PDL BioPharma: Personal pharma

by Benjamin Shepherd, contributing editor Personal Finance

A major trend in the pharmaceuti­cal business has been towards tailor­ing treatment to fit an individual pa­tient’s biology and disease. As a result, advanced biotechnology has come to play an increasingly critical role in the health care sector.

PDL BioPharma (PDLI) owns a portfolio of patents covering the production of “humanized anti­bodies,” which are a mixture of mouse and human components.

Antibodies are the gendarmerie of our immune systems; each antibody fights a particular sort of pathogenic invader by binding with specific pro­teins.

Using antibodies to fight specif­ic diseases has become a cornerstone of personalized medicine and the basis of several next-generation drugs for the treatment of cancer, multiple sclerosis and other diseases.

However, the antibodies used in those drugs are derived from mice, which means our immune systems of­ten recognize them as foreign invad­ers and destroy them.

That biologi­cal response can be overcome by using PDL’s process of humanization, which essentially reorganizes the antibod­ies’ proteins into a more human form, thereby tricking an immune system into believing the mice antibodies be­long within the host.

Several drug companies, including major outfits such as Roche and Genetech, Wyeth and Novartis, have licensed PDL’s technology to produce block­buster drugs such as the cancer treat­ment Herceptin, the macular degenera­tive disease treatment Lucentis and the asthma drug Xolair.

The technology is also used to produce Perjeta, a breast cancer treatment that was approved in early June and is widely predicted to become a new blockbuster drug with annual sales in excess of $1 billion.

Under licensing agreements, PDL collects a sliding percentage of drug sales based on total revenues gener­ated. PDL’s revenues have grown an average of 22.4 percent over the past five years.

Annual revenue growth is expected to slow to about 13 percent, as the current slate of drugs that in­corporate PDL’s technology mature. However, it’s unlikely that PDL won’t strike new licensing deals, because a growing number of new drugs incorporate antibodies.

PDL is trading at its lowest valua­tion in several years, with a price-to-earnings (P/E) ratio of 5.6. It’s also trading at only 1.7 times its forecasted earnings growth.

PDL offers an attractive $0.15 quar­terly dividend, which amounts to a yield of about 9 percent. PDL Bio­Pharma is a buy under 7.

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