PDL BioPharma investor Third Point increases demand for immediate changes to the company

By Lisa Kerner

Charlotte, N.C., April 18 - PDL BioPharma Inc.'s largest shareholder Third Point LLC, led by Daniel S. Loeb, once again called for the company's chief executive officer Mark McDade to resign and also recommended that company founder and board member Laurence Korn be installed as acting chief executive officer and chairman.

Loeb is also demanding that the board immediately retain a financial adviser and grant board seats to Third Point nominees.

This latest action is in response to what Loeb called PDL BioPharma's "cursory letter" to Third Point on April 11.

In his letter to Loeb, McDade said the company is interested "in a constructive dialogue with Third Point, while we evaluate qualified candidates who may enhance the membership of our board of directors."

PDL BioPharma said it also plans to provide investors with additional information related to the company's research and development spending, according to an 8-K filing with the SEC.

McDade said the company is "committed to becoming a leading therapeutics company with a sustainable product portfolio by leveraging our innovative pipeline and antibody expertise."

In his April 17 response to the board, Loeb said he was disappointed with an additional private letter received from PDL BioPharma's chairman, L. Patrick Gage, offering a meet and greet opportunity with the board that Loeb believes could be a red herring meant to buy time.

"Both letters unthinkingly endorse the status quo and turn a blind eye to concerns that we and other shareholders have raised repeatedly: the company's failure to meet revenue and earnings expectations, and product development timelines, as well as PDL BioPharma's excessive R&D and SG&A spending," stated Loeb's letter, which was included in a schedule 13D filing with the Securities and Exchange Commission.

"We believe that if the board were to focus on Mr. McDade's current performance as well as past missteps which portend no better result here, they would agree with our well-founded concerns: It is time for new leadership at PDL BioPharma, either in the form of new, more-capable management or through a restructuring or sale of the company," the letter said.

Loeb cited McDade's past experiences at both Signature BioScience and Corixa Corp. Signature folded in early 2003 shortly after McDade "jumped ship," and the company followed "a similar path to that which PDL is pursuing, falling victim to excessive spending," Loeb wrote.

"As we have repeatedly warned, it is typical for underperforming managements to hide behind 'the long-term,' because if the timeframe is undefined, then it is impossible to fail. We have no doubt that PDL is already so far off track that, were the company left to its own devices, Vision 2010 would soon become Vision 2015," Loeb continued.

Loeb also reiterated his request for board seats after McDade "summarily dismissed all of [Third Point's] board nominees as 'unqualified' without contacting a single one of the references [Third Point] provided for each."

Third Point's head said that the recent events at biotechnology company MedImmune, Inc. are "instructive here" as the company's board agreed to explore a sale of the company in part due to pressure from shareholders.

"We hope that you will take careful note of the fact that the MedImmune board is honoring its fiduciary and legal duties by not locking into a single, risky strategy, but is instead exploring all possibilities to determine what is best for shareholders. The PDL BioPharma board should act in a similar fashion, in accordance with its fiduciary duties to shareholders," Loeb's letter stated.

Investment adviser Third Point is PDL BioPharma's largest shareholder and recently increased its stake in the Wilmington, N.C., pharmaceutical company to 9.7%.

In recent weeks, Loeb contacted PDL BioPharma attempting to work with management to streamline the company's cost structure and asset base. Cost-cutting could boost the company's stock by $1.00 per share in 2008 and by $1.50 per share in 2009, according to Loeb.

Loeb harshly criticized McDade's management, ethics and judgment in an April 11 letter to the board. He cited the CEO's failure to see the benefits of having major shareholders represented on the company's board and questioned McDade's willingness to qualify Loeb's board nominees.

Additionally, Loeb called the decision to build out PDL BioPharma's leased space into a "Taj Mahal" absurd and said it basically served to shorten McDade's commute while inconveniencing many PDL employees.

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