|
x
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
¨
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
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
|
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
Page
|
||
PART I - FINANCIAL INFORMATION
|
||
ITEM 1.
|
3
|
|
3
|
||
4
|
||
5
|
||
6
|
||
ITEM 2.
|
15
|
|
ITEM 3.
|
26
|
|
ITEM 4.
|
27
|
|
PART II - OTHER INFORMATION
|
||
ITEM 1.
|
28
|
|
ITEM 1A.
|
29
|
|
ITEM 6.
|
31
|
|
33
|
FINANCIAL STATEMENTS
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Royalties
|
$ | 122,127 | $ | 120,343 | $ | 195,463 | $ | 182,404 | ||||||||
License and other
|
- | - | 10,000 | - | ||||||||||||
Total revenues
|
122,127 | 120,343 | 205,463 | 182,404 | ||||||||||||
General and administrative expenses
|
3,776 | 8,820 | 9,555 | 18,230 | ||||||||||||
Operating income
|
118,351 | 111,523 | 195,908 | 164,174 | ||||||||||||
Loss on retirement or conversion of convertible notes
|
(766 | ) | (16,327 | ) | (766 | ) | (16,327 | ) | ||||||||
Interest and other income
|
157 | 90 | 332 | 170 | ||||||||||||
Interest and other expense
|
(9,780 | ) | (11,560 | ) | (18,934 | ) | (24,087 | ) | ||||||||
Total non-operating expense, net
|
(10,389 | ) | (27,797 | ) | (19,368 | ) | (40,244 | ) | ||||||||
Income before income taxes
|
107,962 | 83,726 | 176,540 | 123,930 | ||||||||||||
Income tax expense
|
37,976 | 33,588 | 62,009 | 47,785 | ||||||||||||
Net income
|
$ | 69,986 | $ | 50,138 | $ | 114,531 | $ | 76,145 | ||||||||
Net income per basic share
|
$ | 0.50 | $ | 0.42 | $ | 0.82 | $ | 0.64 | ||||||||
Net income per diluted share
|
$ | 0.38 | $ | 0.30 | $ | 0.63 | $ | 0.44 | ||||||||
Cash dividends declared per common share
|
$ | - | $ | - | $ | 0.60 | $ | 1.00 | ||||||||
Shares used to compute net income per basic and diluted share:
|
||||||||||||||||
Shares used to compute net income per basic share
|
139,650 | 119,536 | 139,645 | 119,530 | ||||||||||||
Shares used to compute net income per diluted share
|
186,060 | 173,398 | 186,055 | 178,821 |
June 30, 2011
|
December 31, 2010
|
|||||||
Assets
|
(unaudited)
|
(Note 1)
|
||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 168,022 | $ | 211,574 | ||||
Short-term investments
|
30,269 | 34,658 | ||||||
Receivables from licensees
|
- | 469 | ||||||
Deferred tax assets
|
10,442 | 19,902 | ||||||
Foreign currency hedge
|
- | 5,946 | ||||||
Prepaid and other current assets
|
3,698 | 12,114 | ||||||
Total current assets
|
212,431 | 284,663 | ||||||
Property and equipment, net
|
51 | 80 | ||||||
Long-term investments
|
38,030 | 1,997 | ||||||
Long-term deferred tax assets
|
24,861 | 22,620 | ||||||
Other assets
|
8,888 | 7,306 | ||||||
Total assets
|
$ | 284,261 | $ | 316,666 | ||||
Liabilities and Stockholders' Deficit
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 124 | $ | 2,540 | ||||
Accrued legal settlement
|
27,500 | 65,000 | ||||||
Accrued liabilities
|
5,634 | 5,471 | ||||||
Accrued income taxes
|
12,575 | - | ||||||
Foreign currency hedge
|
4,270 | - | ||||||
Deferred revenue
|
1,713 | 1,713 | ||||||
Dividend payable
|
41,961 | 20 | ||||||
Current portion of non-recourse notes payable
|
123,246 | 119,247 | ||||||
Total current liabilities
|
217,023 | 193,991 | ||||||
Convertible notes payable
|
314,142 | 310,428 | ||||||
Non-recourse notes payable
|
18,454 | 85,023 | ||||||
Other long-term liabilities
|
28,149 | 51,406 | ||||||
Total liabilities
|
577,768 | 640,848 | ||||||
Commitments and contingencies (Note 13)
|
||||||||
Stockholders' 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, 250,000 shares authorized; 139,795 and 139,640 issued and outstanding at June 30, 2011, and December 31, 2010, respectively
|
1,397 | 1,396 | ||||||
Additional paid-in capital
|
(162,015 | ) | (87,373 | ) | ||||
Accumulated other comprehensive income
|
(5,996 | ) | 3,219 | |||||
Accumulated deficit
|
(126,893 | ) | (241,424 | ) | ||||
Total stockholders' deficit
|
(293,507 | ) | (324,182 | ) | ||||
Total liabilities and stockholders' deficit
|
$ | 284,261 | $ | 316,666 |
Six Months Ended June 30
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 114,531 | $ | 76,145 | ||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Amortization of convertible notes offering costs
|
1,302 | 927 | ||||||
Amortization of non-recourse notes offering costs
|
2,774 | 3,725 | ||||||
Other amortization and depreciation expense
|
669 | 71 | ||||||
Loss on retirement or conversion of convertible notes
|
766 | 16,327 | ||||||
Stock-based compensation expense
|
124 | 359 | ||||||
Tax (expense) benefit from stock-based compensation arrangements
|
(117 | ) | 7,185 | |||||
Net excess tax benefit from stock-based compensation
|
- | (7,475 | ) | |||||
Deferred income taxes
|
19,423 | (3,230 | ) | |||||
Changes in assets and liabilities:
|
||||||||
Receivables from licensees
|
469 | 900 | ||||||
Prepaid and other current assets
|
7,207 | 5,455 | ||||||
Other assets
|
(5,759 | ) | 94 | |||||
Accounts payable
|
(2,416 | ) | (193 | ) | ||||
Accrued liabilities
|
1,163 | (2,662 | ) | |||||
Accrued legal settlement
|
(37,500 | ) | - | |||||
Accrued income taxes
|
12,575 | 24,386 | ||||||
Other long-term liabilities
|
(27,288 | ) | - | |||||
Deferred revenue
|
- | 1,613 | ||||||
Net cash provided by operating activities
|
87,923 | 123,627 | ||||||
Cash flows from investing activities
|
||||||||
Purchases of investments
|
(58,359 | ) | (12,402 | ) | ||||
Maturities of investments
|
26,146 | - | ||||||
Purchase of intangible assets
|
(50 | ) | - | |||||
Net cash used in investing activities
|
(32,263 | ) | (12,402 | ) | ||||
Cash flows from financing activities
|
||||||||
Repurchase of convertible notes
|
(134,464 | ) | (100,386 | ) | ||||
Repayment of non-recourse notes
|
(62,570 | ) | (50,365 | ) | ||||
Cash dividend paid
|
(41,924 | ) | (59,864 | ) | ||||
Net proceeds from the issuance of convertible notes
|
149,643 | - | ||||||
Purchase of call options
|
(20,765 | ) | - | |||||
Proceeds from issue of warrants
|
10,868 | - | ||||||
Net excess tax benefit from stock-based compensation
|
- | 7,475 | ||||||
Net cash used in financing activities
|
(99,212 | ) | (203,140 | ) | ||||
Net decrease in cash and cash equivalents
|
(43,552 | ) | (91,915 | ) | ||||
Cash and cash equivalents at beginning of the period
|
211,574 | 303,227 | ||||||
Cash and cash equivalents at end of the period
|
$ | 168,022 | $ | 211,312 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||
Licensees
|
Product Name
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Genentech, Inc. (Genentech)
|
Avastin
®
|
34 | % | 37 | % | 31 | % | 34 | % | |||||||||
