SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended March 31, ~~2015~~2016



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For transition period from to

Commission File Number: 000-19756

(Exact name of registrant as specified in its charter)



Delaware	94-3023969
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Incline Village, Nevada 89451

(Address of principal executive offices and Zip Code)

(Registrant’s telephone number, including area code)

~~2015~~2016 Form 10-Q



		Page
GLOSSARY OF TERMS AND ABBREVIATIONS (as used in this document)		3

PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	5

	Condensed Consolidated Statements of Income for the Three Months Ended March 31, ~~2015~~2016 and ~~2014~~2015	5

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2015~~2016 and ~~2014~~2015	6

	Condensed Consolidated Balance Sheets at March 31, ~~2015,~~2016, and December 31, ~~2014~~2015	7

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2015~~2016 and ~~2014~~2015	8

	Notes to the Condensed Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3336

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5362

ITEM 4.	CONTROLS AND PROCEDURES	5563

PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	5664

ITEM 1A.	RISK FACTORS	5664

ITEM 6.	EXHIBITS	5664

SIGNATURES		5765

We own or have rights to certain trademarks, trade names, copyrights and other intellectual property used in our business, including PDL BioPharma and the PDL logo, each of which is considered a trademark. All other company names, product names, trade names and trademarks included in this Quarterly Report on Form 10-Q are trademarks, registered trademarks or trade names of their respective owners.

GLOSSARY OF TERMS AND ABBREVIATIONS



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~~
AbbVie		AbbVie Biotherapeutics, Inc.
Accel 300		Accel 300, LLC, a wholly-owned subsidiary of kaléo
AcelRx		AcelRx Pharmaceuticals, Inc.
AcelRx Royalty Agreement		Royalty Interest Assignment Agreement, dated September 18, 2015, between PDL and AcelRx
Alphaeon		ALPHAEON Corporation
APIC		Additional paid-in-capital
ARIAD		ARIAD Pharmaceuticals, Inc.
ARIAD Royalty Agreement		Royalty Interest Assignment Agreement, dated July 28, 2015, between PDL and ARIAD
ARIAD Royalty Rights		The right to receive specified royalties on ARIAD’s Net Revenues (as defined in the ARIAD Royalty Agreement) generated by the sale, distribution or other use of ARIAD’s product Iclusig^® (ponatinib)
ASC		Accounting Standards Codification
ASU		Accounting Standards Update
Avinger		Avinger, Inc.
Avinger Credit and Royalty Agreement		Credit Agreement, dated April 18, 2013, between PDL and Avinger
AxoGen		AxoGen, Inc.
AxoGen Royalty Agreement		Revenue Interests Purchase Agreement, dated as of October 5, 2012, between PDL and ~~AxoGen.~~AxoGen
Biogen		Biogen, Inc.
~~BioTransplant~~CareView		~~BioTransplant,~~CareView Communications, Inc.
Chugai		Chugai Pharmaceutical Co., Ltd.
Depo DR Sub		Depo DR Sub, LLC, a wholly-owned subsidiary of Depomed
Depomed		Depomed, Inc.
Depomed Royalty Agreement		Royalty Purchase and Sale Agreement, dated as of October 18, 2013, among Depomed, Depo DR Sub and PDL
Direct Flow Medical		Direct Flow Medical, Inc.
Durata		Collectively, Durata Therapeutics Holding C.V., Durata Therapeutics International B.V. and Durata Therapeutics, Inc. (parent company)
EBITDA		Earnings before interest, taxes, depreciation and amortization
Elan		Elan Corporation, PLC
EPO		European Patent Office
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
February 2018 Notes		4.0% Convertible Senior Notes due February 1, 2018
GAAP		U.S. Generally Accepted Accounting Principles
Genentech		Genentech, Inc.
Genentech Products		Avastin^®, Herceptin^®, Lucentis^®, Xolair^®, Perjeta^® and Kadcyla^®
Genzyme		Genzyme Corporation (a Sanofi company)
Hyperion		Hyperion Catalysis International, Inc.
IRS		Internal Revenue Service
kaléo		kaléo, Inc. (formerly known as Intelliject, Inc.)



kaléo Revenue Interests		100% of the royalties from kaléo’s first approved product, Auvi-Q™ (epinephrine auto-injection, USP) (known as Allerject in Canada) and 10% of net sales of kaléo’s second proprietary auto-injector based product, EVZIO (naloxone hydrochloride injection), ~~collectively.~~collectively
KMPG		KPMG, LLP
LENSAR		LENSAR, Inc.



Lilly		Eli Lilly and Company
March 2015 Term Loan		Term Loan borrowed under the Credit Agreement, dated as of March 30, 2015, among PDL, the Royal Bank of Canada and lenders thereto, fully retired on February 12, 2016
May 2015 Notes		3.75% Senior Convertible Notes due May 2015, fully retired on May 1, 2015
Merck		Merck & Co., Inc.
Michigan Royalty Agreement		Royalty Purchase and Sale Agreement, dated as of November 6, 2014, between The Regents of the University of Michigan and PDL
New LENSAR		LENSAR, LLC a wholly-owned subsidiary of Alphaeon (formerly known as Lion Buyer LLC)
Novartis		Novartis AG
OCI		Other Comprehensive Income (Loss)
~~October 2013 Term Loan~~		~~Term Loan borrowed under the Credit Agreement, dated October 28, 2013, among PDL, the Royal Bank of Canada and lenders thereto, as amended~~
Paradigm Spine		Paradigm Spine, LLC
Paradigm Spine Credit Agreement		Paradigm Spine Credit Agreement, dated February 14, 2014, between Paradigm Spine and the Company
PDL, we, us, our, the Company		PDL BioPharma, Inc.
~~PDUFA~~		~~Prescription Drug User Fee Act~~
~~Pfizer~~		~~Pfizer, Inc.~~
~~PLMA~~		~~Patent licensing master agreement~~
Queen et al. patents		PDL's patents in the United States and elsewhere covering the humanization of antibodies
Roche		F. Hoffman LaRoche, Ltd.
~~SAB~~		~~Staff Accounting Bulletin~~
Salix		Salix Pharmaceuticals, Inc.
Santarus		Santarus, Inc.
SDK		Showa Denka K.K.
SEC		Securities and Exchange Commission
Series 2012 Notes		2.875% Series 2012 Convertible Senior Notes, ~~full~~fully retired on February 15, 2015
Settlement Agreement		Settlement Agreement between and among PDL, Genentech and Roche, dated January 31, 2014
SPCs		Supplementary Protection Certificates
SPC Products		Avastin, Herceptin, Lucentis, Xolair and Tysabri
Spin-Off		The spin-off by PDL of Facet
Takeda		Takeda Pharmaceuticals America, Inc.
~~T-DM1~~		~~Trastuzumab-DM1~~
U-M		University of Michigan
~~UCB~~		~~UCB Pharma S.A.~~
Valeant Pharmaceuticals		Valeant Pharmaceuticals International, Inc.
VB		Viscogliosi Brothers, LLC
VB Royalty Agreement		Royalty Purchase and Sale Agreement, dated as of June 26, 2014, between ~~Viscogliosi Brothers, LLC~~VB and PDL
VWAP		Volume-weighted average share price
Wellstat Diagnostics		Wellstat Diagnostics, LLC
Wellstat Diagnostics Borrower Notice		A notice of default to Wellstat Diagnostics, due to, inter alia, its ongoing failure to pay its debts as they became due and Wellstat Diagnostics' failure to comply with certain covenants included in the first amendment to amended and restated credit agreement by the deadlines to which the parties had ~~agreed.~~agreed
Wellstat Diagnostics Guarantor Notice		A notice to each of the guarantors of Wellstat Diagnostics' obligations to the Company under the credit ~~agreement.~~agreement
Wellstat Diagnostics Guarantors		Some or all of: Samuel J. Wohlstadter; Nadine H. Wohlstadter; Duck Farm, Inc.; Hebron Valley Farms, Inc.; HVF, Inc.; Hyperion Catalysis EU Limited; Hyperion; NHW, LLC; Wellstat AVT Investment, LLC; Wellstat Biocatalysis, LLC; Wellstat Biologics Corporation; Wellstat Diagnostics; Wellstat Immunotherapeutics, LLC; Wellstat Management Company, LLC; Wellstate Opthalmics Corporation; Wellstat Therapeutics Corporation; Wellstat Therapeutics EU Limited; Wellstat Vaccines, LLC; and SJW Properties, Inc.
Wellstat Diagnostics Note Receivable and Credit Agreement		Senior Secured Note receivable among the Company and the holders of the equity interests in Wellstat Diagnostics, as amended, and Credit Agreement between Wellstat Diagnostics and the Company, dated November 2, 2012, as amended
Wellstat Diagnostics Petition		An Ex Parte Petition for Appointment of Receiver with the Circuit Court of Montgomery County, ~~Maryland.~~Maryland

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Total change in unrealized gains on investments in available-for-sale securities, net of tax^(a)

Total change in unrealized losses on cash flow hedges, net of tax^(b)

See accompanying notes.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2015~~2016

1. Summary of Significant Accounting Policies

Basis of Presentation

Principles of Consolidation

Management Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Notes Receivable and Other Long-Term Receivables

Queen et al. Royalty Revenues

Under ~~most of~~ our ~~patent~~Queen Patent license agreements, ~~we receive~~the Company receives royalty payments based upon our licensees’ net sales of covered products. Generally, under these agreements we receive royalty reports from our licensees approximately one quarter in arrears, that is, generally in the second month of the quarter after the licensee has sold the royalty-bearing product. We recognize royalty revenues when we can reliably estimate such amounts and collectability is reasonably assured. As such, we generally recognize royalty revenues in the quarter reported to us by our licensees, that is, royalty revenues are generally recognized one quarter following the quarter in which sales by our licensees occurred. Under this accounting policy, the royalty revenues we report are not based upon our estimates and such royalty revenues are typically reported in the same period in which we receive payment from our licensees.

WeThe Company also received annual maintenance fees from licensees of our Queen et al. patents prior to patent expiry as well as periodic milestone payments. We have no performance obligations with respect to such fees. Maintenance fees were recognized as they became due and when payment was reasonably assured. Total annual maintenance and milestone payments in each of the last several years have been less than 1% of total revenue.

Although the last of our Queen et al. patents expired in December 2014, we have received royalties beyond expiration based on the terms of our licenses and our legal settlement. Under the terms of the legal settlement between Genentech and PDL, the first quarter of 2016 is the last period for which Genentech will pay royalties to PDL for Avastin, Herceptin, Xolair, Kadcyla and Perjeta. Royalty payments for Avastin, Herceptin, Xolair, Kadcyla and Perjeta accounted for 86% of the $121.5 million Queen et al. royalty revenue recognized in the first quarter of 2016. Other products from the Queen et al. patent licenses entitle us to royalties following the expiration of our patents with respect to sales of licensed product manufactured prior to patent expiry in jurisdictions providing patent protection licenses. The amount of royalties we are due for product manufactured prior to patent expiry but sold after patent expiry is uncertain; however, the Company's revenues from payments made from these Queen et al. patent licenses and settlements will materially decrease in the second quarter of 2016. The continued success of the Company will become more dependent on the timing and our ability to acquire new income generating assets in order to provide recurring revenues going forward and to support the Company's business model and ability to pay dividends.

Royalty Rights - At Fair Value

Currently, we have elected to account for our investments in royalty rights at fair value with changes in fair value presented in earnings. The fair value of the investments in royalty rights is determined by using a discounted cash flow analysis related to the expected future cash flows to be received. These assets are classified as Level 3 assets within the fair value hierarchy as our valuation estimates utilize significant unobservable inputs, including estimates as to the probability and timing of future sales of the related products. Transaction-related fees and costs are expensed as incurred.

~~Realized and unrealized gains and losses~~The changes in the estimated fair value from investments in royalty rights along with cash receipts each reporting period are presented together on our Condensed Consolidated Statements of Income as a component of revenue under the caption, “Royalty rights - change in fair value.”

~~Reclassifications~~

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Interest income recognized from financial assets that was previously reported as a component of "Interest and other income, net" in our Condensed Consolidated Statements of Income has been reclassified to "Interest revenue" as a component of revenue in the Condensed Consolidated statements of Income. Intangible assets that were previously reported in our Condensed Consolidated Balance Sheets have been reclassified to “Royalty rights - at fair value” as a component of assets in the Condensed Consolidated Balance Sheets. Cost of sales that were previously reported in our Condensed Consolidated Statements of Income have been reclassified to "Royalty rights - change in fair value" as a component of revenue in Condensed Consolidated statements of Income. Amortization of intangible assets that were previously reported in our Condensed Consolidated Statements of Cash Flows have been reclassified to “Change in fair value of royalty rights - at fair value” and “Proceeds from royalty rights - at fair value” in our Condensed Consolidated Statements of Cash Flows.

Customer Concentration

The percentage of total revenue recognized, which individually accounted for 10% or more of our total revenues, was as follows:


		Three Months Ended March 31,					Three Months Ended March 31,
Licensee	Product Name	2015		2014		Product Name	2016		2015
Genentech	Avastin	26	%	30	%	Avastin	38	%	26	%
	Herceptin	25	%	28	%	Herceptin	38	%	25	%
						Xolair	13	%	7	%

Biogen	Tysabri^®	10	%	9	%	Tysabri^®	14	%	10	%

Foreign Currency Hedging

Comprehensive Income (Loss)

~~Recently Issued~~Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

2. Net Income per Share

(in thousands except per share amounts)

May 2015 Notes Purchase Call Option and Warrant Potential Dilution

February 2018 Notes ~~Purchased~~Purchase Call Option and Warrant Potential Dilution

Anti-Dilutive Effect of Stock Options and Restricted Stock Awards

Level 1 – based on quoted market prices in active markets for identical assets and liabilities;

Level 2 – based on quoted market prices for similar assets and liabilities, using observable market-based inputs or unobservable market-based inputs corroborated by market data; and

Level 3 – based on unobservable inputs using management’s best estimate and assumptions when inputs are unavailable.

Corporate Securities

Royalty Rights - At Fair Value

Depomed Royalty Agreement

VB Royalty Agreement

~~University of Michigan~~U-M Royalty Agreement

15ARIAD Royalty Agreement

On July 28, 2015, PDL entered into the ARIAD Royalty Agreement, whereby the Company acquired the rights to receive royalties payable from ARIAD's net revenues generated by the sale, distribution or other use of Iclusig^® (ponatinib), a cancer medicine for the treatment of adult patients with chronic myeloid leukemia, in exchange for up to $200.0 million in cash payments. The purchase price of $100.0 million is payable in two tranches of $50.0 million each, with the first tranche funded on the closing date and the second tranche to be funded on the 12-month anniversary of the closing date. The ARIAD Royalty Agreement provides ARIAD with an option to draw up to an additional $100.0 million in up to two draws at any time between the six- and 12-month anniversaries of the closing date. ARIAD may repurchase the royalty rights at any time for a specified amount. Upon the occurrence of certain events, PDL has the right to require ARIAD to repurchase the royalty rights for a specified amount. Under the ARIAD Royalty Agreement, the Company has the right to a make-whole payment from ARIAD if the Company does not receive payments equal to or greater than the amounts funded on or prior to the fifth anniversary of each of the respective fundings. In such case, ARIAD will pay to the Company the difference between the amounts paid to such date by ARIAD (excluding any delinquent fee payments) and the amounts funded by the Company. PDL has elected the fair value

option to account for the hybrid instrument in its entirety. Any embedded derivative shall not be separated from the host contract.

Under the terms of the ARIAD Royalty Agreement, the Company receives royalty payments at a royalty rate ranging from 2.5% to 7.5% of Iclusig revenue until the first to occur of (i) repurchase of the royalty rights by ARIAD or (ii) December 31, 2033. The annual royalty payments shall not exceed $20.0 million in any fiscal year for the years ended December 31, 2015 through December 31, 2018. If Iclusig revenue does not meet certain agreed-upon projections on an annual basis, PDL is entitled to certain royalty payments from net revenue of another ARIAD product, brigatinib, up to the amount of the shortfall from the projections for the applicable year.

The asset acquired pursuant to the ARIAD Royalty Agreement represents a single unit of accounting. The fair value of the royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a seven-year period. The discount rate utilized was approximately 10.0%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $7.9 million or increase by $9.1 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase by $1.3 million or decrease by $1.3 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. An evaluation of those estimates, discount rates utilized and general market conditions affecting fair market value is performed in each reporting period.

As of March 31, 2016, the fair value of the asset acquired as reported in our Condensed Consolidated Balance Sheet was $50.2 million and the maximum loss exposure was $50.2 million.

AcelRx Royalty Agreement

On September 18, 2015, PDL entered into the AcelRx Royalty Agreement with ARPI LLC, a wholly owned subsidiary of AcelRx, whereby the Company acquired the rights to receive a portion of the royalties and certain milestone payments on sales of Zalviso^™ (sufentanil sublingual tablet system) in the European Union, Switzerland and Australia by AcelRx's commercial partner, Grünenthal, in exchange for a $65.0 million cash payment. Under the terms of the AcelRx Royalty Agreement, the Company will receive 75% of all royalty payments and 80% of the first four commercial milestone payments due under AcelRx's license agreement with Grünenthal until the earlier to occur of (i) receipt by the Company of payments equal to three times the cash payments made to AcelRx and (ii) the expiration of the licensed patents. Zalviso received marketing approval by the European Commission in September 2015. Grüenthal is expected to launch Zalviso in the Second quarter of 2016 and PDL will begin receiving royalties shortly thereafter.

As of March 31, 2016, and December 31, 2015, the Company determined that its royalty rights under the agreement with ARPI LLC represented a variable interest in a variable interest entity. However, the Company does not have the power to direct the activities of ARPI LLC that most significantly impact ARPI LLC's economic performance and is not the primary beneficiary of ARPI LLC; therefore, ARPI LLC is not subject to consolidation by the Company.

The fair value of the royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a fifteen-year period. The discount rate utilized was approximately 13.4%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $10.2 million or increase by $12.8 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase by $1.7 million or decrease by $1.7 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation of those estimates, discount rates utilized and general market conditions affecting fair market value is performed in each reporting period.

As of March 31, 2016, the fair value of the asset acquired as reported in our Condensed Consolidated Balance Sheet was $69.6 million and the maximum loss exposure was $69.6 million.

Dr. Stephen Hoffman is the President of 10x Capital, Inc., a third-party consultant to the Company, and is also a member of the board of directors of AcelRx. Dr. Hoffman recused himself from the AcelRx board of directors with respect to the entirety of its discussions and considerations of the transaction. Dr. Hoffman is being compensated for his contribution to consummate this transaction by PDL as part of his consulting agreement. PDL concluded Dr. Hoffman is not considered a related party in accordance with FASB ASC 850, Related Party Disclosures and SEC Regulation S-X, Related Party Transactions Which Affect the Financial Statements.

Avinger Credit and Royalty Agreement

On April 18, 2013, PDL entered into the Avinger Credit and Royalty Agreement, under which we made available to Avinger up to $40.0 million (of which only $20.0 million was funded) to be used by Avinger in connection with the commercialization of its lumivascular catheter devices and the development of Avinger's lumivascular atherectomy device. On September 22, 2015, Avinger elected to prepay the note receivable in whole for a payment of $21.4 million in cash.

