PDL BioPharma (Nasdaq:PDLI) is a biotech company with a patented process to create humanized antibodies. Antibodies are an increasingly important tool in the arsenal of advanced "targeted therapies" that pharmaceutical companies are rolling out to combat diseases such as cancer. Traditional Fcancer drugs kill cancer cells, but also healthy cells as well, making them extremely toxic and limiting the doses that can be given to patients. Targeted therapies, however, impact only cancerous cells, can be given in higher doses, and are often more effective than traditional chemotherapy regimens. Examples include Genetech's Avastin, Herceptin, and Lucentis and Medimmune's Synagis, which are all produced using PDLI's antibody technology.

It is relatively easy for a biotech company to make a mouse or chicken antibody[1]. However, these animal antibodies can cause severe histemic (allergic) reactions when used in humans. As a result, humananized antibodies, which are trickier to produce, are preferred. PDL licences the technology to produce humanized antibodies to other pharmaceutical and biotech companies in exchange for royalty payments and often a cut of the drug's future revenue stream if it proves successful.[2]

PDLI used to have drugs of its own, but in 2007 it sold all of its product lines to focus on research and development of a new antibody drugs.[3] Companies that develop new drugs themselves generally have higher margins than companies such as PDLI that license research and development technology to someone else. However, developing drugs is also riskier and more costly because so many drugs fail in clinical trials.

PDLI's humanization technology has always been the company's cash cow, but the patent for PDLI's proprietary antibody production process expires in 2014, and the company will need to develop new therapeutic antibodies by that time in order to replace the revenues currently earned through licensing fees and per-unit royalties on each unit sold of drugs produced with its technology.[4] It currently has just six drugs in early phase development (two in partnership with Biogen Idec (BIIB)) as replacements for the ones sold in 2007, an insignificant number given the low yield rate on new drugs in the pharmaceutical industry.[5]

Business Overview

Previously organized as a Delaware corporation in 1986 under the name Protein Design Labs, Inc, PDL BioPharma (PDLI) focused on the development of antibodies in oncology and immunologic diseases until 2008, when the company spun off its R&D organization to Facet Biotech Corporation. PDL continues to generate royalties through licensing agreements based on its humanized antibody technology.

Business & Financial Metrics[6]

In 2009, PDLI generated a net income of $189.7 million on revenues of $318.2 million. This represents a 177.3% leap in net income and an 8.2% increase in revenues from 2008, when the company earned $68.4 million on revenues of $294.2 million.

Trends & Forces

Growth in the Oncology Market Boosts PDLI's Revenues

According to reports by MarketResearch, the oncology market forecasts show an increase from $18 million in drug-related revenues in 2004 to over $195 million in 2012.[7] Factors like an aging population and an increased understanding of the genetics of cancer are fueling this growth. As cancer treatment becomes more lucrative and more common, PDLI benefits because more companies will license its technology to make treatments. PDLI earns revenues from up-front licensing fees as well as royalties on each unit of drugs sold.

The Company's Future Growth Is Contingent on Successful Development of New Products

As with most pharmaceutical companies, the performance of PDLI depends on its ability to develop successful products. This is especially crucial for PDLI as it has recently divested its commercial division to focus on development-stage biotech. The ability of PDLI to successfully develop a new blockbuster antibody is questionable, considering it has not successfully developed a single drug since its inception. Recently, management announced that Phase III trials for ulcerative colitis antibody Nuvion have been discontinued due to the drug's lack of efficacy.

In addition, future growth is entirely dependent on the sale of new products once its antibody humanization technology patent expires in 2014. In the meantime, PDLI intends to use the stable revenue flows from the royalties and licensing fees from its Queen patent to fund the antibodies that are under development in its pipeline.

Pending Expiration of Queen’s Patent Causing Uncertainty about Future Revenue Streams

The Queen patent refers to the series of patents protecting PDLI’s proprietary humanized antibody technology and which is currently the source of most of its revenues. PDLI is highly dependent on royalties as a source of revenue, and these will cease to exist when its antibody patents expire in 2014 and the royalty stream ends. Moreover, there has also been notices of opposition filed against the two humanization patents based on the Queen technology, meaning the patent might not make it to 2014 - intensifying pressure on PDLI to succeed in the discovery of a new technology..[8]

Competing Human Antibody Technologies Will Continue to Erode its Market Share

PDLI's antibody humanization technology is one of the methods that can be used to develop antibodies for human use. It would be classified under the broad cateogry of Recombinant Protein Engineering.

However, other techniques have been developed over the years. Antibodies have also been developed using Genetically Engineered Mice, Diversity Libraries and Cellular Production methods. There are at least 24 companies that claim to have technology for generating human or humanized antibodies.[9]

While PDLI's technology remains in demand, these competing processes threaten to erode its market share and reduce its royalty revenue stream in the short term, while presenting issues for PDLI's long term development of an alternative to its Queen patent technology as market saturation makes discovery of new methods increasingly difficult.


More than 24 companies claim ownership of technology for generating human or humanized antibodies. These include:

  • Genmab: It is a publicly listed company listed on the OMX Nordic Exchange in Coopenhagen. Genmab has developed UniBody, a proprietary technology which is used to create a smaller antibody format which may offer several advantages over traditional full size monoclonal antibodies.
  • Medarex (MEDX): MEDX currently has 11 antibodies in its porfolio and has a proprietary UltiMAb Human Antibody Development System that uses transgenic mice to produce human antibodies. The genetically engineered mice contain genes encoding human antibodies, and as a result would make human antibodies.[10]
  • Regeneron Pharmaceuticals (REGN) : REGN currently has 1 marketed product and 3 drugs in its pipeline. It also has a genetically engineered mouse model (VelocImmune) which is used to produced humanized antibodies.[11]
  • Alexion Pharmaceuticals (ALXN): ALXN has compiled a diversity library, the human Combinatorial Antibody Library Technology, "CoALT", which is being exploited for the discovery of highly specific fully human and humanized antibody products. The company's propreitary technologies involve the generation of combinatorial libraries of human antibodies and the screening of these libraries against potential drug targets, all performed in the laboratory without the requirement of animals.[12]
  • Dyax (DYAX): Dyax’s core proprietary phage display technology allows for the rapid identification of compounds that bind with very high affinity and specificity to therapeutic targets.[13] The company also has three drugs under development in its pipeline.
  • XOMA (XOMA): XOMA's Human Engineering (HE) technology is a clinically-tested humanization method for reducing the immunogenicity of non-human antibodies, while still retaining the structural folding, antigen binding affinity, and functional potency of the parental antibody.[14] It also has 7 drugs under development in its pipeline.


  1. Monoclonal antibodies
  2. PDLI 2007 10-K
  3. PDLI 2007 10-K
  4. PDLI 2007 10-K
  5. PDLI 2007 10-K
  6. PDLI 2009 10-K pg. 21  
  7. Oncology Market Opportunities, Strategies, and Forecasts, 2006 to 2012. March 1st, 2006. Wintergreen Research.
  8. PDLI 2007 10-K
  9. Robust Outlook for Next-Generation Therapeutic Antibodies. RBC Capital Markets Corporation.
  10. Medarex 10-K
  11. Regeneron Pharmaceuticals 10-K
  12. Alexion Pharmaceuticals 10-K
  13. Dyax10-K
  14. Xoma10-K
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