Corporate debt securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,572
|
|
|
13,572
|
|
||||||
Total
|
|
$
|
269,806
|
|
|
$
|
6,862
|
|
|
$
|
276,668
|
|
|
$
|
121,095
|
|
|
$
|
39,700
|
|
|
$
|
160,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Foreign currency hedge contracts
|
|
$
|
—
|
|
|
$
|
7,508
|
|
|
$
|
7,508
|
|
|
$
|
—
|
|
|
$
|
7,581
|
|
|
$
|
7,581
|
|
|
|
September 30, 2013
|
|
December 31, 2012
|
||||||||||||||||||||
|
|
Carrying Value
|
|
Fair Value
Level 2
|
|
Fair Value
Level 3
|
|
Carrying Value
|
|
Fair Value
Level 2
|
|
Fair Value
Level 3
|
||||||||||||
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Wellstat Diagnostics note receivable
|
|
$
|
45,269
|
|
|
$
|
—
|
|
|
$
|
45,269
|
|
|
$
|
41,098
|
|
|
$
|
—
|
|
|
$
|
41,098
|
|
Merus Labs note receivable
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
|
30,000
|
|
|
—
|
|
||||||
AxoGen note receivable and embedded derivative
|
|
25,404
|
|
|
—
|
|
|
25,404
|
|
|
22,110
|
|
|
—
|
|
|
22,110
|
|
||||||
Avinger note receivable
|
|
20,142
|
|
|
—
|
|
|
20,142
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total
|
|
$
|
90,815
|
|
|
$
|
—
|
|
|
$
|
90,815
|
|
|
$
|
93,208
|
|
|
$
|
30,000
|
|
|
$
|
63,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Series 2012 Notes
|
|
$
|
171,066
|
|
|
$
|
258,984
|
|
|
$
|
—
|
|
|
$
|
165,528
|
|
|
$
|
227,187
|
|
|
$
|
—
|
|
May 2015 Notes
|
|
147,015
|
|
|
198,138
|
|
|
—
|
|
|
143,433
|
|
|
182,031
|
|
|
—
|
|
||||||
February 2015 Notes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
991
|
|
|
1,269
|
|
|
—
|
|
||||||
Total
|
|
$
|
318,081
|
|
|
$
|
457,122
|
|
|
$
|
—
|
|
|
$
|
309,952
|
|
|
$
|
410,487
|
|
|
$
|
—
|
|
Summary of Cash and Available-For-Sale Securities
|
|
Adjusted Cost
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
|
Cash and Cash Equivalents
|
|
Restricted Investment
|
|
Short-Term Marketable Securities
|
||||||||||||||
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
September 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
|
$
|
49,790
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,790
|
|
|
$
|
49,790
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
269,806
|
|
|
—
|
|
|
—
|
|
|
269,806
|
|
|
269,806
|
|
|
—
|
|
|
—
|
|
|||||||
Certificates of deposit
|
|
1,682
|
|
|
—
|
|
|
—
|
|
|
1,682
|
|
|
—
|
|
|
—
|
|
|
1,682
|
|
|||||||
Corporate securities
|
|
3,500
|
|
|
1,680
|
|
|
—
|
|
|
5,180
|
|
|
—
|
|
|
—
|
|
|
5,180
|
|
|||||||
Total
|
|
$
|
324,778
|
|
|
$
|
1,680
|
|
|
$
|
—
|
|
|
$
|
326,458
|
|
|
$
|
319,596
|
|
|
$
|
—
|
|
|
$
|
6,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
|
$
|
7,894
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,894
|
|
|
$
|
7,894
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
121,095
|
|
|
—
|
|
|
—
|
|
|
121,095
|
|
|
121,095
|
|
|
—
|
|
|
—
|
|
|||||||
Certificates of deposit
|
|
26,128
|
|
|
—
|
|
|
—
|
|
|
26,128
|
|
|
2,223
|
|
|
20,000
|
|
|
3,905
|
|
|||||||
Corporate debt securities
|
|
13,562
|
|
|
10
|
|
|
—
|
|
|
13,572
|
|
|
—
|
|
|
—
|
|
|
13,572
|
|
|||||||
Total
|
|
$
|
168,679
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
168,689
|
|
|
$
|
131,212
|
|
|
$
|
20,000
|
|
|
$
|
17,477
|
|
Cash and Available-For-Sale Securities by Contractual Maturity
|
|
September 30, 2013
|
|
December 31, 2012
|
||||||||||||
(In thousands)
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
||||||||
Less than one year
|
|
$
|
324,778
|
|
|
$
|
326,458
|
|
|
$
|
168,679
|
|
|
$
|
168,689
|
|
Greater than one year but less than five years
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total
|
|
$
|
324,778
|
|
|
$
|
326,458
|
|
|
$
|
168,679
|
|
|
$
|
168,689
|
|
Euro Forward Contracts
|
|
September 30, 2013
|
|
December 31, 2012
|
||||||||||||||||
|
|
|
|
|
|
(In thousands)
|
|
(In thousands)
|
||||||||||||
Currency
|
|
Settlement Price
($ per Euro)
|
|
Type
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
||||||||
Euro
|
|
1.230
|
|
Sell Euro
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,553
|
|
|
$
|
(2,036
|
)
|
Euro
|
|
1.240
|
|
Sell Euro
|
|
10,850
|
|
|
(982
|
)
|
|
10,850
|
|
|
(726
|
)
|
||||
Euro
|
|
1.270
|
|
Sell Euro
|
|
44,450
|
|
|
(2,887
|
)
|
|
44,450
|
|
|
(1,950
|
)
|
||||
Euro
|
|
1.281
|
|
Sell Euro
|
|
36,814
|
|
|
(2,076
|
)
|
|
36,814
|
|
|
(1,331
|
)
|
||||
Euro
|
|
1.300
|
|
Sell Euro
|
|
39,000
|
|
|
(1,563
|
)
|
|
91,000
|
|
|
(1,538
|
)
|
||||
Total
|
|
|
|
|
|
$
|
131,114
|
|
|
$
|
(7,508
|
)
|
|
$
|
