PDL BioPharma Inc. Q3 2008 Earnings Call Transcript

Nov. 6.08 | About: PDL BioPharma, (PDLI)

PDL BioPharma Inc. (NASDAQ:PDLI)

Q3 2008 Earnings Call

November 6, 2008 4:30 pm ET


Ami Knoefler - Head of Corporate and IR

Dr. Mark McCamish - Senior Vice President and Chief Medical Officer

Faheem Hasnain – President and CEO

Andrew Guggenhime - CFO

Mark McDade - CEO


Joel Sendek - Lazard Capital Markets

Geoff Meacham - J.P. Morgan

Mark Monane - Needham & Company

Daniel Loeb - Third Point LLC

Tom McGahren - Merrill Lynch

Jennifer Chao - Deutsche Bank Securities

Bret Holey - CIBC World Markets

Phil Nadeau - Cowen and Company

Dave Hoffman

George Farmer - Wachovia Securities


Good afternoon ladies and gentlemen, and welcome to the PDL BioPharma conference call. Today’s call is being recorded. For opening remarks and introductions I would now like to turn the call over to Miss Ami Knoefler, PDL’s head of Corporate and Investor Relations. Please go ahead.

Ami Knoefler

Good afternoon and thank you for joining us today Today’s call will begin with an introduction by Faheem Hasnain, our recently appointed President and CEO, followed by an update in our ongoing research and development activities by Dr. Mark McCamish, Senior Vice President and Chief Medical Officer, and the financial review of the quarter and an update on our spin-off process by Andrew Guggenhime, Senior Vice President and Chief Financial Officer.

After the conclusion of the prepared remarks we will open the call for questions. To ensure that everyone has an opportunity to address their questions we request a limit of one question and one follow up per person.

Before we begin, let me remind you that the information we will cover today contains forward looking statements regarding our financial performance, clinical milestones, and other matters, and our actual results may differ materially form those expressed or implied in the forward looking statements. Factors that may cause differences between current expectations and actual results are described in our filings with the Securities and Exchange Commission, copies of which may be obtained in the investors section of our website at pbl.com. the forward looking statements made in this presentation should be considered accurate only as of the date of this presentation, and although we may elect to update forward looking statements form time to time in the future, we specifically disclaim any duty or obligation to do so even as new information becomes available or other events occur in the future. It is now my pleasure to introduce Faheem Hasnain.

Faheem Hasnain

Thanks Ami and good afternoon everyone. It’s a real pleasure for me to participate in today’s call, a little over a month from joining PDL as CEO and President. As you ay have noticed, I joined PDL from Biogen Idec, where for the past four years I led the oncology and rheumatology strategic business unit, and had the opportunity to work closely with the PDL team on the Daclizumab and Voliciximab collaboration programs.

Prior to that, I was at Bristol-Myers Squibb for two and a half years as president of the oncology therapeutics network. As a $3 billion business with an operating margin of less than 1% it was truly an entrepreneurial experience that sharpened my financial skills. Prior to BMS, I was at GlaxoSmithKline for over 12 years in a number of key operating rolls spanning globally, business, international commercial co operations, sales, and marketing.

I’m very pleased to take on the leadership role at PDL on the eve of our spinoff of the biotechnology assets into independent entity to be known as Facet Biotech. It will be a great pleasure leveraging my years of experience in the pharmaceutical and drug development industries to help direct Facet Biotech into a new and exciting company that creates value for out stockholders.

One of the most common questions I’ve been asked this past month has been what has attracted me to this opportunity at PDL. First, I’m excited at the opportunity shape Faced into a disciplined and successful Biotech company by capitalizing on our core expertise and translating biological insight into meaningful differentiative products. There’s immense promise here, from core antibody engineering expertise to a number of promising early stage clinical oncology candidates. I look forward to working with our teams to ensure that the core competencies of the many are improved, and applied programs that build value.

Second, I was attracted by the fact that Facet will be well capitalized with over $400 million, clearly in an environment where biotech companies are struggling to access capital.

It will be critical that we invest this capital with which we have been entrusted in a disciplined and responsible manner, and this will be one of my most important objectives.

The combination of a strong balance sheet and a financially disciplined and strategically focused organization opens up the possibility of exploring opportunities to enhance the company’s existing capabilities and pipeline, including in licensing preclinical or early stage clinical programs, and forging collaborations with academic institutions to access innovative targets.

