Delaware | 94-3023969 | |
(State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
• | The audited special purpose financial statements, which comprise a statement of assets acquired as of December 31, 2015, the related statement of revenues and direct expenses for the year ended December 31, 2015 and the notes thereto, which are filed as Exhibit 99.1. |
• | The unaudited special purpose interim financial statements, which comprise a statement of assets acquired as of June 30, 2016, related statement of revenues and direct expenses for the six months ended June 30, 2016 and 2015 and the notes thereto, which are filed as Exhibit 99.2. |
(c) | Exhibits. |
Exhibit No. | Description | |
23.1 | Consent of PricewaterhouseCoopers AG. | |
99.1 | The audited Special Purpose Financial Statements (Statement of Assets Acquired as of December 31, 2015, Related Statement of Revenues and Direct Expenses for the year ended December 31, 2015 and the Notes thereto). | |
99.2 | The unaudited Special Purpose Interim Financial Statements (Statement of Assets Acquired as of June 30, 2016, Related Statement of Revenues and Direct Expenses for the six months ended June 30, 2016 and 2015 and the Notes thereto). | |
99.3 | Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Income. |
PDL BIOPHARMA, INC. | ||
By: | /s/ Peter S. Garcia | |
Peter S. Garcia | ||
Vice President and Chief Financial Officer |
Exhibit No. | Description | |
23.1 | Consent of PricewaterhouseCoopers AG. | |
99.1 | The audited Special Purpose Financial Statements (Statement of Assets Acquired as of December 31, 2015, Related Statement of Revenues and Direct Expenses for the year ended December 31, 2015 and the Notes thereto). | |
99.2 | The unaudited Special Purpose Interim Financial Statements (Statement of Assets Acquired as of June 30, 2016, Related Statement of Revenues and Direct Expenses for the six months ended June 30, 2016 and 2015 and the Notes thereto). | |
99.3 | Unaudited Pro Forma Condensed Combined Balance Sheet and Statements of Income. |
PricewaterhouseCoopers AG | ||
/s/ Martin Kennard | /s/ Steve Johnson | |
Martin Kennard | Steve Johnson | |
Basel Switzerland, August 26, 2016 |
Year ended | |
December 31, 2015 | |
US $'000 | |
Net revenue | 153,581 |
Cost of goods sold | (62,457) |
Direct expenses: | |
Marketing and sales | (3,455) |
Development | (27,323) |
Other expense | (1,600) |
Total direct expenses | (32,378) |
Excess of revenues over direct operating expenses | 58,746 |
As of | ||
December 31, 2015 | ||
US $'000 | ||
Assets acquired | ||
Non-current assets | ||
Intangible assets | 87,959 | |
Total assets acquired | 87,959 |
• | Income and expenses using the monthly average exchange rate with the US dollar values for each month being aggregated during the year |
• | Assets acquired, using year-end exchange rates |
• | Net revenue in the accompanying Statement of Revenue and Direct Expenses represent net revenue directly attributable to the Products. Costs and expenses in the accompanying Statement of Revenue and Direct Expenses represent direct and allocated costs and expenses related to the Products. All intercompany transactions have been eliminated. |
• | The Statement of Revenue and Direct Expenses exclude allocation of expenses relating to Novartis corporate level indirect activities as well as general and administrative support functions (such as finance and accounting, treasury, human resources, public relations, information systems and legal) as they are not associated with the revenue generating operations of the Products. |
• | The funding and management of Novartis operations (including the Products) are performed on a consolidated basis; accordingly, costs of funding the operations, including debt and related interest expense were not allocated to the Products. Novartis also maintains its tax functions on a consolidated basis; accordingly, tax expense was not allocated to the Products. |
• | Cash receipts and disbursements relating to the Products are aggregated with in the cash for the entire operations of Novartis. As the Products have historically been managed as part of the operations of Novartis and have not been operated as a stand-alone business, it is neither practicable nor does sufficient data exist to prepare separate historical cash flow information for the Products’ operating, investing, and financing cash flows, therefore, statements of cash flows are not presented. |
