12:00 AM
Mar 10, 2008
 |  BioCentury  |  Finance

Ebb & Flow

Investors lopped off one-third of PDL Biopharma's value last Wednesday after the company announced late Tuesday that it was taking itself off the auction block after failing to receive any firm offers to purchase its biotech R&D business.

The $600 million decline in market cap - the shares fell $5.13 (32%) to $10.71 on Wednesday - accounts for the $500 million that PDL plans to distribute to shareholders from the sale of its marketed products and manufacturing facility over the last few months. Those transactions brought in $525 million in cash with the potential for an additional $85 million in milestones and royalties. The remaining $25 million will cover tax and transaction costs (see BioCentury, Feb. 25).

PDL (NASDAQ:PDLI) also said it plans to return to shareholders cash covering at least 50% of the value of its future antibody humanization royalties from currently marketed licensed products net of corporate taxes.

"As with our previous asset transactions, we intend to distribute the proceeds from the royalty transaction or transactions to our stockholders," Board Chair Karen Dawes said on a conference call.

PDL is still determining the structure of the distribution and whether it would occur in a single payout or in multiple distributions over time.

In 2007, PDL brought in $221 million via those patents; a figure the company expects to increase annually until the underlying Queen patent expires at the end of 2014.

Without any annual increase, roughly $110 million a year would go to shareholders over the seven-year period, or $770 million. Together with the $500 million payout, that implies PDL might return $1.27 billion, or $10.85 a share, to shareholders, a figure only slightly above its $1.25 billion market cap at Wednesday's close.

Trimmed to focus

PDL would be left with the $440 million in cash it had at Dec. 31 to fund the remainder of the company, which is focused on three clinical-stage antibodies.

The most advanced is daclizumab, a humanized mAb against interleukin-2 (IL-2) receptor alpha chain (CD25). It is in Phase II trials to treat multiple sclerosis (MS) 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).

PDL also has PDL 192, a humanized mAb in preclinical development for solid tumors.

In addition, the company said it intends to introduce one new IND a year.

PDL also will slim down over the next 12 months, restructuring to achieve a $150 million annual operating expense. In 2007, its operating expenses were $340 million and it brought in $38 million in license and collaboration revenue.

The company will cut staff by 260 to about 300 employees, in addition to 320 reductions in conjunction with the previously announced transactions. It expects to incur restructuring charges, but didn't provide an estimate or timeline.

PDL also has $500 million in convertible debt that will mature in 2010 and 2012.

Finally, the company said it will re-start its search for a new CEO; L. Patrick Gage will continue to serve as interim chief executive.

PDL closed out the week off $4.85 (30%) to $11.13.

Insulin shock

An FDA draft guidance on clinical development of diabetes treatments caused companies with late-stage candidates to take a dive as investors tried to sort out what it would mean for ongoing trials (see "Cover Story").

The agency said long-term safety studies may be required for some therapeutics to treat and prevent Type I and Type II diabetes. It also...

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