PDL BioPharma President Presents At Goldman Sachs Annual Global Healthcare Conference (Transcript)

PDL BioPharma (PDLI)

Goldman Sachs 33rd Annual Global Healthcare Conference

June 7, 2012

Executives

John McLaughlin - President & CEO

Analysts

Sapna Srivastava - Goldman Sachs

Presentation

Sapna Srivastava - Goldman Sachs

Good morning and thanks for joining us. I'm Sapna Srivastava, Biotech analyst at Goldman Sachs. And it's my pleasure to host John McLaughlin from PDLI to be here. And before we start, I'm required to read this out loud. We are required to make certain disclosures on public appearances about Goldman Sachs relationship with companies that we discuss. The disclosures are related to (inaudible) banking relationships, conferences, compensation received or one person or more ownership. I'm prepared to read disclosures if anyone would like me to. However, these disclosures are available in our most recent report available to you as clients on (inaudible). In view of this non-Goldman Sachs personnel may not represent the company views.

Staying with that, I'll just it off. I guess the one thing I'll start off with, John, is just like you've been with the company and really seen the transition of taking it – somehow taking it apart, breaking apart the company to create shareholder value. Can you help us describe the (inaudible) which led to it and how effective do you think that value creation has been?

John McLaughlin

So, the thought process behind it was that there was a sizable royalty stream and there was an R&D operation and that they weren't being appropriately valued. And so we went through the exercise of splitting the company in two. We spun off the R&D operation (inaudible) Biotech. The royalty operation maintained the name PDL BioPharma. And if you look at the time of the split off both were trading someplace around $10 a share. Subsequent to the split off both were trading someplace – one was around $7 or $8 a share and the other was trading around $10 to $12 a share. And in fact the fastest piece of the operation eventually sold for around $27 a share.

PDL currently trades at around $6.20, $6.30, $6.50 a share and that's after we paid out just about $4 in dividends since 2009. So there has been a significant amount of shareholder value creation, considerably more than we anticipated.

Sapna Srivastava - Goldman Sachs

And can you help us describe the current status of the company and with the Queen's patent going off in 2014. And you've spoken a lot about trying to do smaller acquisitions. How should we think about PDLI ahead of 2014? Or will there be a PDLI ahead of 2014?

John McLaughlin

Sure. So our patents do expire towards the end of 2014, in December. We'll probably get paid for a while longer on our royalties because product that's made while the patents are still extant [ph]. Even if it's sold afterwards we still get paid and as you well know it takes seven, eight months to make an antibody. That's why they call it campaigns to make them.

So we'll probably get paid through 2015, maybe even into 2016 or thereabouts.

Sapna Srivastava - Goldman Sachs

At the same royalty rate.

John McLaughlin

Correct. But to the point of your question, at a certain point that inventory will expire. It will be used all up. And our shareholder base is about 80% dividend-sensitive. And so they've come to us and said, look, we like the fact that you are paying about a $0.60 dividend on a stock that trades for around $6. That's yield depending on the share price kind of bounces between 9% and 11%. In today's yield-hungry market is there any way to keep that going?

So what we have done is we've looked out to commercial stage companies as well as universities to see if there are royalties we can buy from them. In some cases we create synthetic royalties. So interestingly enough a group of companies that we've had some conversations with are commercial stage companies where you would say to yourself, a public commercial stage company, if they have to raise capital they should be able to do it. But some of those have seen their share prices be down. They're not necessarily happy where their share prices are and so we engage in conversations with them. Potentially with either debt structures, security against their commercial assets. Or synthetic royalties. If they don't have a real royalty we will simply say, pay us back based on a couple of percent off your sales.

That's been an atypical source. So if a year ago you had asked me where do you think you're going to be able to acquire some of these assets I would not necessarily have picked that group out. But it's interesting that it is a very receptive discussion right now. We also reach out to sort of the traditional folks. We have a couple of conversations going on with universities as well as one with a large pharma where they're looking to monetize an asset that's not core to their business. We have seen a couple more of those than we've seen in past years, particularly with all the M&A activity in big pharma where A buys B. They bought it for a bunch of products and in the mix is some royalty from something and they want to monetize it. In some cases, to defray [ph] their acquisition cost.

Sapna Srivastava - Goldman Sachs

Then we think about the different structures you're describing, what falls under it? What kind of – you described some companies, universities, big pharma. And I guess what are they trying to do? Are they trying to sell you a part of the royalty stream and so you have to – how does that get extended? What kind of revenue stream can it bring you?

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