PDL BioPharma (PDLI)

Our common stock price is highly volatile and an investment in our Company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from March 31, 2007 to June 30, 2008, our common stock closed as high as $27.70 per share and as low as $9.15 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

·                  developments or disputes as to patent or other proprietary rights;

·                  approval or introduction of competing products and technologies;

·                  disappointing sales of products from which we receive royalties or withdrawal from the market of an approved product from which we receive royalties;

·                  a change in the mix of U.S.-based Sales and ex-U.S.-based Sales in connection with our master patent license agreement with Genentech;

·                  results of clinical trials;

·                  failures or unexpected delays in timelines for our potential products in development, including the obtaining of regulatory approvals;

·                  delays in manufacturing or clinical trial plans;

·                  fluctuations in our operating results;

·                  market reaction to announcements by other biotechnology or pharmaceutical companies, including market reaction to various announcements regarding products licensed under our technology;

·                  initiation, termination or modification of agreements with our collaborators or disputes or disagreements with collaborators;

·                  loss of key personnel;

·                  litigation or the threat of litigation;

·                  public concern as to the safety of drugs developed by us;

·                  sales of our common stock held by collaborators or insiders; and

·                  comments and expectations of results made by securities analysts.

If our operations are found to be in violation of any of the laws described above or the other governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Similarly, if the hospitals, physicians or other providers or entities with which we do business

50

Our common stock price is highly volatile and an investment in our Company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from March 31, 2007 to March 31, 2008, our common stock closed as high as $27.70 per share and as low as $9.32 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

·                  developments or disputes as to patent or other proprietary rights;

·                  approval or introduction of competing products and technologies;

·                  disappointing sales of products from which we receive royalties or withdrawal from the market of an approved product from which we receive royalties;

·                  a change in the mix of U.S.-based Sales and ex-U.S.-based Sales in connection with our master patent license agreement with Genentech;

·                  results of clinical trials;

·                  failures or unexpected delays in timelines for our potential products in development, including the obtaining of regulatory approvals;

·                  delays in manufacturing or clinical trial plans;

·                  fluctuations in our operating results;

·                  market reaction to announcements by other biotechnology or pharmaceutical companies, including market reaction to various announcements regarding products licensed under our technology;

·                  initiation, termination or modification of agreements with our collaborators or disputes or disagreements with collaborators;

·                  loss of key personnel;

·                  litigation or the threat of litigation;

·                  public concern as to the safety of drugs developed by us;

·                  sales of our common stock held by collaborators or insiders; and

·                  comments and expectations of results made by securities analysts.

46

Our common stock price is highly volatile and an investment in our Company could decline in value.

        Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to December 31, 2007, our common stock closed as high as $27.70 per share and as low as $16.51 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

•

developments or disputes as to patent or other proprietary rights;



•

approval or introduction of competing products and technologies;



•

disappointing sales of products from which we receive royalties or withdrawal from the market of an approved product from which we receive royalties;



•

a change in the mix of U.S.-based Sales and ex-U.S.-based Sales in connection with our master patent license agreement with Genentech;



•

results of clinical trials;



•

failures or unexpected delays in timelines for our potential products in development, including the obtaining of regulatory approvals;



•

delays in manufacturing or clinical trial plans;



•

fluctuations in our operating results;



•

market reaction to announcements by other biotechnology or pharmaceutical companies, including market reaction to various announcements regarding products licensed under our technology;



•

initiation, termination or modification of agreements with our collaborative partners or disputes or disagreements with collaborative partners;



•

loss of key personnel;



•

litigation or the threat of litigation;



•

public concern as to the safety of drugs developed by us;



•

sales of our common stock held by collaborative partners or insiders; and



•

comments and expectations of results made by securities analysts.

37

        If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company's common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management's attention and resources.

Our common stock price is highly volatile and an investment in our Company could decline in value.

        Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the
foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to December 31, 2007, our common stock closed as
high as $27.70 per share and as low as $16.51 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating
performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

•

developments
or disputes as to patent or other proprietary rights;




•

approval
or introduction of competing products and technologies;




•

disappointing
sales of products from which we receive royalties or withdrawal from the market of an approved product from which we receive royalties;




•

a
change in the mix of U.S.-based Sales and ex-U.S.-based Sales in connection with our master patent license agreement with Genentech;




•

results
of clinical trials;




•

failures
or unexpected delays in timelines for our potential products in development, including the obtaining of regulatory approvals;




•

delays
in manufacturing or clinical trial plans;




•

fluctuations
in our operating results;




•

market
reaction to announcements by other biotechnology or pharmaceutical companies, including market reaction to various announcements regarding products licensed under our
technology;




•

initiation,
termination or modification of agreements with our collaborative partners or disputes or disagreements with collaborative partners;




•

loss
of key personnel;




•

litigation
or the threat of litigation;




•

public
concern as to the safety of drugs developed by us;




•

sales
of our common stock held by collaborative partners or insiders; and




•

comments
and expectations of results made by securities analysts.

