Third Point seeks to oust PDL BioPharma's CEO, board chair and business development head

By Lisa Kerner

Charlotte, N.C., May 22 - Third Point LLC head Daniel S. Loeb said following an investigation into PDL BioPharma, Inc.'s "troubling management issues," PDL must remove L. Patrick Gage as chairman of the board and dismiss Jeanmarie Guenot as PDL's head of business development. Loeb also reiterated his previous demands to terminate Mark McDade as chief executive officer, add three shareholder representatives to the PDL board and retain an investment bank to explore strategic alternatives for the company.

In an open letter to "unconflicted' PDL board members, Loeb said Third Point has spoken with "dozens of current and former PDL employees," many senior managers of peer companies, managers and/or directors of McDade's former employers Corixa Corp. and Signature BioScience, Inc., and biotechnology industry consultants. Based on what Loeb calls a "wide-ranging due diligence effort," Third Point has concluded that McDade may have committed significant ethical breaches during his tenure as PDL's CEO.

"To be clear, we did not seek out this information - it was all offered to us spontaneously by concerned parties. We were pleased to read in Dr. Gage's letter of May 16 that the board is investigating these matters, and we trust and expect that your inquiry into Mr. McDade's conduct will proceed expeditiously so that shareholder interests are not further jeopardized," Loeb's letter stated.

Loeb said he learned that sources highlighted the circumstances under which Guenot was hired and questioned Guenot's qualifications to advance through the ranks of the company. In addition, Loeb said "many truly talented scientists at PDL appear to have left the company during Mr. McDade's tenure" because lesser-qualified scientists were promoted to senior positions.

Third Point's due diligence also reinforced the investors' strong conviction that external and internal advisers "strongly counseled" McDade not to move corporate headquarters to Redwood City, Calif., from Fremont, Calif., because of the disruption to the employee base and the expense.

"In conclusion, we have rarely, if ever, received as much unsolicited and universally negative correspondence from past and current employees of one of our portfolio companies - much of it coming from the senior scientist level - than we have received with respect to PDL," the letter stated.

Loeb noted that since receiving Gage's May 16 letter, he doubts if Gage and McDade have "fully and fairly" presented Third Point's views to the board. The investor ended by once again appealing to the board to "quickly take steps to do what is best" for shareholders.

Gage backs management

"First, we do agree with your premise that our board would benefit from additional expertise provided by a director with strong institutional investor experience, particularly in the area of life sciences," Gage said in his May 16 letter to Loeb that was included in an 8-K filing with the Securities and Exchange Commission. As a result, the board has hired an outside search firm to evaluate candidates, including those named by Loeb, while working through the board's recruitment process.

"Second, since we take our fiduciary and legal responsibilities seriously and have been listening to you and other investors, we have increased the level and time that we routinely spend reviewing the core elements of our corporate strategy," Gage's letter stated.

And third, Gage said PDL's research and development, as well as its selling, general and administrative expenses, are in line with biotech peer companies. However, the board is using a consulting firm to assess allocation costs and to prioritize the company's portfolio.

Gage reiterated in his letter to Loeb that the board is listening to the investor, but it is disappointed that Loeb did not provide more specific support for his recommendations. In addition, Gage said that in order to work productively, "we ask that our interactions be objective, analytical and business-focused and not include personal allegations and other distractions that are detrimental to building the value of our company."

Gage also reiterated "firm support" for the management team, including McDade, while looking into Loeb's "various allegations and innuendo" regarding the company head.

Loeb's most recent attempt to oust the CEO included support from PDL co-founder and shareholder Cary Queen, according to a prior SEC filing.

Queen cited the company's unchecked spending; especially research and development spending that rose 350% in less than five years. He described as "incomprehensible" McDade's decision to abandon PDL's established facilities in Fremont and relocate more than 500 employees to new facilities on the Silicon Valley side of the San Francisco Bay.

Queen also serves as a consultant to the Wilmington, N.C., pharmaceutical company, but said he does not believe there is a conflict between his role as consultant and his role as an activist.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.