12:00 AM
Jan 22, 2007
 |  BioCentury  |  Strategy

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PDL BioPharma Inc. found itself caught between the hammer and the anvil in 2006, as revenue projections slipped while projected costs went up significantly. At the same time, a small product failed in Phase III, and a more important one was delayed. And the year ended on another sour note, as partner Roche said it will end its involvement in the development of daclizumab for transplant maintenance therapy.

As a result, investors hammered the stock. After topping at a 52-week high of $32.80 and a valuation of $3.7 billion on March 31, 2006, the shares fell 50% to a 52-week low of $16.51 and a valuation of $1.9 billion on July 21 - a period in which the BioCentury 100 index was off 15%.

PDLI rebounded to close 2006 at $20.14, a 22% gain from the July nadir compared to the 15% gain posted by the BioCentury benchmark in the same period. Now the company is hoping investors will be willing to hit the reset button in 2007 and revisit a stock that's 29% cheaper than it was a year ago.

The trick will be managing expectations, as PDLI again has lined up an agenda that contains multiple data events and a potential out-licensing deal.

The honeymoon

The market had treated PDLI kindly before its misses, signaling its faith that management would keep its promises.

CEO Mark McDade, who joined the company just over four years ago, had delivered on his early promises. He had added biology expertise with the 2003 acquisition of antibody company Eos Biotechnology Inc., which brought targets and a compound (M200) now in Phase II trials for solid tumors.

McDade also had started fixing clinical development via personnel changes, and narrowed the focus to inflammation and oncology products that could compete in the hospital channel.

In 2005, he turned the company into a commercial enterprise with the acquisition of ESP Pharma Inc. for $486.6 million in cash and stock (see "The ESP Effect," A3).

In the same year, McDade entered a three-compound deal with Biogen Idec Inc. (BIIB, Cambridge, Mass.) that fit the new strategy of partnering programs outside the hospital setting and met its goal of finding a partner for daclizumab in multiple sclerosis (MS) and for its HuZAF fontolizumab antibody against interferon gamma in all indications.

One of the few initial goals the company missed was filing an IND in 2005. "We scrapped a Fab version of M200, which we had planned to put into the clinic with Biogen Idec for AMD, because of the competitive arena. And we wanted to focus on our M200 efforts in cancer. We thought that was a better use of resources," McDade told BioCentury.

By the end of 2005, the company's market cap had added $2.3 billion on McDade's watch, putting the company at $3.1 billion. But while the first years were about adding capabilities, 2006 was about actual performance - and this is simply harder. Nor is the Street forgiving of even the slightest misstep.

1Q = quartered stock

PDLI took a lot of its 2006 lumps on May 2, 2006, when its 1Q06 earnings call contained a blend of negative financial and product news. Investors promptly sliced 22% off the stock, cutting PDLI's market cap by $719 million to $2.5 billion (see BioCentury, May 8, 2006).

On the 1Q call, PDLI revised its 2006 guidance, largely because of increases in R&D spending that were driven by clinical trial changes for ularitide in acute decompensated heart failure...

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