210,667
|
|
|
$
|
(7,581
|
)
|
Cash Flow Hedge
|
|
Location
|
|
September 30,
2013 |
|
December 31,
2012 |
||||
(In thousands)
|
|
|
|
|
|
|
||||
Euro contracts
|
|
Accrued liabilities
|
|
$
|
5,199
|
|
|
$
|
3,574
|
|
Euro contracts
|
|
Other long-term liabilities
|
|
$
|
2,309
|
|
|
$
|
4,007
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
(In thousands)
|
|
|
|
|
|
|
|
|
||||||||
Net gain (loss) recognized in OCI, net of tax
(1)
|
|
$
|
(3,359
|
)
|
|
$
|
(3,454
|
)
|
|
$
|
(1,056
|
)
|
|
$
|
(1,851
|
)
|
Gain (loss) reclassified from accumulated OCI into royalty revenue, net of tax
(2)
|
|
$
|
(32
|
)
|
|
$
|
(328
|
)
|
|
$
|
(1,011
|
)
|
|
$
|
(998
|
)
|
Net gain (loss) recognized in interest and other income, net -- cash flow hedges
(3)
|
|
$
|
4
|
|
|
$
|
(27
|
)
|
|
$
|
9
|
|
|
$
|
(54
|
)
|
Net gain recognized in interest and other income, net -- non-designated contracts
(4)
|
|
$
|
—
|
|
|
$
|
391
|
|
|
$
|
—
|
|
|
$
|
391
|
|
Amount excluded from effectiveness testing
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
September 30,
2013 |
|
December 31,
2012 |
||||
(In thousands)
|
|
|
|
|
||||
Compensation
|
|
$
|
1,908
|
|
|
$
|
594
|
|
Interest
|
|
3,087
|
|
|
2,925
|
|
||
Foreign currency hedge
|
|
5,199
|
|
|
3,574
|
|
||
Dividend payable
|
|
21,124
|
|
|
53
|
|
||
Legal
|
|
1,921
|
|
|
2,020
|
|
||
Other
|
|
285
|
|
|
234
|
|
||
Total
|
|
$
|
33,524
|
|
|
$
|
9,400
|
|
|
|
|
|
Principal Balance Outstanding
|
|
Carrying Value
|
||||||||
|
|
|
|
September 30,
|
|
September 30,
|
|
December 31,
|
||||||
Description
|
|
Maturity Date
|
|
2013
|
|
2013
|
|
2012
|
||||||
(In thousands)
|
|
|
|
|
|
|
|
|
||||||
Convertible Notes
|
|
|
|
|
|
|
|
|
||||||
Series 2012 Notes
|
|
February 15, 2015
|
|
$
|
180,000
|
|
|
$
|
171,066
|
|
|
$
|
165,528
|
|
May 2015 Notes
|
|
May 1, 2015
|
|
$
|
155,250
|
|
|
147,015
|
|
|
143,433
|
|
||
February 2015 Notes
|
|
February 15, 2015
|
|
$
|
—
|
|
|
—
|
|
|
991
|
|
||
Total
|
|
|
|
|
|
|
$
|
318,081
|
|
|
$
|
309,952
|
|
•
|
During any fiscal quarter commencing after the fiscal quarter ending December 31, 2011, if the closing price of the Company’s common stock for at least
20
trading days in a period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds
130%
of the conversion price for the Series 2012 Notes on the last day of such preceding fiscal quarter;
|
•
|
During the
five
business-day period immediately after any
five
consecutive trading-day period in which the trading price per
$1,000
principal amount of the Series 2012 Notes for each trading day of that measurement period was less than
98%
of the product of the closing price of the Company’s common stock and the conversion rate for the Series 2012 Notes for that trading day;
|
•
|
Upon the occurrence of certain corporate transactions as provided in the indenture; or
|
•
|
Anytime, at the holder’s option, beginning on August 15, 2014.
|
(In thousands)
|
|
September 30, 2013
|
|
December 31, 2012
|
||||
Principal amount of the Series 2012 Notes
|
|
$
|
180,000
|
|
|
$
|
179,000
|
|
Unamortized discount of liability component
|
|
(8,934
|
)
|
|
(13,472
|
)
|
||
Total
|
|
$
|
171,066
|
|
|
$
|
165,528
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
(In thousands)
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
Contractual coupon interest
|
|
$
|
1,290
|
|
|
$
|
1,287
|
|
|
$
|
3,864
|
|
|
$
|
3,836
|
|
Amortization of debt issuance costs
|
|
289
|
|
|
279
|
|
|
860
|
|
|
826
|
|
||||
Amortization of debt discount
|
|
1,538
|
|
|
1,439
|
|
|
4,538
|
|
|
4,219
|
|
||||
Total
|
|
$
|
3,117
|
|
|
$
|
3,005
|
|
|
$
|
9,262
|
|
|
$
|
8,881
|
|
•
|
During any fiscal quarter ending after the quarter ending June 30, 2011, if the last reported sale price of our common stock for at least
20
trading days in a period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds
130%
of the conversion price for the notes on the last day of such preceding fiscal quarter;
|
•
|
During the
five
business-day period immediately after any
five
consecutive trading-day period, which we refer to as the measurement period, in which the trading price per
$1,000
principal amount of notes for each trading day of that measurement period was less than
98%
of the product of the last reported sale price of our common stock and the conversion rate for the notes for each such day;
|
•
|
Upon the occurrence of specified corporate events as described further in the indenture; or
|
•
|
At any time on or after November 1, 2014.
