Physicians Financial News

By Matthew Mahady
Published: Tuesday, Jun 08, 2010
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Leaner, Refocused PDL BioPharma Poised to Make Oncology Play

After months of major reorganizations, upper-tier executive level shake-ups, and shareholder dissatisfaction, PDL Biopharma Inc., according to many analysts, is beginning to emerge from all the turmoil and change as a stronger, more streamlined and focused organization that has the potential to make an impact in the oncology sector. The once oversized and over-extended company had developed a reputation for enticing shareholders with all sorts of promise and potential, only to fall consistently short of expectations. A number of major moves over the past several months, however, have changed the face of the company and may change its fortunes.

Frustrated stakeholders have long lobbied for the company to sell off parts or put itself on the auction block in its entirety. Bowing both to shareholder pressure and the view of key company executives who believed the decision to be sound strategy, the company acquiesced, announcing last Fall that it would deal away or spin-off many of its more cumbersome, profit-draining divisions. It was not long before market watchers realized that PDL intended to be true to its word.

The fire sale began in earnest with the sale of PDL’s manufacturing facilities in late 2007. At the same time, the company began a sell-off of all of its commercialized products with the deal to cede its Busulfex IV franchise to Otsuka Pharmaceutical Co. for $200 million. The process was completed in early 2008. The 2008 transaction was conducted with EKR Therapeutics. The latter company purchased PDL’s cardiovascular product line for $85 million up front and $85 million in potential milestones. The deal includes the hypertension drug Cardene (nicardipine), heart attack drug Retavase (reteplase) and also ularitide, which is being developed for acute decompensated heart failure. In all, the sale of PDL’s commercial portfolio yielded roughly $357 million.

Next, PDL announced its intention to effectively split what was left of the company into two parts, spinning off its biotechnology assets into a separate publicly traded entity apart from its antibody humanization royalty assets and to capitalize the new biotechnology spin-off company with about $375 million in cash. The company said the initial infusion of money, along with potential milestone payments, royalties, and the sale of the company’s cardiovascular products will fund the biotech spinoff for about three years.

After the spinoff, the company said it will continue to hold rights to royalty revenue on all licensed products. It said it would distribute future revenue to stockholders and does not plan to make any acquisitions. PDL expects that revenue to range from $240 million to $260 million in 2008. This move is expected to be completed by the end of the year, at which point there will be a nimble, small-scale, responsive PDL research and development (R&D)–centered entity narrowly focused on lucrative markets such as oncology and a stand-alone company established for the purpose of accruing PDLs royalty-generating assets. According to a PDL spokesperson, the corporate restructuring is designed “to sharpen the Company’s focus on oncology clinical development efforts and to further reduce costs to extend its cash reserves.”

According to analysts, the entity that will exist to process royalties and other assets represents a distillation of what is generally acknowledged to be the most valuable piece of the company: the technology and underlying patents for creating humanized monoclonal antibodies. It forms the basis for many successful biotech drugs currently on the market, including Genentech’s cancer drugs Avastin (bevacizumab) and Herceptin (trastuzumab), and is behind Medimmune’s Synagis (palivizumab) and Biogen Idec’s Tysabri (natalizumab). Opting to license the technology to other companies instead of exclusively developing in-house products has provided PDL with a steady, stable revenue stream (from licenses and royalty revenue), that according to financial news website TheStreet.com, has the potential to reach $500 million annually within the next five years.

The stand-alone entity may exceed revenue-generation expectations: All of the existing royalty-producing drugs for PDL, developed by other companies but based on its patent for humanized monoclonal antibodies, are growing nicely—as seen with Genentech’s Avastin. Furthermore, new royalty-producing compounds could be on the market as early as this year: AstraZeneca just filed a marketing application with the Food and Drug Administration for respiratory tract infection treatment motavizumab. Finally, other royalty-producing drugs that just came to market, like Tysabri, should bring the new entity years of revenue growth.

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