Under the terms of the Avinger Credit and Royalty Agreement, the Company was entitled to receive royalties at a rate of 1.8% on Avinger's net revenues until the note was repaid by Avinger. Upon the repayment of the note receivable, which occurred on September 22, 2015, the royalty rate was reduced to 0.9% subject to certain minimum payments from the prepayment date until April 2018. The Company has accounted for the royalty rights in accordance with the fair value option. The fair value of the royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a two-year period. The discount rate utilized was approximately 15.0%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 5%, the fair value of this asset could decrease by $113,000 or increase by $126,000, respectively. Should the expected royalties increase or decrease by 5%, the fair value of the asset could increase by $116,000 or decrease by $116,000, respectively. Management considered the contractual minimum payments when developing its estimate of the expected future cash flows. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. An evaluation of those estimates, discount rates utilized and general market conditions affecting fair market value is performed in each reporting period.

As of March 31, 2016, the fair value of the royalty asset as reported in our Condensed Consolidated Balance Sheet was $2.3 million and the maximum loss exposure was $2.3 million.

The following tables summarize the changes in Level 3 assets and the gains and losses included in earnings for the three months ended March 31, ~~2015:~~2016:

																	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

(in thousands)	(in thousands)			Royalty Rights - At Fair Value					(in thousands)			Royalty Rights			Preferred Stock Warrants
Beginning Balance at December 31, 2014							$	259,244
Fair value as of December 31, 2015									Fair value as of December 31, 2015			$	399,204		$	—

	Transfer into Level 3						—		Fair value of financial instruments purchased			—			443
	Total net change in fair value for the period								Total net change in fair value for the period
		Change in fair value of royalty rights - at fair value		$	11,362					Change in fair value of royalty rights - at fair value		(27,102		)	—
		Proceeds from royalty rights - at fair value		$	(938	)				Proceeds from royalty rights - at fair value		(17,221		)	—
			Total net change in fair value for the period				10,424				Total net change in fair value for the period	(44,323		)	—
	Purchases, issues, sales, and settlements
		Purchases					—

Ending Balance at March 31, 2015							$	269,668
Fair value as of March 31, 2016									Fair value as of March 31, 2016			$	354,881		$	443

Gains and losses included in earnings for each period are presented in "Royalty rights - change in fair value" as follows:

Foreign Currency Hedge Contracts

Warrants consist primarily of purchased call options to buy U.S. corporate equity holdings and derivative assets acquired as part of note receivable investments. The fair value of the warrants is estimated using recently quoted market prices or estimated fair value of the underlying equity security and the Black-Scholes option pricing model.

The following tables present the fair value of assets and liabilities not subject to fair value recognition by level within the valuation hierarchy:


	March 31, 2015						December 31, 2014						March 31, 2016							December 31, 2015
	Carrying Value		Fair Value Level 2		Fair Value Level 3		Carrying Value		Fair Value Level 2		Fair Value Level 3		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	$	50,191	$	—	$	50,191	$	50,191	$	—	$	50,191	$	50,191		$	—	$	53,670	$	50,191		$	—	$	55,970
Hyperion note receivable	1,200		—		1,200		1,200		—		1,200		1,200			—		1,200		1,200			—		1,200
Avinger note receivable	21,231		—		21,117		20,611		—		20,760
LENSAR note receivable	41,241		—		40,200		39,668		—		40,451		43,909			—		44,573		42,271			—		42,618
Direct Flow Medical note receivable	50,849		—		51,500		50,397		—		49,940		56,934			—		56,640		51,852			—		51,992
Paradigm Spine note receivable	49,600		—		50,818		49,571		—		50,125		54,151			—		55,023		53,973			—		54,250
kaléo note receivable	151,494		—		153,420		151,574		—		151,073		146,754			—		145,533		146,778			—		146,789
CareView note receivable													18,717			—		20,128		18,640			—		19,495
Total	$	365,806	$	—	$	368,446	$	363,212	$	—	$	363,740	$	371,856		$	—	$	376,767	$	364,905		$	—	$	372,314

Liabilities:
Series 2012 Notes	$	—	$	—	$	—	$	22,261	$	33,506	$	—
May 2015 Notes	154,592		189,487		—		153,235		205,534		—
February 2018 Notes	277,975		287,685		—		276,228		289,665		—		$	230,850	*	$	220,570	$	—	$	228,862	*	$	197,946	$	—
March 2015 Term Loan	99,393		100,000		—		—		—		—		—			—		—		24,966			—		25,000
Total	$	531,960	$	577,172	$	—	$	451,724	$	528,705	$	—	$	230,850		$	220,570	$	—	$	253,828		$	197,946	$	25,000

4. Cash, Cash Equivalents and Investments

No ~~gains or losses on sales of available-for-sale securities were recognized for~~For the three months ended March 31, ~~2015~~2016 and December 31, 2015, we recognized approximately $136,000 and $997,000, on sales of available-for-sale securities.~~2014~~.

5. Foreign Currency Hedging

During the third quarter of 2012, we reduced our forecasted exposure to the Euro for 2013 royalties. We de-designated and terminated certain forward contracts, due to our determination that certain cash flows under the de-designated contracts were not probable to occur, and recorded a gain of approximately $391,000 to "Interest and other income, net," which was reclassified from other comprehensive income (loss), net of tax effects. The termination of these contracts was effected through a reduction in the notional amount of the original hedge contracts.

The notional amounts, Euro exchange rates and fair values of our Euro forward contracts designated as cash flow hedges were as follows:


Euro Forward Contracts	Euro Forward Contracts			March 31, 2015				December 31, 2014				Euro Forward Contracts			December 31, 2015
				(In thousands)				(In thousands)							(In thousands)
Currency		Settlement Price ($ per Euro)	Type	Notional Amount		Fair Value		Notional Amount		Fair Value			Settlement Price ($ per Euro)	Type	Notional Amount		Fair Value
Euro		1.256	Sell Euro	$	—	$	—	$	6,000	$	241		1.260	Sell Euro	$	16,500	$	2,802
Euro		1.257	Sell Euro	15,750		2,675		15,750		728
Euro		1.259	Sell Euro	16,125		2,975		16,125		752
Euro		1.260	Sell Euro	33,000		6,018		33,000		1,468
Euro		1.270	Sell Euro	—		—		7,000		377
Euro		1.281	Sell Euro	—		—		8,000		503
Total				$	64,875	$	11,668	$	85,875	$	4,069

Net gain (loss) recognized in OCI, net of tax ⁽¹⁾

Gain (loss) reclassified from accumulated OCI into royalty revenue, net of tax ⁽²⁾

Net gain (loss) recognized in interest and other income, net - cash flow hedges ⁽³⁾

Gain (loss) reclassified from accumulated OCI into "Queen et al. royalty revenue," net of tax ⁽²⁾

(1) Net change in the fair value of ~~the effective portion of~~ cash flow hedges, ~~classified in OCI.~~net of tax.

6. Notes ~~Receivable~~ and Other Long-Term Receivables

Wellstat Diagnostics Note Receivable and Credit Agreement

Except as otherwise described here, the material terms of the amended and restated credit agreement are substantially the same as those of the original credit agreement, including quarterly interest payments at the rate of 5% per annum (payable in cash or in kind). In addition, PDL was to continue to receive quarterly royalty payments based on a low double-digit royalty rate of Wellstat Diagnostics' net revenues. However, pursuant to the amended and restated credit agreement: (i) the principal amount was reset to approximately $44.1 million, which was comprised of approximately $33.7 million original loan principal and interest, $1.3 million term loan principal and interest and $9.1 million forbearance principal and interest; (ii) the specified internal rates of return increased; (iii) the default interest rate was increased; (iv) Wellstat Diagnostics' obligation to provide certain financial information increased in frequency to monthly; (v) internal financial controls were strengthened by requiring Wellstat Diagnostics to maintain an independent, third-party financial professional with control over fund disbursements; (vi) the Company waived the existing events of default; and (vii) the owners and affiliates of Wellstat Diagnostics were required to contribute additional capital to Wellstat Diagnostics upon the sale of an affiliate entity. The amended and restated credit agreement had an ultimate maturity date of December 31, 2021 (but has subsequently been accelerated as described below).

In June of 2014, the Company received information from Wellstat Diagnostics that showed that it was generally unable to pay its debts as they became due. This constituted an event of default under the amended and restated credit agreement. Wellstat Diagnostics entered into a transaction involving another lender, pursuant to which Wellstat Diagnostics obtained additional

short-term funding for its operations. At the same time, the Company entered into the first amendment to amended and restated credit agreement with Wellstat Diagnostics. The material terms of the amendment included the following: (1) Wellstat Diagnostics acknowledged that an event of default had occurred; (2) the Company agreed to forbear from immediately enforcing its rights for up to 60 days, so long as the other lender provided agreed levels of interim funding to Wellstat Diagnostics; and (3) the Company obtained specified additional information rights with regard to Wellstat Diagnostics’ financial matters and investment banking activities.

On September 4, 2015, PDL filed in the Supreme Court of New York a motion for summary judgment in lieu of complaint which requested that the court enter judgment against Wellstat Diagnostics Guarantors for the total amount due on the Wellstat Diagnostics debt, plus all costs and expenses including lawyers’ fees incurred by the Company in enforcement of the related guarantees. On September 23, 2015, PDL filed in the same court an ex parte application for a temporary restraining order and order of attachment of the Wellstat Diagnostics Guarantors' assets. At a hearing on September 24, 2015, regarding the Company’s request for a temporary restraining order, the court ordered that the Company’s request for attachment and for summary judgment would be heard at a hearing on November 5, 2015. Although the court denied the Company’s request for a temporary restraining order at the hearing on September 24, it ordered that assets of the Wellstat Diagnostics Guarantors should be held in status quo ante and only used in the normal course of business pending the outcome of the hearing. The court in New York has yet to rule on the Company's motions for attachment and summary judgment.

On October 22, 2015, the Wellstat Diagnostics Guarantors filed a complaint against the Company in the Supreme Court of New York seeking a declaratory judgment that certain contractual arrangements entered into between the parties subsequent to Wellstat Diagnostics’ default, and which relate to a split of proceeds in the event that the Wellstat Diagnostics Guarantors voluntarily monetize any assets that are the Company’s collateral, is of no force or effect.

AxoGen Note Receivable and AxoGen Royalty Agreement

Avinger ~~Note Receivable~~Credit and Royalty Agreement

LENSAR Credit Agreement

~~Durata Credit Agreement~~

Direct Flow Medical Credit Agreement

Paradigm Spine Credit Agreement

kaléo Note Purchase Agreement

On April 1, 2014, PDL entered into a note purchase agreement with Accel 300, a wholly-owned subsidiary of kaléo, pursuant to which the Company acquired $150.0 million of secured notes due 2029. The secured notes were issued pursuant to an indenture between Accel 300 and U.S. Bank, National Association, as trustee, and are secured by the kaléo Revenue Interests and a pledge of kaléo’s equity ownership in Accel 300.

The secured notes bear interest at 13% per annum, paid quarterly in arrears on principal outstanding. The principal balance of the secured notes is repaid to the extent that the kaléo Revenue Interests exceed the quarterly interest payment, as limited by a quarterly payment cap. The final maturity of the secured notes is June 2029. kaléo may redeem the secured notes at any time, subject to a redemption premium.

On October 28, 2015, Sanofi US initiated a voluntary nationwide recall of all Auvi-Q^®units effectively immediately. Sanofi is the exclusive licensee of kaléo for the manufacturing and commercialization of Auvi-Q. While Sanofi has not identified the reason for the recall, press reports indicate that a small number of units have failed to activate or delivered inadequate doses of epinephrine. Subsequent to the recall, kaléo made a full and timely payment of $9.5 million, which included all principal and interest due in the fourth quarter of 2015.

On February 18, 2016, PDL was advised that Sanofi and kaléo will terminate their license and development agreement later this year. On March 31, 2016, PDL was informed by kaléo that the license and development agreement was terminated and that all U.S. and Canadian commercial and manufacturing rights to Auvi-Q^® and Allerject^® had been returned to kaléo. All manufacturing equipment had also been returned to kaléo, and they intend to evaluate the timing and options for bringing Auvi-Q and Allerject back to the market. As part of our financing transaction, kaléo was required to establish an interest reserve account of $20.0 million from the $150.0 million provided by PDL. The purpose of this interest reserve account is to cover any possible shortfalls in interest payments owed to PDL. As of this date, despite the recall of Auvi-Q, it is projected that the interest reserve account alone is sufficient to cover possible interest shortfalls substantially through the second quarter of 2016. kaléo has indicated that it intends to make payments due to PDL under the note agreement until Auvi-Q is returned to the market.

PDL will monitor the timing and options for bringing Auvi-Q back to the market and how it may impact the ability of kaléo to meet its obligations under the note purchase agreement, but as of March 31, 2016, it has been determined that there is no impairment.

CareView Credit Agreement

On October 7, 2015, PDL and CareView entered into an amendment of the credit agreement to modify certain definitions related to the first and second tranche milestones. On this date, PDL also funded the first tranche of $20.0 million, net of fees, upon attainment of the modified first tranche milestone relating to the placement of CareView Systems. The additional $20.0 million in the form of a second tranche continues to be available upon CareView’s attainment of specified milestones relating to the placement of CareView Systems and Consolidated EBITDA, to be accomplished no later than June 30, 2017 under the terms of the amended credit agreement.

In connection with the amendment of the credit agreement, PDL and CareView also agreed to amend the warrant to purchase common stock agreement by reducing the warrant's exercise price from $0.45 to $0.40 per share. At March 31, 2016, we determined an estimated fair value of the warrant of $0.7 million.

7. Accrued Liabilities

8. Commitments and Contingencies

~~Legal Proceedings~~PDL BioPharma, Inc. v Merck Sharp & Dohme, Corp.

Other Legal Proceedings

9. Convertible Notes and Term Loans

~~The principal amount, carrying value and unamortized discount of our Series 2012 Notes were as follows:~~

(In thousands) March 31, 2015 December 31, 2014
Principal amount of the Series 2012 Notes $ —
$ 22,337
Unamortized discount of liability component —
(76 )
Total $ —
$ 22,261

Interest expense for our Series 2012 Notes on our Condensed Consolidated Statements of Income was as follows:

~~Our May 2015 Notes are convertible under any of the following circumstances:~~

~~The carrying value and unamortized discount of our May 2015 Notes were as follows:~~

(In thousands) March 31, 2015 December 31, 2014
Principal amount of the May 2015 Notes $ 155,050
$ 155,050
Unamortized discount of liability component (458 ) (1,815 )
Total $ 154,592
$ 153,235

~~Interest expense for our May 2015 Notes on our Condensed Consolidated Statements of Income was as follows:~~

Three Months Ended
March 31,
(In thousands) 2015 2014
Contractual coupon interest $ 1,454
$ 1,455
Amortization of debt issuance costs 326
315
Amortization of debt discount 1,357
1,261
Total $ 3,137
$ 3,031

Interest expense for the May 2015 Notes on the Condensed Consolidated Statements of Income was as follows:



	Three Months Ended
	March 31,
(In thousands)	2016		2015
Contractual coupon interest	$	—	$	1,454
Amortization of debt issuance costs	—		326
Amortization of debt discount	—		1,357
Total	$	—	$	3,137

Purchased Call Options and Warrants

The purchased call option transactions and warrant sales effectively ~~serve~~served to reduce the potential dilution associated with conversion of our May 2015 Notes. ~~The strike prices are approximately~~ ~~$5.72~~ ~~and~~ ~~$6.73, subject to further adjustment upon certain events including dividend payments, for the purchased call options and warrants, respectively.~~

Because the share price iswas above ~~$5.72~~,$5.72, but below ~~$6.73~~,$6.73, upon conversion of ~~our~~the Company's May 2015 Notes, the purchased call options offset the share dilution, and the Company received shares on exercise of the purchased call options equal to the shares that the Company ~~must deliver~~delivered to the note holders. ~~If the share price is above~~ ~~$6.73, upon exercise of the warrants, the Company will deliver shares to the counterparties in an amount equal to the excess of the share price over~~ ~~$6.73. For example, a 10% increase in the share price above~~ ~~$6.73~~ ~~would result in the issuance of~~ ~~2.1 million~~ ~~incremental shares upon exercise of the warrants. If our share price continues to increase, additional dilution would occur.~~

While the purchased call options reduced the potential equity dilution upon conversion of our May 2015 Notes, prior to the conversion or exercise, our May 2015 Notes and the warrants ~~have~~had a dilutive effect on the Company’s earnings per share to the extent that the price of the Company’s common stock during a given measurement period exceeds the respective exercise prices of those instruments. ~~As of~~ ~~March 31, 2015, and~~ ~~December 31, 2014, there were no related purchased call options or warrants exercised.~~

~~The purchased call options and warrants are considered indexed to PDL stock, require net-share settlement and met all criteria for equity classification at inception and at~~ ~~March 31, 2015, and~~ ~~December 31, 2014. The purchased call options cost, including legal fees, of~~ ~~$20.8 million, less deferred taxes of~~ ~~$7.2 million, and the~~ ~~$10.9 million~~ received for the warrants, was recorded as adjustments to additional paid-in capital. Subsequent changes in fair value will not be recognized as long as the purchased call options and warrants continue to meet the criteria for equity classification.

February 2018 Notes

On February 12, 2014, we issued $300.0 million in aggregate principal amount, at par, of ~~our~~the February 2018 Notes in an underwritten public offering, for net proceeds of $290.2 million. ~~Our~~The February 2018 Notes are due February 1, 2018, and we pay interest at 4.0% on ~~our~~the February 2018 Notes semiannually in arrears on February 1 and August 1 of each year, beginning August 1, 2014. A portion of the proceeds from ~~our~~the February 2018 Notes, net of amounts used for purchased call option transactions and provided by the warrant transactions described below, were used to redeem $131.7 million of ~~our~~the Series 2012 Notes. Upon the occurrence of a fundamental change, as defined in the indenture, holders have the option to require PDL to repurchase their February 2018 Notes at a purchase price equal to 100% of the principal, plus accrued interest.

~~Our~~On November 20, 2015, PDL's agent initiated the repurchase of $53.6 million in aggregate principal amount of its February 2018 Notes for $43.7 million in cash in four open market transactions. The closing of these transactions occurred on November 30, 2015.

It was determined that the repurchase of the principal amount shall be accounted for as an extinguishment. As a result, a gain on extinguishment of $6.5 million was recorded at closing of the transaction. The $6.5 million gain on extinguishment included the de-recognition of the original issuance discount of $3.1 million, outstanding deferred issuance costs of $0.9 million and agent fees of $0.1 million. Immediately following the repurchase, $246.4 million principal amount of the February 2018 Notes was outstanding with $14.1 million of remaining original issuance discount and $4.1 million of debt issuance costs to be amortized over the remaining life of the February 2018 Notes. As of March 31, 2016, our February 2018 Notes are not convertible. At March 31, 2016, the if-converted value of our February 2018 Notes did not exceed the principal amount.