Herceptin
®
|
35 | % | 32 | % | 33 | % | 34 | % | ||||||||||
Lucentis
®
|
20 | % | 16 | % | 16 | % | 14 | % | ||||||||||
Elan Corporation, Plc (Elan)
|
Tysabri
®
|
9 | % | 7 | % | 10 | % | 10 | % |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
(In thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
General and administrative expenses
|
$ | 74 | $ | 171 | $ | 124 | $ | 359 | ||||||||
Income tax effect
|
(26 | ) | (60 | ) | (43 | ) | (126 | ) | ||||||||
Stock-based compensation expense included in net income
|
$ | 48 | $ | 111 | $ | 81 | $ | 233 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
(In thousands, except per share amounts)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Numerator
|
||||||||||||||||
Net income
|
$ | 69,986 | $ | 50,138 | $ | 114,531 | $ | 76,145 | ||||||||
Add back interest expense for convertible notes, net of estimated tax of $0.7 million for each of the three months ended June 30, 2011 and 2010, and $1.4 million and $1.6 million for the six months ended June 30, 2011 and 2010 (see Note 10)
|
1,275 | 1,360 | 2,549 | 2,995 | ||||||||||||
Income used to compute net income per diluted share
|
$ | 71,261 | $ | 51,498 | $ | 117,080 | $ | 79,140 | ||||||||
Denominator
|
||||||||||||||||
Total weighted-average shares used to compute basic income per share
|
139,650 | 119,536 | 139,645 | 119,530 | ||||||||||||
Effect of dilutive stock options
|
14 | 8 | 13 | 8 | ||||||||||||
Restricted stock outstanding
|
26 | 104 | 27 | 96 | ||||||||||||
Assumed conversion of 2012 Notes
|
19,743 | 29,256 | 19,743 | 29,256 | ||||||||||||
Assumed conversion of 2015 Notes
|
26,627 | - | 26,627 | - | ||||||||||||
Assumed conversion of 2023 Notes
|
- | 24,494 | - | 29,931 | ||||||||||||
Shares used to compute income per diluted share
|
186,060 | 173,398 | 186,055 | 178,821 | ||||||||||||
Net income per basic share
|
$ | 0.50 | $ | 0.42 | $ | 0.82 | $ | 0.64 | ||||||||
Net income per diluted share
|
$ | 0.38 | $ | 0.30 | $ | 0.63 | $ | 0.44 |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||||||
(In thousands)
|
Level 1
|
Level 2
|
Total
|
Level 1
|
Level 2
|
Total
|
||||||||||||||||||
Assets:
|
||||||||||||||||||||||||
Money market funds
|
$ | 160,609 | $ | - | $ | 160,609 | $ | 203,318 | $ | - | $ | 203,318 | ||||||||||||
Corporate debt securities
|
41,065 | - | 41,065 | 20,434 | - | 20,434 | ||||||||||||||||||
Commercial paper
|
- | 11,988 | 11,988 | - | 7,998 | 7,998 | ||||||||||||||||||
U.S. government sponsored agency bonds
|
10,736 | - | 10,736 | 8,725 | - | 8,725 | ||||||||||||||||||
U.S. treasury securities
|
5,510 | - | 5,510 | 1,997 | - | 1,997 | ||||||||||||||||||
Foreign currency hedge contracts
|
- | 15,905 | 15,905 | - | 17,763 | 17,763 | ||||||||||||||||||
Total
|
$ | 217,920 | $ | 27,893 | $ | 245,813 | $ | 234,474 | $ | 25,761 | $ | 260,235 | ||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Foreign currency hedge contracts
|
$ | - | $ | (25,200 | ) | $ | (25,200 | ) | $ | - | $ | (12,810 | ) | $ | (12,810 | ) |
(In thousands)
|
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Estimated
Fair Value |
||||||||||||
June 30, 2011:
|
||||||||||||||||
Money market funds
|
$ | 160,609 | $ | - | $ | - | $ | 160,609 | ||||||||
Corporate debt securities
|
41,032 | 50 | (17 | ) | 41,065 | |||||||||||
Commerical paper
|
11,988 | - | - | 11,988 | ||||||||||||
U.S. government sponsored agency bonds
|
10,718 | 18 | - | 10,736 | ||||||||||||
U.S. treasury securities
|
5,491 | 19 | - | 5,510 | ||||||||||||
Total
|
$ | 229,838 | $ | 87 | $ | (17 | ) | $ | 229,908 | |||||||
Classification on Condensed Consolidated Balance Sheets:
|
||||||||||||||||
Cash equivalents
|
$ | 161,609 | ||||||||||||||
Short-term investments
|
30,269 | |||||||||||||||
Long-term investments
|
38,030 | |||||||||||||||
Total
|
$ | 229,908 | ||||||||||||||
December 31, 2010:
|
||||||||||||||||
Money market funds
|
$ | 203,318 | $ | - | $ | - | $ | 203,318 | ||||||||
Corporate debt securities
|
20,437 | 2 | (5 | ) | 20,434 | |||||||||||
Commerical paper
|
7,998 | - | - | 7,998 | ||||||||||||
U.S. government sponsored agency bonds
|
8,727 | - | (2 | ) | 8,725 | |||||||||||
U.S. treasury securities
|
1,994 | 3 | - | 1,997 | ||||||||||||
Total
|
$ | 242,474 | $ | 5 | $ | (7 | ) | $ | 242,472 | |||||||
Classification on Condensed Consolidated Balance Sheets:
|
||||||||||||||||
Cash equivalents
|
$ | 205,817 | ||||||||||||||
Short-term investments
|
34,658 | |||||||||||||||
Long-term investments
|
1,997 | |||||||||||||||
Total
|
$ | 242,472 |
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
(In thousands)
|
Amortized
Cost
|
Fair
Value
|
Amortized
Cost
|
Fair
Value
|
||||||||||||
Less than one year
|
$ | 31,265 | $ | 31,269 | $ | 37,162 | $ | 37,157 | ||||||||
Greater than one year but less than five years
|
37,963 | 38,030 | 1,994 | 1,997 | ||||||||||||
Total
|
$ | 69,228 | $ | 69,299 | $ | 39,156 | $ | 39,154 |
Foreign Currency Exchange Forward Contracts
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||
Currency
|
Settlement Price
($ per Eurodollar)
|
Type
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
|||||||||||||||
Eurodollar
|
1.400 |
Sell Eurodollar
|
$ | 78,028 | $ | (2,334 | ) | $ | 137,179 | $ | 6,740 | ||||||||||
Eurodollar
|
1.200 |
Sell Eurodollar
|
117,941 | (22,866 | ) | 117,941 | (12,810 | ) | |||||||||||||
Total
|
$ | 195,969 | $ | (25,200 | ) | $ | 255,120 | $ | (6,070 | ) |
Foreign Currency Exchange Option Contracts
|
|||||||||||||||||||||
Currency
|
Strike Price
($ per Eurodollar)
|
Type
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
|||||||||||||||
Eurodollar
|
1.510 |
Purchased call option
|
$ | 84,158 | $ | 626 | $ | 147,957 | $ | 772 | |||||||||||
Eurodollar
|
1.315 |
Purchased call option
|
129,244 | 15,279 | 129,244 | 10,251 | |||||||||||||||
Total
|
$ | 213,402 | $ | 15,905 | $ | 277,201 | $ | 11,023 |
Fair Value (In thousands)
|
||||||||||
Cash Flow Hedge
|
Location
|
June 30, 2011
|
December 31, 2010
|
|||||||
Foreign currency exchange contracts (net)
|
Foreign currency hedge-current
|
$ | - | $ | 5,946 | |||||
Foreign currency exchange contracts (net)
|
Accrued liabilities
|
(4,270 | ) | - | ||||||
Foreign currency exchange contracts (net)
|
Other long-term liabilities
|
(5,025 | ) | (993 | ) | |||||
$ | (9,295 | ) | $ | 4,953 |
(In thousands)
|
June 30,
2011
|
December 31,
2010
|
||||||
Investment interest receivable
|
$ | 474 | $ | 169 | ||||
Non-recourse Notes issuance costs
|
2,599 | 3,362 | ||||||
Prepaid taxes
|
- | 8,307 | ||||||
Other
|
625 | 276 | ||||||
Total prepaid and other current assets
|
$ | 3,698 | $ | 12,114 |
