Ebb & Flow

PDL BioPharma(NASDAQ:PDLI) last week said it will spin off its biotech pipeline into a newco. It also solidified plans to return more than $500 million, or $4.25 per share, to shareholders in the form of a dividend on May 5.

Along with the pipeline, the newco will get $375 million in cash. It also could receive up to $85 million in milestones plus royalties that PDL was eligible to receive under a deal under which EKR Therapeutics acquired several marketed products and a Phase II candidate (see BioCentury, Feb. 11).

All told, the newco should have about three years of runway, meaning it anticipates an estimated burn rate of at least $125 million annually.

The newco will start off with a clean slate, as PDL will retain all outstanding liabilities, which amounted to $685 million at Dec. 31. This included $500 million in convertible debt, half of which comes due in 2010, with the remainder in 2012.

Shareholders will get shares of the newco in equal percentages to holdings in PDL, which will own no stake in the spin-off.

The most advanced candidate in the newco's pipeline will be daclizumab, a humanized mAb against interleukin-2 (IL-2) receptor alpha chain (CD25). It is in Phase II trials to treat multiple sclerosis and asthma.

The MS indication is partnered with Biogen Idec (NASDAQ:BIIB). Roche (SWX:ROG) markets daclizumab as Zenapax for acute kidney transplant rejection under a license from PDL.

The other two compounds are volociximab (M200), an antibody against integrin alpha(5)beta(1) in Phase II testing to treat solid tumors, and HuLuc63, a humanized mAb targeting CS1 glycoprotein in Phase I to treat multiple myeloma (MM).

The newco will also have PDL 192, a humanized mAb in preclinical development for solid tumors for which it plans to soon file an IND.

The royalty play

PDL will continue to hold its antibody humanization patents, which expire at the end of 2014. Last year, the patents generated $221 million in revenue on eight products. The company guided to $240-$260 million in royalty revenue for this year.

At the mid-point, that would be a 13.1% increase between 2007 and 2008. If the royalty growth were to continue at that pace, the 2008-14 royalty stream would be worth roughly $2.6

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