PDL BioPharma Transforms into ‘Biopharmaceutical’ Innovator

By David Morrill Business Writer

FREMONT – On Jan. 9, Protein Design Labs officially took down all its signs and logos at its headquarters and replaced them with the name PDL BioPharma Inc.

It was a move that may have slipped well under the radar for some, but not for the Fremont company, which marks its 20th year this summer.

PDL’s new name compliments the fact that for the first time it can finally be considered a biopharmaceutical company, with its more than 1,000 employees, royalty connections to seven approved drugs and three of its own products that could potentially be approved in the coming years.

“Even though the company has been around for 20 years, we have changed rather dramatically in the last 12 months,” said Mark McDade, chief executive of PDL BioPharma. “In that time, we’ve doubled our revenue, added a whole new commercial infrastructure and paved the way for our pipeline to flow into.”

It has been quite a makeover for PDL, whose 2005 revenue rose 188 percent to $276.9 million from 2004, while its 2005 loss widened to $149.8 million, due to higher expenses for new marketing efforts and expanded clinical development, and merger-related costs.

When McDade joined the company in November 2002, Protein Design Labs was more known for its “revolutionary” technique used to humanize antibodies than for the company itself.

“When we asked people about the name ProteinDesign Labs, some people said that it sounded like a milkshake company,” McDade said.

Protein Design Labs has licensed its antibody humanization technique to other biopharmaceutical and biotechnology companies such as Genentech Inc. of South San Francisco. The technique translates mouse antibodies into ones that can be accepted by the human body to help fight serious disease.

PDL currently collects a royalty of about 3.5 percent on sales of certain monoclonal antibodies that use its antibody humanization technology.

Genentech’s blockbuster cancer drugs Avastin and Herceptin account for more than half of PDL’s royalties. PDL also collects royalties from Genentech’s asthma treatment Xolair and psoriasis treatment Raptiva (also developed by Berkeley’s Xoma Ltd.), as well as MedImmune’s Synagis, Wyeth’s Mylotarg and Roche’s Zenapax.

Additionally, about 100 drugs that use PDL’s antibody humanization technology are in various stages of studies. Assuming about 10 percent of all drugs make it to market, PDL BioPharma’s revenue from royalties is likely to increase.

However, while Protein Design Labs had found success through its licensing program, it was having trouble finding an identity.

“The knock I heard from investors, and even the board, was that the company had no direction or focus,” McDade said. “We had almost a dozen products in development, and they were all over the therapeutic map.

“So people on the outside didn’t understand what we were trying to become,” he added. “They just saw us as a company that was losing a lot of money and throwing it at what appeared to be very small indications.”

McDade’s job when he arrived was to turn a company that never had a positive cash flow into one with a clear path and direction to becoming a profitable commercial enterprise.

Almost immediately, the new team put in place a five-year plan that would start a revamp and rebuild process and would end with own product launches.

In order to become commercialized, Protein Design Labs needed a spark. That came in early 2005 when it acquired a hospital-focused pharmaceutical company, ESP Pharma Holding Co., and the rights to the cardiovascular medicine Retavase for $471.3 million.

In an instant, Protein Design Labs had a drug it could manufacture on its own, and it had acquired ESP Pharma’s sales force, which had experience in how the marketing and sales aspect of the biopharmaceutical industry worked.

“We knew that ESP Pharma was going to be sold, but it was a big surprise that it was this traditional darling company that would acquire a pharma company like ESP,” said Katherine Xu, an analyst with Pacific Growth Equities. “I think it was a great move because it completely transformed them into a pharma company.”

Now as PDL BioPharma is a full-fledged biopharmaceutical company, the pressure to deliver will increase.

Shares have risen about 10 percent this year and are trading near the 52-week high of $32.25.

“Now people know that while we kept the heritage of Protein Design Labs by putting the PDL in front, we aren’t just designing proteins anymore,” McDade said. “Our pipeline now has some drugs; we may buy from another company; we might work on drugs with other parties or we may sell drugs that are no longer proteins. So we felt just having the name Protein Design Labs in our name was a little misleading.”

Instead of focusing on a bunch of different markets and products, as it had in the past, the company decided to focus on an area where it felt it would have a high level of success.

Because it already had the expertise of ESP Pharma, the choice was clear: to focus on the acute care hospital market — intravenous drugs that are distributed at hospitals.

The acute care hospital market has a clear customer focus, spans multiple therapeutic areas and is big — it’s estimated to be $24 billion, according to the American Hospital Association.

Also, since there are only about

2,500 major centers in the United States, it would be easier for a smaller sales force such as PDL’s to penetrate the market.

“The hospital market we felt would be our best bet because they were high on medical needs, and we had the benefit of having the potential first users of our products to be the very same place we run the clinical trials,” McDade said. “It was this Eureka moment because suddenly we had something we could narrow down and focus on.”

The major humanization patents expire in 2014, so PDL officials are looking at their pipeline to ensure the long-term success of the biopharmaceutical company.

Three products that have the best shot at succeeding by 2011 are Terlipressin, for treating patients with hepatorenal syndrome, a life-threatening complication of end-stage liver cirrhosis; Nuvion, for treating patients with inflammatory bowel disease; and Ularitide, for treating patients with acute decompensated heart failure. Pacific Growth Equities estimates those drugs have potential annual sales peaks of $60 million, $400 million and $600 million, respectively.

PDL BioPharma’s fourth-quarter revenue increased 266 percent to $83.7 million from $22.8 million. But its loss widened to $23.1 million, or 22 cents a share, from $14.6 million, or 15 cents a share, in the same period a year ago.

McDade, however, believes the days of losing money are behind the company. For 2006, PDL BioPharma hopes to report its first positive cash flow ever. And by 2010, it hopes to reach $1 billion in total operating revenues.

“Finally, I think we are done losing money and are now on the path, and, well … it’s about time,” McDade said. “We are really excited and confident where this company is headed.”

Business Writer David Morrill can be reached at (925) 416-4805 and dmorrill@angnewspapers.com.