37

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        If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our
business, the price of the common stock would likely drop significantly. A significant drop in the price of a company's common stock often leads to the filing of securities class action litigation
against the company. This type of litigation against us could result in substantial costs and a diversion of management's attention and resources.

Our common stock price is highly volatile and an investment in our company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to July 31, 2007, our common stock closed as high as $27.70 per share and as low as $18.26 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

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If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company’s common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.

As of June 30, 2007, there has been no material change in our market risk exposure from that described in our Annual Report on Form 10-K for the year ended December 31, 2006.

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of June 30, 2007, that due to the material weakness discussed below, our disclosure controls and procedures were not effective to ensure the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal controls. During and in connection with our review of the results of operations for the quarter ended June 30, 2007, we identified deficiencies in the design and operation of controls related to the financial statement close process. The aggregation of these deficiencies is considered to be a material weakness. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. We have identified deficiencies in the financial statement close process related to the completeness of clinical trial accruals, the classification of expenses on the statement of operations, the evaluation of the accounting for certain contractual lease provisions, and the impairment assessment process. As a result, adjustments to correct identified errors were recorded in the consolidated financial statements for the three and six months ended June 30, 2007 related to accrued liabilities, research and development expenses, general and administrative expenses, asset impairment charges, and the classification of assets and liabilities on the balance sheet.

We have discussed these matters with our independent registered public accounting firm and our Audit Committee. We are implementing additional controls related to our clinical trial accruals process to ensure all costs associated with CRO services incurred on our behalf are properly identified and recorded each period. In the second quarter of 2007, we have started to implement a plan to complete more detailed reviews of our expense classification during our financial statement close process. We have also performed a retrospective review of our lease agreements and we have plans to ensure the effective operation of both our accounting review of new contractual agreements as well as our internal review processes surrounding periodic asset impairment analyses.

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There were no other changes in our internal controls over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the effectiveness of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. We continue to improve and refine our internal controls and our compliance with existing controls is an ongoing process.

Our common stock price is highly volatile and an investment in our company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to September 30, 2007, our common stock closed as high as $27.70 per share and as low as $18.26 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company’s common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.

Our common stock price is highly volatile and an investment in our company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to July 31, 2007, our common stock closed as high as $27.70 per share and as low as $18.26 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

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Table of Contents

If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company’s common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.

As of June 30, 2007, there has been no material change in our market risk exposure from that described in our Annual Report on Form 10-K for the year ended December 31, 2006.

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of June 30, 2007, that due to the material weakness discussed below, our disclosure controls and procedures were not effective to ensure the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal controls. During and in connection with our review of the results of operations for the quarter ended June 30, 2007, we identified deficiencies in the design and operation of controls related to the financial statement close process. The aggregation of these deficiencies is considered to be a material weakness. A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. During the quarter ended June 30, 2007, we identified deficiencies in the financial statement close process related to the completeness of clinical trial accruals, the classification of expenses on the statement of operations, and the evaluation of the accounting for certain contractual lease provisions. As a result, adjustments to correct identified errors were recorded in the consolidated financial statements for the three and six months ended June 30, 2007 related to accrued liabilities, research and development expenses, and general and administrative expenses.

We have discussed these matters with our independent registered public accounting firm and our Audit Committee. We are implementing additional controls related to our clinical trial accruals process to ensure all costs associated with CRO services incurred on our behalf are properly identified and recorded each period. In the second quarter of 2007, we have started to implement a plan to complete more detailed reviews of our expense classification during our financial statement close process. We have also performed a retrospective review of our lease agreements and we have plans to ensure the effective operation of our accounting review of new contractual agreements.

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Table of Contents

There were no other changes in our internal controls over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the effectiveness of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. We continue to improve and refine our internal controls and our compliance with existing controls is an ongoing process.

Our common stock price is highly volatile and an investment in our company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2007 to May 3, 2007, our common stock closed as high as $25.76 per share and as low as $18.26 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company’s common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.

45

Table of Contents

Our common stock price is highly volatile and an investment in our company could decline in value.

Market prices for securities of biotechnology companies, including ourselves, have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. For example, during the period from January 1, 2006 to February 22, 2007, our common stock closed as high as $32.80 per share and as low as $16.51 per share. Additionally, the stock market from time to time has experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

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Table of Contents

If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company’s common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management’s attention and resources.