How much do you trust management to invest your cash? That's a question you have to ask of any company with a stockpile of cash. But it's especially important for investors in PDL Biopharma
PDL was split off from its drug developing sister, Facet Biotech, which Abbott Labs
Having resolved patent disputes with AstraZeneca
Except PDL has $193 million in cash that management is planning on using to acquire additional royalty streams. Like those late-night commercials offering to give you up-front cash in exchange for signing over your monthly lawsuit settlement payments, PDL is looking for desperate universities or drug companies that would rather have cash now than payments over time.
There are certainly opportunities available. A few years ago, Vertex Pharmaceuticals
The trick is to find patents that are secure and a royalty stream that's predictable. The former requires good lawyers; the latter can be a bit of a gamble. Who knows how sales of a drug are going to pan out over the five or 10 years that might be left on a royalty stream?
If management makes good choices, PDL could be worth more than where investors are currently valuing it. Just realize that the dividend will have to increase or PDL will have to return assets to investors in order for investors to make back their current investment before the current patent portfolio expires in December 2014.
Elan and Vertex are Motley Fool Rule Breakers picks. GlaxoSmithKline and Novartis are Motley Fool Global Gains choices. The Fool owns shares of Abbott and GlaxoSmithKline. Alpha Newsletter Account, LLC owns shares of Abbott. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.