5 Reasons to Buy PDL BioPharma Inc

PDL BioPharma will extend its operations beyond 2014. I believe there are 5 reasons the stock is now a buy.

Mar 17, 2014 at 2:30PM

The wisdom of investing in stocks that pay dividends will never go out of style. For investors in the health care sector, however, dividends are rare, as most health care companies choose to use their cash to invest in their clinical pipelines, which is a capital intensive endeavor. 

A clear exception to this trend is PDL BioPharma (NASDAQ:PDLI), the inventor and chief patent holder of humanized antibody technology. Instead of using their so-called Queen patents that cover this core technology to develop new drugs, the company has chosen to license out these patents in exchange for a stable revenue stream. To date, this strategy has worked well for both the company and investors alike, as the company has consistently paid one of the highest dividends in the health care sector for four years running. That said, the last of the Queen patents is set to expire at the end of this year, and it was considering ceasing operations.

Recent developments at PDL BioPharma, however, have changed the outlook of the company. As such, I believe Foolish investors would be wise to take a deeper look at this rare stock. With that in mind, here are my 5 reasons PDL BioPharma could be an excellent investment this year. 

Reason No. 1
PDL offers the highest dividend in the health care sector at $0.60 a share, or 7.20% at current levels. Although the last of the Queen patents is set to expire at year's end, management has made it a priority to return equity to their shareholders via a large quarterly dividend, and there is good reason to believe PDL will have enough income to stave off a dividend reduction when the Queen patents finally expire (see below). 

Reason No. 2
The three-year long suit with Genetech and its parent company Roche (NASDAQOTH:RHHBY) is finally over, providing investors with clarity on future revenue. As a refresher, Roche disputed that it was infringing upon PDL's Queen patents on new and existing products like Avastin, Herceptin, Lucentis, Xolair, Perjeta, Kadcyla and Gazyva. Per the terms of the agreement, Genentech will pay a fixed royalty of 2.125% on worldwide sales of these products, compared to a blended royalty rate of 1.9% under the prior agreement. Most importantly, this deal allows PDL to recognize revenue from its Queen patents until 2016, which should help to soften the blow upon expiration.

Reason No. 3
PDL dramatically reduced its long-term debt from $180 million to $48 million via two recent financing deals. The net effect of these deals is to lessen the burden of future dilution on dividend payouts, helping the company to maintain the dividend at current, or near current levels.

Reason No. 4
As previously mentioned, PDL was considering closing its doors at the end of 2014 due to the expiration of the Queen patents. As a result, the stock has fallen well off of its previous highs in 2013, shown by the chart below. Now that management has provided clarity on continuing operations, I think the stock stands a good chance of moving higher from here. And indeed, shares of PDL rebounded nicely from their mid-February lows when the company was mired in uncertainty.  

PDLI Chart

Source: YCharts.

Reason No. 5
Perhaps the most compelling reason to invest in PDL is the impressive number of financing deals it has completed over the past two years. Specifically, PDL's management has now inked 10 financing deals worth a total of $546 million, with both public and private biotechs. In exchange for critical financing, PDL has gained the right to royalty and milestone payments from a plethora of biotechs in the coming years.

Some of the highlights include a $240.5 million financing deal with DepoMed (NASDAQ:DEPO) for its Type 2 diabetes products and a deal worth up to $70 million with Durata Therapeutics (NASDAQ:DRTX) for its novel antibiotic, dalbavancin indicated as a treatment for skin infections. Notably, the deal with DepoMed is already paying off, with PDL banking $11.2 million in royalty payments in the fourth quarter of 2013.

Looking ahead, Durata's dalbavancin will be reviewed by the U.S. Food and Drug Administration on May 26, where it is widely expected to gain approval based on the strength of its late-stage clinical trial results. Consequently, there is a good chance this deal will also bear fruit.

Foolish wrap up
PDL is presently rebounding from the uncertainty surrounding the expiration of the Queen patents, and the future looks bright. Although there will be some bumps along the way, the bevy of financing deals and the settlement with Roche should help the company transition into the next phase of its life cycle. 

Invest In The Next Wave of Healthcare Innovation
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And the technology  behind is poised to set off one of the most remarkable healthcare revolutions in decades. The Motley Fool's exclusive research presentation dives into this technology’s true potential, and it's ability to make life-changing medical solutions never thought possible.  To learn how you can invest in this unbelievable new technology, click here now to see our free report.


George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers