Protein Design Labs
Over the past few years the company has made great strides in the drug development arena. While there were some setbacks with earlier products, the current pipeline looks promising with Nuvion, Daclizumab, and M200. I have Nuvion pegged as a major product in the treatment of severe ulcerative colitis, and phase 3 trials of that drug are expected to start later this year. PDL is working to employ Daclizumab to fight asthma and respiratory ailments, and M200 is a cancer drug.
Even with some good internal drug programs and a great royalty stream, PDL was several years away from profitability until yesterday. The company announced that it had acquired privately held ESP Pharma for $300 million cash and $175 million stock.
For a company with a market cap just south of $2 billion, this is a large acquisition, and it's important for investors to assess whether or not the money was well spent. Three important factors lead me to conclude that this is a great deal for PDL.
ESP already has two approved products on the market: Cardene IV and Busulfax IV. While yesterday's conference call was a little light on specifics, it was revealed that Cardene IV was a $6 million product in 2002 when ESP acquired it, and last year's sales were $50 million. ESP recorded overall sales of $90 million last year. That's comparable to PDL's revenue, so this acquisition immediately doubles PDL's top line.
This revenue boost accelerates PDL's transition into a cash-flow positive entity. Initially, PDL was not expected to turn cash-flow positive until after Nuvion's approval, probably around 2008. Now the company expects to be cash-flow positive next year.
The deal also beefs up PDL's pipeline of internal programs. I'm looking for more details on these programs after the acquisition closes, but it was revealed that ESP has four pipeline candidates in clinical trials. At least three of the drugs looked to be in late-stage development, which bodes well for building a diversified product portfolio over the next five years or so. More specifics are needed to fully assess these drugs, but for now it appears that PDL has not only doubled its revenue but also doubled the size of its drug pipeline too. All in all, I'd say it's a fantastic deal for PDL.
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