|
(In thousands)
|
|
September 30, 2013
|
|
December 31, 2012
|
||||
Principal amount of the May 2015 Notes
|
|
$
|
155,250
|
|
|
$
|
155,250
|
|
Unamortized discount of liability component
|
|
(8,235
|
)
|
|
(11,817
|
)
|
||
Total
|
|
$
|
147,015
|
|
|
$
|
143,433
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
|
September 30,
|
|
September 30,
|
||||||||||||
(In thousands)
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
Contractual coupon interest
|
|
$
|
1,456
|
|
|
$
|
1,455
|
|
|
$
|
4,366
|
|
|
$
|
4,366
|
|
Amortization of debt issuance costs
|
|
309
|
|
|
299
|
|
|
920
|
|
|
891
|
|
||||
Amortization of debt discount
|
|
1,215
|
|
|
1,130
|
|
|
3,582
|
|
|
3,330
|
|
||||
Total
|
|
$
|
2,980
|
|
|
$
|
2,884
|
|
|
$
|
8,868
|
|
|
$
|
8,587
|
|
|
|
September 30,
|
|
December 31,
|
||||
|
|
2013
|
|
2012
|
||||
(In thousands)
|
|
|
|
|
||||
Accrued lease liability
|
|
$
|
10,700
|
|
|
$
|
10,700
|
|
Long term incentive accrual
|
|
425
|
|
|
—
|
|
||
Uncertain tax positions
|
|
7,046
|
|
|
12,955
|
|
||
Foreign currency hedge
|
|
2,309
|
|
|
4,007
|
|
||
Total
|
|
$
|
20,480
|
|
|
$
|
27,662
|
|
|
|
|
|
Stock Options
|
|
Restricted Stock Awards
|
|||||||||||
(In thousands except per share amounts)
|
|
Shares Available for Grant
|
|
Number of Shares Outstanding
|
|
Weighted Average Exercise Price
|
|
Number of Shares Outstanding
|
|
Weighted Average Grant-date Fair Value Per Share
|
|||||||
Balance December 31, 2012
|
|
4,589
|
|
|
196
|
|
|
$
|
16.22
|
|
|
120
|
|
|
$
|
6.51
|
|
Granted
|
|
(127
|
)
|
|
—
|
|
|
|
|
|
127
|
|
|
$
|
7.50
|
|
|
Shares released
|
|
—
|
|
|
—
|
|
|
|
|
|
(32
|
)
|
|
$
|
6.69
|
|
|
Forfeited or canceled
|
|
37
|
|
|
(22
|
)
|
|
$
|
14.23
|
|
|
(15
|
)
|
|
$
|
7.07
|
|
Plan shares expired
|
|
(22
|
)
|
|
—
|
|
|
|
|
—
|
|
|
|
||||
Balance at September 30, 2013
|
|
4,477
|
|
|
174
|
|
|
$
|
16.47
|
|
|
200
|
|
|
$
|
7.12
|
|
Convertible Notes
|
|
Conversion Rate per $1,000 Principal Amount
|
|
Approximate Conversion Price Per Common Share
|
|
Effective Date
|
|||
Series 2012 Notes
|
|
179.777
|
|
|
$
|
5.56
|
|
|
September 3, 2013
|
May 2015 Notes
|
|
157.3700
|
|
|
$
|
6.35
|
|
|
September 3, 2013
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
Unrealized gains (losses) on cash flow hedges
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
||||||
(In thousands)
|
|
|
|
|
|
|
||||||
Beginning Balance at December 31, 2012
|
|
$
|
7
|
|
|
$
|
(5,095
|
)
|
|
$
|
(5,088
|
)
|
Activity for the nine months ended September 30, 2013
|
|
1,085
|
|
|
(46
|
)
|
|
1,039
|
|
|||
Ending Balance at September 30, 2013
|
|
$
|
1,092
|
|
|
$
|
(5,141
|
)
|
|
$
|
(4,049
|
)
|
Convertible Notes
|
|
Conversion Rate per $1,000 Principal Amount
|
|
Approximate Conversion Price Per Common Share
|
|
Effective Date
|
|||
Series 2012 Notes
|
|
179.777
|
|
|
$
|
5.56
|
|
|
September 3, 2013
|
May 2015 Notes
|
|
157.3700
|
|
|
$
|
6.35
|
|
|
September 3, 2013
|
Licensee
|
|
Product Names
|
Genentech
|
|
Avastin
®
|
|
|
Herceptin
®
|
|
|
Xolair
®
|
|
|
Lucentis
®
|
|
|
Perjeta
®
|
|
|
Kadcyla
®
|
|
|
|
Biogen Idec
1
|
|
Tysabri
®
|
|
|
|
Chugai
|
|
Actemra
®
|
Genentech Products Made or Sold in the U.S.