In connection with the repurchase of the February 2018 Notes, the Company and the counterparties agreed to unwind a portion of the purchased call options. As a result of this unwinding, PDL received $270,000 in cash. The payments received have been recorded as an increase to APIC. In addition, the Company and the counterparties agreed to unwind a portion of the warrants for $170,000 in cash, payable by PDL. The payments have been recorded as a decrease to APIC. At March 31, 2016, PDL concluded that the remaining purchased call options and warrants continue to meet all criteria for equity classification.

The February 2018 Notes are convertible under any of the following circumstances:

During any fiscal quarter ending after the quarter ended June 30, 2014, 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 August 1, 2017.

The initial conversion rate for the February 2018 Notes is 109.1048 shares of the Company's common stock per ~~$1,000~~$1,000 principal amount of February 2018 Notes, which is equivalent to an initial conversion price of approximately $9.17 per share of common stock, subject to adjustments upon the occurrence of certain specified events as set forth in the indenture. Upon

conversion, the Company will be required to pay cash and, if applicable, deliver shares of the Company's common stock as described in the indenture.

nonconvertible instrument available to us on the date of issuance, we recorded a total debt discount of $29.7 million, allocated $19.3 million to additional paid-in capital and allocated $10.4 million to deferred tax liability. The discount is being amortized to interest expense over the term of ~~our~~the February 2018 Notes and increases interest expense during the term of ~~our~~the February 2018 Notes from the 4.0% cash coupon interest rate to an effective interest rate of 6.9%. As of March 31, ~~2015~~2016, the remaining discount amortization period is ~~2.9~~1.8 years.

The carrying value and unamortized discount of ~~our~~the February 2018 Notes were as follows:


(In thousands)	March 31, 2015			December 31, 2014			March 31, 2016			December 31, 2015
Principal amount of the February 2018 Notes	$	300,000		$	300,000		$	246,447		$	246,447
Unamortized discount of liability component	(22,025		)	(23,772		)	(15,597		)	(17,585		)
Total	$	277,975		$	276,228
Net carrying value of the February 2018 Notes							$	230,850		$	228,862

Interest expense for our February 2018 Notes on our Condensed Consolidated Statements of Income was as follows:

Three Months Ended
March 31,
(In thousands) 2015 2014
Contractual coupon interest $ 3,000
$ 1,571
Amortization of debt issuance costs 543
222
Amortization of debt discount 1,747
671
Total $ 5,290
$ 2,464

Purchased Call Options and Warrants

March 2015 Term Loan

~~October 2013 Term Loan~~

10. Other Long-Term Liabilities


	March 31,		December 31,		March 31,		December 31,
	2015		2014		2016		2015
(In thousands)
Accrued lease liability	$	10,700	$	10,700	$	10,700	$	10,700
Long term incentive accrual	1,160		578
Long-term incentive accrual					2,142		1,318
Uncertain tax positions	29,317		26,356		39,989		38,467
Dividend payable	289		68		229		165
Total	$	41,466	$	37,702	$	53,060	$	50,650

11. Stock-Based Compensation

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 at December 31, 2014 4,166
58
$ 5.41
277
$ 8.39
Granted (287 ) —
287
7.55
Shares released —
—
(6 ) 8.36
Balance at March 31, 2015 3,879
58
$ 5.41
558
$ 7.96



			Restricted Stock Awards
(In thousands except per share amounts)	Shares Available for Grant		Number of Shares Outstanding	Weighted Average Grant-date Fair Value Per Share
Balance at December 31, 2015	4,684		586	$	7.13
Granted	(828	)	828	3.21
Balance at March 31, 2016	3,856		1,414	$	4.82

Convertible Notes Conversion Rate per $1,000 Principal Amount Approximate Conversion Price Per Common Share Effective Date
May 2015 Notes 174.8506
$ 5.72
March 3, 2015

The uncertain tax positions increased during the three months ended March 31, 2016 and 2015, by $1.2 million and $2.4 million, respectively, resulting from an increase in tax uncertainties and estimated tax liabilities.

14. Accumulated Other Comprehensive Income ~~(Loss)~~

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, 2014 $ 364
$ 2,585
$ 2,949
Activity for the three months ended March 31, 2015 (38 ) 4,999
4,961
Ending Balance at March 31, 2015 $ 326
$ 7,584
$ 7,910



	Unrealized gains (losses) on available-for-sale securities			Unrealized gains on cash flow hedges			Total Accumulated Other Comprehensive Income
(In thousands)
Beginning Balance at December 31, 2015	$	435		$	1,821		$	2,256
Activity for the three months ended March 31, 2016	(17		)	(1,821		)	(1,838		)
Ending Balance at March 31, 2016	$	418		$	—		$	418

~~15. Subsequent Event~~

~~Retirement of May 2015 Notes~~

~~LENSAR Forbearance Agreement~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, including any statements concerning new licensing, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “predicts,” “potential,” “continue” or “opportunity,” or the negative thereof or other comparable terminology. Although we believe that the expectations presented in the forward-looking statements contained herein are reasonable at the time they were made, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below or incorporated by reference herein, and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Intellectual Property

Licensing Agreements

Licensing Agreements for Marketed Products

In the three months ended March 31, ~~2015~~2016, and 2015, we received royalties on sales of the ten humanized antibody products listed below, all of which are currently approved for use by the FDA and other regulatory agencies outside the United States.



Licensee		Product Names
Genentech		Avastin
		Herceptin
		Xolair
		Lucentis
		Perjeta^®
		Kadcyla^®

Biogen		Tysabri

Chugai		Actemra^®

Roche		~~Gazyva™~~ Gazyva^®

Takeda		Entyvio^®

Genentech

We entered into a master patent license agreement, effective September 25, 1998, under which we granted Genentech a license under our Queen et al. patents to make, use and sell certain antibody products.

On January 31, 2014, we entered into the Settlement Agreement with Genentech and Roche that resolved all ~~then~~ existing legal disputes between the parties.

Under the terms of the Settlement Agreement, Genentech ~~pays~~paid a fixed royalty rate of 2.125% on worldwide sales of Avastin, Herceptin, Xolair, Perjeta and Kadcyla occurring on or before December 31, 2015. As a result of the Settlement Agreement, PDL will no longer receive any royalties on these products after the first quarter of 2016. Pursuant to the agreement, Genentech and Roche confirmed that Avastin, Herceptin, Lucentis, Xolair and Perjeta are licensed products as defined in the relevant license agreements between the parties, and further agreed that Kadcyla and Gazyva are licensed products. With respect to Lucentis, Genentech ~~owes~~owed no royalties on U.S. sales occurring after June 30, 2013, and paid a royalty of 2.125% on all ex-U.S.-based Sales occurring on or before December 28, 2014. The royalty term for Gazyva remains unchanged from the existing license agreement pertaining thereto.

The Settlement Agreement precludes Genentech and Roche from challenging the validity of PDL’s patents, including its SPCs in Europe, from contesting their obligation to pay royalties, from contesting patent coverage for Avastin, Herceptin, Lucentis, Xolair, Perjeta, Kadcyla and Gazyva and from assisting or encouraging any third party in challenging PDL’s patents and SPCs. The Settlement Agreement further outlines the conduct of any audits initiated by PDL of the books and records of Genentech in an effort to ensure a full and fair audit procedure. Finally, the Settlement Agreement clarifies that the sales amounts from which the royalties are calculated ~~does~~do not include certain taxes and discounts.

Biogen

We entered into a patent license agreement, effective April 24, 1998, under which we granted to Elan a license under our Queen et al. patents to make, use and sell antibodies that bind to the cellular adhesion molecule α4 in patients with multiple sclerosis. Under the agreement, we are entitled to receive a flat royalty rate in the low, single digits based on Elan’s net sales of the Tysabri product. Our license agreement with Elan entitles us to royalties following the expiration of our patents with respect to sales of licensed product manufactured prior to patent expiry in jurisdictions providing patent protection. In April 2013, Biogen completed its purchase of Elan's interest in Tysabri. All obligations under our ~~original~~ patent license agreement with Elan were assumed by Biogen.

Chugai

We entered into a patent license agreement, effective May 18, 2000, with Chugai, a majority owned subsidiary of Roche, under which we granted to Chugai a license under our Queen et al. patents to make, use and sell antibodies that bind to interleukin-6 receptors to prevent inflammatory cascades involving multiple cell types for the treatment of rheumatoid arthritis. Under the agreement, we are entitled to receive a flat royalty rate in the low, single digits based on net sales of the Actemra product manufactured in the United States prior to patent expiry. The agreement continued until the expiration of the last to expire of our Queen et al. patents. Chugai is obligated to pay us royalties on net sales occurring prior to the expiration of any Queen et al. patent which covers the manufacture, use or sale of Actemra. Because the relevant patent rights expired in the fourth quarter of 2014, we dodid not ~~expect future~~receive any revenues from Actemra after the first quarter of 2015.

Licensing Agreements for Non-Marketed Products

Solanezumab is ~~the~~a Lilly-licensed monoclonal antibody for the treatment of Alzheimer's disease. If ~~Lilly’s~~this antibody for Alzheimer’s disease is approved, we would be entitled to receive a royalty based on a "know-how" license for technology provided in the design of this antibody. The 2% royalty payable for "know-how" runs for 12.5 years after the product's initial commercialization. It is currently in Phase 3 testing with results expected in late 2016. On March 15, 2016, Lilly announced a change to the primary endpoint of this trial. The original trial design included co-primary endpoints of cognition and function. Lilly amended the trial design to include a single primary endpoint of cognition. The functional outcomes will be measured as key secondary endpoints. Lilly explained that the change was prompted by emerging scientific evidence that cognitive declines precede and predict functional declines. The change in endpoints affects the study’s data analysis but does not otherwise change the conduct of the study.

~~Depomed~~

Income Generating Asset Acquisitions

~~On October 18, 2013,~~The last of PDL’s Queen et al. patents expired in December 2014, and we expect a material decrease in payments related to the Queen et al. patents after the first quarter of 2016. Consequently, we have been acquiring income generating assets when such assets can be acquired on terms that allow us to increase the return to our stockholders. These income generating assets are typically in the form of notes receivables, royalty rights, hybrid notes/royalty receivables and in some cases equity. We primarily focus our income generating asset acquisition strategy on commercial stage therapies and medical devices having strong economic fundamentals. However, we do not expect that our acquired income generating assets will, in the near term, replace completely the revenues we generated from our license agreements related to the Queen et al. patents. In the second quarter of 2016, our revenues will materially decrease after we stop receiving payments from these Queen et al. patent licenses and legal settlements, which accounted for 82% of our 2015 revenues. The continued success of the Company will become more dependent on the timing and our ability to acquire new income generating assets in order to provide recurring revenues going forward and to support our business model and ability to pay dividends.

Notes and Other Long-Term Receivables

We enter into credit agreements with borrowers across the healthcare industry, under which PDL makes available cash advances to be used by the borrower. The obligations under the credit agreements are generally secured by a pledge of substantially all of the assets of the borrower and any of its subsidiaries.

At March 31, 2016, PDL had a total of six notes or notes/royalty (hybrid) receivable transactions outstanding, which are summarized below.

CareView

Deal Summary

In July 2015, PDL entered into a credit agreement with CareView, under which the ~~Depomed Royalty Agreement, whereby we acquired the rights~~Company made available to ~~receive royalties and milestones payable on sales~~CareView up to $40.0 million in two tranches of ~~Type 2 diabetes products licensed by Depomed in exchange for a $240.5~~$20.0 million ~~cash payment. As the licensor of certain patents, Depomed retains various rights, including the contractual right to audit its licensees and to ensure those licensees are complying with~~each. Under the terms of the ~~underlying license agreement. Depomed retains full responsibility to protect~~credit agreement each tranche has a five-year maturity and ~~maintain~~outstanding borrowings under the ~~intellectual property rights underlying~~credit agreement will bear interest at the ~~licenses. In respect~~rate of 13.5% per annum and are payable quarterly in arrears. Principal repayment will commence on the ninth quarterly interest payment date of each tranche of loans. The principal amount outstanding at commencement of repayment will be repaid in equal installments until final maturity of the ~~royalty stream~~loans. In addition, PDL has a security interest in substantially all of CareView’s assets.

In October 2015, PDL funded the first tranche of $20.0 million. The additional $20.0 million in the form of a second tranche continues to be available upon CareView’s attainment of specified milestones relating to the ~~Glumetza diabetes medication~~placement of CareView Systems and Consolidated EBITDA, to be accomplished no later than June 30, 2017.

Technology

CareView is a provider of products and on-demand application services for the healthcare industry by specializing in bedside video monitoring, archiving and patient care documentation systems and patient entertainment services.

kaléo

Deal Summary

In April 2014, PDL entered into a note purchase agreement with Accel 300, a wholly-owned subsidiary of kaléo, pursuant to which the Company acquired $150.0 million of secured notes due 2029. The secured notes were issued pursuant to an indenture between Accel 300 and U.S. Bank, National Association, as trustee, and are secured by the kaléo Revenue Interest and a pledge of kaléo's equity ownership in Accel 300.

The notes are backed by royalties in the form of 100 percent of the payments kaléo receives from its licensee based on net sales of kaléo’s first approved product, Auvi-Q (epinephrine auto-injection, USP) (known as Allerject™ in Canada) and 10 percent of net sales of kaléo’s second proprietary auto-injector based product, EVZIO (naloxone hydrochloride injection). The notes carry interest at 13% per annum, paid quarterly in arrears on principal outstanding. kaléo may redeem the notes at any time, subject to a redemption premium.

Technology

Auvi-Q is used to treat life-threatening allergic reactions (anaphylaxis) in people who are at risk for or have a history of these reactions.

EVZIO is approved for the emergency treatment of known or suspected opioid overdose, as manifested by respiratory and/or central nervous system depression.

Paradigm Spine

Deal Summary

In February 2014, the Company entered into the Paradigm Spine Credit Agreement, under which it made available to Paradigm Spine up to $75.0 million to be used by Paradigm Spine to refinance its existing credit facility and expand its domestic commercial operations. Of the $75.0 million available to Paradigm Spine, an initial $50.0 million, net of fees, was funded by the Company at the close of the transaction. The second and third tranches of up to an additional $25.0 million in the aggregate, net of fees, are no longer available under the terms of the Paradigm Spine Credit Agreement.

Subsequently PDL and Paradigm Spine agreed to amend the credit agreement to provide additional term loan commitments of up to $7.0 million payable in two tranches of $4.0 million and $3.0 million, of which the first tranche was drawn on the closing date of the amendment, net of fees, and the second tranche is to be funded at the option of Paradigm Spine prior to June 30, 2016.

Borrowings under the credit agreement bear interest at the rate of 13.0% per annum, payable quarterly in arrears.

Under the terms of the Paradigm Spine Credit Agreement, principal repayment will commence on the twelfth interest payment date, December 31, 2016. The principal amount outstanding at commencement of repayment will be repaid in equal installments until final maturity of the loans. The loans mature on February 14, 2019. Paradigm Spine may elect to prepay the loans at any time, subject to a prepayment penalty that decreases over the life of the loans. The obligations under the Paradigm Spine Credit Agreement are secured by a pledge of substantially all of the assets of Paradigm Spine and its domestic subsidiaries and, initially, certain assets of Paradigm Spine's German subsidiaries.

Technology

Paradigm Spine’s coflex^® interlaminar stabilization device for patients with spinal stenosis was approved by the FDA in late 2012.

Direct Flow Medical

Deal Summary

In November 2013, PDL entered into a credit agreement with Direct Flow Medical, under which PDL agreed to provide up to $50.0 million to Direct Flow Medical, to be used to refinance its existing credit facility and fund the commercialization of its transcatheter aortic valve system used to treat aortic stenosis. An initial $35.0 million was provided at the close of the transaction, with the remaining $15.0 million to be funded upon the achievement of a specified milestone. PDL funded the $15.0 million second tranche to Direct Flow Medical, net of fees in November 2014. Outstanding borrowings under the first tranche bore interest at the rate of 15.5% per annum, payable quarterly in arrears. Upon occurrence of the borrowing of this second tranche, the interest rate applicable to all loans under the credit agreement was decreased to 13.5% per annum, payable quarterly in arrears. The loans will mature on November 5, 2018. Direct Flow Medical may elect to prepay the loans at any time, subject to a prepayment penalty that decreases over the life of the loans.

The obligations under the credit agreement are secured by a pledge of substantially all of the assets of Direct Flow Medical and any of its subsidiaries.

On February 26, 2016, PDL and Direct Flow Medical enter into the fourth Amendment to the Credit Agreement that, among other things, (i) converted the $5.0 million short-term secured promissory note into a loan under the credit agreement with substantially the same interest and payment terms as the existing loans, (ii) added a conversion option providing the right to convert the additional $5.0 million loan into equity of Direct Flow Medical at the option of PDL and (iii) provided for an additional $5.0 million convertible loan tranche, to be funded at the option of PDL. In addition, (i) PDL agreed to waive the liquidity covenant and delay the timing of the unpaid interest payments until September 30, 2016 and (ii) Direct Flow Medical agreed to issue to PDL a specified amount of warrants to purchase shares of convertible preferred stock on the first day of each month for the duration of the waiver period at an exercise price of $0.01 per share. At March 31, 2016, we ~~acquired from Depomed,~~determined an estimated fair value of the warrant of $0.4 million.

Technology

The Direct Flow Medical develops transcatheter heart technologies, including its Transcatheter Aortic Valve System that is designed to treat aoritic stenosis.

LENSAR

Deal Summary

In October 2013, PDL entered into a credit agreement with LENSAR, under which PDL made available to LENSAR up to $60.0 million to be used by LENSAR in connection with the commercialization of its currently marketed LENSAR™ Laser System. Of the $60.0 million available to LENSAR, an initial $40.0 million was funded by the Company at the close of the transaction. The remaining $20.0 million in the form of a second tranche is no longer available to LENSAR under the terms of the credit agreement. Outstanding borrowings under the loans bore interest at the rate of 15.5% per annum, payable quarterly in arrears. The obligations under the credit agreement are secured by a pledge of substantially all of the assets of LENSAR.

In May 2015, PDL and LENSAR entered into a forbearance agreement as a result of LENSAR's failure to comply with a liquidity covenant and make interest payments due under the credit agreement. Between May and December 2015, PDL provided additional funding to LENSAR.

In December 2015, New LENSAR, a wholly owned subsidiary of Alphaeon assumed $42.0 million in loans as part of the borrowings under PDL’s original credit agreement with LENSAR in connection with Alphaeon's acquisition of substantially all of the assets of LENSAR. In addition, Alphaeon issued 1.7 million shares of its Class A common stock to PDL. Under the terms of the amended and restated credit agreement, PDL has a first lien security interest in substantially all of the equity interests and assets of New LENSAR. The loans bear interest of 15.5% per annum, payable quarterly in arrears. New LENSAR may elect to pay in kind interest the first three interest payments in the form of additional principal amount added to the loans. The principal repayment will commence on the ninth quarterly interest payment date. The principal amount of outstanding at commencement of repayment will be repaid in equal installments until final maturity of the loans, which is December 15, 2020.

Technology

The LENSAR Laser System is approved by the FDA to perform both corneal and arcuate incisions, as well as lens fragmentation and anterior capsulotomy (with or without phacofragmentation), during cataract surgery.