(In thousands)
|
June 30, 2011
|
December 31, 2010
|
||||||
2012 Notes issuance costs
|
$ | - | $ | 683 | ||||
2015 Notes issuance costs
|
3,718 | 4,226 | ||||||
May 2015 Notes issuance costs
|
4,717 | - | ||||||
Non-recourse Notes issuance costs
|
386 | 2,397 | ||||||
Other assets, net
|
67 | - | ||||||
Total other assets
|
$ | 8,888 | $ | 7,306 |
(In thousands)
|
June 30,
2011
|
December 31,
2010
|
||||||
Consulting and services
|
$ | 1,130 | $ | 2,187 | ||||
Compensation
|
945 | 349 | ||||||
Interest
|
3,328 | 2,794 | ||||||
Other
|
231 | 141 | ||||||
Total accrued liabilities
|
$ | 5,634 | $ | 5,471 |
(In thousands)
|
2012
Notes
|
2015
Notes
|
May 2015
Notes
|
Non-recourse Notes
|
Total
|
|||||||||||||||
Balance at December 31, 2010
|
$ | 133,464 | $ | 176,964 | $ | - | $ | 204,270 | $ | 514,698 | ||||||||||
Issuance
|
- | - | 136,313 | 136,313 | ||||||||||||||||
Payment
|
- | - | - | (62,570 | ) | (62,570 | ) | |||||||||||||
Redemption
|
(133,464 | ) | - | - | - | (133,464 | ) | |||||||||||||
Discount amortization
|
- | 346 | 519 | - | 865 | |||||||||||||||
Balance at June 30, 2011
|
$ | - | $ | 177,310 | $ | 136,832 | $ | 141,700 | $ | 455,842 | ||||||||||
Fair value
(1)
|
$ | - | $ | 181,008 | $ | 150,499 | $ | 144,534 | $ | 476,041 |
|
(1)
|
As of June 30, 2011, the fair value of the remaining payments under our Convertible notes and Non-recourse Notes was estimated based on the trading value of our notes then outstanding.
|
(In thousands)
|
June 30, 2011
|
|||
Principal Amount of the May 2015 Notes
|
$ | 155,250 | ||
Unamortized discount of liability component
|
(18,418 | ) | ||
Net carrying value of the May 2015 Notes
|
$ | 136,832 |
For the Period
May 16 to
|
||||
(In thousands)
|
June 30, 2011
|
|||
Contractual coupon interest
|
$ | 728 | ||
Amortization of debt issuance costs
|
144 | |||
Amortization of debt discount
|
519 | |||
Total
|
$ | 1,391 |
(In thousands)
|
June 30,
2011
|
December 31,
2010
|
||||||
Accrued lease liability
|
$ | 10,700 | $ | 10,700 | ||||
Accrued legal settlement
|
- | 27,500 | ||||||
Uncertain tax position
|
12,424 | 12,213 | ||||||
Foreign currency hedge
|
5,025 | 993 | ||||||
Total
|
$ | 28,149 | $ | 51,406 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
(In thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income
|
$ | 69,986 | $ | 50,138 | $ | 114,531 | $ | 76,145 | ||||||||
Other comprehensive income:
|
||||||||||||||||
Unrealized gain (loss) on cash flow hedges, net of taxes
|
(1,478 | ) | 10,725 | (6,042 | ) | 17,088 | ||||||||||
Unrealized loss on investments, net of taxes
|
71 | (8 | ) | (46 | ) | (8 | ) | |||||||||
Total comprehensive income
|
$ | 68,579 | $ | 60,855 | $ | 108,443 | $ | 93,225 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Application Number
|
Filing Date
|
Patent Number
|
Issue Date
|
||||
08/477,728 |
06/07/95
|
5,585,089 |
12/17/96
|
||||
08/474,040 |
06/07/95
|
5,693,761 |
12/02/97
|
||||
08/487,200 |
06/07/95
|
5,693,762 |
12/02/97
|
||||
08/484,537 |
06/07/95
|
6,180,370 |
01/30/01
|
Aggregate Net Sales
|
Royalty Rate
|
|||
Net sales up to $1.5 billion
|
3.0
|
%
|
||
Net sales between $1.5 billion and $2.5 billion
|
2.5
|
%
|
||
Net sales between $2.5 billion and $4.0 billion
|
2.0
|
%
|
||
Net sales exceeding $4.0 billion
|
1.0
|
%
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Avastin
|
||||||||||||||||
% Ex-U.S. Sold
|
55 | % | 49 | % | 55 | % | 49 | % | ||||||||
% Ex-U.S.-based Manufactured and Sold
|
20 | % | 27 | % | 20 | % | 16 | % | ||||||||
Herceptin
|
||||||||||||||||
% Ex-U.S. Sold
|
72 | % | 70 | % | 71 | % | 70 | % | ||||||||
% Ex-U.S.-based Manufactured and Sold
|
30 | % | 47 | % | 35 | % | 45 | % | ||||||||
Lucentis
|
||||||||||||||||
% Ex-U.S. Sold
|
57 | % | 57 | % | 57 | % | 57 | % | ||||||||
% Ex-U.S.-based Manufactured and Sold
|
- | - | - | - | ||||||||||||
Xolair
|
||||||||||||||||
% Ex-U.S. Sold
|
40 | % | 36 | % | 39 | % | 35 | % | ||||||||
% Ex-U.S.-based Manufactured and Sold
|
40 | % | 36 | % | 39 | % | 35 | % |
|
•
|
Our business success is dependent in significant part on our success in maintaining and protecting our intellectual property rights. If we are unable to protect or defend our intellectual property, our royalty revenues and operating results would be adversely affected. Assertion and defense of our intellectual property rights can be expensive and could result in a significant reduction in the scope or invalidation of our intellectual property rights, which could adversely affect our results of operations.
|
|
•
|
The manufacture of drugs and antibodies for use as therapeutics in compliance with regulatory requirements is complex, time-consuming and expensive. If our licensees are unable to manufacture product or product candidates in accordance with FDA and European good manufacturing practices, they may not be able to obtain or retain regulatory approval for products licensed under our patents.
|
|
•
|
Our licensees are subject to stringent regulation with respect to product safety and efficacy by various international, federal, state and local authorities and may be unable to maintain regulatory approvals for currently licensed products or obtain regulatory approvals for new products. For example, safety and efficacy issues could also result in the failure to maintain regulatory approvals or decrease revenues. In June 2010, after results from a recent clinical trial raised concerns about the efficacy and safety of Mylotarg, Pfizer, the parent company of Wyeth, announced that it will be discontinuing commercial availability of Mylotarg.
|
|
•
|
In March 2010, the Patient Protection and Affordable Care Act was signed into law along with the related Health Care and Education Reconciliation Act of 2010 (collectively, the Act). The Act represents a major overhaul of the healthcare system in the United States and also includes a number of provisions that may affect our licensees and our royalty revenues.
|
|
•
|
Approximately 50% of our licensees’ product sales are in currencies other than the U.S. dollar; as such, our revenue may fluctuate due to changes in foreign currency exchange rates and is subject to foreign currency exchange risk. Therefore, shifts in currencies can impact our short-term results as well as our long-term revenue and net income projections.
|
|
•
|
To be successful, we must attract, retain and integrate qualified personnel. Our business is managing our patents and royalties assets, which requires a small number of employees. If we cannot recruit and retain qualified personnel, results from our operations could be adversely impacted.