|
|
Royalty Rate
|
Net sales up to $1.5 billion
|
|
3.0%
|
Net sales between $1.5 billion and up to $2.5 billion
|
|
2.5%
|
Net sales between $2.5 billion and up to $4.0 billion
|
|
2.0%
|
Net sales exceeding $4.0 billion
|
|
1.0%
|
|
|
|
Genentech Products Made and Sold ex-U.S.
|
|
|
Net sales
|
|
3.0%
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||
Avastin
|
|
|
|
|
|
|
|
||||
Ex-U.S.-based Sales
|
59
|
%
|
|
56
|
%
|
|
58
|
%
|
|
56
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
38
|
%
|
|
29
|
%
|
|
45
|
%
|
|
25
|
%
|
Herceptin
|
|
|
|
|
|
|
|
|
|
||
Ex-U.S.-based Sales
|
69
|
%
|
|
70
|
%
|
|
68
|
%
|
|
70
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
38
|
%
|
|
37
|
%
|
|
38
|
%
|
|
38
|
%
|
Kadcyla
|
|
|
|
|
|
|
|
||||
Ex-U.S.-based Sales
|
1
|
%
|
|
0
|
%
|
|
1
|
%
|
|
0
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Lucentis
|
|
|
|
|
|
|
|
|
|
||
Ex-U.S.-based Sales
|
63
|
%
|
|
65
|
%
|
|
65
|
%
|
|
62
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
0
|
%
|
|
0
|
%
|
|
0%
|
|
|
0
|
%
|
Perjeta
|
|
|
|
|
|
|
|
||||
Ex-U.S.-based Sales
|
26
|
%
|
|
0
|
%
|
|
16
|
%
|
|
0
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Xolair
|
|
|
|
|
|
|
|
|
|
||
Ex-U.S.-based Sales
|
40
|
%
|
|
39
|
%
|
|
40
|
%
|
|
39
|
%
|
Ex-U.S.-based Manufacturing and Sales
|
40
|
%
|
|
39
|
%
|
|
40
|
%
|
|
39
|
%
|
|
|
Three Months Ended
|
|
Change from Prior
|
|
Nine Months Ended
|
|
Change from Prior
|
||||||||||||
|
|
September 30,
|
|
|
September 30,
|
|
||||||||||||||
|
|
2013
|
|
2012
|
|
Year %
|
|
2013
|
|
2012
|
|
Year %
|
||||||||
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Royalties
|
|
$
|
96,314
|
|
|
$
|
85,231
|
|
|
13%
|
|
$
|
331,778
|
|
|
$
|
288,479
|
|
|
15%
|
License and other
|
|
1,000
|
|
|
—
|
|
|
N/M
|
|
1,000
|
|
|
—
|
|
|
N/M
|
||||
Total revenues
|
|
$
|
97,314
|
|
|
$
|
85,231
|
|
|
14%
|
|
$
|
332,778
|
|
|
$
|
288,479
|
|
|
15%
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||
|
|
|
|
September 30,
|
|
September 30,
|
||||||||
Licensee
|
|
Product Name
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||
Genentech
|
|
Avastin
|
|
33
|
%
|
|
30
|
%
|
|
34
|
%
|
|
31
|
%
|
|
|
Herceptin
|
|
32
|
%
|
|
36
|
%
|
|
33
|
%
|
|
35
|
%
|
|
|
Lucentis
|
|
14
|
%
|
|
15
|
%
|
|
17
|
%
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
||||
Biogen Idec
1
|
|
Tysabri
|
|
12
|
%
|
|
14
|
%
|
|
11
|
%
|
|
12
|
%
|
|
|
Three Months Ended
|
|
Change from Prior
|
|
Nine Months Ended
|
|
Change from Prior
|
||||||||||||
|
|
September 30,
|
|
|
September 30,
|
|
||||||||||||||
|
|
2013
|
|
2012
|
|
Year %
|
|
2013
|
|
2012
|
|
Year %
|
||||||||
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
General and administrative
|
|
$
|
7,925
|
|
|
$
|
5,647
|
|
|
40%
|
|
$
|
21,894
|
|
|
$
|
17,737
|
|
|
23%
|
Percentage of total revenues
|
|
8
|
%
|
|
7
|
%
|
|
|
|
7
|
%
|
|
6
|
%
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2013
|
|
2012
|
|
2013
|
|
2012
|
||||||||
Net income per basic share
|
$
|
0.40
|
|
|
$
|
0.35
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Net income per diluted share
|
$
|
0.36
|
|
|
$
|
0.32
|
|
|
$
|
1.31
|
|
|
$
|
1.08
|
|
•
|
During any fiscal quarter commencing after the fiscal quarter ending December 31, 2011, if the closing price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the conversion price for the Series 2012 Notes on the last day of such preceding fiscal quarter;
|
•
|
During the five business-day period immediately after any five consecutive trading-day period in which the trading price per $1,000 principal amount of the Series 2012 Notes for each trading day of that measurement period was less than 98% of the product of the closing price of the Company’s common stock and the conversion rate for the Series 2012 Notes for that trading day;
|
•
|
Upon the occurrence of certain corporate transactions as provided in the indenture; or
|
•
|
Anytime, at the holder’s option, beginning on August 15, 2014.