Wellstat

Deal Summary

In March 2012, the Company executed a $7.5 million two-year senior secured note receivable with the holders of the equity

interests in Wellstat Diagnostics. In August 2012, PDL and Wellstat Diagnostics amended the note receivable, providing a senior secured note receivable of $10.0 million, bearing interest at 12% per annum, to replace the original $7.5 million note receivable. This $10.0 million note receivable was repaid on November 2, 2012, using the proceeds of the $40.0 million credit facility entered into with the Company on the same date.

In November 2012, the Company and Wellstat Diagnostics entered into a $40.0 million credit agreement pursuant to which the

Company was to accrue quarterly interest payments at the rate of 5% per annum. In January 2013, Wellstat defaulted on the credit agreement, as a result both parties agreed to enter into a forbearance agreement whereby PDL agreed to provide additional funding. In August 2013, the Company entered into an amended and restated credit agreement with terms substantially the same as those of the original credit agreement. However, pursuant to the amended and restated credit agreement: (i) the principal amount was reset to approximately $44.1 million, which was comprised of approximately $33.7 million original loan principal and interest, $1.3 million term loan principal and interest and $9.1 million forbearance principal and interest; (ii) the specified internal rates of return increased; (iii) the default interest rate was increased; (iv) Wellstat Diagnostics' obligation to provide certain financial information increased in frequency to monthly; (v) internal financial controls were strengthened by requiring Wellstat Diagnostics to maintain an independent, third-party financial professional with control over fund disbursements; (vi) the Company waived the existing events of default; and (vii) the owners and affiliates of Wellstat Diagnostics were required to contribute additional capital to Wellstat Diagnostics upon the sale of an affiliate entity. The amended and restated credit agreement had an ultimate maturity date of December 31, 2021.

In August 2014, the Company delivered the Wellstat Diagnostics Borrower Notice which accelerated all obligations under the amended and restated credit agreement and demanded immediate payment in full in an amount equal to approximately $53.9 million. As of March 31, 2016, PDL is legally owed $108.4 million, which includes principal, un-accrued interest, and funded with respect to operations of Wellstat Diagnostics.

Technology

Wellstat Diagnostics, LLC is a private company dedicated to the development, manufacture, sale and distribution of small point of care diagnostic systems that can perform a wide variety of tests targeting the clinical diagnostics market.

Royalty Rights - At Fair Value

We enter into various royalty agreements with different counterparties, whereby the counterparty conveys to PDL the right

to receive royalties that are typically payable on sales generated by the sale, distribution or other use of the counterparties' products. Certain of our royalty agreements provide the counterparty with the right to repurchase the royalty ~~right producing~~rights at any time for a specified amount.

PDL records the ~~highest revenues~~royalty rights at fair value using discounted cash flows related to the expected future cash flows to be received. We use significant judgment in determining our valuation inputs, including estimates as to the probability and timing of future sales of the licensed product. A third-party expert is generally engaged to assist management with the development of its

estimate of the expected future cash flows. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation is performed to assess those estimates, discount

rates utilized and general market conditions affecting fair market value.

At March 31, 2016, PDL had a total of five royalty rights transactions outstanding, the ~~Depomed~~most significant royalty transactions are summarized below.

AcelRx

Deal Summary

In September 2015, PDL entered into the AcelRx Royalty Agreement with ARPI LLC, a wholly owned subsidiary of AcelRx, whereby PDL acquired a portion of the royalties ~~U.S. patent protection for this~~on expected sales of Zalviso™ (sufentanil sublingual tablet system) in the European Union, Switzerland and Australia by its commercial partner, Grünenthal. Under the terms of the agreement, PDL paid AcelRx $65.0 million, and in exchange, PDL will receive 75% of the royalties AcelRx receives from Grünenthal as well as 80% of the first four commercial milestones subject to a capped amount until the earlier of occur of (i) receipt by PDL of payments equal to three times the cash payments made to AcelRx and (ii) the expiration of the licensed patents.

Technology

Zalviso is a combination drug and device product which, using a patient controlled dispenser, delivers a sub-lingual formulation of sufentanil, an opioid with a high therapeutic index. Zalviso is approved in the European Union. Grünenthal is expected to ~~begin to expire~~ launch Zalviso in ~~September~~the second quarter of 2016 and ~~under settlement agreements~~PDL expects to begin receiving royalties shortly thereafter.

ARIAD

Deal Summary

In July 2015, PDL entered into the ARIAD Royalty Agreement, whereby PDL agreed to provide ARIAD with up to $200.0 million in revenue interest financing in exchange for royalties based on the net revenues of Iclusig^® (ponatinib). Funding of the first $50.0 million occurred on the closing date of the agreement and an additional $50.0 million is to be funded on the 12-month anniversary of the closing date. In addition, ARIAD has an option to draw up to an additional $100.0 million at any time between the sixth and twelfth month anniversaries of the closing date.

Under the terms of the ARIAD Royalty Agreement, PDL will initially receive 2.5% of the worldwide net revenues of Iclusig until the one year anniversary of the closing date, at which ~~Depomed~~time the royalty increases to 5.0% of the worldwide net revenues of Iclusig and remains until December 31, 2018. Beginning January 1, 2019 and thereafter, the royalty rate will increase to 6.5%, subject to an additional increase to 7.5% if PDL’s funding exceeds $150.0 million. If PDL does not receive payments equal to or greater than the total amount funded on or before the fifth anniversary of each of the respective fundings, ARIAD will pay PDL the difference between the amounts funded by PDL and the amounts paid to such date. In addition, PDL may receive royalties on a product currently in development at ARIAD in the event of certain shortfalls. PDL has a put option based upon certain events and ARIAD has a call option to repurchase the revenue interest at any time. Both the put and call prices have been pre-determined.

Technology

Iclusig is approved in the U.S., EU, Australia, Israel, Canada and Switzerland. In the U.S., Iclusig is a ~~party, certain manufacturers~~kinase inhibitor indicated for the:

treatment of ~~generic products~~adult patients with T315I-positive chronic myeloid leukemia (chronic phase, accelerated phase, or blast phase) or T315I-positive Philadelphia chromosome positive acutelymphoblastic leukemia (Ph+ ALL).

treatment of adult patients with chronic phase, accelerated phase, or blast phase chronic myeloid leukemia or Ph+ ALL for whom no other tyrosine kinase inhibitor (TKI) therapy is indicated.

U-M

Deal Summary

In November 2014, PDL acquired a portion of the U-M worldwide royalty interest in Cerdelga™ (eliglustat) for $65.6 million. Cerdelga was approved in the US in August 2014, in the European Union in January 2015 and in Japan in March 2015. Under the terms of the Michigan Royalty Agreement, PDL will receive 75 percent of all royalty payments due under U-M’s license agreement with Genzyme until expiration of the licensed patents, excluding any patent term extension. The royalty rate used to calculate the royalties to be ~~permitted~~paid by Genzyme to ~~enter~~U-M was not disclosed by the ~~market starting in February and~~parties.

Technology

Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme, a Sanofi company. Cerdelga was approved by the FDA on August ~~2016.~~19, 2014.

OnDeal Summary

In June ~~26,~~ 2014, PDL entered into the VB Royalty Agreement, whereby ~~VB conveyed to the Company~~PDL acquired the right to receive royalties ~~payable~~ on net sales of a pre-market approved spinal implant ~~that has received pre-market approval from the FDA~~held by VB in exchange for a $15.5 million cash ~~payment, less fees.~~

payment. The royalty rights acquired ~~includes~~include royalties accruing from and after April 1, 2014. ~~Under the terms of the VB Royalty Agreement, the Company will receive~~PDL receives all royalty payments due to VB pursuant to certain technology transfer agreements between VB and Paradigm Spine until ~~the Company~~PDL has received payments equal to two and three tenths times the cash payment it made to VB, after which all payment rights ~~to receive royalties~~ will be returned to VB. VB may repurchase the royalty right at any time on or before June 26, 2018, for a specified amount. The ~~acting~~ chief executive officer of Paradigm Spine is one of the owners of VB. The Paradigm Spine Credit Agreement and the VB Royalty Agreement ~~where~~were negotiated separately.

~~University of Michigan~~Technology

~~On November 6, 2014,~~The coflex^® Interlaminar Technology is an Interlaminar Stabilization® device indicated for use in one or two level lumbar stenosis from L1-L5 in skeletally mature patients with at least moderate impairment in function.

Depomed

Deal Summary

In October 2013, PDL entered into the Depomed Royalty Agreement, whereby PDL acquired the rights to receive royalties and milestones payable on sales of five Type 2 diabetes products licensed by Depomed in exchange for a ~~portion of all royalty payments of U-M’s worldwide royalty interest in Cerdelga (eliglustat) for $65.6 million.~~ $240.5 million cash payment.

Under the terms of the ~~Michigan~~Depomed Royalty Agreement, ~~PDL will receive 75% of~~the Company receives all royalty and milestone payments due under ~~U-M’s~~license agreements between Depomed and its licensees until the Company has received payments equal to two times the cash payment it made to Depomed, after which all net payments received by Depomed will be shared evenly between the Company and Depomed.

The Depomed Royalty Agreement terminates on the third anniversary following the date upon which the later of the following occurs: (a) October 25, 2021, or (b) at such time as no royalty payments remain payable under any license agreement and each of the license agreements has expired by its terms.

Technology

The rights acquired include Depomed’s royalty and milestone payments accruing from and after October 1, 2013: (a) from Valeant with respect to sales of Glumetza^® (metformin HCL extended-release tablets) in the United States; (b) from Merck with respect to sales of Janumet^® XR (sitagliptin and metformin HCL extended-release); (c) from Janssen Pharmaceutica N.V. with respect to potential future development milestones and sales of its investigational fixed-dose combination of Invokana^® (canagliflozin) and extended-release metformin; (d) from Boehringer Ingelheim with respect to potential future development milestones and sales of the investigational fixed-dose combinations of drugs and extended-release metformin subject to Depomed’s license agreement with ~~Genzyme until expiration~~Boehringer Ingelheim; and (e) from LG Life Sciences and Valeant Pharmaceuticals for sales of ~~the licensed patents, excluding any patent term extension. Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme. Cerdelga was approved~~extended-release metformin in ~~the United States on August 19, 2014~~Korea and ~~in the European Union on January 22, 2015 and in Japan on March 25, 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities.~~Canada, respectively.

~~Protection of our Intellectual Property~~

Our intellectual property, namely our Queen et al. patents and related license agreements, are integral to our business and generate the majority of our revenues. Protection of our intellectual property is key to our success.

~~Genentech - Roche Matter~~

~~Settlement Agreement~~

~~On January 31, 2014, we entered into the Settlement Agreement with Genentech and Roche that resolved all then existing legal disputes between the parties.~~

Economic and Industry-wide Factors

Various economic and industry-wide factors are relevant to us and could affect our business, including changes to laws and interpretation of those laws that protect our intellectual property rights, our licensees ability to obtain or retain regulatory approval for products licensed under our patents, fluctuations in foreign currency exchange rates, the ability to attract, retain and integrate qualified personnel, as well as overall global economic conditions. We actively monitor economic, industry and market factors affecting our business; however, we cannot predict the impact such factors may have on our future results of operations, liquidity and cash flows. See also the ~~“Risk Factors” section of this Quarter~~risk factors included in our Annual Report on ~~Form 10-Q~~form 10-K for the fiscal year ended December 31, 2015 for additional factors that may impact our business and results of operations.

~~Recent Developments~~

~~Retirement of Series 2012 Notes~~

On February 17, 2015, the Company completed the retirement of the remaining $22.3 million of aggregate principal of its Series 2012 Notes at their stated maturity for $22.3 million, plus approximately 1.34 million shares of its common stock.

~~March 2015 Term Loan~~

On March 30, 2015, PDL entered into a credit agreement among the Company, the lenders party thereto and the Royal Bank of Canada as administrative agent. The credit agreement consists of a term loan of $100.0 million.

The interest rates per annum applicable to amounts outstanding under the term loan are, at the Company’s option, either (a) the alternate base rate (as defined in the credit agreement) plus 0.75% , or (b) the adjusted Eurodollar rate (as defined in the credit agreement) plus 1.75% per annum. As of March 31, 2015, the interest rate was 2.02%. Interest payments under the credit agreement are due on the interest payment dates specified in the credit agreement.

~~The term loan requires amortization in the form of scheduled principal payments on June 15, September 15 and December 15 of 2015, with the remaining outstanding balance due on February 15, 2016.~~

Any future material domestic subsidiaries of the Company are required to guarantee the obligations of the Company under the credit agreement, except as otherwise provided by the credit agreement. The Company’s obligations under the credit agreement are secured by a lien on a substantial portion of its assets.

The credit agreement contains affirmative and negative covenants that the Company believes are usual and customary for a senior secured credit agreement. The credit agreement also requires compliance with certain financial covenants, including a maximum total leverage ratio, a debt service coverage ratio and a minimum liquidity covenant, in each case calculated as set forth in the credit agreement and compliance with which may be necessary to take certain corporate actions.

~~The credit agreement contains events of default that the Company believes are usual and customary for a senior~~

~~secured credit agreement.~~

Dividend Payment

On January ~~27, 2015~~,26, 2016, our board of directors declared ~~that the regular~~a quarterly ~~dividends to be paid to our stockholders in~~ ~~2015~~ ~~will be~~ ~~$0.15~~dividend of $0.05 per share of common stock ~~payable on~~ ~~March 12~~, ~~June 12~~, ~~September 11~~ ~~and~~ ~~December 11~~ of ~~2015~~ to stockholders of record on March 54, ~~June 5~~, ~~September 4~~ ~~and~~ ~~December 4~~2016. On March 11, 2016, we paid $8.2 million in connection with such dividend payment. Unvested RSAs as of~~2015~~, the record ~~dates for each of~~date are also entitled to dividends, which will only be paid when the ~~dividend payments, respectively. On~~ ~~March 12, 2015, we paid the regular quarterly dividend to our stockholders totaling~~ ~~$24.5 million~~ ~~using earnings generated in the~~ ~~three months ended March 31, 2015~~.RSAs vest and are released.

~~Subsequent Event~~

~~Retirement of May 2015 Notes~~

On May 1, 2015, the Company completed the retirement of the remaining $155.1 million of aggregate principal of its May 2015 notes at their stated maturity for $155.1 million, plus approximately 5.2 million shares of its common stock for the excess conversion value. In connection with the issuance of our May 2015 Notes, we entered into purchased call option transactions with two hedge counterparties. The purchased call options were exercised by us upon conversion of our May 2015 Notes and the hedge counterparties delivered to the Company approximately 5.2 million of PDL common shares, which was the amount equal to the shares required to be delivered by us to the note holders for the excess conversion value.

~~LENSAR Forbearance Agreement~~

PDL and LENSAR are currently in discussions regarding a forbearance agreement whereby PDL may agree to refrain from exercising certain remedies under the LENSAR loan agreement for a period of time while LENSAR either raises funds through an equity based financing, enters into a binding agreement to complete a sale of itself or of its assets, or obtains a debt financing sufficient to repay PDL for all amounts owed. There can be no assurances of the timing of the forbearance agreement or whether PDL will enter into such forbearance agreement. Should the parties be unable to reach agreement, PDL will assess its options at that time.

Critical Accounting Policies and Uses of Estimates

During the three months ended March 31, ~~2015~~2016, there have been no significant changes to our critical accounting policies since those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014~~2015~~, as amended.~~.

Operating Results

Three months ended March 31, ~~2015~~2016, compared to three months ended March 31, ~~2014~~2015

Revenues


	Three Months Ended				Change from Prior	Three Months Ended					Change from Prior
	March 31,				Change from Prior	March 31,					Change from Prior
	2015		2014		Year %	2016			2015		Year %
(Dollars in thousands)
Revenues
Royalties from Queen et al. patents	$	127,810	$	116,026	10%	$	121,455		$	127,810	(5%)
Royalty rights - change in fair value	11,362		11,707		(3)%	(27,102		)	11,362		(339%)
Interest revenue	10,534		9,071		16%	8,964			10,534		(15%)
License and other						(193		)	—		N/M
Total revenues	$	149,706	$	136,804	9%	$	103,124		$	149,706	(31%)

_______________________

N/M = Not meaningful

The following table summarizes the percentage of our total revenues earned from our licensees’ net product sales that individually accounted for 10% or more of our total revenues for the three months ended March 31, ~~2015~~2016 and ~~2014:~~2015:


		Three Months Ended					Three Months Ended
		March 31,					March 31,
Licensee	Product Name	2015		2014		Product Name	2016		2015
Genentech	Avastin	26	%	30	%	Avastin	38	%	26	%
	Herceptin	25	%	28	%	Herceptin	38	%	25	%
						Xolair	13	%	7	%

Biogen	Tysabri	10	%	9	%	Tysabri	14	%	10	%

Non-operating Expense, Net

Net Income per Share

~~The increase in net income per diluted share is primarily due to the increased revenues and the resulting increase in net income for the period, partially offset by the increase in outstanding shares.~~

Liquidity and Capital Resources

Notes and Other Long-Term Receivables

Wellstat Diagnostics Note Receivable and Credit Agreement

In March 2012, the Company executed a ~~$7.5~~$7.5 million~~two-year~~ two-year senior secured note receivable with the holders of the equity interests in Wellstat Diagnostics. In addition to bearing interest at 10% per annum, the note receivable gave PDL certain rights to negotiate for certain future financing transactions. In August 2012, PDL and Wellstat Diagnostics amended the note receivable, providing a senior secured note receivable of ~~$10.0~~$10.0 million,, bearing interest at 12% per annum, to replace the original ~~$7.5~~$7.5 million note receivable. This ~~$10.0~~$10.0 million note receivable was repaid on November 2, 2012, using the proceeds of the ~~$40.0~~$40.0 million credit facility entered into with the Company on the same date.

On November 2, 2012, the Company and Wellstat Diagnostics entered into a ~~$40.0~~$40.0 million credit agreement pursuant to which the Company was to accrue quarterly interest payments at the rate of 5% per annum (payable in cash or in kind). In addition, PDL was to receive quarterly royalty payments based on a low double-digit royalty rate of Wellstat Diagnostics' net revenues, generated by the sale, distribution or other use of Wellstat Diagnostics' products, if any, commencing upon the commercialization of its products.

In January 2013, the Company was informed that, as of December 31, 2012, Wellstat Diagnostics had used funds contrary to the terms of the credit agreement and breached Sections 2.1.2 and 7 of the credit agreement. PDL sent Wellstat Diagnostics a notice of default on January 22, 2013, and accelerated the amounts owed under the credit agreement. In connection with the notice of default, PDL exercised one of its available remedies and transferred approximately ~~$8.1~~$8.1 million of available cash from a bank account of Wellstat Diagnostics to PDL and applied the funds to amounts due under the credit agreement. On February 28, 2013, the parties entered into a forbearance agreement whereby PDL agreed to refrain from exercising additional remedies for 120 days while Wellstat Diagnostics raised funds to capitalize the business and the parties attempted to negotiate a revised credit agreement. PDL agreed to provide up to ~~$7.9~~$7.9 million to Wellstat Diagnostics to fund the business for the ~~120-day~~120-day forbearance period under the terms of the forbearance agreement. Following the conclusion of the forbearance period that ended on June 28, 2013, the Company agreed to forbear its exercise of remedies for additional periods of time to allow the owners and affiliates of Wellstat Diagnostics to complete a pending financing transaction. During such forbearance period, the Company provided approximately ~~$1.3~~$1.3 million to Wellstat Diagnostics to fund ongoing operations of the business. During the year ended December 31, 2013, approximately $8.7 million was advanced pursuant to the forbearance agreement.