|
|
•
|
Our business success is also dependent on overall economic conditions. The global financial downturn could adversely affect product sales by our licensees.
|
Three Months Ended June 30,
|
%
|
Six Months Ended June 30,
|
%
|
|||||||||||||||||||||
(Dollars in thousands)
|
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
||||||||||||||||||
Revenues
|
||||||||||||||||||||||||
Royalties
|
$ | 122,127 | $ | 120,343 | 1 | % | $ | 195,463 | $ | 182,404 | 7 | % | ||||||||||||
License and other
|
- | - | N/A | 10,000 | - | N/A | ||||||||||||||||||
Total revenues
|
$ | 122,127 | $ | 120,343 | 1 | % | $ | 205,463 | $ | 182,404 | 13 | % |
|
·
|
Reported sales of Avastin decreased one percent in the first quarter of 2011 when compared to the same period in 2010. Notably, sales in the United States declined 12% whereas international sales increased 10%. Also contributing to the decrease in royalty revenue, ex-U.S.-based Manufacturing and Sales of Avastin declined to 20% of total Avastin sales in the first quarter of 2011 from 27% in the first quarter of 2010. Roche recently reported that sales declines in the United States and Western Europe have been negatively impacted by reimbursement uncertainty regarding the metastatic breast cancer indication, as well as by healthcare reform in the United States and European austerity measures.
|
|
·
|
Reported sales for Herceptin increased 16% in the first quarter of 2011 when compared to the same period in 2010. Roche recently reported that sales growth is being driven by increasing penetration in emerging markets and the ongoing launch of Herceptin for stomach cancer. Additionally, Roche reported that improvements in the quality of HER2 testing are expanding the patient population eligible for treatment with Herceptin. Ex-U.S.-based Manufacturing and Sales of Herceptin declined to 30% of total Herceptin sales in the first quarter of 2011 from 47% in the first quarter of 2010.
|
|
·
|
Reported sales for Lucentis increased 35% in the first quarter of 2011 when compared to the same period in 2010. Lucentis is approved for the treatment of age-related macular degeneration (AMD) in the United States and Europe. Lucentis received approval in June 2010 in the United States for the treatment of macular edema following retinal vein occlusion as well as for diabetic macular edema in Europe in January 2011. Roche and Novartis recently reported that first quarter sales grew by 35% in the United States and 18% internationally due to continued growth in the treatment of AMD and increased uptake in the new indications. All sales of Lucentis were from inventory produced in the United States.
|
|
·
|
Reported sales for Tysabri increased 24% in the first quarter of 2011 when compared to the same period in 2010. Biogen Idec recently announced that, at the end of March 2011, approximately 58,400 patients were on therapy worldwide, representing a 16% increase over the approximately 50,300 patients who were on therapy at the end of March 2010 and that cumulatively 83,300 patients have been treated with Tysabri in the post-marketing setting. Tysabri royalties are determined at a flat rate as a percent of sales regardless of location of manufacture or sale.
|
|
·
|
Reported sales of Herceptin increased 13% when compared to the same period for the prior year. Ex-U.S. sales of Herceptin increased 14% when compared to the same period for the prior year and represented 71% of total global sales.
|
|
·
|
Reported sales of Lucentis increased 29% when compared to the same period for the prior year. Ex-U.S. sales of Lucentis increased 28% when compared to the same period for the prior year and represented 57% of total global sales.
|
|
·
|
Reported sales of Tysabri increased 18% when compared to the same period for the prior year. U.S. sales of Tysabri increased 18% compared to the same period for the prior year and represented 48% of total global sales.
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||
Licensees
|
Product Name
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Genentech, Inc. (Genentech)
|
Avastin
®
|
34 | % | 37 | % | 31 | % | 34 | % | |||||||||
Herceptin
®
|
35 | % | 32 | % | 33 | % | 34 | % | ||||||||||
Lucentis
®
|
20 | % | 16 | % | 16 | % | 14 | % | ||||||||||
Elan Corporation, Plc (Elan)
|
Tysabri
®
|
9 | % | 7 | % | 10 | % | 10 | % |
Three Months Ended June 30,
|
%
|
Six Months Ended June 30,
|
%
|
|||||||||||||||||||||
(In thousands)
|
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
||||||||||||||||||
General and administrative expenses
|
$ | 3,776 | $ | 8,820 | -57 | % | $ | 9,555 | $ | 18,230 | -48 | % |
Three Months Ended June 30,
|
%
|
Six Months Ended June 30,
|
%
|
|||||||||||||||||||||
(In thousands)
|
2011
|
2010
|
Change
|
2011
|
2010
|
Change
|
||||||||||||||||||
Compensation and benefits
|
$ | 970 | $ | 996 | -3 | % | $ | 1,912 | $ | 1,997 | -4 | % | ||||||||||||
Legal expense
|
1,404 | 5,811 | -76 | % | 4,898 | 12,161 | -60 | % | ||||||||||||||||
Other professional services
|
623 | 1,005 | -38 | % | 1,191 | 2,083 | -43 | % | ||||||||||||||||
Insurance
|
176 | 195 | -10 | % | 380 | 423 | -10 | % | ||||||||||||||||
Depreciation
|
14 | 28 | -50 | % | 29 | 62 | -53 | % | ||||||||||||||||
Stock-based compensation
|
74 | 171 | -57 | % | 124 | 359 | -65 | % | ||||||||||||||||
Other
|
515 | 614 | -16 | % | 1,021 | 1,145 | -11 | % | ||||||||||||||||
Total general and administrative expenses
|
$ | 3,776 | $ | 8,820 | -57 | % | $ | 9,555 | $ | 18,230 | -48 | % |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(In thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Loss on redemption of convertible notes
|
$ | (766 | ) | $ | (16,327 | ) | $ | (766 | ) | $ | (16,327 | ) | ||||
Interest and other income
|
157 | 90 | 332 | 170 | ||||||||||||
Interest and other expense
|
(9,780 | ) | (11,560 | ) | (18,934 | ) | (24,087 | ) | ||||||||
Total non-operating expense, net
|
$ | (10,389 | ) | $ | (27,797 | ) | $ | (19,368 | ) | $ | (40,244 | ) |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(In thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Net income per basic share
|
$ | 0.50 | $ | 0.42 | $ | 0.82 | $ | 0.64 | ||||||||
Net income per diluted share
|
$ | 0.38 | $ | 0.30 | $ | 0.63 | $ | 0.44 |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
(In thousands)
|
2011
|
2010
|
2011
|
2010
|
||||||||||||
Numerator
|
||||||||||||||||
Net income
|
$ | 69,986 | $ | 50,138 | $ | 114,531 | $ | 76,145 | ||||||||
Add back:
|
||||||||||||||||
Loss on repurchase of convertible debt, net of estimated taxes
|
498 | 14,737 | 498 | 14,737 | ||||||||||||
Amortization of debt discount for May 2015 Notes, net of estimated taxes
|
337 | - | 337 | - | ||||||||||||
Non-GAAP net income
|
