For the second time in about a month, asset management firm Third Point has come out swinging at PDL Biopharma (NASDAQ:PDLI) and its CEO, Mark McDade. You can read all the gory details for yourself, but one thing is clear: This has gotten personal. The best zinger from Third Point CEO Daniel Loeb's scathing attack?
How can Mr. McDade purport to effectively run a public biotechnology company with a market capitalization of over $2 billion when he cannot even manage his own Microsoft Outlook inbox?
Yeeouch! While the low-blow personal attacks provide some comedy value for those of us sitting in the cheap seats, they're irrelevant to the main issue: whether Third Point is on target in its criticisms of PDL's management.
The PDL drama is particularly interesting to me, since I've got a vested interest in this case. I'm a longtime PDL shareholder, and I've recommended the company several times to Rule Breakers subscribers.
I'll be up-front with you. I'm almost always skeptical of saber-rattling activist investors. Sometimes, I think they're just corporate-raiding clowns with more money than brains, trying to hold a company hostage to their demands. Other times, though, they're really astute investors who are right on the mark with their claims that lousy management is holding a company back.
All things considered, I think Third Point is in the latter group, with very valid criticisms of PDL. At the same time, though, it's a bit selective with the data it has chosen to present in a few of its arguments, and I don't agree with everything it says. For example, it correctly points out that PDL's stock performance has been poor over the past three years, lagging the biotech sector as a whole. As a shareholder over this entire period, I haven't been thrilled with the lack of returns, either.
But Third Point is cherry-picking the stock data. Let's judge Mark McDade's performance, as reflected in the company's stock price, over his whole tenure -- not some arbitrary period. McDade came in as CEO on Dec. 2, 2002, and PDL's stock is up 148% since then. This far outpaces the Nasdaq Biotech Index gain of 46% over the same period. While the stock's recent performance is terrible, the overall returns are solid.
Going into actual business fundamentals, Third Point has completely downplayed one of the current management team's most significant achievements. PDL Biopharma signed a major collaboration deal with Biogen Idec (NASDAQ:BIIB) in 2005. In addition to its significant financial terms, the deal also brought one of the top multiple-sclerosis companies in the world on board with the development of PDL's MS drug candidate, daclizumab. That kind of expertise is invaluable when dealing with such a complex disease. It also shares the R&D expense and risk with another party while bringing in considerable cash payments -- a smart strategy for an unprofitable drug developer.
My few criticisms aside, I find that Third Point is spot-on with many of its key business-related points, particularly regarding empire-building, undisciplined spending, and runaway capital expenditures. In fact, Third Point doesn't even touch on one of my major complaints about PDL.
Over the years, PDL has repeatedly missed drug-development timelines. I understand that it's in a complicated business, and that some timing slips should be expected. Factors like the rate of patient enrollment in a clinical trial are out of a company's control, yet they can throw predicted timelines out of whack.
But PDL hasn't suffered a few short delays here and there. Too often in the past few years, the company has made aggressive promises to shareholders that are rarely met, creating a credibility crisis. It's an open invitation for funds like Third Point to come into the picture.
PDL has the drug assets and resources to become a major player in the industry, like Genzyme (NASDAQ:GENZ) or Gilead Sciences (NASDAQ:GILD). Its ulcerative colitis drug, Nuvion, could be a blockbuster in the making. Ularitide and volociximab also have significant commercial potential.
Shareholders need these drugs advanced expeditiously, through sound clinical trial programs. It's a tough pill to swallow to watch the company sitting on a valuable drug like ularitide while trying to complete what appears to be an overly complicated deal.
I think there's room for improvement at PDL, and if Third Point is the catalyst for change, that's great. But I don't want a prolonged spat to distract management from the day-to-day operations of the business.
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Charly Travers is a biotech analyst on the Rule Breakers team and owns shares of PDL Biopharma. He's currently ranked 200 out of more than 26,000 players in CAPS. Biogen Idec is a Stock Advisor pick. The Fool's disclosure policy is not messing around.
