PDL BioPharma (NASDAQ:PDLI) yesterday announced that it has made the first deal in its pharmaceutical garage sale: In a $200 million cash deal, PDL sold the rights to oncology drug IV Busulfex to Japanese drugmaker Otsuka Pharmaceuticals.

PDL acquired Busulfex, as well as its other marketed drugs, in 2005, after paying $500 million to acquire ESP Pharma. Busulfex is a chemotherapy drug sometimes given to leukemia patients before bone marrow transplants. It has become PDL's second-best-selling drug. Busulfex sales were $24 million last year, and up 32% in the first nine months of 2007 to $22 million.

Because it has U.S. marketing exclusivity until 2014 and is still experiencing rapid prescription volume growth, Busulfex is an attractive ESP asset on the auction block. The top ESP drug, hypertension treatment Cardene, had sales of $112 million through the first nine months of 2007, but has U.S. patent protection only until late 2009.

In September I gave a rough estimate that PDL's ESP assets were probably worth around $300 million. This estimate looks too conservative in light of the Busulfex deal. If PDL can persuade a drugmaker like Cardiome (NASDAQ:CRME) to take a $50 million gamble on pipeline drug Ularitide, then Cardene and its ESP-marketed drug Retavase need to sell for only $250 million in order for PDL to recoup all of what it paid for ESP (ignoring tax considerations).

This isn't the first time that PDL has sold some of its ESP assets. In a much smaller deal last year PDL offloaded the off-patent ESP-branded drugs to Dr. Reddy's Laboratories (NYSE:RDY) and another drugmaker for a net $4 million.

There are two ways to look at the Busulfex deal in terms of what it means for the prospects of PDL finding an acquirer. On one hand, the fact that PDL has to break apart and sell its assets piecemeal could mean that acquisition interest is low. On the other hand, getting rid of the non-biopharmaceutical drugs will make PDL a more palatable pure-play biotech bet and could raise interest in it. Now that Stock Advisor pick Biogen Idec (NASDAQ:BIIB) is no longer formally for sale, the Biogen-PDL marriage rumors are free to begin again.

The bottom line though, is that investing in a drugmaker based on the prospect of an acquisition is generally not a sound strategy, but from my perspective, PDL shares look undervalued, regardless of whether it finds an acquirer.

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