On August 15, 2013, the owners and affiliates of Wellstat Diagnostics completed a financing transaction to fulfill Wellstat Diagnostics' obligations under the forbearance agreement. On August 15, 2013, the Company entered into an amended and restated credit agreement with Wellstat Diagnostics. The Company determined that the new agreement should be accounted for as a modification of the existing agreement.

When the principal amount was reset, a $2.5 million reduction of the carrying value was recorded as a financing cost as a component of "Interest and other income, net". The new carrying value is lower as a function of the variable nature of the internal rate of return to be realized by the Company based on when the note was to be repaid. The internal rate of return calculation, although increased, was reset when the credit agreement was amended and restated.

credit agreement with Wellstat Diagnostics. The material terms of the amendment included the following: (1) Wellstat

Diagnostics acknowledged that an event of default had occurred; (2) the Company agreed to forbear from immediately enforcing its rights for up to 60 days, so long as the other lender provided agreed levels of interim funding to Wellstat Diagnostics; and (3) the Company obtained specified additional information rights with regard to Wellstat Diagnostics’ financial matters and investment banking activities.

On August 5, 2014, the Company received notice that the short-term funding being provided pursuant to the agreement with the other lender entered into during June 2014, was being terminated. Wellstat Diagnostics remained in default because it was still unable to pay its debts as they became due. Accordingly, the Company delivered the Wellstat Diagnostics Borrower Notice. The Wellstat Diagnostics Borrower Notice accelerated all obligations under the amended and restated credit agreement and demanded immediate payment in full in an amount equal to approximately ~~$53.9~~$53.9 million,, (which amount, in accordance with the terms of the amended and restated credit agreement, included an amount that, together with interest and royalty payments already made to the Company, would generate a specified internal rate of return to the Company), plus accruing fees, costs and interest, and demanded that Wellstat Diagnostics protect and preserve all collateral securing its obligations. On August 7, 2014, the Company delivered the Wellstat Diagnostics Guarantor Notice. The Wellstat Diagnostics Guarantor Notice included a demand that the guarantors remit payment to the Company in the amount of the outstanding obligations. The guarantors include certain affiliates and related companies of Wellstat Diagnostics, including Wellstat Therapeutics and Wellstat Diagnostics’ ~~shareholders.~~stockholders.

On September 24, 2014, the Company filed the Wellstat Diagnostics Petition, which was granted on the same day. The order granting the Wellstat Diagnostics Petition authorizes the receiver to take immediate possession of the physical assets of Wellstat Diagnostics, with the purpose of holding, protecting, insuring, managing and preserving the business of Wellstat Diagnostics and the value of the Company’s collateral. Wellstat Diagnostics has remained in operation during the period of the receivership with incremental additional funding from the Company. The Company continues to assess its options with respect to collecting on the loan, including determining whether and when it will foreclose on the collateral and proceed with a sale of Wellstat Diagnostics’ assets, whether providing further capital to the receiver to fund Wellstat Diagnostics’ operations for a period of time prior to sale will best position Wellstat Diagnostics’ assets for sale, and assessing the value of the guarantees obtained by the Company from Wellstat Diagnostics’ guarantors, including Wellstat Diagnostics’ shareholders and Wellstat Therapeutics.

On November 4, 2014, the Company entered into the third amendment to the amended and restated credit agreement with Wellstat Diagnostics. The amendment provides that additional funding, if any, to be made by the Company is conditioned upon the agreement by Wellstat Diagnostics to make certain operational changes within Wellstat Diagnostics, which the Company believes will allow the receiver to more efficiently optimize the value of the collateral.

During the second quarter of 2015, the receiver initiated a process for a public sale of the assets of Wellstat Diagnostics and retained the investment banking firm of Duff & Phelps to organize and manage the sale process. The receiver filed a "Motion For Approval of Sale Procedures" with the Circuit Court for Montgomery County, Maryland, which is the court having jurisdiction over the receivership and a hearing was held on July 22, 2015 at which time arguments were heard from interested parties regarding the sale procedures. No significant substantive disagreements between the parties regarding the sale procedures remained after the hearing and a decision approving the receiver’s sale procedures was made in the third quarter of 2015. PDL submitted a credit bid for the Wellstat Diagnostic assets at a value corresponding to some portion of the outstanding amount due under the amended and restated credit agreement which is subject to court approval. A hearing was scheduled in the Maryland Circuit Court for April 13, 2016 to hear the Receiver’s motion to approve the credit bid sale to PDL. However, on April 12, 2016, Wellstat Diagnostics changed its name to Defined Diagnostics, LLC and filed for bankruptcy under Chapter 11 in the United Stated Bankruptcy Court in the Southern District of New York. The filing of the bankruptcy case stays the proceedings in the Maryland Circuit Court pursuant to the automatic stay provisions of the Bankruptcy Code.

Through the period ~~ending~~ended March 31, ~~2015,~~2016, PDL has advanced to Wellstat Diagnostics ~~$8.1~~$15.2 million to fund the ongoing operations of the business and other associated costs. This funding has been expensed as incurred. As of March 31, 2016, PDL is owed $108.4 million, which includes unpaid principal and interest and repayment of amounts funded for ongoing operations of Wellstat Diagnostics.

Effective April 1, 2014, and as a result of the event of default, we determined the loan to be impaired and we ceased to accrue interest revenue. At that time and as of March 31, ~~2015~~2016 it has been determined that an allowance on the carrying value of the note was not necessary as the Company believes the value of the collateral securing Wellstat Diagnostics’ obligations exceeds the carrying value of the asset and is sufficient to enable the Company to ~~recoup~~recover the ~~full~~current carrying ~~value.~~value of $50.2 million. There can be no assurance that this will be true in the event of the Company’s foreclosure on the collateral, nor can there be any assurance of the timing in realizing value from such ~~collateral.~~collateral, whether from the sale process currently underway or a subsequent monetization event if PDL's credit bid for the assets is successful.

Hyperion Agreement

On January 27, 2012, PDL and Hyperion entered into an agreement whereby Hyperion sold to PDL the royalty streams due from SDK related to a certain patent license agreement between Hyperion and SDK dated December 31, 2008. The agreement assigned the patent license agreement royalty stream accruing from January 1, 2012, through December 31, 2013, to PDL in exchange for the lump sum payment to Hyperion of $2.3 million. In exchange for the lump sum payment, PDL was to receive two equal payments of $1.2 million on ~~both~~each of March 5, 2013 and 2014. The first payment of $1.2 million was paid on March 5, 2013, but Hyperion has not made the second payment that was due on March 5, 2014. The Company completed an impairment analysis as of March 31, ~~2015.~~2016. Effective with this date and as a result of the event of default, we ceased to accrue interest revenue. As of March 31, ~~2015,~~2016, the estimated fair value of the collateral was determined to be in excess of that of the carrying value. There can be no assurance that this will be true in the event of the Company's foreclosure on the collateral, nor can there be any assurance of realizing value from such collateral. ~~Hyperion is considering other sources of financing and strategic alternatives, including selling the company.~~

AxoGen Note Receivable and AxoGen Royalty Agreement

In October 2012, PDL entered into the AxoGen Royalty Agreement with AxoGen ~~pursuant~~providing for the payment of specified royalties to ~~which the Company would receive specified royalties~~PDL on AxoGen’s net revenues (as defined in the AxoGen Royalty Agreement) generated by the sale, distribution or other use of AxoGen’s products. The AxoGen Royalty Agreement had an eight-year term and provided PDL with royalties of 9.95% based on AxoGen's net revenues, subject to agreed-upon guaranteed quarterly minimum payments of approximately $1.3 million to $2.5 million, which ~~were to begin~~began in the fourth quarter of 2014, and the right to require AxoGen to repurchase the royalties under the AxoGen Royalty Agreement at the end of the fourth year. AxoGen was granted certain rights to call the contract in years five through eight. The total consideration PDL paid to AxoGen for the royalty rights was $20.8 million, including an interim funding of $1.8 million in August 2012. AxoGen was required to use a portion of the proceeds from the AxoGen Royalty Agreement to pay the outstanding balance under its existing credit facility. The royalty rights were secured by the cash and accounts receivable of AxoGen.

On August 14, 2013, PDL purchased 1,166,666 shares of registered common stock of AxoGen (AXGN) at $3.00 per share, totaling $3.5 million. On December 22, 2014, PDL sold these shares at $3.03 per share, totaling approximately $3.5 million.

On November 13, 2014, the Company agreed to terminate the AxoGen Royalty Agreement in consideration for a payment of $30.3 million in cash, which was the sum of the outstanding principal, interest and embedded derivative.

~~Subsequent to~~At the ~~pay-off,~~same time, the Company acquired 643,382 shares of registered common stock of AxoGen for approximately $1.7 million at a public offering price of $2.72 per share. The shares are classified as available for sale securities and recorded as short-term investments on the ~~balance sheet.~~ Condensed Consolidated Balance Sheets. In the third and fourth quarters of 2015, PDL sold 200,000 and 149,650 shares, respectively, at a price range between $5.46 and $5.69 per share, totaling approximately $1.9 million.

In March 2016, PDL sold on the open market 50,000 shares of AxoGen’s common stock at $5.44 per share, resulting in a gain totaling approximately $136,000.

As of March 31, ~~2015, the~~2016, PDL held 243,732 shares of AxoGen common stock, which were valued at ~~$2.3~~$1.3 million, which resulted in an unrealized gain of ~~$0.5~~$0.6 million and is recorded in "Other comprehensive income (loss), net of tax."

Avinger ~~Note Receivable~~Credit and Royalty Agreement

On April 18, 2013, PDL entered into ~~a credit agreement with~~the Avinger Credit and Royalty Agreement, under which we made available to Avinger up to ~~$40.0~~$40.0 million to be used by Avinger in connection with the commercialization of its lumivascular catheter devices and the development of Avinger's lumivascular atherectomy device. Of the ~~$40.0~~$40.0 million ~~initially~~ available to Avinger, we funded an initial ~~$20.0~~$20.0 million,, net of fees, at the close of the transaction. ~~The additional~~ ~~$20.0 million~~ ~~in the form of a second tranche is no longer available to Avinger.~~ Outstanding borrowings under the initial loan ~~bear~~bore interest at a stated rate of 12% per annum.

On September 22, 2015, Avinger ~~is required~~elected as per the voluntary prepayment provision under the Avinger Credit and Royalty Agreement to ~~make quarterly~~prepay the note receivable in whole for a payment of $21.4 million in cash, which was the sum of the outstanding principal, interest and ~~principal payments. Principal repayment will commence on~~a prepayment fee.

Under the eleventh interest payment date, March 31, 2016. The principal amount outstanding at commencement of repayment, after taking into account any payment-in-kind, will be repaid in equal installments until final maturityterms of the ~~loan. The loan will mature in April 2018.~~

~~In connection with entering into the credit agreement,~~Avinger Credit and Royalty Agreement, the Company ~~will receive~~receives a low, single-digit royalty on Avinger's net revenues ~~through~~until April 2018. Commencing in October 2015, after Avinger ~~may prepay the outstanding principal and accrued interest on the note receivable at any time. If Avinger repays~~repaid the note receivable prior to ~~April 2018,~~its maturity date, the royalty on Avinger's net revenues ~~will be~~ reduced by 50% ~~and will be~~, subject to certain minimum payments from the prepayment date ~~through~~until April 2018.

~~The obligations under~~ PDL has accounted for the ~~credit agreement are secured by a pledge of substantially all of~~royalty rights in accordance with the assets of Avinger and any of its subsidiaries (other than controlled foreign corporations, if any). The credit agreement provides for a number of standard events of default, including payment, bankruptcy, covenant, representation and warranty and judgment defaults.fair value option.

LENSAR Credit Agreement

On October 1, 2013, PDL entered into a credit agreement with LENSAR, under which PDL made available to LENSAR up to ~~$60.0~~$60.0 million to be used by LENSAR in connection with the commercialization of its currently marketed LENSAR™ Laser System. Of the ~~$60.0~~$60.0 million available to LENSAR, an initial ~~$40.0~~$40.0 million,, net of fees, was funded by the Company at the close of the transaction. The ~~additional~~ ~~$20.0~~remaining $20.0 million in the form of a second tranche is no longer available to LENSAR under the terms of the credit agreement. Outstanding borrowings under the loans ~~bear~~bore interest at the rate of 15.5% per annum, payable quarterly in arrears.

~~Principal~~On May 12, 2015, PDL entered into a forbearance agreement with LENSAR under which PDL agreed to refrain from exercising certain remedies available to it resulting from the failure of LENSAR to comply with a liquidity covenant and make interest payments due under the credit agreement. Under the forbearance agreement, PDL agreed to provide LENSAR with up to an aggregate of $8.5 million in weekly increments through the period ended September 30, 2015 plus employee retention amounts of approximately $0.5 million in the form of additional loans subject to LENSAR meeting certain milestones related to LENSAR obtaining additional capital to fund the business or selling itself and repaying outstanding amounts under the credit agreement. In exchange for the forbearance, LENSAR agreed to additional reporting covenants, the engagement of a chief restructuring officer and an increase on the interest rate to 18.5%, applicable to all outstanding amounts under the credit agreement.

On September 30, 2015, PDL agreed to extend the forbearance agreement until October 9, 2015 and provide for up to an additional $0.8 million in funding while LENSAR negotiated a potential sale of its assets. On October 9, 2015, the forbearance agreement expired, but PDL agreed to fund LENSAR's operations while LENSAR continued to negotiate a potential sale of its assets.

On November 15, 2015, New LENSAR, a wholly owned subsidiary of Alphaeon, and LENSAR entered into the Asset Purchase Agreement whereby New LENSAR agreed to acquire substantially all the assets and assumed certain liabilities of LENSAR subject to the satisfaction of certain closing conditions. The acquisition was consummated on December 15, 2015.

In connection with the closing of the acquisition, New LENSAR entered into an amended and restated credit agreement with PDL, assuming $42.0 million in loans as part of the borrowings under PDL’s prior credit agreement with LENSAR. In addition, Alphaeon issued 1.7 million shares of its Class A common stock to PDL.

Under the terms of the amended and restated credit agreement, PDL has a first lien security interest in substantially all of the equity interests and assets of New LENSAR. The loans bear interest of 15.5% per annum, payable quarterly in arrears. New LENSAR may elect to pay in kind interest the first three interest payments in the form of additional principal amount added to the loans. The principal repayment will commence on the ~~thirteenth~~ninth interest payment ~~date or December 31, 2016.~~date. The principal amount outstanding at ~~the~~ commencement of repayment ~~will~~is to be repaid in equal installments until final maturity of the ~~loans. The~~ loans ~~will mature on October 1, 2018. LENSAR may elect to prepay~~which is December 15, 2020.

PDL concluded that the ~~loans at any time, subject to a prepayment penalty that decreases over the life~~amendment and restatement of the ~~loans. The loans are secured~~original LENSAR credit agreement shall be accounted for as a troubled debt restructuring due to the concession granted by ~~all~~PDL and LENSAR’s financial difficulties. PDL has recognized a loss on extinguishment of ~~the assets~~notes receivable of ~~LENSAR.~~

~~Durata Credit Agreement~~$4.0 million and expensed $3.0 million of closing fees as general & administrative costs as incurred at closing on December 15, 2015.

~~On October 31, 2013, PDL entered into a credit agreement with Durata, under which the Company made available to Durata up to~~ ~~$70.0 million. Of the~~ ~~$70.0 million~~ ~~available to Durata, an initial~~ ~~$25.0 million~~ (tranche one), net of fees, was funded by the Company at the close of the transaction. On May 27, 2014, the Company funded Durata an additional $15.0 million (tranche two) as a result of Durata's marketing approval of dalbavancin in the United States, which occurred on May 23, 2014, and was the milestone needed to receive the tranche two funding. Until the occurrence of the tranche two milestone, outstanding borrowings under tranche one bore interest at the rate of ~~14.0%~~ ~~per annum, payable quarterly in arrears. Upon occurrence of the tranche two milestone, the interest rate of the loans decreased to~~ ~~12.75%~~.

~~On November 17, 2014,~~We have estimated a fair value of $3.84 per share for the ~~Company~~1.7 million shares of Alphaeon Class A common stock received ~~a payment of approximately~~ ~~$42.7 million~~ ~~constituting repayment in full of the outstanding principal amount of loans plus accrued interest and fees under the credit agreement. The repayment was made~~ in connection with the ~~acquisition~~transactions and recognized this investment as a cost-method investment of ~~Durata by Actavis plc.~~$6.6 million included in other long-term asset. The Alphaeon Class A common stock is subject to other-than-temporary impairment assessments in future periods. There is no other-than-temporary impairment charge incurred as of March 31, 2016.

Direct Flow Medical Credit Agreement

On November 5, 2013, PDL entered into a credit agreement with Direct Flow Medical, under which PDL agreed to provide up to ~~$50.0~~$50.0 million to Direct Flow Medical. Of the ~~$50.0~~$50.0 million available to Direct Flow Medical, an initial ~~$35.0~~$35.0 million (tranche one), net of fees, was funded by the Company at the close of the transaction. Pursuant to the original terms of the credit agreement the Company agreed to provide Direct Flow Medical with an additional ~~$15.0~~$15.0 million tranche, net of fees, upon the attainment of a specified revenue milestone to be accomplished no later than December 31, 2014 (the tranche two milestone). Until the occurrence of the tranche two milestone, outstanding borrowings under tranche one bore interest at the rate of 15.5% per annum, payable quarterly in arrears.

On November 10, 2014, PDL and Direct Flow Medical agreed to an amendment to the credit agreement to permit Direct Flow Medical to borrow the $15.0 million second tranche upon receipt by Direct Flow Medical of a specified minimum amount of proceeds from an equity offering prior to December 31, 2014. In exchange, the parties amended the credit agreement to provide for additional fees associated with certain liquidity events, such as a change of control or the consummation of an initial public offering, and granted PDL certain board of director observation rights. On November 19, 2014, upon Direct Flow Medical satisfying the amended tranche two milestone, the Company funded the $15.0 million second tranche to Direct Flow Medical, net of fees. Upon occurrence of the borrowing of ~~the~~this second tranche, the interest rate applicable to all loans under the credit agreement was decreased to 13.5% per annum, payable quarterly in arrears.

~~Principal~~Under the terms of the credit agreement, principal repayment will commence on the ~~twelfth~~12th interest payment date, September 30, 2016. The principal amount outstanding at commencement of repayment will be repaid in equal installments until final maturity of the loans. The loans ~~will~~ mature on November 5, 2018. Direct Flow Medical may elect to prepay the loans at any time, subject to a prepayment penalty that decreases over the life of the loans. The obligations under the credit agreement are secured by a pledge of substantially all of the assets of Direct Flow Medical and any of its subsidiaries.

