One of the biggest highlights of following the drug industry is watching companies transform over time from speculative ventures into rock-solid firms that are clearly creating value for shareholders. This is the case right now with Protein Design Labs (NASDAQ:PDLI), the company that was my first pick in the biotech arena for Motley Fool Rule Breakers.

Protein Design Labs is the beneficiary of a juicy royalty stream coming from partners that have taken licenses to its antibody humanization patents. The list of drugs from which PDL receives a royalty reads like a Who's Who of the Biotech Industry. Some of the notable drugs include Avastin, Herceptin, and Xolair from Genentech (NYSE:DNA), MedImmune's (NASDAQ:MEDI) Synagis, and Tysabri from Biogen IDEC (NASDAQ:BIIB) and Elan (NYSE:ELN).

Royalty revenue totaled $63.9 million through the first three quarters of this year. Since Tysabri is just getting out of the gate and Avastin is very early in its growth phase, I expect strong royalty growth over the next three to four years. I think we'll see royalty revenue approach $200 million annually over this period.

While the royalty end of the business is quite nice, this is much more than just a royalty story. Of particular interest is the drug Nuvion for severe ulcerative colitis. In early clinical trials, the drug appeared to work wonders in patients who were facing removal of their colons.

I really like companies that go after these unmet medical needs because a successful drug can capture very high market share and entrench itself as the standard of care. This is how I see this scenario playing out, with Nuvion becoming a blockbuster product by the end of the decade. At that time, Protein Design Labs will have completed its transformation from a royalty story to fully integrated drug company.

In this short article, I can only scratch the surface as to why Protein Design Labs is a superior investment. But you can learn a lot more about the future of this company by reading my recent interview with CEO Mark McDade, or by looking back at my original recommendation and other commentaries about biotech at Motley Fool Rule Breakers. Just take a free 30-day trial for all the information you need.

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Motley Fool Rule Breakers biotech analystCharly Traversowns shares of Protein Design Labs.