The key will be to take a systematic approach to program funding and decision making and be highly discerning about where we choose to invest our money, with a strong and insightful focus on the biology and financial discipline as the necessary principle for Facet.

To that end, focus will be key to our becoming a successful biotech company, we will enhance our clinical competency, and sharpen our therapeutic areas of interest. We’ll take a disciplined approach to research projects, achieving an appropriate balance of novel and validated biology in order to improve R&D success while ensuring our research and development age activities are aligned with our strategy. Most importantly, we aim to maintain this focus to great value for patients, our partners, and our investors.

As part of my initial planning and review process, I’m currently working with the senior leadership of the company, to evaluate the company’s core capabilities and financials, which of course will help me to refine the strategic direction of the company moving forward.

I expect to outline my findings of this process and share more details about our future directions, as well as our detailed financial guidance early next year. In the meantime, I look forward to meeting and speaking with as many of you as possible in the coming months and in conjunction with our planned spinoff transaction next month.

Now I’d like to turn the call over to Mark.

Mark McDade

Thank Faheem, and good afternoon everyone. Today, I would like to provide a brief update on our research and development programs, but before I begin I’d like to say a few words about Faheem. I was pleased to see Faheem enter the CEO selection process, as I had worked with him over the past 18 months as part of the Biogen Idec PDL joint steering committee.

Faheem has a great oncology background, he brings a high level of knowledge and passion for science in the development of therapeutics that make a difference in patients lives. Under his leadership and guidance, I believe that Facet Biotech is well positioned for the future and we welcome him.

As Faheem mentioned, we are working to build Face Biotech into an efficient and focused R&D organization. In the past year, we’ve emphasized our data driven approach to develop drugs, which will enhanced under Faheem’s leadership.

To do so, we will use internal and external expertise to ensure we indentify in advance the most promising candidates into the clinic, and that our clinical development approaches a robust demonstrating proof of concept and delivering value. We will hone out data driven approach so we can make informed decisions about whether to terminate or advance specific development programs.

We will continue to enable our partners Biogen Idec and Bristol-Myers Squibb to maximize the potential of their co-development assets and we will learn and utilize the best of their processes and approaches to enhance our overall chances for success.

As we are working to complete the review that Faheem described, we remain passionately engaged in advancing our key R&D programs. Our most advanced clinical program is Dicluzimab, in patients with relaxing multiple sclerosis. This is being c-developed with Biogen Idec. Enrollment continues to be robust in the select trial, our ongoing Phase II randomized control trail, testing Dicluzimab as a mono therapy in patients with multiple sclerosis.

Our next steps for this program will be formed by merging data from this trial, and we anticipate providing additional insight in the program direction in late 2009. This remains an important program for us, as well as Biogen Idec, and they are doing the wonderful job of moving the program forward.

Our recently announced collaboration with Bristol-Myers Squibb for our elotuzumab program kicked off in early September, and we have been actively working since then with our colleagues to plan the next steps for the program, while simultaneously advancing all Phase I studies.

Our three ongoing Phase I trials of elotuzumab, and anti-CS1 humanized antibody in patients with multiple myeloma continue to enroll patients at a healthy pave. We anticipate the presentation of addition preclinical and clinical data at the upcoming ASH conference in San Francisco next month.

Related to elotuzumab, and our anti-CS1 program, we continue to work on the PDLC-41 program, which is a pre-clinical candidate targeting CS1 for immunologic disease indications. The preclinical study program is progressing and multiple studies should be completed by the end of 2009, at which time BMS will have the option to enter into acollaboration for this program.

We continue to accumulate and analyze the data for our other development programs, volociximab or M200, and PDL 192. By the first half of 2009, we anticipate having sufficient date for volociximab to make the decision to either progress or either terminate the program. PDL192 is in early stages of a dose escalation study, and continues to enroll patients.

As mentioned earlier, increased focus and streamlining of our research and development organization will be critical to the success of Facet Biotech. As such, we recently made a couple of difficult decisions within our development organization.

First, we’ve decided to close out clinical developmental office in Paris, France. Given the early stage of our clinical programs, the outsourcing for the management of our clinical trials, we determined that it would be more efficient to consolidate our clinical operations here in California. We are very appreciative of the hard work and dedication by our colleagues in that office and wish them all well in their future work

Second, in a effort to bring more focus to our development organization and allocate our resources in the most efficient way possible, and after discussions with external experts and regulatory agencies, we decided to no longer pursue the development of dicluzimab in asthma. While we have seen some Phase II proof of concept data I this indication, the level of investment and commitment the program would require is beyond the scope of Facet Biotech moving forward.

