PDL BioPharma, Inc. (PDLI)

30th Annual JP Morgan Healthcare Conference Transcript

January 12, 2012 12:30 PM ET


John McLaughlin – Chief Executive Officer


Mike Ulz – JP Morgan Securities Inc.


Mike Ulz

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Good morning, everyone. And welcome to day four of the JP Morgan Healthcare Conference. I’m Mike Ulz from Geoff Meacham’s biotech team here JP Morgan. It’s my pleasure to introduce John McLaughlin, CEO of PDL BioPharma. John?

John McLaughlin

Mike, thank you very much. Good morning. Welcome to the PDL presentation. This morning I will be making some forward-looking statements for additional information behind those statements, please see our most recent filings with the Securities and Exchange Commission.

We think that PDL is a very attractive investment opportunity, unique in the healthcare space and certainly, rare among all public companies. Some of the reasons for that are captured on this slide. As you can see we are a very profitable company. We have substantial revenues. We have less than 10 employees. We don’t do any research or development activities.

Since 2009 we’ve been paying dividends, in 2011 our dividend policy was $0.60 per share per year on the stock that trades some place between the high fives and low sixes, so that’s a very nice return. We have a substantial cash position we built up. We are looking to buy some additional royalty assets. I’ll talk more about that in a minute. And perhaps, most important for institutional investors is that last line you can see we have a substantial volume, some days it upward as much as 5 million shares and with that allows is easy entrance and if you so desire exit from the stock, hopefully you had made money that point.

To talk a little bit about the company for a second, PDL actually pioneered the humanization of monoclonal antibodies and the assets that reside in PDL today are really those patents and license agreements. This is the technology has been widely adopted in biotech and pharma surgical stream as you will see in a minute. It utilized by some of the leading players in the industries.

Simply put what we are doing here? What humanization of antibodies involve is, in the 1980’s scientist hypostasized that they could develop antibodies in non-human systems, predominantly mice and they can use those to find specific sites on the cell and target them, for example to fight cancer. And taking those nearing drive antibodies and injecting into human systems, they were sometimes recognized as foreign and rejected before they could accomplished their therapeutic goal.

What our technology does is allow you to identify those binding sites on a mouse which are most important to it’s therapeutic activities and transfer them to a human framework. And the key here is to maintain the specificiting and binding policy that is binding only what you want and binding it tightly, and that’s what our technology allows. You can see that it is being incorporated in products with aggregate annual sales, sorry, over $17 billion worth.

Our focus is really on managing those patents and license agreements, and more recently looking at new royalty generating assets, because we are a dividend paying company, our shareholders have come to us and said, like the dividends, we understand at some point you may have to stop paying them as your patents expire, can you find other royalty generating assets and that’s something we are looking at.

Our sweet spot here our commercial stage products with the value range some place between $75 and $150 million. We have our mild preference for biologics over small molecules, but we look at both and we are agnostic as two therapeutic area. And our goal really looking at these assets are can we get attractive assets, quality assets on attractive financial term, such that we can optimize the return for our shareholders.

We are fortunate to have a strong management team, as well as diverse Board of Directors with financial expertise, accounting, audit expertise, legal expertise, scientific expertise, as well as management expertise.

To give you a quick overview of the products which currently contribute most of the revenue, you can -- the names are familiar to you, undoubtedly you can see what the 2010 worldwide sales look like and you can see a substantial number of the indications for these products and I’ll talk a little bit about each of them with some recent developments.

One of the questions that were most commonly asked is, okay, you’re paid based on your patents, how long are you going to be paid? And our patents expire typically in December of 2014, but the answer for how long we are going to get paid is actually a little more complex than that.

First we’re royalty play, which means we get paid one quarter in a year, so that get you the first quarter of 2015. The rest of the answer is captured on the two bar charts on this slide. When they talk about the manufacturing of antibody, the term that they use is campaign and the reason for that is it takes a long time.

And as you see the top bar to picks the typical bulk manufacturing cycle in the bottom fill and finish. If you just track out the storage reports there or we’re just building inventory, take something on the order of six or seven months to fabricate an antibody. Because of the suspension disparity between the cost of goods and the selling price, most manufacturers keep 24 to 30 months worth of inventory on hand, but let’s assume that they change that practice in the future for reasons of economy whatever and simply kept 12 months on hand recognizing it six to seven months to make it that will get us pay through the first quarter of 2016.

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