70,821 | 64,875 | 115,366 | 90,882 | ||||||||||||
Add back interest expense for convertible notes, net of estimated tax of $0.7 million for each of the three months ended June 30, 2011 and 2010, and $1.4 million and $1.6 million for the six months ended June 30, 2011 and 2010, respectively
|
1,275 | 1,360 | 2,594 | 2,995 | ||||||||||||
Non-GAAP income used to compute net income per diluted share
|
$ | 72,096 | $ | 66,235 | $ | 117,960 | $ | 93,877 | ||||||||
Denominator
|
||||||||||||||||
Shares used to compute income per diluted share
|
186,060 | 173,398 | 186,055 | 178,821 | ||||||||||||
Non-GAAP net income per diluted share
|
$ | 0.39 | $ | 0.38 | $ | 0.63 | $ | 0.52 |
Payments Due by Period
|
||||||||||||||||||||
(In thousands)
|
Less Than
1 Year
|
1-3 Years
|
4-5 Years
|
More than
5 Years
|
Total
|
|||||||||||||||
Operating lease
|
167 | $ | 8 | $ | - | $ | - | $ | 175 | |||||||||||
Convertible notes (including interest payments)
|
10,754 | 21,994 | 346,247 | - | 378,995 | |||||||||||||||
Non-recourse Notes (including interest payments)
(1)
|
133,455 | 18,739 | - | - | 152,194 | |||||||||||||||
Total contractual obligations
|
$ | 144,376 | $ | 40,741 | $ | 346,247 | $ | - | $ | 531,364 |
|
(1)
|
Repayment of the Non-recourse Notes and interest are based on anticipated future royalties to be received from Genentech and the expected final payment date is September 2012.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign Currency Exchange Forward Contracts
|
June 30, 2011
|
December 31, 2010
|
|||||||||||||||||||
Currency
|
Settlement Price
($ per Eurodollar)
|
Type
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
|||||||||||||||
Eurodollar
|
1.400 |
Sell Eurodollar
|
$ | 78,028 | $ | (2,334 | ) | $ | 137,179 | $ | 6,740 | ||||||||||
Eurodollar
|
1.200 |
Sell Eurodollar
|
117,941 | (22,866 | ) | 117,941 | (12,810 | ) | |||||||||||||
Total
|
$ | 195,969 | $ | (25,200 | ) | $ | 255,120 | $ | (6,070 | ) |
Currency
|
Strike Price
($ per Eurodollar)
|
Type
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
Notional Amount
(In thousands)
|
Fair Value
(In thousands)
|
|||||||||||||||
Eurodollar
|
1.510 |
Purchased call option
|
$ | 84,158 | $ | 626 | $ | 147,957 | $ | 772 | |||||||||||
Eurodollar
|
1.315 |
Purchased call option
|
129,244 | 15,279 | 129,244 | 10,251 | |||||||||||||||
Total
|
$ | 213,402 | $ | 15,905 | $ | 277,201 | $ | 11,023 |
(In thousands)
|
2011
|
2012
|
2013
|
2014
|
2015
|
Total
|
Fair Value
|
|||||||||||||||||||||||||
Convertible Notes
|
||||||||||||||||||||||||||||||||
Fixed Rate
|
$ | - | $ | - | $ | - | $ | - | $ | 335,250 | $ | 335,250 | $ | 331,507 | (1) | |||||||||||||||||
Average Interest Rate
|
3.280 | % | 3.280 | % | 3.280 | % | 3.280 | % | 3.280 | % | ||||||||||||||||||||||
Non-recourse Notes
|
||||||||||||||||||||||||||||||||
Fixed Rate
|
$ | 52,199 | $ | 89,501 | $ | - | $ | - | $ | - | $ | 141,700 | $ | 144,534 | (2) | |||||||||||||||||
Average Interest Rate
|
10.25 | % | 10.25 | % | - | % | - | % | - | % |
(1)
|
The fair value of the remaining payments under our convertible notes was estimated based on the trading value of these notes at June 30, 2011.
|
(2)
|
The fair value of the Non-recourse Notes was estimated based on the trading value of the Non-recourse Notes at June 30, 2011. Repayment of the Non-recourse Notes is based on anticipated future royalties to be received from Genentech and the anticipated final payment date is September 2012.
|
CONTROLS AND PROCEDURES
|
LEGAL PROCEEDINGS
|
RISK FACTORS
|
EXHIBITS
|
*
|
Management contract or compensatory plan or arrangement.
|
**
|
Filed herewith.
|
***
|
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.
|
+
|
XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Exchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
PDL BIOPHARMA, INC.
|
|
(Registrant)
|
|
/S/ JOHN P. MCLAUGHLIN
|
|
John P. McLaughlin
|
|
President and Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
/S/ CHRISTINE R. LARSON
|
|
Christine R. Larson
|
|
Vice President and Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
/S/ CAROLINE KRUMEL
|
|
Caroline Krumel
|
|
Vice President Finance
|
|
(Principal Accounting Officer)
|
Page
|
||
ARTICLE ONE
|
||
DEFINITIONS AND INCORPORATION BY REFERENCE
|
||
Section 1.01.
|
Definitions.
|
1
|
Section 1.02.
|
Other Definitions.
|
5
|
Section 1.03.
|
Incorporation by Reference of Trust Indenture Act.
|
5
|
Section 1.04.
|
Rules of Construction.
|
6
|
ARTICLE TWO
|
||
THE SECURITIES
|
||
Section 2.01.
|
Form and Dating.
|
6
|
Section 2.02.
|
Execution and Authentication.
|
8
|
Section 2.03.
|
Registrar and Paying Agent.
|
8
|
Section 2.04.
|
Paying Agent to Hold Money in Trust.
|
9
|
Section 2.05.
|
Securityholder Lists.
|
9
|
Section 2.06.
|
Transfer and Exchange.
|
9
|
Section 2.07.
|
Replacement Securities.
|
9
|
Section 2.08.
|
Outstanding Securities.
|
10
|
Section 2.09.
|
Temporary Securities.
|
10
|
Section 2.10.
|
Cancellation.
|
10
|
Section 2.11.
|
Defaulted Interest.
|
10
|
Section 2.12.
|
Treasury Securities.
|
11
|
Section 2.13.
|
CUSIP/ISIN Numbers.
|
11
|
Section 2.14.
|
Deposit of Moneys.
|
11
|
Section 2.15.
|
Book-Entry Provisions for Global Security.
|
11
|
Section 2.16.
|
No Duty to Monitor.
|
12
|
ARTICLE THREE
|
||
REDEMPTION
|
||
Section 3.01.
|
Notices to Trustee.
|
13
|
Section 3.02.
|
Selection of Securities to be Redeemed.
|
13
|
Section 3.03.
|
Notice of Redemption.
|
13
|
Section 3.04.
|
Effect of Notice of Redemption.
|
14
|
Section 3.05.
|
Deposit of Redemption Price.
|
14
|
Section 3.06.
|
Securities Redeemed in Part.
|
14
|
ARTICLE FOUR
|
||
COVENANTS
|
||
Section 4.01.
|
Payment of Securities.
|
14
|
Section 4.02.
|
Maintenance of Office or Agency.
|
15
|
Section 4.03.
|
Compliance Certificate.
|
15
|
Section 4.04.
|
Payment of Taxes; Maintenance of Corporate Existence; Maintenance of Properties.
|
15
|
Section 4.05.
|
Waiver of Stay, Extension or Usury Laws.
|
16
|
ARTICLE FIVE
|
||
SUCCESSOR CORPORATION
|
||
Section 5.01.
|
When Company May Merge, etc.
|
16
|
ARTICLE SIX
|
||
DEFAULTS AND REMEDIES
|
||
Section 6.01.
|
Events of Default.
|
16
|
Section 6.02.
|
Acceleration.
|
18
|
Section 6.03.
|
Other Remedies.
|
18
|
Section 6.04.
|
Waiver of Existing Defaults.
|
18
|
Section 6.05.
|
Control by Majority.
|
18
|
Section 6.06.
|
Limitation on Suits.
|
19
|
Section 6.07.
|
Rights of Holders to Receive Payment.
|
19
|
Section 6.08.
|
Collection Suit by Trustee.
|
19
|
Section 6.09.
|
Trustee May File Proofs of Claim.
|
19
|
Section 6.10.
|
Priorities.
|
20
|
Section 6.11.
|
Undertaking for Costs.
|
20
|
ARTICLE SEVEN
|
||
TRUSTEE
|
||
Section 7.01.
|
Duties of Trustee.
|
20
|
Section 7.02.
|
Rights of Trustee.
|
21
|
Section 7.03.
|
Individual Rights of Trustee.
|
22
|
Section 7.04.