|
•
|
During any fiscal quarter commencing after the fiscal quarter ending June 30, 2011, if the closing price of the Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter exceeds 130% of the conversion price for the Series 2012 Notes on the last day of such preceding fiscal quarter;
|
•
|
During the five business-day period immediately after any five consecutive trading-day period, which we refer to as the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the notes for each such day;
|
•
|
Upon the occurrence of certain corporate transactions as provided in the indenture; or
|
•
|
Anytime, on or after November 1, 2014.
|
Euro Forward Contracts
|
|
September 30, 2013
|
|
December 31, 2012
|
|||||||||||||||||
|
|
|
|
|
|
(In thousands)
|
|
(In thousands)
|
|||||||||||||
Currency
|
|
Settlement Price
|
|
Type
|
|
Notional Amount
|
|
Fair Value
|
|
Notional Amount
|
|
Fair Value
|
|||||||||
|
($ per Euro)
|
|
|
|
|
|
|||||||||||||||
Euro
|
|
1.230
|
|
|
Sell Euro
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,553
|
|
|
$
|
(2,036
|
)
|
Euro
|
|
1.240
|
|
|
Sell Euro
|
|
10,850
|
|
|
(982
|
)
|
|
10,850
|
|
|
(726
|
)
|
||||
Euro
|
|
1.270
|
|
|
Sell Euro
|
|
44,450
|
|
|
(2,887
|
)
|
|
44,450
|
|
|
(1,950
|
)
|
||||
Euro
|
|
1.281
|
|
|
Sell Euro
|
|
36,814
|
|
|
(2,076
|
)
|
|
36,814
|
|
|
(1,331
|
)
|
||||
Euro
|
|
1.300
|
|
|
Sell Euro
|
|
39,000
|
|
|
(1,563
|
)
|
|
91,000
|
|
|
(1,538
|
)
|
||||
Total
|
|
|
|
|
|
|
$
|
131,114
|
|
|
$
|
(7,508
|
)
|
|
$
|
210,667
|
|
|
$
|
(7,581
|
)
|
#
|
Filed herewith.
|
*
|
Management contract or compensatory plan or arrangement.
|
**
|
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
|
†
|
Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4) and 24b-2.
|
Dated:
|
November 6, 2013
|
|
PDL BIOPHARMA, INC. (REGISTRANT)
|
|
|
|
|
|
|
|
|
/s/ John P. McLaughlin
|
|
|
John P. McLaughlin
|
|
|
President and Chief Executive Officer (Principal Executive Officer)
|
|
/s/ Peter S. Garcia
|
|
|
Peter S. Garcia
|
|
|
Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
/s/ David Montez
|
|
|
David Montez
|
|
|
Controller and Chief Accounting Officer (Principal Accounting Officer)
|
|
|
|
TABLE OF CONTENTS
|
||||
|
|
|
Page
|
|
Section 1.
|
Definitions; Interpretation
|
1
|
|
|
|
1.1.
|
Definitions
|
1
|
|
|
1.2.
|
Interpretation
|
14
|
|
Section 2.
|
Credit Facilities
|
14
|
|
|
|
2.1.
|
Loans
|
14
|
|
|
|
2.1.1. Loans
|
14
|
|
|
|
2.1.2. General
|
14
|
|
|
2.2.
|
Loan Accounting
|
15
|
|
|
|
2.2.1. Recordkeeping
|
15
|
|
|
|
2.2.2. Notes
|
15
|
|
|
2.3.
|
Interest
|
15
|
|
|
|
2.3.1. Interest Rate
|
15
|
|
|
|
2.3.2. Interest Payments
|
15
|
|
|
|
2.3.3. Computation of Interest
|
16
|
|
|
2.4.
|
Prepayment
|
16
|
|
|
|
2.4.1. Voluntary Prepayment
|
16
|
|
|
|
2.4.2. Payments in Respect of the Assigned Interest
|
16
|
|
|
2.5.
|
Payment Upon Maturity
|
16
|
|
|
2.6.
|
Making of Payments
|
16
|
|
|
2.7.
|
Application of Payments and Proceeds
|
16
|
|
|
2.8.
|
Payment Dates
|
16
|
|
|
2.9.
|
Set-off
|
16
|
|
|
2.10.
|
Currency Matters
|
17
|
|
Section 3.
|
Yield Protection
|
17
|
|
|
|
3.1.
|
Taxes
|
17
|
|
|
3.2.
|
Increased Cost
|
18
|
|
|
3.3.
|
Mitigation of Circumstances
|
19
|
|
|
3.4.
|
Conclusiveness of Statements; Survival
|
19
|
|
Section 4.
|
Conditions Precedent
|
19
|
|
|
|
4.1.
|
Loans
|
19
|
|
|
|
4.1.1. Delivery of Loan Documents
|
19
|
|
|
|
4.1.2. Payment of Fees, Expenses and Existing Obligations
|
21
|
|
|
|
4.1.3. Representations and Warranties
|
21
|
|
TABLE OF CONTENTS
|
||||
|
|
|
Page
|
|
|
|
4.1.4. No Default
|
21
|
|
|
|
4.1.5. No Material Adverse Change
|
21
|
|
|
|
4.1.6. Surviving Debt Subordination Agreement and Acknowledgment
|
21
|
|
|
|
4.1.7. Execution and Delivery of Letter Agreement
|
21
|
|
|
|
4.1.8. Control Agreements
|
22
|
|
|
|
4.1.9. Cash Contributions
|
22
|
|
Section 5.