Both of these decisions are indicative of the kind of discipline we expect at Facet Biotech. Disciplined financial and operational decisions and disciplined development decisions. I will look forward to speaking with you at upcoming conferences and meetings associated with our spin-off transactions, and now Andrew will review the financials for the quarter and provide an update of our spin-off process, Andrew.

Andrew Guggenhime

Thanks Mark, and good afternoon everyone. I also would like to welcome Faheem and look forward to working with him to present the Facet Biotech story to our investors in the coming months.

Today, I would like to begin by briefly summarizing our financial results for the third quarter of 2008, an then review out 2008 updated royalty revenue guidance., which we increased based on better than anticipated year to date performance. I will then provide an update on our plans to separate the biotechnology operations from our antibody humanization royalty assets, and close with a discussion of some of our underlined assumptions behind our royalty outlook.

We were pleased with out third quarter financial performance, the highlight of which was our royalty revenues, which increased 25% to $8.7 million for the third quarter for 2008, compared to 55.1 million for the third quarter of 2007.

As we noted in today’s press release, this increase was driven primarily by an increase in the volume and percentage of our Herceptin product that was manufactured and sold outside the US. This resulted in the greater percentage of Perceptin sales being subject to the higher fixed royalty rate that applies to Genetech’s products that are both manufactured and sold outside the US, as opposed to the lower tiered royalty piece structure that applies to products that are manufactured or sold in the US.

In addition, overall growth in royalty baring net sales reported by our antibodies product licensees contributed to the increase this quarter, a compared toe he same period in 2007.

These increases were offset partially but a decrease in the effective royalty rate earned on aggregate underlying licensee net product sales due to the impact of the tiered fee structure, applicable to Genetech’s products that were either manufactured or sold in the US.

License collaboration and other revenue were 8.7 million for the third quarter of 2008, compared to 6.1 million for the same period of 2007. This increase was primarily due to the commencement of the collaboration agreement with Bristol-Myers Squibb Company for the elotuzumab program, which became effective in early September.

Our total cost and expenses for the third quarter of 2008 were 64.3 million, compared to 69.7 million for the same period in 2007. The key reasons for the year over year variance are described in the press release, and I would like to comment on two reasons that warrant additional color.

First, included in the 44.7 million in research and development expenses for the third quarter f 2008 was 12.0 million, related to the purchase of clinical trial material from our contract manufacturing organization Genmab.

Parts of the sale f our manufacturing assets in March 2008, we recognized the cost of manufacturing clinical trial material as such costs were incurred. However, now that we utilized Genmab as our CMO, we recognize the expenses related to the clinical trial material all and only at the time when the manufacturing process is complete and the material is released by Genmab and purchased by us.

The change from in house manufacturing to the utilization of a CMO results in a greater level of volatility in our R&D expenses quarter to quarter.

The 12 million in CMO related expenses in the third quarter represents over 80% of our expected full year clinical trial purchases for each of 2008 and 2009, and is therefore much more indicative of what we anticipate spending for a full year than a particular quarter.

As a result of the encounting treatment and the nature of the underlying activity we do expect fairly substantial quarter to quarter variability in these numbers in future quarters. Second, included in the 18.5 million in general and administrative expenses in the 3Q of 2008 were 5.4 million in legal and professional services fees incurred in the period related to the company’s spin-off efforts, royalty monetization efforts, and litigation and other disputes related to the company’s intellectual property. The majority of these costs was related to the spin-off and royalty monetization processes and was therefore expected to draw significantly upon the spin-off and none of these costs could relate to the operations of Facet Biotech subsequent to the spin-off.

Overall, we remain on-track with our restructuring plan to achieve our stated expense targets or better by the end of the first quarter of 2009. Income for continued operations and income taxes have a significant impact on our results for the quarter. During the 3Q of 2008 income from discontinued operations was 46.0 million compared to .8 million for the comparable period in 2007. In the 3Q of 2008, income from discontinued operations included a 25.0 million milestone payment earned and received from EKR Therapeutics for the approval of a Cardene formulation and a net income tax benefit of $19.8 million recorded in the third quarter of 2008 primarily as a result of tax elections related to contingent consideration we may have received from EKR.