On December 21, 2015, Direct Flow Medical and PDL entered into a waiver to the credit agreement in anticipation of Direct Flow Medical being unable to comply with the liquidity covenant and make interest payments due under the credit agreement.

On January 14, 2016, both parties agreed to provide Direct Flow Medical with an extension to waive the liquidity covenant and delay the timing of the interest payments through the period ending September 30, 2016.

On January 28, 2016, PDL funded an additional $5.0 million to Direct Flow Medical in the form of a short-term secured promissory note.

On February 26, 2016, PDL and Direct Flow Medical entered into the fourth Amendment to the Credit Agreement that, among other things, (i) converted the $5.0 million short-term secured promissory note into a loan under the credit agreement with substantially the same interest and payment terms as the existing loans, (ii) added a conversion option providing the right to convert the additional $5.0 million loan into equity of Direct Flow Medical at the option of PDL and (iii) provided for an additional $5.0 million convertible loan tranche, to be funded at the option of PDL. In addition, (i) PDL agreed to waive the liquidity covenant and delay the timing of the unpaid interest payments until September 30, 2016 and (ii) Direct Flow Medical agreed to issue to PDL a specified amount of warrants to purchase shares of convertible preferred stock on the first day of each month for the duration of the waiver periodat an exercise price of $0.01 per share. At March 31, 2016, we determined an estimated fair value of the warrant of $0.4 million.

The Company completed an impairment analysis as of March 31, 2016. Effective as of this date and as a result of the waived defaults, we determined the loan to be impaired and we ceased to accrue interest revenue. As of March 31, 2016, the estimated fair value of the collateral was determined to be in excess of that of the carrying value. In the event the Company was to foreclose on the collateral, there can be no assurance as to the accuracy of the estimated fair value of the collateral, nor can there be any assurance of realizing value from such collateral.

Paradigm Spine Credit Agreement

On February 14, 2014, the Company entered into the Paradigm Spine Credit Agreement, under which it made available to Paradigm Spine up to ~~$75.0~~$75.0 million to be used by Paradigm Spine to refinance its existing credit facility and expand its domestic commercial operations. Of the ~~$75.0~~$75.0 million available to Paradigm Spine, an initial ~~$50.0~~$50.0 million,, net of fees, was funded by the Company at the close of the transaction. AThe second ~~tranche~~and third tranches of up to an additional ~~$12.5~~$25.0 million in the aggregate, net of fees, isare no longer available under the terms of the Paradigm Spine Credit Agreement. ~~Upon~~

On October 27, 2015, PDL and Paradigm Spine entered into an amendment to the ~~attainment~~Paradigm Spine Credit Agreement to provide additional term loan commitments of ~~specified sales~~up to $7.0 million payable in two tranches of $4.0 million and ~~other milestones before~~$3.0 million, of which the first tranche was drawn on the closing date of the amendment, net of fees, and the second tranche is to be funded at the option of Paradigm Spine prior to June 30, ~~2015, the Company agreed to fund Paradigm Spine up to an additional~~ ~~$12.5 million, also at Paradigm Spine’s discretion.~~ 2016.

Borrowings under the credit agreement bear interest at the rate of 13.0% per annum, payable quarterly in arrears.

~~Principal~~Under the terms of the Paradigm Spine Credit Agreement, principal repayment will commence on the ~~twelfth~~12th interest payment date, December 31, 2016. The principal amount outstanding at commencement of repayment will be repaid in equal installments until final maturity of the loans. The loans ~~will~~ mature on February 14, 2019. Paradigm Spine may elect to prepay the loans at any time, subject to a prepayment penalty that decreases over the life of the loans. The obligations under the Paradigm Spine Credit Agreement are secured by a pledge of substantially all of the assets of Paradigm Spine and its domestic subsidiaries and, initially, certain assets of Paradigm Spine’s German subsidiaries.

kaléo Note Purchase Agreement

As of March 31, ~~2015,~~2016, the Company determined that its royalty purchase interest in Accel 300 represented a variable interest in a variable interest entity. However, the Company does not have the power to direct the activities of Accel 300 that most significantly impact Accel 300's economic performance and is not the primary beneficiary of Accel 300; therefore, Accel 300 is not subject to consolidation by the Company.

CareView Credit Agreement

On June 26, 2015, PDL entered into a credit agreement with CareView, under which the Company made available to CareView up to $40.0 million in two tranches of $20.0 million each. Under the terms of the credit agreement, the first tranche of $20.0 million was to be funded by the Company upon CareView’s attainment of a specified milestone relating to the placement of CareView Systems^®, to be accomplished no later than October 31, 2015. The Company expects to fund CareView an additional $20.0 million upon CareView’s attainment of specified milestones relating to the placement of CareView Systems and Consolidated EBITDA (as defined in the credit agreement), to be accomplished no later than June 30, 2017. Outstanding borrowings under the credit agreement will bear interest at the rate of 13.5% per annum and are payable quarterly in arrears.

As part of the transaction, the Company received a warrant to purchase approximately 4.4 million shares of common stock of CareView at the exercise price of $0.45 per share. We have accounted for the warrant as derivative asset with an offsetting credit as debt discount. At each reporting period the warrant is marked to market for changes in fair value.

Royalty Rights - At Fair Value

Depomed Royalty Agreement

On October 18, 2013, PDL entered into the Depomed Royalty Agreement, whereby the Company acquired the rights to receive royalties and milestones payable on sales of Type 2 diabetes products licensed by Depomed in exchange for a $240.5 million cash payment. Total arrangement consideration was ~~$241.3~~$241.3 million,, which was comprised of the $240.5 million cash payment to Depomed and ~~$0.8~~$0.8 million in transaction costs.

The rights acquired include Depomed’s royalty and milestone payments accruing from and after October 1, 2013: (a) from Santarus (which was subsequently acquired by ~~Salix)~~Salix, which itself was recently acquired by Valeant Pharmaceuticals) with respect to sales of Glumetza^® (metformin HCL extended-release tablets) in the United States; (b) from Merck with respect to sales of Janumet^® XR (sitagliptin and metformin HCL extended-release tablets); (c) from Janssen Pharmaceutica N.V. with respect to potential future development milestones and sales of its investigational fixed-dose combination of Invokana^® (canagliflozin) and extended-release metformin tablets; (d) from Boehringer Ingelheim with respect to potential future development milestones and sales of the investigational fixed-dose combinations of drugs and extended-release metformin subject to Depomed’s license agreement with Boehringer Ingelheim; and (e) from LG Life Sciences and Valeant Pharmaceuticals for sales of extended-release metformin tablets in Korea and Canada, respectively.

Under the terms of the Depomed Royalty Agreement, the Company ~~will receive~~receives all royalty and milestone payments due under license agreements between Depomed and its licensees until the Company has received payments equal to two times the cash payment it made to Depomed, after which all net payments received by Depomed will be shared evenly between the Company and Depomed.

As of March 31, ~~2015,~~2016, and December 31, ~~2014,~~2015, the Company determined that its royalty purchase interest in Depo DR Sub represented a variable interest in a variable interest entity. However, the Company does not have the power to direct the

activities of Depo DR Sub that most significantly impact Depo DR Sub's economic performance and is not the primary beneficiary of Depo DR Sub; therefore, Depo DR Sub is not subject to consolidation by the Company.

The financial asset acquired represents a single unit of accounting. The fair value of the financial asset acquired was determined by using a discounted cash flow analysis related to the expected future cash flows to be generated by each licensed product. This financial asset is classified as a Level 3 asset within the fair value hierarchy, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future commercialization for products not yet approved by the FDA or other regulatory agencies. The discounted cash ~~flow is~~flows are based upon expected royalties from sales of licensed products over a ~~nine-year~~seven-year period. The discount rates utilized range from approximately 21% to 25%. Significant judgment is required in selecting appropriate discount rates. At March 31, ~~2015,~~2016, an evaluation was performed to assess those rates and general market conditions potentially affecting the fair market value. Should these discount rates increase or decrease by 5%2.5%, the fair value of the asset could decrease by ~~$19.2~~$7.6 million or increase by ~~$24.4~~$8.5 million, respectively. A third-party expert was engaged to help management develop its original estimate of the expected future cash flows. The estimated fair value of the asset is subject to variation

should those cash flows vary significantly from those estimates. We periodically assess the expected future cash flows and to the extent such payments are greater or less than our initial estimates, or the timing of such payments is materially different than our original estimates, we will adjust the estimated fair value of the asset. Should the expected royalties increase or decrease by ~~10%~~2.5%, the fair value of the asset could increase by ~~$14.9~~$3.6 million or decrease by ~~$15.6~~$3.6 million, respectively.

When PDL acquired the Depomed ~~royalties,~~royalty rights, Glumetza was marketed by Santarus. In January 2014, Salix acquired Santarus and assumed responsibility for commercializing Glumetza, which was generally perceived to be a positive development because of Salix's larger sales force and track record in the successful commercialization of therapies. In late 2014, Salix made a number of disclosures relating to an excess of supply at the distribution level of Glumetza and other drugs that it commercialized, ~~likely attributable~~the practices leading to ~~the likely~~this excess of ~~its distributors in drawing down such inventory and to a~~supply which were under review by Salix's audit committee ~~of its~~in relation to the related accounting practices. Because of these disclosures and PDL's lack of direct access to information as to the levels of inventory of Glumetza in the distribution channels, PDL commenced a review of all public statements by Salix, publicly available historical third-party prescription data, analyst reports and other relevant data sources. PDL also engaged a third-party expert to specifically assess estimated inventory levels of Glumetza in the distribution channel and to ascertain the potential effects those inventory levels may have on expected future cash flows. Salix was acquired by Valeant Pharmaceuticals in early April 2015. In mid-2015, Valeant Pharmaceuticals implemented two price increases on Glumetza. At year-end 2015, a third-party expert was engaged by PDL to assess the impact of ~~this year.~~ the Glumetza price adjustments and near-term market entrance of manufacturer of generic equivalents to Glumetza to the expected future cash flows. Management revised based on the analysis performed the underlying assumptions used in the discounted cash flow analysis at year-end 2015. In February 2016, a manufacturer of generic equivalents to Glumetza entered the market. At March 31, 2016, management evaluated, with assistance of a third-party expert, the erosion of market share data, the gross-to-net revenue adjustment assumptions and Glumetza demand data. These data and assumptions are based on available but limited data. Our expected future cash flows at year-end 2015 anticipated a reduction in future cash flows of Glumetza as a result of the generic competition in 2016. However, based on the most recent demand and supply data of Glumetza it appears that the loss of market share progressed more rapidly than forecasted at year-end 2015.

As of March 31, ~~2015, we have not revised~~2016, our discounted cash flow analysis reflects our expectations as to ~~any impact, if any,~~ the ~~acquisition will have on~~amount and timing of future cash flows ~~from Glumetza.~~up to the valuation date. We ~~will~~continue to monitor whether the ~~acquisition by Valeant has any effect on~~generic competition further affects sales of Glumetza and thus royalties on such sales paid to PDL. ~~There can be no assurances that~~Due to the uncertainty around Valeant's marketing and pricing strategy, as well as the recent generic competition and limited historical demand data after generic market entrance, we ~~will be able~~may need to ~~assess~~further reduce future cash flows in the ~~impact~~event of more rapid reduction in market share of Glumetza. PDL exercised its audit right under the ~~acquisition on sales~~Depomed Royalty Agreement with respect to the Glumetza royalties in January 2016 and expects to conclude the audit in the second half of ~~Glumetza and thus royalties on such sales paid to PDL.~~2016.

VB Royalty Agreement

On June 26, 2014, PDL entered into the VB Royalty Agreement, whereby VB conveyed to the Company the right to receive royalties payable on sales of a spinal implant that has received pre-market approval from the FDA, in exchange for a $15.5 million cash payment, less fees.

The royalty rights acquired ~~royalty includes~~include royalties accruing from and after April 1, 2014. Under the terms of the VB Royalty Agreement, the Company ~~will receive~~receives all royalty payments due to VB pursuant to certain technology transfer agreements between VB and Paradigm Spine until the Company has received payments equal to two and three tenths times the cash payment made to VB, after which all rights to receive royalties will be returned to VB. VB may repurchase the royalty right at any time on or

before June 26, 2018, for a specified amount. The ~~acting~~ chief executive officer of Paradigm Spine is one of the owners of VB. The Paradigm Spine Credit Agreement and the VB Royalty Agreement were negotiated separately.

The fair value of the royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over an eight-year period. The discount rate utilized was approximately 17.5%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by $1.2 million or increase by $1.4 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase by $0.4 million or decrease by $0.4 million, respectively. A third-party expert was engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation is performed to assess those estimates, discount rates utilized and general market conditions affecting fair market value.

U-M Royalty Agreement

On November 6, 2014, PDL acquired a portion of all royalty payments of the U-M’s worldwide royalty interest in Cerdelga (eliglustat) for $65.6 million. Under the terms of the Michigan Royalty Agreement, PDL will receive 75% of all royalty payments due under U-M’s license agreement with Genzyme until expiration of the licensed patents, excluding any patent term extension. Cerdelga, an oral therapy for adult patients with Gaucher disease type 1, was developed by Genzyme, a Sanofi company. Cerdelga was approved in the United States on August 19, 2014, in the European Union on January 22, 2015 and in Japan in March 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities.

The fair value of the royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a ~~nine-year~~seven-year period. The discount rate utilized was approximately ~~17.5%~~12.8%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by ~~$1.4~~$5.6 million or increase by ~~$1.6~~$6.3 million, respectively. Should the expected royalties increase or decrease by 2.5%, the fair value of the asset could increase by ~~$0.4~~$1.8 million or decrease by ~~$0.4~~$1.8 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. ~~At each reporting period, an~~An evaluation ~~is performed to assess~~of those estimates, discount rates utilized and general market conditions affecting fair market ~~value.~~value is performed at each reporting period.

~~University of Michigan~~ARIAD Royalty Agreement

On ~~November 6, 2014,~~July 28, 2015, PDL entered into the ARIAD Royalty Agreement, whereby the Company acquired the rights to receive royalties payable from ARIAD's net revenues generated by the sale, distribution or other use of Iclusig^® (ponatinib), a ~~portion~~cancer medicine for the treatment of ~~all~~adult patients with chronic myeloid leukemia, in exchange for up to $200.0 million in cash payments. The purchase price of $100.0 million is payable in two tranches of $50.0 million each, with the first tranche funded on the closing date and the second tranche to be funded on the 12-month anniversary of the closing date. The ARIAD Royalty Agreement provides ARIAD with an option to draw up to an additional $100.0 million in up to two draws at any time between the six- and 12-month anniversaries of the closing date. ARIAD may repurchase the royalty rights at any time for a specified amount. Upon the occurrence of certain events, PDL has the right to require ARIAD to repurchase the royalty rights for a specified amount. Under the ARIAD Royalty Agreement, the Company has the right to a make-whole payment from ARIAD if the Company does not receive payments equal to or greater than the amounts funded on or prior to the fifth anniversary of ~~U-M’s worldwide royalty interest~~each of the respective fundings. In such case, ARIAD will pay to the Company the difference between the amounts paid to such date by ARIAD (excluding any delinquent fee payments) and the amounts funded by the Company. PDL has elected the fair value option to account for the hybrid instrument in ~~Cerdelga (eliglustat) for $65.6 million.~~ its entirety. Any embedded derivative shall not be separated from the host contract.

Under the terms of the ~~Michigan~~ARIAD Royalty Agreement, ~~PDL will receive 75% of all~~the Company receives royalty payments ~~due under U-M’s license agreement with Genzyme~~at a royalty rate ranging from 2.5% to 7.5% of Iclusig revenue until ~~expiration~~the first to occur of (i) repurchase of the ~~licensed patents, excluding~~royalty rights by ARIAD or (ii) December 31, 2033. The annual royalty payments shall not exceed $20.0 million in any ~~patent term extension. Cerdelga,~~fiscal year for the years ended December 31, 2015 through December 31, 2018. If Iclusig revenue does not meet certain agreed-upon projections on an ~~oral therapy~~annual basis, PDL is entitled to certain royalty payments from net revenue of another ARIAD product, brigatinib, up to the amount of the shortfall from the projections for ~~adult patients with Gaucher disease type 1, was developed by Genzyme. Cerdelga was approved in~~ the United States on August 19, 2014, in the European Union on January 22, 2015 and in Japan on March 25, 2015. In addition, marketing applications for Cerdelga are under review by other regulatory authorities.applicable year.

The asset acquired pursuant to the ARIAD Royalty Agreement represents a single unit of accounting. The fair value of the royalty right at March 31, ~~2015,~~2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a ~~nine-year~~seven-year period. The discount rate utilized was approximately ~~12.8%~~10.0%. Significant judgment is required in selecting the appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the fair value of this asset could decrease by ~~$6.3~~$7.9 million or increase by ~~$7.2~~$9.1 million, respectively. Should the expected royalties increase or decrease by 5%2.5%, the fair value of the asset could increase by ~~$3.4~~$1.3 million

or decrease by ~~$3.4~~$1.3 million, respectively. A third-party expert is engaged to assist management with the development of its estimate of the expected future cash flows, when deemed necessary. The fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. An evaluation of those estimates, discount rates utilized and general market conditions affecting fair market value is performed in each reporting period.

~~Convertible Notes~~

~~Series 2012 Notes~~

~~In January 2012, we exchanged~~ ~~$169.0 million~~ ~~aggregate principal of new Series 2012 Notes for an identical principal amount of our February 2015 Notes, plus a cash payment of~~ ~~$5.00~~ ~~for each~~ ~~$1,000~~ ~~principal amount tendered, totaling approximately~~ ~~$845,000. The cash incentive payment was allocated to deferred issue costs of~~ ~~$765,000, additional paid-in capital of~~ ~~$52,000~~ ~~and deferred tax assets of~~ ~~$28,000~~. The deferred issue costs will be recognized over the life of the Series 2012 Notes as interest expense. In February 2012, we entered into separate privately negotiated exchange agreements under which we exchanged an additional ~~$10.0 million~~ aggregate principal amount of the new Series 2012 Notes for an identical principal amount of our February 2015 Notes. In August 2013, the Company entered into a separate privately negotiated exchange agreement under which it retired the final $1.0 million aggregate principal amount of the Company's outstanding February 2015 Notes. Pursuant to the exchange agreement, the holder of the February 2015 Notes received ~~$1.0 million~~ ~~aggregate principal amount of the Company's Series 2012 Notes. Immediately following the exchange,~~ no ~~principal amount of the February 2015 Notes remained outstanding and $180.0 million principal amount of the Series 2012 Notes was outstanding.~~AcelRx Royalty Agreement

On ~~February 6, 2014,~~September 18, 2015, PDL entered into the AcelRx Royalty Agreement with ARPI LLC, a wholly owned subsidiary of AcelRx, whereby the Company ~~entered into~~acquired the rights to receive a portion of the royalties and certain milestone payments on sales of Zalviso^™ (sufentanil sublingual tablet system) in the European Union, Switzerland and Australia by AcelRx's commercial partner, Grünenthal, in exchange for a $65.0 million cash payment. Under the terms of the AcelRx Royalty Agreement, the Company will receive 75% of all royalty payments and ~~purchase agreements~~80% of the first four commercial milestone payments due under AcelRx's license agreement with ~~certain holders~~Grünenthal until the earlier to occur of ~~approximately~~ ~~$131.7 million~~ ~~aggregate principal amount of outstanding Series 2012 Notes. The exchange agreement provided for the issuance~~(i) receipt by the Company of ~~shares of common stock~~payments equal to three times the cash payments made to AcelRx and ~~a cash payment for~~(ii) the Series 2012 Notes being exchanged, and the purchase agreement provided for a cash payment for the Series 2012 Notes being repurchased. The total consideration given was approximately $191.8 million. The Company issued to the participating holdersexpiration of the ~~February~~licensed patents. Zalviso received marketing approval by the European Commission in September 2015. Grüenthal is expected to launch Zalviso in the Second quarter of 2016 and PDL will begin receiving royalties shortly thereafter.