|
Representations and Warranties
|
22
|
|
|
|
5.1.
|
Organization
|
22
|
|
|
5.2.
|
Authorization; No Conflict
|
22
|
|
|
5.3.
|
Validity; Binding Nature
|
22
|
|
|
5.4.
|
Financial Condition
|
23
|
|
|
5.5.
|
No Material Adverse Change
|
23
|
|
|
5.6.
|
Litigation
|
23
|
|
|
5.7.
|
Ownership of Properties; Liens
|
23
|
|
|
5.8.
|
Capitalization; Subsidiaries
|
23
|
|
|
5.9.
|
Pension Plans
|
24
|
|
|
5.10.
|
Compliance with Law; Investment Company Act; Other Regulated Entities
|
24
|
|
|
5.11.
|
Margin Stock
|
24
|
|
|
5.12.
|
Taxes
|
25
|
|
|
5.13.
|
Solvency
|
25
|
|
|
5.14.
|
Environmental Matters
|
25
|
|
|
5.15.
|
Insurance
|
26
|
|
|
5.16.
|
Information
|
26
|
|
|
5.17.
|
Intellectual Property
|
26
|
|
|
5.18.
|
Labor Matters
|
27
|
|
|
5.19.
|
No Default
|
27
|
|
|
5.20.
|
Foreign Assets Control Regulations and Anti-Money Laundering
|
27
|
|
|
|
5.20.1. OFAC
|
27
|
|
|
|
5.20.2. Patriot Act
|
27
|
|
Section 6.
|
Affirmative Covenants
|
27
|
|
|
|
6.1.
|
Information
|
27
|
|
|
|
6.1.1. Annual Report
|
28
|
|
|
|
6.1.2. Quarterly Reports
|
28
|
|
TABLE OF CONTENTS
|
||||
|
|
|
Page
|
|
|
|
6.1.3. Monthly Reports
|
28
|
|
|
|
6.1.4. Compliance Certificate
|
28
|
|
|
|
6.1.5. Monthly net Revenue Report
|
28
|
|
|
|
6.1.6. Notice of Default; Litigation; ERISA Matters
|
29
|
|
|
|
6.1.7. Reserved
|
29
|
|
|
|
6.1.8. Budgets
|
29
|
|
|
|
6.1.9. Other Information
|
29
|
|
|
6.2.
|
Books; Records; Inspections
|
29
|
|
|
6.3.
|
Maintenance of Property; Insurance
|
30
|
|
|
6.4.
|
Compliance with Laws and Contractual Obligations; Payment of Taxes and Liabilities
|
31
|
|
|
6.5.
|
Maintenance of Existence
|
31
|
|
|
6.6.
|
Environmental Matters
|
31
|
|
|
6.7.
|
Further Assurances
|
32
|
|
|
6.8.
|
Assigned Interests Payments
|
33
|
|
|
6.9.
|
Chief Restructuring Officer
|
33
|
|
|
6.10.
|
Sales of Hyperion
|
33
|
|
|
6.11.
|
BioVeris
|
33
|
|
Section 7.
|
Negative Covenants
|
33
|
|
|
|
7.1.
|
Debt
|
34
|
|
|
7.2.
|
Liens
|
34
|
|
|
7.3.
|
Restricted Payments
|
36
|
|
|
7.4.
|
Mergers: Consolidations; Asset Sales
|
36
|
|
|
7.5.
|
Modification of Organizational Documents or Surviving Debt Subordination Agreement and Acknowledgment
|
37
|
|
|
7.6.
|
Use of Proceeds
|
37
|
|
|
7.7.
|
Transactions with Affiliates
|
37
|
|
|
7.8.
|
Inconsistent Agreements
|
38
|
|
|
7.9.
|
Business Activities
|
38
|
|
|
7.10.
|
Investments
|
38
|
|
|
7.11.
|
Fiscal Year
|
39
|
|
|
7.12.
|
Deposit Accounts and Securities Accounts
|
39
|
|
|
7.13.
|
Sale-Leasebacks
|
39
|
|
|
7.14.
|
Hazardous Substances
|
39
|
|
TABLE OF CONTENTS
|
||||
|
|
|
Page
|
|
|
7.15.
|
ERISA Liability
|
39
|
|
|
7.16.
|
BioVeris
|
39
|
|
Section 8.
|
Events of Default; Remedies
|
40
|
|
|
|
8.1.
|
Events of Default
|
40
|
|
|
|
8.1.1. Non-Payment of Credit
|
40
|
|
|
|
8.1.2. Default Under Other Debt
|
40
|
|
|
|
8.1.3. Bankruptcy; Insolvency
|
40
|
|
|
|
8.1.4. Non-Compliance with Loan Documents
|
41
|
|
|
|
8.1.5. Representations; Warranties
|
41
|
|
|
|
8.1.6. Judgments
|
41
|
|
|
|
8.1.7. Invalidity of Collateral Documents
|
42
|
|
|
|
8.1.8. Invalidity of Subordination Provisions
|
42
|
|
|
|
8.1.9. Change of Control
|
42
|
|
|
|
8.1.10. Invalidity of Subordination Provisions
|
42
|
|
|
|
8.1.11. Key Employees
|
42
|
|
|
8.2.
|
Remedies
|
42
|
|
Section 9.
|
The Agent
|
43
|
|
|
|
9.1.
|
Appointment; Authorization
|
43
|
|
|
9.2.
