Third Point offers to work with PDL Biopharma to cut costs, increase shareholder value

By Lisa Kerner

Charlotte, N.C., March 5 - PDL Biopharma Inc. shareholder Daniel S. Loeb, chief executive officer of Third Point LLC, offered to work with management to streamline the cost structure and asset base at PDL. Loeb believes cost cutting could boost PDL's stock by $1.00 per share in 2008 and by $1.50 per share in 2009.

Loeb made the offer in a letter to PDL's chief executive officer Mark McDade and the company's board of directors included in a schedule 13D filing with the Securities and Exchange Commission.

Funds advised by Third Point hold 8 million shares of the common stock of PDL and options to purchase an additional 600,000 shares, representing a total of 7.5% of the common shares outstanding, according to the filing.

"We believe that the significant value inherent in the company's product line, royalty revenues and research and development pipeline has been obscured by excessive overhead and apparently undisciplined research spending," Loeb said in the letter.

Loeb cited PDL's flat share price in comparison to the 50% increase in the Amex Biotechnology index since January 2004.

"This is particularly troubling given that the company has received approximately $400 million of royalty revenues over this time period, largely attributable to several of biotech's fastest-growing products, including Genentech's Avastin and Herceptin. By comparison, Genentech shares have doubled over this time period," Loeb wrote.

Loeb recommended that the company sell its ESP Pharma assets to a specialty pharmaceutical company and focus PDL on biotechnology product development.

Third Point does not agree with "certain exasperated shareholders (those who haven't sold their shares)" who have suggested that PLD either undergo a change of management or sell to the highest bidder.

"We at Third Point can only imagine the frustration that you and the board must feel given the 40% plunge in PDL stock price over the past 12 months and the series of operational disappointments that led to this decline," Loeb continued.

"We believe that a better course than 'circling the wagons' would be to cease money-losing initiatives and wasteful practices so that the underlying cash-generating ability and value of the company can be fully developed and made visible to shareholders."

PDL is a Wilmington, N.C.-based pharmaceutical company.

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