As of March 31, 2016, and December 31, 2015, ~~Notes~~the Company determined that its royalty rights under the agreement with ARPI LLC represented a ~~total~~variable interest in a variable interest entity. However, the Company does not have the power to direct the activities of ~~approximately~~ ~~20.3 million~~ ~~shares~~ARPI LLC that most significantly impact ARPI LLC's economic performance and is not the primary beneficiary of ~~its common stock with a~~ARPI LLC; therefore, ARPI LLC is not subject to consolidation by the Company.

The fair value of ~~approximately $157.6 million and made an aggregate~~the royalty right at March 31, 2016, was determined by using a discounted cash ~~payment of approximately~~ ~~$34.2 million~~ ~~pursuant~~flow analysis related to the ~~exchange and purchase agreements. Of the~~ ~~$34.2 million~~expected future cash ~~payment, $2.5 million~~flows to be received. This asset is ~~attributable to an inducement fee, $1.8 million is attributable to interest accrued through the date of settlement and $29.9 million is attributable~~classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the ~~repurchase~~probability and timing of future sales of the ~~Series 2012 Notes. It~~licensed product. The discounted cash flow was ~~determined that~~based upon expected royalties from sales of licensed product over a fifteen-year period. The discount rate utilized was approximately 13.4%. Significant judgment is required in selecting the ~~exchange and purchase agreement represented an extinguishment of~~appropriate discount rate. Should this discount rate increase or decrease by 2.5%, the related notes. As a result, a loss on extinguishment of $6.1 million was recorded. The $6.1 million loss on extinguishment included the derecognition of the original issuance discount of $5.8 million and a $0.3 million charge resulting from the difference of the facefair value of this asset could decrease by $10.2 million or increase by $12.8 million, respectively. Should the ~~notes and~~expected royalties increase or decrease by 2.5%, the fair value of the ~~notes. Immediately following~~asset could increase by $1.7 million or decrease by $1.7 million, respectively. A third-party expert is engaged to assist management with the ~~exchange, $48.3 million principal amount~~development of its estimate of the ~~Series 2012 Notes was outstanding with approximately $2.1 million of remaining original issuance discount to be amortized over the remaining life~~expected future cash flows, when deemed necessary. The fair value of the ~~Series 2012 Notes.~~asset is subject to variation should those cash flows vary significantly from our estimates. At each reporting period, an evaluation of those estimates, discount rates utilized and general market conditions affecting fair market value is performed in each reporting period.

Avinger Credit and Royalty Agreement

On ~~October 20, 2014,~~April 18, 2013, PDL entered into the Avinger Credit and Royalty Agreement, under which we made available to Avinger up to $40.0 million (of which only $20.0 million was funded) to be used by Avinger in connection with the commercialization of its lumivascular catheter devices and the development of Avinger's lumivascular atherectomy device. On September 22, 2015, Avinger elected to prepay the note receivable in whole for a payment of $21.4 million in cash.

Under the terms of the Avinger Credit and Royalty Agreement, the Company ~~entered into~~was entitled to receive royalties at a ~~privately negotiated exchange agreement under which it retired approximately $26.0 million in principal~~rate of 1.8% on Avinger's net revenues until the note was repaid by Avinger. Upon the repayment of the ~~outstanding Series 2012 Notes.~~note receivable, which occurred on September 22, 2015, the royalty rate was reduced to 0.9% subject to certain minimum payments from the prepayment date until April 2018. The ~~exchange agreement provided~~Company has accounted for the issuance, by the Company, of shares of common stock and a cash payment for the Series 2012 Notes being exchanged. The Company issued approximately 1.8 million shares of its common stock and made a cash payment of approximately $26.2 million. Immediately following the exchange, $22.3 million principal amount of the Series 2012 Notes was outstanding with approximately $0.1 million of remaining original issuance discount to be amortized over the remaining life of the Series 2012 Notes. On February 17, 2015, the Company completed the retirement of the remaining $22.3 million of aggregate principal of its Series 2012 Notes at their stated maturity for $22.3 million, plus approximately 1.34 million shares of its common stock.

~~May 2015 Notes~~

~~On May 16, 2011, we issued~~ ~~$155.3 million~~royalty rights in ~~aggregate principal amount, at par, of our May 2015 Notes in an underwritten public offering, for net proceeds of~~ ~~$149.7 million. Our May 2015 Notes are due May 1, 2015, and we pay interest at~~ ~~3.75%~~ on our May 2015 Notes semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2011. Proceeds from our May 2015 Notes, net of amounts used for purchased call option transactions and provided by the warrant transactions described below, were used to redeem our 2012 Notes. Upon the occurrence of a fundamental change, as defined in the indenture, holders have the option to require PDL to repurchase their May 2015 Notes at a purchase price equal to ~~100%~~ ~~of the principal, plus accrued interest.~~

~~Our May 2015 Notes are convertible under any of the following circumstances:~~

During any fiscal quarter ending after the quarter ended 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 accordance with the ~~accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we were required to separately account for the liability component~~fair value option. The fair value of the ~~instrument~~royalty right at March 31, 2016, was determined by using a discounted cash flow analysis related to the expected future cash flows to be received. This asset is classified as a Level 3 asset, as our valuation utilized significant unobservable inputs, including estimates as to the probability and timing of future sales of the licensed product. The discounted cash flow was based upon expected royalties from sales of licensed product over a two-year period. The discount rate utilized was approximately 15.0%. Significant judgment is required in ~~a manner that reflects~~selecting the ~~market interest~~appropriate discount rate. Should this discount rate ~~for a similar nonconvertible instrument at~~increase or decrease by 5%, the ~~date~~fair value of ~~issuance. As a result, we separated~~this asset could decrease by $113,000 or increase by $126,000, respectively. Should the ~~principal balance of our May 2015 Notes between~~expected royalties increase or decrease by 5%, the fair value of the ~~debt component and~~asset could increase by $116,000 or decrease by $116,000, respectively. Management considered the contractual minimum payments when developing its estimate of the expected future cash flows. The fair value of the ~~common stock conversion feature. Using an assumed borrowing rate~~asset is subject to variation should those cash flows vary significantly from our estimates. An evaluation of ~~7.5%, which represents the estimated~~those estimates, discount rates utilized and general market ~~interest rate for a similar nonconvertible instrument available to us on the date of issuance, we recorded a total debt discount of~~ ~~$18.9 million, allocated~~ ~~$12.3 million~~ ~~to additional paid-in capital and allocated~~ ~~$6.6 million~~ ~~to deferred tax liability. The discount~~conditions affecting fair market value is ~~being amortized to interest expense over the term of our May 2015 Notes and increases interest expense during the term of our May 2015 Notes from the~~ ~~3.75%~~ ~~cash coupon interest rate to an effective interest rate of~~ ~~7.5%. As of~~ ~~March 31, 2015, the remaining discount amortization period is~~ ~~0.1 years~~.performed in each reporting period.

~~As of~~ ~~March 31, 2015, our May 2015 Notes were convertible into~~ ~~174.8506~~ ~~shares of the Company’s common stock per $1,000 of principal amount, or approximately~~ ~~$5.72~~ ~~per common share, subject to further adjustment upon certain events including dividend payments. At~~ ~~March 31, 2015, the if-converted value of our May 2015 exceeded their principal amount by approximately $35.8 million.~~Convertible Note

~~Purchased Call Options and Warrants~~

~~In connection with the issuance of our May 2015 Notes, we entered into purchased call option transactions with~~ ~~two~~ ~~hedge counterparties. We paid an aggregate amount of~~ ~~$20.8 million~~, plus legal fees, for the purchased call options with terms substantially similar to the embedded conversion options in our May 2015 Notes. The purchased call options cover, subject to anti-dilution and certain other customary adjustments substantially similar to those in our May 2015 Notes, approximately ~~27.1 million~~ shares of our common stock. We exercised the purchased call options upon conversion of our May 2015 Notes on May 1, 2015, which required the hedge counterparties to deliver shares to the Company. The hedge counterparties delivered to the Company approximately 5.2 million of PDL common shares, which was the amount equal to the shares required to be delivered by us to the note holders for the excess conversion value.

~~In addition, we sold to the hedge counterparties warrants exercisable, on a cashless basis, for the sale of rights to receive up to~~ ~~27.5 million~~ ~~shares of common stock underlying our May 2015 Notes. We received an aggregate amount of~~ ~~$10.9 million~~ for the sale from the two counterparties. The warrant counterparties may exercise the warrants on their specified expiration dates that occur over a period of time ending on January 20, 2016. If the VWAP of our common stock, as defined in the warrants, exceeds the strike price of the warrants on the date of conversion, we will deliver to the warrant counterparties shares equal to the spread between the VWAP on the date of exercise or expiration and the strike price. If the VWAP is less than the strike price, neither party is obligated to deliver anything to the other.

~~The purchased call option transactions and warrant sales effectively serve to reduce the potential dilution associated with conversion of our May 2015 Notes. The strike prices are approximately~~ ~~$5.72~~ ~~and~~ ~~$6.73, subject to further adjustment upon certain events including dividend payments, for the purchased call options and warrants, respectively.~~

~~Because the share price is above~~ ~~$5.72, but below~~ ~~$6.73~~, upon conversion of our May 2015 Notes, the purchased call options offset the share dilution, and the Company received shares on exercise of the purchased call options equal to the shares that the Company must deliver to the note holders. If the share price is above ~~$6.73, upon exercise of the warrants, the Company will deliver shares to the counterparties in an amount equal to the excess of the share price over~~ ~~$6.73. For example, a 10% increase in the share price above~~ ~~$6.73~~ ~~would result in the issuance of~~ ~~2.1 million~~ ~~incremental shares upon exercise of the warrants. If our share price continues to increase, additional dilution would occur.~~

While the purchased call options reduced the potential equity dilution upon conversion of our May 2015 Notes, prior to the conversion or exercise, our May 2015 Notes and the warrants have a dilutive effect on the Company’s earnings per share to the extent that the price of the Company’s common stock during a given measurement period exceeds the respective exercise prices of those instruments. As of ~~March 31, 2015, and~~ ~~December 31, 2014, there were no related purchased call options or warrants exercised.~~

February 2018 Notes

The February 2018 Notes are convertible under any of the following circumstances:

Upon the occurrence of specified corporate events as described further in the indenture; or

At any time on or after August 1, 2017.

In accordance with the accounting guidance for convertible debt instruments that may be settled in cash or other assets on conversion, we were required to separately account for the liability component of the instrument in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. As a result, we separated the principal balance of ~~our~~the February 2018 Notes between the fair value of the debt component and the fair value of the common stock conversion feature. Using an assumed borrowing rate of 7.0%, which represents the estimated market interest rate for a similar nonconvertible instrument available to us on the date of issuance, we recorded a total debt discount of $29.7 million, allocated $19.3 million to additional paid-in capital and allocated $10.4 million to deferred tax liability. The discount is being amortized to interest expense over the term of ~~our~~the February 2018 Notes and increases interest expense during the term of ~~our~~the February

2018 Notes from the 4.0% cash coupon interest rate to an effective interest rate of 6.9%. As of March 31, ~~2015~~,2016, the remaining discount amortization period is ~~2.9~~1.8 years.

~~As of~~ ~~March 31, 2015, our February 2018 Notes are not convertible. At March 31, 2015, the if-converted value of our February 2018 Notes did not exceed the principal amount.~~

Purchased Call Options and Warrants

In connection with the issuance of ~~our~~the February 2018 Notes, we entered into purchased call option transactions with two hedge counterparties. We paid an aggregate amount of $31.0 million for the purchased call options with terms substantially similar to the embedded conversion options in ~~our~~the February 2018 Notes. The purchased call options cover, subject to anti-dilution and certain other customary adjustments substantially similar to those in ~~our~~the February 2018 Notes, approximately 32.7 million shares of our common stock. We may exercise the purchased call options upon conversion of ~~our~~the February 2018 Notes and require the hedge counterparty to deliver shares to the Company in an amount equal to the shares required to be delivered by the Company to the note holder for the excess conversion value. The purchased call options expire on February 1, 2018, or the last day any of ~~our~~the February 2018 Notes remain outstanding.

In addition, we sold to the hedge counterparties warrants exercisable, on a cashless basis, for the sale of rights to receive shares of common stock that will initially underlie ~~our~~the February 2018 Notes at a strike price of $10.3610 per share, which represents a premium of approximately 30% over the last reported sale price of the Company's common stock of $7.97 on February 6, 2014. The warrant transactions could have a dilutive effect to the extent that the market price of the Company's common stock exceeds the applicable strike price of the warrants on the date of conversion. We received an aggregate amount of $11.4 million for the sale from the two counterparties. The warrant counterparties may exercise the warrants on their specified expiration dates that occur over a period of time. If the VWAP of our common stock, as defined in the warrants, exceeds the strike price of the warrants, we will deliver to the warrant counterparties shares equal to the spread between the VWAP on the date of exercise or expiration and the strike price. If the VWAP is less than the strike price, neither party is obligated to deliver anything to the other.

The purchased call option transactions and warrant sales effectively serve to reduce the potential dilution associated with conversion of ~~our~~the February 2018 Notes. The strike price is subject to further adjustment in the event that future quarterly dividends exceed $0.15 per share.

The purchased call options and warrants are considered indexed to PDL stock, require net-share settlement, and met all criteria for equity classification at inception and at March 31, ~~2015~~.2016. The purchased call options cost of $31.0 million, less deferred taxes of $10.8 million, and the $11.4 million received for the warrants, was recorded as adjustments to additional paid-in capital. Subsequent changes in fair value will not be recognized as long as the purchased call options and warrants continue to meet the criteria for equity classification.

~~March 2015 Term Loan~~

The interest rates per annum applicable to amounts outstanding under the term loan are, at the Company’s option, either (a) the alternate base rate (as defined in the credit agreement) plus 0.75%, or (b) the adjusted Eurodollar rate (as defined in the credit agreement) plus 1.75% per annum. As of March 31, 2015, the interest rate, based upon the adjusted Eurodollar rate, was 2.02%. Interest payments under the credit agreement are due on the interest payment dates specified in the credit agreement.

~~The term loan requires amortization in the form of scheduled principal payments on June 15, September 15 and December 15 of 2015, with the remaining outstanding balance due on February 15, 2016.~~

~~The credit agreement contains events of default that the Company believes are usual and customary for a senior~~

~~secured credit agreement.~~

~~October 2013 Term Loan~~

~~On October 28, 2013, PDL entered into a credit agreement among the Company, the lenders party thereto and the Royal Bank of Canada, as administrative agent. The October 2013 Term Loan amount was for~~ ~~$75 million, with a term of one year.~~

~~The interest rates per annum applicable to amounts outstanding under the October 2013 Term Loan were, at the Company’s option, either (a) the base rate plus~~ ~~1.00%, or (b) the Eurodollar rate plus 2.00% per annum. As of the final payment date, the interest rate was~~ ~~2.22%. This principal balance and outstanding interest was paid in full on October 28, 2014.~~

Off-Balance Sheet Arrangements

As of March 31, ~~2015~~2016, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

Contractual Obligations

Convertible ~~Notes and Term Loans~~Note

As of March 31, ~~2015~~2016, our convertible ~~notes and term loan contractual obligations~~note obligation consisted ~~primarily~~ of our February 2018 Notes, ~~May 2015 Notes and March 2015 Term Loan,~~ which in the aggregate totaled ~~$555.1~~$246.4 million in principal.

We expect that our debt service obligations over the next several years will consist of interest payments and repayment of our February 2018 ~~Notes, May 2015 Notes and March 2015 Term Loan.~~Notes. We may further seek to exchange, repurchase or otherwise acquire the convertible notes in the open market in the future, which could adversely affect the amount or timing of any distributions to our stockholders. We would make such exchanges or repurchases only if we deemed it to be in our stockholders’ best interest. We may finance such repurchases with cash on hand and/or with public or private equity or debt financings if we deem such financings to be available on favorable terms.

Notes Receivable and Other ~~Long Term~~Long-Term Receivables

On ~~February 18, 2014,~~June 26, 2015, PDL entered into a credit agreement with ~~Paradigm Spine, in~~CareView, under which ~~PDL will provide~~the Company made available to CareView up to ~~$75.0~~$40.0 million in two tranches of $20.0 million each. The first tranche of $20 million was to ~~Paradigm Spine. Of~~be funded by the ~~$75.0~~Company upon CareView’s attainment of a specified milestone relating to the placement of CareView Systems, to be accomplished no later than October 31, 2015. The Company will fund CareView an additional $20.0 million ~~available~~upon CareView’s attainment of specified milestones relating to ~~Paradigm Spine,~~the placement of CareView Systems and EBITDA, to be accomplished no later than June 30, 2017.

On October 7, 2015, PDL and CareView agreed to an ~~initial $50.0~~amendment of the credit agreement to modify certain definitions related to the first and second tranche milestones. On this date, the Company funded the first tranche of $20.0 million, net of fees, ~~was provided by the Company at the close~~upon attainment of the ~~transaction.~~modified first tranche milestone relating to the placement of CareView Systems. The additional ~~$12.5~~$20.0 million in the form of ~~the~~a second tranche iscontinues to be available upon CareView’s attainment of specified milestones relating to the placement of CareView Systems and Consolidated EBITDA, to be accomplished no ~~longer available to Paradigm Spine~~later than June 30, 2017 under the terms of the amended credit agreement.

On October 27, 2015, PDL and Paradigm Spine entered into an amendment to the Paradigm Spine Credit ~~Agreement. Upon~~Agreement to provide additional term loan commitments of up to $7.0 million payable in two tranches of $4.0 million and $3.0 million, of which the ~~attainment~~first tranche of ~~specified sales~~$4.0 million was drawn on the closing date of the amendment, net of fees, and ~~other milestones~~the second tranche of $3.0 million is to be funded at the option of Paradigm Spine prior to June 30, 2016.

