Earlier this month I wrote about how Genentech's (NYSE:DNA) good fortune was going to trickle down to Protein Design Labs (NASDAQ:PDLI) because of the intellectual property licensing agreement between the two companies. Protein Design Labs has patents on antibody humanization technology, and the company receives royalty revenue from other companies' marketed products that are covered with licenses issued by Protein Design Labs.
In yesterday's second-quarter earnings report, Protein Design Labs increased its revenue guidance for 2004. This was largely based on the positive impact of Genentech's drugs, in particular Avastin. In February the company's expectation was for $78 million-$81 million in total revenue for this year. This has now been bumped up to $88 million-$91 million. A large component of this revenue will be royalties of approximately $69 million, which is approximately a 30% increase over $52.7 million in royalty revenue last year.
The royalty component of the business is a big plus, but that's not how I view the company. I take the perspective that it's primarily a drug developer that has a nice royalty stream on the side. On the drug development front, we got some bad news with the good in yesterday's conference call.
In the past, the company has had a tough time in getting its internal drugs through clinical trials. Since the release of data in May it has looked like HuZaf was going to be added to the dead-drugs graveyard, and that now seems to have occurred. The official comment during the call was that the company will seek a partner and not initiate additional clinical studies alone. That is simply biotech-speak for letting a drug slip quietly into the night.
On the upside is Nuvion, which is scheduled to begin registration trials in the first quarter of next year. This drug has looked good in the treatment of severe ulcerative colitis, and it is definitely worth watching. I model this as a drug that can potentially reach $750 million in sales. If that comes to fruition the company will no longer be dependent upon royalty revenues, however nice they may be.
To read more by Charly on the exciting biotech industry, check out his recent articles:
- What's a Drug Worth?
- Biotech's Full Monte
- Unraveling Biotech Potential
- Don't Be a Biotech Gambler
- Avoiding Biotech Land Mines
Fool contributor Charly Travers owns shares of Protein Design Labs.