Year ended | |
December 31, 2015 | |
US $'000 | |
Gross revenue subject to deductions | 209,944 |
Revenue deductions | (56,363) |
Net revenue | 153,581 |
2015 | |
US $'000 | |
Cost | |
January 1 | 361,176 |
Additions | 0 |
Currency translation effects | 358 |
December 31 | 361,534 |
Accumulated amortization | |
January 1 | (294,416) |
Amortization charge | (20,650) |
Reversal of impairment | 42,392 |
Currency translation effects | (901) |
December 31 | (273,575) |
Net book value at December 31 | 87,959 |
Six months ended | Six months ended | ||
June 30, 2016 | June 30, 2015 | ||
(unaudited) | (unaudited) | ||
US $'000 | US $'000 | ||
Net revenue | 72,794 | 80,089 | |
Cost of goods sold | (57,670) | (49,152) | |
Direct expenses: | |||
Marketing and Sales | (592) | (1,749) | |
Development | (3,473) | (18,497) | |
Other income and expense | 8 | (823) | |
Total direct expenses | (4,056) | (21,069) | |
Excess of revenues over direct operating expenses | 11,067 | 9,868 |
As of | As of | ||
June 30 | December 31 | ||
2016 | 2015 | ||
(audited) | (audited) | ||
US $'000 | US $'000 | ||
Assets acquired | |||
Non-current assets | |||
Intangible assets | 73,004 | 87,959 | |
Total assets acquired | 73,004 | 87,959 |
• | Income and expenses using the monthly average exchange rate with the US dollar values for each month being aggregated during the year |
• | Assets acquired, using period-end exchange rates |
• | Net revenue in the accompanying Statements of Revenue and Direct Expenses represent net revenue directly attributable to the Products. Costs and expenses in the accompanying Statements of Revenue and Direct Expenses represent direct and allocated costs and expenses related to the Products. All intercompany transactions have been eliminated. |
• | The Statements of Revenue and Direct Expenses exclude allocation of expenses relating to Novartis corporate level indirect activities as well as general and administrative support functions (such as finance and accounting, treasury, human resources, public relations, information systems and legal) as they are not associated with the revenue generating operations of the Products. |
• | The funding and management of Novartis operations (including the Products) are performed on a consolidated basis; accordingly, costs of funding the operations, including debt and related interest expense were not allocated to the Products. Novartis also maintains its tax functions on a consolidated basis; accordingly, tax expense was not allocated to the Products. |
• | Cash receipts and disbursements relating to the Products are aggregated within the cash for the entire operations of Novartis. As the Products have historically been managed as part of the operations of Novartis and have not been operated as a stand-alone business, it is neither practicable nor does sufficient data exist to prepare separate historical cash flow information for the Products’ operating, investing, and financing cash flows, therefore, statements of cash flows are not presented. |
As of June 30, 2016 | As of June 30, 2015 | ||
US $'000 | US $'000 | ||
Gross revenue subject to deductions | 93,888 | 108,281 | |
Revenue deductions | (21,094) | (28,192) | |
Net revenue | 72,794 | 80,089 |
2016 | ||
US $'000 | ||
Cost | ||
January 1 | 361,534 | |
Additions | 2,254 | |
Currency translation effects | 3,222 | |
June 30 | 367,010 | |
Accumulated amortization | ||
January 1 | (273,572) | |
Amortization charge | (17,930) | |
Currency translation effects | (2,504) | |
June 30 | (293,970) | |
Net book value at June 30 | 73,004 | |
2015 | ||
US $'000 | ||
Cost | ||
January 1 | 361,176 | |
Additions | — | |
Currency translation effects | 358 | |
December 31 | 361,534 | |
Accumulated amortization | ||
January 1 | (294,416 | ) |
Amortization charge | (20,650 | ) |
Reversal of impairment | 42,392 | |
Currency translation effects | (901 | ) |
December 31 | (273,575 | ) |
Net book value at December 31 | 87,959 |
Acquired | ||||||||||||||||
The Company | Products | Pro form | Pro forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 115,854 | $ | — | $ | — | $ | 115,854 | ||||||||
Short-term restricted cash | 105,938 | — | (105,938 | ) | (a) | — | ||||||||||
Receivables from licensees and other | 2,881 | — | — | 2,881 | ||||||||||||
Notes receivable | 95,359 | — | — | 95,359 | ||||||||||||
Prepaid and other current assets | 673 | — | — | 673 | ||||||||||||
Total current assets | 320,705 | — | (105,938 | ) | 214,767 | |||||||||||
Property and equipment, net | 18 | — | — | 18 | ||||||||||||
Investments - other | 75,000 | — | — | 75,000 | ||||||||||||
Royalty rights - at fair value | 339,338 | — | — | 339,338 | ||||||||||||
Intangible assets, net | — | 73,004 | 167,566 | (b) | 240,570 | |||||||||||
Goodwill | — | — | 3,735 | (b) | 3,735 | |||||||||||
Notes and other receivables, long-term | 276,823 | — | — | 276,823 | ||||||||||||
Long-term deferred tax assets | 25,707 | — | — | 25,707 | ||||||||||||
Other assets | 11,600 | — | (4,000 | ) | (a) | 7,600 | ||||||||||
Total assets | $ | 1,049,191 | $ | 73,004 | $ | 61,363 | $ | 1,183,558 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 1,073 | $ | — | $ | — | $ | 1,073 | ||||||||
Anniversary payment | — | — | 87,007 | (b) | 87,007 | |||||||||||
Accrued liabilities | 11,738 | — | — | 11,738 | ||||||||||||
Accrued income taxes | 9,793 | — | — | 9,793 | ||||||||||||
Total current liabilities | 22,604 | — | 87,007 | 109,611 | ||||||||||||
Convertible notes payable | 232,847 | — | — | 232,847 | ||||||||||||
Contingent consideration | — | — | 47,360 | (b) | 47,360 | |||||||||||
Other long-term liabilities | 55,088 | — | — | 55,088 | ||||||||||||
Total liabilities | 310,539 | — | 134,367 | 444,906 | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock | — | — | — | — | ||||||||||||
Common stock | 1,655 | — | — | 1,655 | ||||||||||||
Additional paid-in capital | (116,542 | ) | — | — | (116,542 | ) | ||||||||||
Accumulated other comprehensive income | — | — | — | — | ||||||||||||
Retained earnings | 853,539 | — | — | 853,539 | ||||||||||||
Total stockholders’ equity | 738,652 | — | — | 738,652 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 1,049,191 | $ | — | $ | 134,367 | $ | 1,183,558 |
The Company | Acquired Products | |||||||||||||||
Year Ended | Year Ended | Pro forma | Pro forma | |||||||||||||
December 31, 2015 | December 31, 2015 | Adjustments | Combined | |||||||||||||
Revenues: | ||||||||||||||||
Royalties from Queen et al. patents | $ | 485,156 | $ | — | $ | — | $ | 485,156 | ||||||||
Royalty rights - change in fair value | 68,367 | — | — | 68,367 | ||||||||||||
Net revenue | — | 153,581 | — | 153,581 | ||||||||||||
Interest revenue | 36,202 | — | — | 36,202 | ||||||||||||
License and other | 723 | — | — | 723 | ||||||||||||
Total revenues | 590,448 | 153,581 | — | 744,029 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of goods sold | — | 62,457 | 24,057 | (c) | 86,514 | |||||||||||
General and administrative | 36,090 | — | — | 36,090 | ||||||||||||
Marketing and sales | — | 3,455 | — | 3,455 | ||||||||||||
Development | — | 27,323 | — | 27,323 | ||||||||||||
Other expense | — | 1,600 | — | 1,600 | ||||||||||||
Loss on extinguishment of notes receivable | 3,979 | — | — | 3,979 | ||||||||||||
Total operating expenses | 40,069 | 94,835 | 24,057 | 158,961 | ||||||||||||
Operating income | 550,379 | 58,746 | (24,057 | ) | 585,068 | |||||||||||
Non-operating expense, net: | ||||||||||||||||
Interest and other income, net | 368 | — | — | 368 | ||||||||||||
Interest expense | (27,059 | ) | — | — | (27,059 | ) | ||||||||||
Gain on extinguishment of debt | 6,450 | — | — | 6,450 | ||||||||||||
Total non-operating expense, net | (20,241 | ) | — | — | (20,241 | ) | ||||||||||
Income before income taxes | 530,138 | 58,746 | (24,057 | ) | 564,827 | |||||||||||
Income tax expense (benefit) | 197,343 | — | 4,336 | (d) | 201,679 | |||||||||||
Net income | $ | 332,795 | $ | 58,746 | $ | (28,393 | ) | $ | 363,148 | |||||||
Net income per share | ||||||||||||||||
Basic | $ | 2.04 | $ | — | $ | — | $ | 2.22 | ||||||||
Diluted | $ | 2.03 | $ | — | $ | — | $ | 2.22 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 163,386 | — | — | 163,386 | ||||||||||||
Diluted | 163,554 | — | — | 163,554 | ||||||||||||
Cash dividend declared per common share | $ | 0.60 | $ | — | $ | — | $ | 0.60 |