Royalty Rights - At Fair Value

On July 28, 2015, PDL entered into a revenue interests assignment agreement with ARIAD pursuant to which ARIAD sold to the Company ~~agreed~~the right to ~~fund Paradigm Spine~~receive specified royalties on ARIAD’s Net Revenues (as defined in the ARIAD Royalty Agreement) generated by the sale, distribution or other use of ARIAD’s product Iclusig (ponatinib). In exchange for the ARIAD Royalty Rights, the ARIAD Royalty Agreement provides for the funding of up to $200.0 million in cash to ARIAD. Funding of the first $100.0 million will be made in two tranches of $50.0 million each, with the initial amount funded on the closing date of the ARIAD Royalty Agreement and an additional $50.0 million to be funded on the 12-month anniversary of the closing date. In addition, ARIAD has an option to draw up to an additional ~~$12.5~~$100.0 million in up to two draws at ~~Paradigm Spine's discretion.~~any time between the six- and 12-month anniversaries of the closing date.

Lease Guarantee

In connection with the Spin-Off, we entered into amendments to the leases for our former facilities in Redwood City, California, under which Facet was added as a co-tenant, and a Co-Tenancy Agreement, under which Facet agreed to indemnify us for all matters related to the leases attributable to the period after the Spin-Off date. Should Facet default under its lease obligations, we could be held liable by the landlord as a co-tenant and, thus, we have in substance guaranteed the payments under the lease agreements for the Redwood City facilities. As of March 31, ~~2015~~2016, the total lease payments for the duration of the guarantee, which runs through December 2021, were approximately $~~76.1~~64.9 million.

We recorded a liability of ~~$10.7~~$10.7 million on our Condensed Consolidated Balance Sheets as of March 31, ~~2015~~2016, and December 31, ~~2014~~2015, for the estimated liability resulting from this guarantee. We prepared a discounted, probability-weighted cash flow analysis to calculate the estimated fair value of the lease guarantee as of the Spin-Off. We were required to make assumptions regarding the probability of Facet’s default on the lease payment, the likelihood of a sublease being executed and

the times at which these events could occur. These assumptions are based on information that we received from real estate brokers and the then-current economic conditions, as well as expectations of future economic conditions. The fair value of this lease guarantee was charged to additional paid-in capital upon the Spin-Off and any future adjustments to the carrying value of the obligation will also be recorded in additional paid-in capital. In future periods, we may increase the recorded liability for this obligation if we conclude that a loss, which is larger than the amount recorded, is both probable and estimable.

Indemnification

As permitted under Delaware law and under the terms of our bylaws, the Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the Company has agreed to indemnify such individuals for certain events or occurrences, subject to certain limits, against liabilities that arise by reason of their status as directors or officers and to advance expense incurred by such individuals in connection with related legal proceedings. While the maximum amount of potential future indemnification is unlimited, we have a director and officer insurance policy that limits our exposure and may enable us to recover a portion of any future amounts paid.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Foreign Currency Risk~~

The underlying sales of our licensees’ products are conducted in multiple countries and in multiple currencies throughout the world. While foreign currency conversion terms vary by license agreement, generally most agreements require that royalties first be calculated in the currency of sale and then converted into U.S. dollars using the average daily exchange rates for that currency for a specified period at the end of the calendar quarter. Accordingly, when the U.S. dollar weakens in relation to other currencies, the converted amount is greater than it would have been had the U.S. dollar not weakened. More than 50% of our licensees’ product sales are in currencies other than U.S. dollars; as such, our revenues may fluctuate due to changes in foreign currency exchange rates and are subject to foreign currency exchange risk. For example, in a quarter in which we generate $70 million in royalty revenues, and when approximately $35 million is based on sales in currencies other than the U.S. dollar, if the U.S. dollar strengthens across all currencies by 10% during the conversion period for that quarter, when compared to the same amount of local currency royalties for the prior year, U.S. dollar converted royalties will be approximately $3.5 million less in that current quarter sales, assuming that the currency risk in such forecasted sales was not hedged.

We hedge Euro-denominated risk exposures related to our licensees’ product sales with Euro forward contracts. In general, these contracts are intended to offset the underlying Euro market risk in our royalty revenues. Our current contracts extend through the first quarter of 2016 and are all classified for accounting purposes as cash flow hedges. We continue to monitor the change in the Euro exchange rate and regularly purchase additional forward contracts to achieve hedged rates that approximate the average exchange rate of the Euro over the year, which we anticipate will better offset potential changes in exchange rates than simply entering into larger contracts at a single point in time.

During the third quarter of 2012, we reduced our forecasted exposure to the Euro for 2013 royalties. In August 2012, we de-designated and terminated certain forward contracts, recording a gain of approximately $391,000 in "Interest and other income, net". The termination of these contracts was effected through a reduction in the notional amount of the original hedge contracts that was then exchanged for new hedges of 2014 Euro-denominated royalties. These 2014 hedges were entered into at a rate more favorable than the market rate as of the date of the exchange.

Gains or losses on our cash flow hedges are recognized in the same period that the hedged transaction impacts earnings as an adjustment to royalty revenue. Ineffectiveness, if any, resulting from the change in fair value of the modified 2012 hedge or lower than forecasted Euro-based royalties will be reclassified from "Other comprehensive income (loss), net" and recorded as "Interest and other income, net", in the period it occurs. The following table summarizes the notional amounts, Euro exchange rates and fair values of our outstanding Euro contracts designated as hedges at ~~March 31, 2015, and~~ ~~December 31, 2014~~:

Euro Forward Contracts March 31, 2015 December 31, 2014
(In thousands) (In thousands)
Currency Settlement Price Type Notional Amount Fair Value Notional Amount Fair Value
($ per Euro)
Euro 1.256
Sell Euro $ —
$ —
$ 6,000
$ 241
Euro 1.257
Sell Euro 15,750
2,675
15,750
728
Euro 1.259
Sell Euro 16,125
2,975
16,125
752
Euro 1.260
Sell Euro 33,000
6,018
33,000
1,468
Euro 1.270
Sell Euro —
—
7,000
377
Euro 1.281
Sell Euro —
—
8,000
503
Total
$ 64,875
$ 11,668
$ 85,875
$ 4,069

Interest Rate Risk

Our investment portfolio was approximately ~~$193.1~~$200.9 million at March 31, ~~2015~~2016, and $~~224.1~~96.3 million at December 31, ~~2014~~2015, and consisted of investments in Rule 2a-7 money market funds and a corporate security. If market interest rates were to have increased by 1% in either of these years, there would have been no material impact on the fair value of our portfolio.

The aggregate fair value of our convertible notes was estimated to be ~~$477.2~~$220.6 million at March 31, ~~2015~~2016, and $~~528.7~~197.9 million at December 31, ~~2014~~2015, based on available pricing information. At March 31, ~~2015~~2016, and December 31, ~~2014~~2015, our convertible ~~notes~~

note consisted of our February 2018 Notes, with a fixed interest rate of 4.0%~~, and our May 2015 Notes, with a fixed interest rate of 3.75%~~. At ~~December 31, 2014, our convertible notes also consisted of our Series 2012 Notes, with a fixed interest rate of 2.875%. These obligations are~~This obligation is subject to interest rate risk because the fixed interest ~~rates~~rate under ~~these obligations~~this obligation may exceed current market interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Changes in Internal Controls

Limitations on the Effectiveness of Controls

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

A second lawsuit, which purported to be brought derivatively on behalf of the Company and was also filed in Federal District Court in Nevada, sought to assert claims on behalf of the Company against the Company’s directors for, among other things, breach of fiduciary duty (for disseminating allegedly false and misleading information). This action was entitled Feely, et ano. v. Lindell, et al., No. 2:14-cv-01738-APGGWF (D. Nev.). A third lawsuit, with substantially similar allegations to Feely was subsequently filed in Nevada State Court and was entitled Marchetti, et ano. v. Lindell, et al., No. A-14-708757-C (Dist. Ct. Clark Co., Nev.).

~~Other Legal Proceedings~~

ITEM 1A. RISK FACTORS



Dated:	May ~~6, 2015~~4, 2016
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~~Steffen Pietzke
~~David Montez~~Steffen Pietzke
Controller and Chief Accounting Officer (Principal Accounting Officer)



EXHIBIT INDEX
Exhibit Number	Exhibit Title

10.1*#	~~2015~~Amended and Restated 2016 Annual Bonus Plan

10.2*#	~~2015/19~~Amended and Restated 2016/20 Long-Term Incentive Plan

~~10.3~~	Credit Agreement among the Company, as borrower, the lenders from time to time party thereto and Royal Bank of Canada, as administrative agent, dated as of March 30, 2015 (incorporate by reference to Exhibit 10.1 to Current Report on Form 8-K filed April 1, 2015)

12.1#	Ratio of Earnings to Fixed Charges

31.1#	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2#	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1**#	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase



Large accelerated filer ý	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2015			2014			2016			2015
Revenues
Royalties from Queen et al. patents	$	127,810		$	116,026		$	121,455		$	127,810
Royalty rights - change in fair value	11,362			11,707			(27,102		)	11,362
Interest revenue	10,534			9,071			8,964			10,534
License and other							(193		)	—
Total revenues	149,706			136,804			103,124			149,706

Operating expenses
General and administrative	7,666			4,582			9,846			7,666
Operating income	142,040			132,222			93,278			142,040

Non-operating expense, net
Interest and other income, net	86			50			113			86
Interest expense	(8,610		)	(10,525		)	(4,550		)	(8,610		)
Loss on extinguishment of debt	—			(6,143		)
Total non-operating expense, net	(8,524		)	(16,618		)	(4,437		)	(8,524		)

Income before income taxes	133,516			115,604			88,841			133,516
Income tax expense	49,018			42,721			32,954			49,018
Net income	$	84,498		$	72,883		$	55,887		$	84,498

Net income per share
Basic	$	0.52		$	0.48		$	0.34		$	0.52
Diluted	$	0.50		$	0.44		$	0.34		$	0.50

Weighted average shares outstanding
Basic	162,829			151,198			163,701			162,829
Diluted	170,412			164,571			163,835			170,412

Cash dividends declared per common share	$	0.60		$	0.60		$	0.05		$	0.60


	March 31,			December 31,			March 31,			December 31,
	2015			2014			2016			2015
	(unaudited)			(Note 1)			(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	416,668		$	291,377		$	290,650		$	218,883
Short-term investments	2,252			2,310			1,306			1,469
Receivables from licensees and other	—			300
Deferred tax assets	—			375			—			981
Notes receivable	63,439			57,597			84,615			58,398
Prepaid and other current assets	18,308			3,938			607			2,979
Total current assets	500,667			355,897			377,178			282,710

Property and equipment, net	52			62			22			31
Royalty rights - at fair value	269,668			259,244			354,881			399,204
Notes and other receivables, long-term	302,367			305,615			287,241			306,507
Long-term deferred tax assets	34,917			33,799			26,358			16,172
Other assets	6,462			7,733			9,695			7,581
Total assets	$	1,114,133		$	962,350		$	1,055,375		$	1,012,205

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	615		$	318		$	662		$	394
Accrued liabilities	81,481			8,876			7,253			8,009
Accrued income taxes	—			3,293			21,019			3,372
Deferred tax liabilities	6,667			—
Term loan payable	99,393			—			—			24,966
Convertible notes payable	154,592			175,496
Total current liabilities	342,748			187,983			28,934			36,741

Convertible notes payable	277,975			276,228			230,850			228,862
Other long-term liabilities	41,466			37,702			53,060			50,650
Total liabilities	662,189			501,913			312,844			316,253

Commitments and contingencies (Note 8)

Stockholders' equity:
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; 163,534 and 162,186 shares issued and outstanding at March 31, 2015, and December 31, 2014, respectively	1,635			1,622
Common stock, par value $0.01 per share, 350,000 shares authorized; 165,115 and 164,287 shares issued and outstanding at March 31, 2016, and December 31, 2015, respectively							1,651			1,643
Additional paid-in capital	(119,386		)	(119,874		)	(117,205		)	(117,983		)
Accumulated other comprehensive gain	7,910			2,949
Accumulated other comprehensive income							418			2,256
Retained earnings	561,785			575,740			857,667			810,036
Total stockholders' equity	451,944			460,437			742,531			695,952
Total liabilities and stockholders' equity	$	1,114,133		$	962,350		$	1,055,375		$	1,012,205


	Three Months Ended March 31,						Three Months Ended March 31,
	2015			2014			2016			2015
Cash flows from operating activities
Net income	$	84,498		$	72,883		$	55,887		$	84,498
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of convertible notes and term loan offering costs	4,066			4,817			2,461			4,066
Change in fair value of royalty rights - at fair value	(11,362		)	(11,707		)	27,102			(11,362		)
Loss on extinguishment of convertible notes	—			6,143
Change in fair value of derivative asset							329			—
Other amortization, depreciation and accretion of embedded derivative	10			(45		)	9			10
Hedge ineffectiveness on foreign exchange contracts	—			(2		)
Gain on sale of available-for-sale securities							(136		)	—
Stock-based compensation expense	501			194			786			501
Deferred income taxes	3,343			(1,012		)	(8,215		)	3,343
Changes in assets and liabilities:
Receivables from licensees and other	300			(11,350		)	—			300
Prepaid and other current assets	(6,396		)	844			(430		)	(6,396		)
Accrued interest on notes receivable	(2,594		)	(3,284		)	(1,951		)	(2,594		)
Other assets	11			—			(2,439		)	11
Accounts payable	297			123			268			297
Accrued liabilities	(1,081		)	2,682			(1,169		)	(1,081		)
Accrued income taxes	(3,293		)	5,335			17,647			(3,293		)
Other long-term liabilities	3,546			2,520			2,357			3,546
Net cash provided by operating activities	71,846			68,141			92,506			71,846
Cash flows from investing activities
Proceeds from sales of available-for-sale securities							273			—
Proceeds from royalty rights - at fair value	938			23,638			17,221			938
Purchase of notes receivable	—			(50,000		)	(5,000		)	—
Net cash provided by/(used in) investing activities	938			(26,362		)
Net cash provided by investing activities							12,494			938
Cash flows from financing activities
Proceeds from term loan	100,000			—			—			100,000
Repurchase of convertible notes	(22,337		)	(29,906		)	—			(22,337		)
Payment of debt issuance costs	(607		)	(9,824		)	—			(607		)
Proceeds from the issuance of convertible notes	—			300,000
Purchase of call options	—			(30,951		)
Proceeds from the issuance of warrants	—			11,427
Repayment of term loan	—			(18,750		)	(25,000		)	—
Cash dividends paid	(24,549		)	(24,042		)	(8,233		)	(24,549		)
Net cash provided by financing activities	52,507			197,954
Net cash provided by (used in) financing activities							(33,233		)	52,507
Net increase in cash and cash equivalents	125,291			239,733			71,767			125,291
Cash and cash equivalents at beginning of the period	291,377			94,302			218,883			291,377
Cash and cash equivalents at end of period	$	416,668		$	334,035		$	290,650		$	416,668


Supplemental cash flow information
Cash paid for income taxes	$	52,000		$	34,000		$	22,000		$	52,000
Cash paid for interest	$	6,332		$	5,454		$	5,001		$	6,332
Stock issued to settle debt	$	9,794		$	157,591		$	—		$	9,794
Warrants received for notes receivable							$	443		$	—


	Three Months Ended				Three Months Ended
	March 31,				March 31,
Net Income per Basic and Diluted Share:	2015		2014		2016		2015
(in thousands except per share amounts)
Numerator
Net income used to compute net income per basic and diluted share	$	84,498	$	72,883
Income used to compute net income per basic and diluted share					$	55,887	$	84,498

Denominator
Weighted-average shares used to compute net income per basic share	162,829		151,198
Total weighted average shares used to compute net income per basic share					163,701		162,829
Restricted stock outstanding	28		68		134		28
Effect of dilutive stock options	18		21		—		18
Assumed conversion of Series 2012 Notes	666		6,903		—		666
Assumed conversion of warrants	1,927		—		—		1,927
Assumed conversion of May 2015 Notes	4,944		6,381		—		4,944
Weighted-average shares used to compute net income per diluted share	170,412		164,571
Shares used to compute net income per diluted share					163,835		170,412

Net income per share - basic	$	0.52	$	0.48	$	0.34	$	0.52
Net income per share - diluted	$	0.50	$	0.44	$	0.34	$	0.50


Summary of Cash and Available-For-Sale Securities	Adjusted Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash and Cash Equivalents		Short-Term Investments		Adjusted Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Cash and Cash Equivalents		Short-Term Investments
(In thousands)
March 31, 2015
March 31, 2016
Cash	$	225,832	$	—	$	—	$	225,832	$	225,832	$	—	$	91,104	$	—	$	—	$	91,104	$	91,104	$	—
Money market funds	190,836		—		—		190,836		190,836		—		199,546		—		—		199,546		199,546		—
Corporate securities	1,750		502		—		2,252		—		2,252		663		643		—		1,306		—		1,306
Total	$	418,418	$	502	$	—	$	418,920	$	416,668	$	2,252	$	291,313	$	643	$	—	$	291,956	$	290,650	$	1,306

December 31, 2014
December 31, 2015
Cash	$	69,585	$	—	$	—	$	69,585	$	69,585	$	—	$	124,082	$	—	$	—	$	124,082	$	124,082	$	—
Money market funds	221,792		—		—		221,792		221,792		—		94,801		—		—		94,801		94,801		—
Corporate securities	1,750		560		—		2,310		—		2,310		799		670		—		1,469		—		1,469
Total	$	293,127	$	560	$	—	$	293,687	$	291,377	$	2,310	$	219,682	$	670	$	—	$	220,352	$	218,883	$	1,469


Cash Flow Hedge	Location	March 31, 2015		December 31, 2014		Location	March 31, 2016		December 31, 2015
(In thousands)
Euro contracts	Prepaid and other current assets	$	11,668	$	3,352
Euro contracts	Other assets	$	—	$	717
Euro forward contracts						Prepaid and other current assets	$	—	$	2,802


		Principal Balance Outstanding		Carrying Value					Principal Balance Outstanding		Carrying Value
		March 31,		March 31,		December 31,			March 31,		March 31,			December 31,
Description	Maturity Date	2015		2015		2014		Maturity Date	2016		2016			2015
(In thousands)
Convertible Notes
Series 2012 Notes	February 15, 2015	$	—	$	—	$	22,261
May 2015 Notes	May 1, 2015	$	155,050	154,592		153,235
February 2018 Notes	February 1, 2018	$	300,000	277,975		276,228		February 1, 2018	$	246,447	$	230,850	*	$	228,862	*
March 2015 Term Loan	February 15, 2016	$	100,000	99,393		—		February 15, 2016	$	—	—			24,966
Total				$	531,960	$	451,724				$	230,850		$	253,828



			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 at December 31, 2014	4,166		58	$	5.41	277		$	8.39
Granted	(287	)	—			287		7.55
Shares released	—		—			(6	)	8.36
Balance at March 31, 2015	3,879		58	$	5.41	558		$	7.96



Convertible Notes	Conversion Rate per $1,000 Principal Amount	Approximate Conversion Price Per Common Share		Effective Date
May 2015 Notes	174.8506	$	5.72	March 3, 2015



	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, 2014	$	364		$	2,585	$	2,949
Activity for the three months ended March 31, 2015	(38		)	4,999		4,961
Ending Balance at March 31, 2015	$	326		$	7,584	$	7,910


*	Management contract or compensatory plan or ~~arrangement.~~arrangement


†	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.