|
Trustee’s Disclaimer.
|
22
|
Section 7.05.
|
Notice of Defaults.
|
22
|
Section 7.06.
|
Reports by Trustee to Holders.
|
23
|
Section 7.07.
|
Compensation and Indemnity.
|
23
|
Section 7.08.
|
Replacement of Trustee.
|
23
|
Section 7.09.
|
Successor Trustee by Merger, etc.
|
24
|
Section 7.10.
|
Eligibility; Disqualification.
|
24
|
Section 7.11.
|
Preferential Collection of Claims Against Company.
|
24
|
ARTICLE EIGHT
|
||
DISCHARGE OF INDENTURE
|
||
Section 8.01.
|
Defeasance upon Deposit of Moneys or Government Obligations.
|
24
|
Section 8.02.
|
Survival of the Company’s Obligations.
|
26
|
Section 8.03.
|
Application of Trust Money.
|
27
|
Section 8.04.
|
Repayment to the Company.
|
27
|
Section 8.05.
|
Reinstatement.
|
27
|
Section 10.01.
|
Without Consent of Holders.
|
27
|
Section 10.02.
|
With Consent of Holders.
|
28
|
Section 10.03.
|
Compliance with Trust Indenture Act.
|
29
|
Section 10.04.
|
Revocation and Effect of Consents.
|
29
|
Section 10.05.
|
Notation on or Exchange of Securities.
|
30
|
Section 10.06.
|
Trustee to Sign Amendments, etc.
|
30
|
ARTICLE ELEVEN
|
||
SECURITIES IN FOREIGN CURRENCIES
|
||
Section 11.01.
|
Applicability of Article.
|
30
|
ARTICLE TWELVE
|
||
MISCELLANEOUS
|
||
Section 12.01.
|
Trust Indenture Act Controls.
|
30
|
Section 12.02.
|
Notices.
|
30
|
Section 12.03.
|
Communications by Holders with Other Holders.
|
31
|
Section 12.04.
|
Certificate and Opinion as to Conditions Precedent.
|
31
|
Section 12.05.
|
Statements Required in Certificate or Opinion.
|
32
|
Section 12.06.
|
Rules by Trustee and Agents.
|
32
|
Section 12.07.
|
Legal Holidays.
|
32
|
Section 12.08.
|
Governing Law.
|
32
|
Section 12.09.
|
No Adverse Interpretation of Other Agreements.
|
32
|
Section 12.10.
|
No Recourse Against Others.
|
32
|
Section 12.11.
|
Successors and Assigns.
|
33
|
Section 12.12.
|
Duplicate Originals.
|
33
|
Section 12.13.
|
Severability.
|
33
|
Section 12.14.
|
Waiver of Jury Trial.
|
33
|
SIGNATURES
|
||
EXHIBIT A – Form of Security
|
Section 1.01.
|
Definitions.
|
|
(1)
|
in respect of borrowed money;
|
|
(2)
|
evidenced by bonds, notes, debentures or similar instruments;
|
|
(3)
|
in respect of letters of credit (or reimbursement agreements in respect thereof) or banker’s acceptances;
|
|
(4)
|
representing Capitalized Lease Obligations;
|
|
(5)
|
in respect of the balance deferred and unpaid of the purchase price of any property, except (i) any such balance that constitutes an accrued expense or trade payable, or (ii) any obligation to pay a contingent purchase price as long as such obligation remains contingent; or
|
|
(6)
|
in respect of any Interest Protection Agreement or Currency Agreement,
|
|
(a)
|
with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation;
|
|
(b)
|
with respect to any Interest Protection Agreement or Currency Agreement, the net amount payable thereunder if such agreement were terminated at that time due to default by such Person;
|
|
(c)
|
the accreted value thereof, in the case of any Indebtedness issued at a discount to par; or
|
|
(d)
|
except as provided above, the principal amount or liquidation preference thereof, in the case of any other Indebtedness.
|
Term
|
Defined in Section
|
Agent Members
|
2.15
|
Base Indenture
|
Preamble
|
Business Day
|
12.07
|
Covenant Defeasance
|
8.01
|
Custodian
|
6.01
|
Event of Default
|
6.01
|
Legal Defeasance
|
8.01
|
Legal Holiday
|
12.07
|
Paying Agent
|
2.03
|
Payment Default
|
6.01
|
Registrar
|
2.03
|
Security Register
|
2.03
|
Successor
|
5.01
|
Section 1.03.
|
Incorporation by Reference of Trust Indenture Act.
|
Section 1.04.
|
Rules of Construction
.
|
|
(1)
|
a term has the meaning assigned to it herein;
|
|
(2)
|
an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP and all accounting determinations shall be made in accordance with GAAP;
|
|
(3)
|
“or” is not exclusive and “including” means “including without limitation”;
|
|
(4)
|
words in the singular include the plural, and in the plural include the singular;
|
|
(5)
|
“herein,” “hereof” and “hereunder,” and other words of similar import, refer to this Indenture as a whole (including any Authorizing Resolution or supplemental indenture relating to the relevant Series) and not to any particular Article, Section or other subdivision;
|
|
(6)
|
all exhibits are incorporated by reference herein and expressly made a part of this Indenture; and
|
|
(7)
|
any transaction or event shall be considered “permitted by” or made “in accordance with” or “in compliance with” this Indenture or any particular provision thereof if such transaction or event is not expressly prohibited by this Indenture or such provision, as the case may be.
|
Section 2.01.
|
Form and Dating
.
|
|
(1)
|
the title of the Series;
|
|
(2)
|
the aggregate principal amount (or any limit on the aggregate principal amount) of the Series and, if any Securities of a Series are to be issued at a discount from their face amount, the method of computing the accretion of such discount;
|
|
(3)
|
the interest rate or method of calculation of the interest rate;
|
|
(4)
|
the date from which interest will accrue;
|
|
(5)
|
the record dates for interest payable on Securities of the Series;
|
|
(6)
|
the dates when, places where and manner in which principal and interest are payable;
|
|
(7)
|
the Registrar and Paying Agent;
|
|
(8)
|
the terms of any mandatory (including any sinking fund requirements) or optional redemption by the Company;
|
|
(9)
|
the terms of any redemption at the option of Holders;
|
|
(10)
|
the permissible denominations in which Securities of such Series are issuable, if different from $2,000 and multiples of $1,000 in excess thereof;
|
|
(11)
|
whether Securities of such Series will be issued in registered or bearer form and the terms of any such forms of Securities;
|
|
(12)
|
whether the Securities of the Series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if different from those contained in this Base Indenture, upon which such Global Security or Securities may be exchanged in whole or in part for Definitive Securities; the Depositary for such Global Security or Securities; the form of any legend or legends, if any, to be borne by any such Global Security or Securities in addition to or in lieu of the legends referred to in
Section 2.15
;
|
|
(13)
|
the currency or currencies (including any composite currency) in which principal or interest or both may be paid;
|
|
(14)
|
if payments of principal or interest may be made in a currency other than that in which Securities of such Series are denominated, the manner for determining such payments, including the time and manner of determining the exchange rate between the currency in which such Securities are denominated and the currency in which such Securities or any of them may be paid, and any deletions from or modifications of or additions to the terms of this Indenture to provide for or to facilitate the issuance of Securities denominated or payable, at the election of the Company or a Holder thereof or otherwise, in a Foreign Currency;
|
|
(15)
|
provisions for electronic issuance of Securities or issuance of Securities of such Series in uncertificated form;
|
|
(16)
|
any Events of Default, covenants and/or defined terms in addition to or in lieu of those set forth in this Base Indenture;
|
|
(17)
|
whether and upon what terms Securities of such Series may be defeased or discharged if different from the provisions set forth in this Base Indenture;
|
|
(18)
|
the form of the Securities of such Series, which, unless the Authorizing Resolution or supplemental indenture otherwise provides, shall be in the form of
Exhibit A
;
|
|
(19)
|
any terms that may be required by or advisable under applicable law;
|
|
(20)
|
the percentage of the principal amount of the Securities of such Series which is payable if the maturity of the Securities of such Series is accelerated in the case of Securities issued at a discount from their face amount;
|
|
(21)
|
whether Securities of such Series will or will not have the benefit of guarantees and the Company’s Subsidiaries that will be the initial guarantors of such Series and, if applicable, the terms and conditions upon which such guarantees may be subordinated to other indebtedness of the respective guarantors;
|
|
(22)
|
whether the Securities of such Series are senior or subordinated debt securities, and if subordinated debt securities, the terms of such subordination;
|
|
(23)
|
whether the Securities of the Series will be convertible into or exchangeable for other Securities, common shares or other securities of any kind of the Company or another obligor, and, if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, including the initial conversion or exchange price or rate or the method of calculation, how and when the conversion price or exchange ratio may be adjusted, whether conversion or exchange is mandatory, at the option of the holder or at the Company’s option, the conversion or exchange period, and any other provision in relation thereto; and
|
|
(24)
|
any other terms in addition to or different from those contained in this Base Indenture applicable to such Series.