|
Delegation of Duties
|
43
|
|
|
9.3.
|
Limited Liability
|
43
|
|
|
9.4.
|
Successor Agent
|
44
|
|
|
9.5.
|
Collateral Matters
|
44
|
|
Section 10.
|
Miscellaneous
|
44
|
|
|
|
10.1.
|
Waiver; Amendments
|
44
|
|
|
10.2.
|
Notices
|
45
|
|
|
10.3.
|
Costs; Expenses
|
45
|
|
|
10.4.
|
Indemnification by the Borrower
|
45
|
|
|
10.5.
|
Marshaling; Payments Set Aside
|
46
|
|
|
10.6.
|
Nonliability of the Lender
|
46
|
|
|
10.7.
|
Confidentiality
|
46
|
|
|
10.8.
|
Captions
|
47
|
|
|
10.9.
|
Nature of Remedies
|
47
|
|
|
10.10.
|
Counterparts
|
47
|
|
|
10.11.
|
Severability
|
47
|
|
|
10.12.
|
Entire Agreement
|
47
|
|
|
10.13.
|
Successors; Assigns
|
47
|
|
|
10.14.
|
Governing Law
|
48
|
|
|
10.15.
|
Forum Selection; Consent to Jurisdiction; Service of Process
|
48
|
|
|
10.16.
|
Waiver of Jury Trial
|
48
|
|
|
10.17.
|
Collateral Agent
|
49
|
|
|
10.18.
|
Agreements of Lender and Agent
|
49
|
|
Annex I
|
Internal Rate of Return Calculation
|
Annex II
|
Addresses
|
Annex III
|
Reset Amount
|
Exhibit A
|
Compliance Certificate
|
Schedule 5.6
|
Litigation
|
Schedule 5.7
|
Real Property
|
Schedule 5.10
|
Authorizations, Permits, Licenses and Approvals
|
Schedule 5.15
|
Insurance
|
Schedule 5.18
|
Labor Matters
|
Schedule 7.1
|
Existing Debt
|
Schedule 7.2
|
Permitted Liens
|
Schedule 7.10
|
Existing Investments
|
Schedule 7.12
|
Bank Accounts
|
Schedule 8.1
|
Key Employees
|
Section 1.
|
Definitions; Interpretation
.
|
Section 2.
|
Credit Facilities.
|
Section 3.
|
Yield Protection
.
|
Section 4.
|
Conditions Precedent
.
|
Section 5.
|
Representations and Warranties
.
|
Section 6.
|
Affirmative Covenants
.
|
Section 7.
|
Negative Covenants
.
|
Section 8.
|
Events of Default; Remedies
.
|
Section 9.
|
The Agent
.
|
Section 10.
|
Miscellaneous
.
|
|
10/31/2012
|
12/31/2012
|
3/31/2013
|
3/20/2013
|
2/20/2014
|
2/20/2015
|
2/20/2016
|
2/20/2017
|
2/20/2018
|
2/20/2019
|
2/20/2020
|
2/20/2021
|
Out
|
(40.000)
|
|
|
|
|
|
|
|
|
|
|
|
Interest - Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest - PIK
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty Payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
(40.000)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40.000
|
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Notes:
|
1.Royalty Payments should be * * * of net sales each month; this amount does not go towards principal repayment and currently does not hit interest; Wellstat to elect to pay interest in cash by making cash payment of interest due
|
|
2.Payment dates to be set based on date payment received
|
|
3.Outstanding principal used to calculate the required interest PIK; “Payment in Full” of the debt is based on the “Applicable IRR” at the time of payment
|
|
4.Interest can be paid by Wellstat In cash or PIK notes at Wellstat election
|
•
|
Failure to pay BioVeris Corporation license agreement fee in the amount of $1,618,000 pursuant to the ECL Asset Transfer Agreement dated April 4, 2007, by and between BioVeris Corporation and Wellstat Diagnostics, LLC.