During the first quarter in 2008 when we sold our former cardiovascular assets to EKR, we calculated the related tax4 revision using the upfront cash payment as well as the fair value of the contingent consideration in the form of payments and royalties has the basis for our tax revisions. The tax benefit in the 3Q was primarily the result of our election in the period to exclude the fair value of the contingent consideration from the calculation for tax purposes. This also reduced our overall tax expense related to this transaction. Our gap income for the 3Q of 2008 was 55.7 million, compared to a net loss of 5.8 million in the comparable 2007 period. On a first year basis, our net income per share was $0.38 in the 3Q of 2008 compared to a loss of $.05 per deluded share in the same period for 2007. excluding the results of discontinued operations, income from continued operations, after taxes for the 3Q for 2008 was $9.7 million or $0.08 per deluded share compared to a loss of $6.6 million, or $0.06 per deluded share in the comparable 2007 period. Our balance sheet …over the course of 2008 as of September 30th 2008 our cash, cash equivalence, and restricted cash totaled approximately $558.6 million, an increase of approximately $118 million from the $440.8 million in cash, cash equivalence, marketable securities, and restricted cash balances as of December 31, 2007.

During the 3Q this year, I should say for the 9 months of the year, net cash provided by operative activities was $91.8 million, a significant increase from $41.7 million for the 9 months ending September 30, 2007. Upon the spin-off of our biotechnology operations, the aggregate amount of cash, cash equivalence and restricted cash will decline by the amount we fund Facet Biotech, which is $405 million. On the heels of our 3Q 2008 royalties and the underlying 3Q net product sales reported by a number of PDL's licensees, which will impact our fourth quarter 2008 royalties, we are raising our full year 2008 royalty revenue guidance. We anticipate full year 2008 royalties of $270-280 million, an increase from the original estimate of $240-260 million. This change from our original estimate is primarily due to an increase in the percentage of our Herceptin product manufactured and sold outside the U.S. in recent quarters as compared to our initial expectations. Our range for the year is primarily to reflect for the 4Q and certainly in the percentage of products manufactured and sold outside the US and to a lesser degree the actual net product sales which will be recorded to us by our licenses during the 4Q.

Our estimate also presumes we can continue to receive royalties from MedImmune related to sales, which royalties are expected to comprise approximately 7% of total royalties for the quarter. Our estimates do not include royalties from Cimzia UCB which markets Cimzia has stated that it does not intend to pay its royalties on sales of the product notwithstanding our license agreement with them, under which we believe royalties are due.

After I review the status of our spin-off and royalty observation efforts, I’ll comment on our qualitative assumptions behind our outlook for our royalties. Now I would like to turn to an update on the process to separate our biotechnology operations from our royalty assets. If you recall, we announced on April 10th of this year our intents to separate our biotechnology assets from the royalties via a spin-off from the biotechnology assets by year-end 2008. This separation would allow investors to more fully realize the value of these assets independently, allow each company to focus its efforts on core business opportunities, and ensure that PDL’s future antibody humanization royalties accrue directly to the benefit of PDL stockholders. To that end, we are moving ahead with preparations for the spin-off transaction, which is on track for completion by the end of this year.

We are currently taking the steps necessary to complete the spin-off including finalizing the Form 10 Registration Statement, initially filed with the SEC in August. We filed our second amendment on the 27th of October. Assuming that we obtain SCC and other required regulatory approvals and third party consents, and subject to final PDL Board approval, we expect to announce a record date in the next few weeks and complete this spin-off by mid-December. The Form 10 describes all of the key aspects of the spin-off including the mechanics of effecting the transaction, the business and strategies of biotech, and its historical and proform of financials.

In terms of key updates since our last call in August, we have now selected Facet Biotech as the name for the spin-off entity and FACT as the Nasdaq ticker symbol. Facet will be capitalized by 4.5 million in cash updated to reflect the upfront payment received in connection with the VMS collaboration. Subsequent to the spin-off PDL will continue to operate as an independent publicly traded Delaware company but plans to relocate its corporate headquarters and ongoing business operations to a new location outside California that will meet the company’s ongoing business needs while also providing a more favorable cost structure.

As you may have seen, we announced this morning the appointment of John McLaughlin as President and CEO of PDL after completion of this new spin-off transaction. John has a tremendous amount of experience in the biotech industry particularly in the management of intellectual property estates, which will be important for PDL moving forward. Effective immediately, John will serve as a special advisor to the company and will focus his efforts on supporting the spin-off process and working to operationalize and then relocate the company. In preparation for the spin-off, we look forward to introducing John to the investment community in the coming weeks.