The Company | Acquired Products | |||||||||||||||
Six Months Ended | Six Months Ended | Pro forma | Pro forma | |||||||||||||
June 30, 2016 | June 30, 2016 | Adjustments | Combined | |||||||||||||
Revenues: | ||||||||||||||||
Royalties from Queen et al. patents | $ | 135,687 | $ | — | $ | — | $ | 135,687 | ||||||||
Royalty rights - change in fair value | (27,957 | ) | — | — | (27,957 | ) | ||||||||||
Net revenue | — | 72,794 | — | 72,794 | ||||||||||||
Interest revenue | 16,307 | — | — | 16,307 | ||||||||||||
License and other | 134 | — | — | 134 | ||||||||||||
Total revenues | 124,171 | 72,794 | — | 196,965 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of goods sold | — | 57,670 | 12,029 | (c) | 69,699 | |||||||||||
General and administrative | 16,797 | — | — | 16,797 | ||||||||||||
Marketing and sales | — | 592 | — | 592 | ||||||||||||
Development | — | 3,473 | — | 3,473 | ||||||||||||
Other income and expense | — | (8 | ) | — | (8 | ) | ||||||||||
Acquisition-related costs | 2,959 | — | (2,959 | ) | (a) | — | ||||||||||
Total operating expenses | 19,756 | 61,727 | 9,070 | 90,553 | ||||||||||||
Operating income | 104,415 | 11,067 | (9,070 | ) | 106,412 | |||||||||||
Non-operating expense, net: | ||||||||||||||||
Interest and other income, net | 242 | — | — | 242 | ||||||||||||
Interest expense | (9,011 | ) | — | — | (9,011 | ) | ||||||||||
Total non-operating expense, net | (8,769 | ) | — | — | (8,769 | ) | ||||||||||
Income before income taxes | 95,646 | 11,067 | (9,070 | ) | 97,643 | |||||||||||
Income tax expense (benefit) | 35,611 | — | 915 | (d) | 36,526 | |||||||||||
Net income | $ | 60,035 | $ | 11,067 | $ | (9,985 | ) | $ | 61,117 | |||||||
Net income per share | ||||||||||||||||
Basic | $ | 0.37 | $ | — | $ | — | $ | 0.37 | ||||||||
Diluted | $ | 0.37 | $ | — | $ | — | $ | 0.37 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 163,729 | — | — | 163,729 | ||||||||||||
Diluted | 163,920 | — | — | 163,920 | ||||||||||||
Cash dividend declared per common share | $ | 0.10 | $ | — | $ | — | $ | 0.10 |
(Amounts in thousands) | ||||
Consideration paid in cash at closing | $ | 109,938 | ||
Discounted anniversary payment | 87,007 | |||
Fair value of contingent consideration | 47,360 | |||
Purchase price | $ | 244,305 |
(Amounts in thousands) | ||||
Acquired product rights | $ | 216,690 | ||
Customer relationships | 23,880 | |||
Goodwill | 3,735 | |||
Net fair value of assets acquired | $ | 244,305 |
(a) | Represents the use of cash deposited into an escrow account and creditable exclusivity payment over the amount of the initial purchase price of $109,938,000 ($105,938,000 short-term restricted cash and $4,000,000 other assets) that was paid upon closing of the Acquisition and reversal of acquisition-related transaction costs of $2,959,000 (including advisory, legal and valuation fees) incurred through June 30, 2016. The acquisition-related transaction costs are expensed as incurred yet have a deferred tax impact based on their expected tax deductibility. |
(b) | Represents the recording of the acquisition date fair values of the intangible assets, goodwill, contingent consideration and anniversary payment based on the allocation of the purchase price paid by the Company, and the reversal of historical cost of other intangible assets, as presented in the unaudited Special Purpose Quarterly Statements of Assets Acquired as of June 30, 2016 of the Tekturna®, Tekturna HCT®, Rasilez® and Rasilez HCT® product line. |
(c) | Represents recording of amortization expenses on intangible assets recognized in connection with the Acquisition. The acquired product rights and customer relationships intangible assets recognized in the Acquisition are amortized on a straight line basis over the useful life of 10 years. |
(d) | Represents (a) an adjustment to income tax expense for the acquired products at the statutory tax rate of Ireland (12.5%), (b) an income tax benefit on the amortization of intangible assets at the statutory tax rate of Ireland (12.5%) for the six months ended June 30, 2016 and for the year ended December 31, 2015 and (c) an adjustment to income tax expense for the reversal of acquisition-related transaction costs at the statutory rate of the United States (35.0%) for the six months ended June 30, 2016. |