|
•
|
9 W. Watkins Mill, Suite 100
|
•
|
9 W. Watkins Mill, Suite 200
|
•
|
930 Clopper Road, Gaithersburg, Maryland 20878-1301
|
•
|
940 Clopper Road, Gaithersburg, Maryland 20878-1301
|
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
|
|||||||||||||||||||||||||
INSR
LTR
|
TYPE OF INSURANCE
|
ADDL
INSR
|
SUBR
WVD
|
POLICY NUMBER
|
POLICY EFF
(MM/DD/YYYY)
|
POLICY EXP
(MM/DD/YYYY)
|
LIMITS
|
||||||||||||||||||
A
|
GENERAL LIABILITY
|
X
|
|
6303B035881
|
2/15/2012
|
2/15/2013
|
EACH OCCURRENCE
|
$
|
1,000,000
|
|
|||||||||||||||
|
X
|
COMMERCIAL GENERAL LIABILITY
|
|
|
|
|
|
DAMAGE TO RENTED
PREMISES (Ea occurrence)
|
$
|
1,000,000
|
|
||||||||||||||
|
|
CLAIMS-MADE
|
X
|
OCCUR
|
|
|
|
|
|
MED EXP (Any one person)
|
$
|
10,000
|
|
||||||||||||
|
|
|
|
|
|
|
PERSONAL & ADV INJURY
|
$
|
1,000,000
|
|
|||||||||||||||
|
|
|
|
|
|
|
GENERAL AGGREGATE
|
$
|
2,000,000
|
|
|||||||||||||||
|
GENL. AGGREGATE LIMIT APPLIES PER:
|
|
|
|
|
|
PRODUCTS-COMP/OP AGG
|
$
|
|||||||||||||||||
X
|
POLICY
|
|
PRO-
JECT
|
|
LOC
|
|
|
|
|
|
|
$
|
|||||||||||||
AUTOMOBILE LIABILITY
|
|
|
|
|
|
COMBINED SINGLE LIMIT
(Ea accident)
|
$
|
||||||||||||||||||
|
ANY AUTO
|
|
|
|
|
|
BODILY INJURY (Per person)
|
$
|
|||||||||||||||||
|
ALL OWNED AUTOS
|
|
SCHEDULED AUTOS
|
|
|
|
|
|
BODILY INJURY (Per accident)
|
$
|
|||||||||||||||
|
HIRED AUTOS
|
|
NON-OWNED AUTOS
|
|
|
|
|
|
PROPERTY DAMAGE
(Per accident)
|
$
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
$
|
||||||||||||||
|
|
UMBRELLA LIAB
|
|
OCCUR
|
|
|
|
|
|
EACH OCCURRENCE
|
$
|
||||||||||||||
|
|
EXCESS LIAB
|
|
CLAIMS-MADE
|
|
|
|
|
|
AGGREGATE
|
$
|
||||||||||||||
|
|
DED
|
|
RETENTION $
|
|
|
|
|
|
|
$
|
||||||||||||||
|
WORKER'S COMPENSATION
AND EMPLOYERS' LIABILITYY/N
|
|
|
|
|
|
|
WC STATU-
TORY LIMITS
|
|
OTH-ER
|
|
||||||||||||||
|
ANY PROPRIETOR/PARTNER/EXECUTIVE
OFFICER/MEMBER EXCLUDED?
|
☐
|
N/A
|
|
|
|
|
E.L. EACH ACCIDENT
|
$
|
||||||||||||||||
|
(Mandatory In NH)
If yes, describe under
|
|
|
|
|
|
E.L. DISEASE - EA EMPLOYEE
|
$
|
|||||||||||||||||
|
DESCRIPTION OF OPERATIONS below
|
|
|
|
|
|
E.L. DISEASE - POLICY LIMIT
|
$
|
|||||||||||||||||
A
|
Business Personal
Property
|
|
|
6303B035881
|
2/15/2012
|
2/15/2013
|
$16,272,500 limit
|
||||||||||||||||||
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES (Attach ACORD 101, Additional Remarks Schedule, if more space required)
PDL BioPharma, Inc. is included as an additional insured as their interest may appear.
|
PDL BioPharma, Inc.
932 Southwood Boulevard
Incline Village, NV 89451
|
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE
THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN
ACCORDANCE WITH THE POLICY PROVISIONS.
|
AUTHORIZED REPRESENTATIVE
|
Bank
|
Description
|
Account Number
|
Wells Fargo Bank N.A.
|
Payroll Account
|
* * *
|
Wells Fargo Bank N.A.
|
Operating Account
|
* * *
|
Wellstat Diagnostics Key Employees
|
||
Name
|
|
Responsibility
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
* * *
|
|
* * *
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2013
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
For the Years Ended December 31,
|
|
|||||||||||||||||||||
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
|||||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income before income taxes
|
|
$
|
243,334
|
|
|
$
|
280,285
|
|
|
$
|
150,370
|
|
|
$
|
307,428
|
|
|
$
|
327,133
|
|
|
$
|
304,433
|
|
Add: fixed charges
|
|
14,285
|
|
|
19,430
|
|
|
43,578
|
|
|
36,153
|
|
|
29,097
|
|
|
18,214
|
|
||||||
Earnings
|
|
$
|
257,619
|
|
|
$
|
299,715
|
|
|
$
|
193,948
|
|
|
$
|
343,581
|
|
|
$
|
356,230
|
|
|
$
|
322,647
|
|
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest expense
1
|
|
$
|
14,219
|
|
|
$
|
19,357
|
|
|
$
|
43,529
|
|
|
$
|
36,102
|
|
|
$
|
29,036
|
|
|
$
|
18,169
|
|
Estimated interest portion of rent expense
2
|
|
66
|
|
|
73
|
|
|
49
|
|
|
51
|
|
|
61
|
|
|
45
|
|
||||||
Fixed charges
|
|
$
|
14,285
|
|
|
19,430
|
|
|
$
|
43,578
|
|
|
$
|
36,153
|
|
|
$
|
29,097
|
|
|
$
|
18,214
|
|
|
Ratio of earnings to fixed charges
|
|
18.03
|
|
|
15.43
|
|
|
4.45
|
|
|
9.50
|
|
|
12.24
|
|
|
17.71
|
|
Date:
|
November 6, 2013
|
|
|
|
|
/s/ John P. McLaughlin
|
|
|
John P. McLaughlin
President and Chief Executive Officer
(Principal Executive Officer)
|
|
Date:
|
November 6, 2013
|
|
|
|
|
/s/ Peter S. Garcia
|
|
|
Peter S. Garcia
Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
Date:
|
November 6, 2013
|
|
|
|
|
/s/ John P. McLaughlin
|
|
|
John P. McLaughlin
President and Chief Executive Officer
(Principal Executive Officer)
|
|
Date:
|
November 6, 2013
|
|
|
|
|
/s/ Peter S. Garcia
|
|
|
Peter S. Garcia
Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|