|
Section 2.02.
|
Execution and Authentication
.
|
Section 2.03.
|
Registrar and Paying Agent
.
|
Section 2.04.
|
Paying Agent to Hold Money in Trust
.
|
Section 2.05.
|
Securityholder Lists
.
|
Section 2.06.
|
Transfer and Exchange
.
|
Section 2.07.
|
Replacement Securities
.
|
Section 2.08.
|
Outstanding Securities
.
|
Section 2.09.
|
Temporary Securities
.
|
Section 2.10.
|
Cancellation
.
|
Section 2.11.
|
Defaulted Interest
.
|
Section 2.12.
|
Treasury Securities
.
|
Section 2.13.
|
CUSIP/ISIN Numbers
.
|
Section 2.14.
|
Deposit of Moneys
.
|
Section 2.15.
|
Book-Entry Provisions for Global Security
.
|
Section 2.16.
|
No Duty to Monitor
.
|
Section 3.01.
|
Notices to Trustee
.
|
Section 3.02.
|
Selection of Securities to be Redeemed
.
|
Section 3.03.
|
Notice of Redemption
.
|
|
(1)
|
the redemption date;
|
|
(2)
|
the redemption price or the formula pursuant to which such price will be calculated;
|
|
(3)
|
if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Security;
|
|
(4)
|
in the case of Securities of a Series that are convertible or exchangeable into shares of the Company’s common stock or other securities, cash or other property, the conversion or exchange price or rate, the date or dates on which the right to convert or exchange the principal of the Securities of such Series to be redeemed will commence or terminate and the place or places where such Securities may be surrendered for conversion or exchange;
|
|
(5)
|
the name and address of the Paying Agent;
|
|
(6)
|
that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price;
|
|
(7)
|
that interest on Securities called for redemption ceases to accrue on and after the redemption date;
|
|
(8)
|
that the Securities are being redeemed pursuant to the mandatory redemption or the optional redemption provisions, as applicable; and
|
|
(9)
|
the CUSIP number and that no representation is hereby deemed to be made be made by the Trustee as to the correctness or accuracy of any such CUSIP and/or ISIN or other similar number printed in the notice or on such Securities, and that reliance may be placed only on the other identification numbers printed on such Securities.
|
Section 3.04.
|
Effect of Notice of Redemption
.
|
Section 3.05.
|
Deposit of Redemption Price
.
|
Section 3.06.
|
Securities Redeemed in Part
.
|
Section 4.01.
|
Payment of Securities
.
|
Section 4.02.
|
Maintenance of Office or Agency
.
|
Section 4.03.
|
Compliance Certificate
.
|
Section 4.04.
|
Payment of Taxes; Maintenance of Corporate Existence; Maintenance of Properties
.
|
Section 4.05.
|
Waiver of Stay, Extension or Usury Laws
.
|
Section 5.01.
|
When Company May Merge, etc.
|
Section 6.01.
|
Events of Default
.
|
|
(1)
|
the failure by the Company to pay interest on any Security of such Series when the same becomes due and payable and the continuance of any such failure for a period of 30 days;
|
|
(2)
|
the failure by the Company to pay the principal of any Security of such Series when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise;
|
|
(3)
|
the failure by the Company or any Restricted Subsidiary to comply with any of its agreements or covenants in, or provisions of, the Securities of such Series or this Indenture (as they relate thereto) and such failure continues for the period and after the notice specified below (except in the case of a default with respect to
Article Five
(or any other provision specified in the applicable supplemental indenture or Authorizing Resolution), which will constitute Events of Default with notice but without passage of time);
|
|
(4)
|
default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness (other than Non-Recourse Indebtedness) for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists or is created after the Issue Date, if that default:
|
|
(A)
|
is caused by a failure to pay at final stated maturity the principal amount of such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or
|
|
(B)
|
results in the acceleration of such Indebtedness prior to its express maturity without such Indebtedness having been discharged or such acceleration having been cured, waived, rescinded or annulled for the period and after the notice specified below,
|
|
(5)
|
the Company or any Restricted Subsidiary that is a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
|
|
(A)
|
commences a voluntary case,
|
|
(B)
|
consents to the entry of an order for relief against it in an involuntary case,
|
|
(C)
|
consents to the appointment of a Custodian of it or for all or substantially all of its Property, or
|
|
(D)
|
makes a general assignment for the benefit of its creditors;
|
|
(6)
|
a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
|
|
(A)
|
is for relief against the Company or any Restricted Subsidiary that is a Significant Subsidiary as debtor in an involuntary case,
|
|
(B)
|
appoints a Custodian of the Company or any Restricted Subsidiary that is a Significant Subsidiary or a Custodian for all or substantially all of the Property of the Company, or
|
|
(C)
|
orders the liquidation of the Company or any Restricted Subsidiary that is a Significant Subsidiary,
|
Section 6.02.
|
Acceleration
.
|
Section 6.03.
|
Other Remedies
.
|
Section 6.04.
|
Waiver of Existing Defaults
.
|
Section 6.05.
|
Control by Majority
.
|
Section 6.06.
|
Limitation on Suits
.
|
|
(1)
|
the Holder gives to the Trustee written notice of a continuing Event of Default on the Series;
|
|
(2)
|
the Holders of at least a majority in principal amount of the outstanding Securities of the Series make a written request to the Trustee to pursue the remedy;
|
|
(3)
|
such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense;
|
|
(4)
|
the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and
|
|
(5)
|
no written request inconsistent with such written request shall have been given to the Trustee pursuant to this
Section 6.06
.
|
Section 6.07.
|
Rights of Holders to Receive Payment
.
|
Section 6.08.
|
Collection Suit by Trustee
.
|
Section 6.09.
|
Trustee May File Proofs of Claim
.
|
Section 6.10.
|
Priorities
.
|
|
First
: to the Trustee for amounts due under
Section 7.07
;
|
|
Second
: to Securityholders of the Series for amounts due and unpaid on the Series for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Series for principal and interest, respectively; and
|
|
Third
: to the Company as its interests may appear or as a court of competent jurisdiction shall direct.
|
Section 6.11.
|
Undertaking for Costs
.
|
Section 7.01.
|
Duties of Trustee
.
|
Section 7.02.
|
Rights of Trustee
.
|
Section 7.03.
|
Individual Rights of Trustee
.
|
Section 7.04.
|
Trustee’s Disclaimer
.
|
Section 7.05.
|
Notice of Defaults
.
|
Section 7.06.
|
Reports by Trustee to Holders
.
|
Section 7.07.
|
Compensation and Indemnity
.
|
Section 7.08.
|
Replacement of Trustee
.
|
|
(1)
|
the Trustee fails to comply with
Section 7.10
after written request by the Company or any bona fide Securityholder who has been a Securityholder for at least six months;
|
|
(2)
|
the Trustee is adjudged a bankrupt or an insolvent;
|
|
(3)
|
a receiver or other public officer takes charge of the Trustee or its Property; or
|
|
(4)
|
the Trustee becomes incapable of acting.
|
Section 7.09.
|
Successor Trustee by Merger, etc.
|
Section 7.10.
|
Eligibility; Disqualification
.
|
Section 7.11.
|
Preferential Collection of Claims Against Company
.
|
Section 8.01.
|
Defeasance upon Deposit of Moneys or Government Obligations
.
|
Section 8.02.
|
Survival of the Company’s Obligations
.
|
Section 8.03.
|
Application of Trust Money
.
|
Section 8.04.
|
Repayment to the Company
.
|
Section 8.05.
|
Reinstatement
.
|
Section 10.01.
|
Without Consent of Holders
.
|
Section 10.02.
|
With Consent of Holders
.
|
|
(1)
|
reduce the amount of Securities of the relevant Series whose Holders must consent to an amendment, supplement or waiver;
|
|
(2)
|
reduce the rate of or extend the time for payment of interest, including defaulted interest, on any Security;
|
|
(3)
|
reduce the principal of or extend the fixed maturity of any Security or alter the provisions (including related definitions) with respect to redemption of any Security pursuant to
Article Three
hereof or with respect to any obligations on the part of the Company to offer to purchase or to redeem Securities of a Series pursuant to the Authorizing Resolution or supplemental indenture pertaining to such Series;
|
|
(4)
|
make any change that adversely affects any right of a Holder to convert or exchange any Security into or for shares of the Company’s common stock or other securities, cash or other property in accordance with the terms of such Security;
|
|
(5)
|
modify the ranking or priority of the Securities of the relevant Series or any guarantee thereof;
|
|
(6)
|
release any guarantor of any Series from any of its obligations under its guarantee or this Indenture otherwise than in accordance with the terms of this Indenture;
|
|
(7)
|
make any change in
Sections 6.04
,
6.07
or this
Section 10.02
;
|
|
(8)
|
waive a continuing Default or Event of Default in the payment of the principal of or interest on any Security; or
|
|
(9)
|
make any Security payable at a place or in money other than that stated in the Security, or impair the right of any Securityholder to bring suit as permitted by
Section 6.07
.
|
Section 10.03.
|
Compliance with Trust Indenture Act
.
|
Section 10.04.
|
Revocation and Effect of Consents
.
|
Section 10.05.
|
Notation on or Exchange of Securities
.
|
Section 10.06.
|
Trustee to Sign Amendments, etc.
|
Section 11.01.
|
Applicability of Article
.
|
Section 12.01.
|
Trust Indenture Act Controls
.
|
Section 12.02.
|
Notices
.
|
Section 12.03.
|
Communications by Holders with Other Holders
.
|
Section 12.04.
|
Certificate and Opinion as to Conditions Precedent
.
|
|
(1)
|
an Officers’ Certificate (which shall include the statements set forth in
Section 12.05
) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
|
|
(2)
|
an Opinion of Counsel (which shall include the statements set forth in
Section 12.05
) stating that, in the opinion of such counsel, all such conditions precedent and covenants, compliance with which constitutes a condition precedent, if any, provided for in this Indenture relating to the proposed action or inaction, have been complied with and that any such section does not conflict with the terms of this Indenture.
|
Section 12.05.
|
Statements Required in Certificate or Opinion
.
|
|
(1)
|
a statement that the person making such certificate or opinion has read such covenant or condition;
|
|
(2)
|
a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
|
|
(3)
|
a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
|
|
(4)
|
a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.
|
Section 12.06.
|
Rules by Trustee and Agents
.
|
Section 12.07.
|
Legal Holidays
.
|
Section 12.08.
|
Governing Law
.
|
Section 12.09.
|
No Adverse Interpretation of Other Agreements
.
|
Section 12.10.
|
No Recourse Against Others
.
|
Section 12.11.
|
Successors and Assigns
.
|
Section 12.12.
|
Duplicate Originals
.
|
Section 12.13.
|
Severability
.
|
Section 12.14.
|
Waiver of Jury Trial
.
|
PDL BIOPHARMA, INC.
|
|||
By:
|
/s/ John P. McLaughlin
|
||
Name:John P. McLaughlin
|
|||
Title:President and CEO
|
|||
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
, as Trustee
|
|||
By:
|
/s/ Teresa Petta
|
||
Name:Teresa Petta
|
|||
Title:Vice President
|
No. ____________
|
CUSIP/ISIN No.: _______
|
Authenticated:
|
Dated:
|
|
PDL BIOPHARMA, INC.
|
||
By: |
|
|
Title:
|
||
By:
|
||
Authorized Signatory
|
||
*
|
Or other currency. Insert corresponding provisions on reverse side of Security in respect of foreign currency denomination or interest payment requirement.
|
1.
|
Interest
.
|
2.
|
Method of Payment
.
|
3.
|
Paying Agent and Registrar
.
|
4.
|
Optional Redemption
.
1
|
If redeemed during the twelve-month period
commencing on____________ and ending
on __________ in each of the following years
|
Percentage
|
1
|
If applicable.
|
5.
|
Mandatory Redemption
.
3
|
6.
|
Denominations, Transfer, Exchange
.
|
7.
|
Persons Deemed Owners
.
|
8.
|
Unclaimed Money
.
|
2
|
Insert applicable denominations and multiples.
|
3
|
If applicable.
|
4
|
Insert applicable denominations and multiples.
|
5
|
Insert applicable denominations and multiples.
|
9.
|
Amendment, Supplement, Waiver
.
|
10.
|
Successor Corporation
.
|
11.
|
Trustee Dealings With Company
.
|
12.
|
No Recourse Against Others
.
|
13.
|
Discharge of Indenture
.
|
14.
|
Authentication
.
|
15.
|
Abbreviations
.
|
16.
|
GOVERNING LAW
.
|
6
|
If different terms apply, insert a brief summary thereof.
|
17.
|
CUSIP and ISIN Numbers
.
|
18.
|
Copies
.
|
(Insert assignee’s social security or tax ID number)
|
||
(Print or type assignee’s name, address, and zip code)
|
Date: |
Your signature: | ||
(Sign exactly as your name appears on the other side of this Security)
|
||
Signature Guarantee: | ||
Name
|
Title
|
Target Cash Payment
|
Value of Restricted Stock Award
|
Number of Shares Underlying Restricted Stock Award
|
|||||||||
John P. McLaughlin
|
President and Chief Executive Officer
|
$ | 469,000 | $ | 201,000 | 30,501 | |||||||
Christine R. Larson
|
Vice President and Chief Financial Officer
|
$ | 281,400 | $ | 120,600 | 18,300 | |||||||
Christopher L. Stone
|
Vice President, General Counsel and Secretary
|
$ | 258,000 | $ | 110,600 | 16,783 | |||||||
Caroline Krumel
|
Vice President and Principal Accounting Officer
|
$ | 70,400 | $ | 30,200 | 4,583 | |||||||
Danny J Hart, Jr.
|
Associate General Counsel and Assistant Secretary
|
$ | 58,600 | $ | 25,100 | 3,809 |
Date: July 28, 2011
|
/s/ John P. McLaughlin
|
John P. McLaughlin
President and Chief Executive Officer
(Principal Executive Officer)
|
Date: July 28, 2011
|
/s/ Christine R. Larson
|
Christine R. Larson
Vice President and Chief Financial Officer
(Principal Financial Officer)
|
/s/ John P. McLaughlin
|
John P. McLaughlin
|
President and Chief Executive Officer
|
(Principal Executive Officer)
|
/s/ Christine R. Larson
|
Christine R. Larson
|
Vice President and Chief Financial Officer
|
(Principal Financial Officer)
|