As we have previously disclosed, we had been evaluating the monetization of the antibody humanization royalty assets through a potential sale or securitization transaction in parallel with the spin-off preparations. This process was extensive and involved the support of two financial advisors, the engagement of a third party consulting firm to project underlying licenses product sales, and obtaining the consent of our numerous licenses. As we were preparing to initiate our formal and comprehensive outreach to prospective buyers and investors, the market conditions as you are all keenly aware, recently changed dramatically. Primarily due to these current market conditions, we do not believe that taking further steps to achieve a transaction at this time is in the best interests of our stockholders. As a result, we are not currently pursuing a monetization transaction but will continue to evaluate whether such a transaction in the future is in the best interests of our stockholders.

As previously announced, assets and monetization transaction, PDL post-spin expect to distribute its income, net service and income taxes to its stockholders. Under the right conditions and at the right time, PDL continues to believe that a monetization transaction in the form of a sale or securitization is the optimal outcome for the company. In his role as CEO, John will meet such efforts to move things forward. As part of this monetization process, we have been assessing the longterm outlook for the royalty revenues including having engaged a third party consulting firm, as I mentioned, to project underlying licenses product sales. Based on this work, we are planning to provide a more detailed outlook of our royalties to the investment community prior to completion of the spin-off transaction.

Here are some of the current assumptions that have been included in our assessment: continued growth in product sales from our existent royalty bearing products; an increase in the percentage of prospective products manufactured and sold outside the US in future periods as compared to recent historical levels based on announcements by Roche that its new Herceptin production facility in Penzberg, Germany will commence commercial production in early 2009; commencement of ex-U.S. manufacturing of Avastin(NYSE:R) product based on announcements by Roche that its new Avastin production facility in Basel, Switzerland will commence commercial production in early 2009, some of which the company expects will be sold outside the U.S., and expected subsequent increases in the percentage of Avastin(R) product manufactured and sold outside the U.S. due to expected scale-up of production, and last potential marketing approval and launch of new royalty-bearing products. Again, as I noted, we intend to provide more detailed guidance for the royalty stream prior to the completion of the spin-off transaction. Now, I’d like to turn the call over to the operator for your questions. Operator, please begin.

Question-and-Answer Session


As a reminder, ladies and gentlemen, if you would like to ask question, please press * and the number 1 on your telephone keypad. Again, ladies and gentlemen, if you have questions that is * then the number 1 on your keypad. We will pause for just a moment to compile the Q&A roster. And our first question comes from Joel Sendek from Lazard Capital Markets.

Joel Sendek - Lazard Capital Markets

Yes, I have a question about Synagis and I guess NewMax as well. What’s your remedy for Cimzia and are you worried about this non-bonding written determination with regard to Synagis and what kind of contingencies do you have and what remedy do you have there?

Andrew Guggenhime – CFO

I’ll answer that question in two parts. First, with respect to Cimzia, as we noted, they have stated to us that they don’t believe their product infringes on our patents. We have a different view based on the license agreement we initially executed with Celtech which was acquired by UCB. We believe that this product is covered by the license agreement and I’ll make the same comment as related to MedImmune but we fully intend to defend and enforce our rights under both the licenses agreements and the patents overall. That matter is ongoing and there is update at this time. With respect to MedImmune, there also is no update. We are now in the process of the outline and the EKR filing but we have been given no indication that they will not continue to pay us royalties on Synagis which as we noted, we’ve been generating since the 3Q of 1998. Again, this matter continued to defend and enforce our rights as related to the agreement as well as the patent. At the time of which there is no update to provide, and we will certainly provide that information in a timely manner to the public,

Joel Sendek - Lazard Capital Markets

Just to be clear, for MedImmune, does that cover NewMax as well or would that be a separate determination?

Andrew Guggenhime – CFO

Well, the process covers both and in the process, under the license agreement, it was to have essentially a third party counsel evaluate both Synagis as well as NewMax. As noted earlier, that determination would be and is non-binding in nature. What happens at that point in time, is too early to speculate.

Joel Sendek - Lazard Capital Markets

Ok. Thank you.

Andrew Guggenhime – CFO

Thanks, Joel.


Your next question comes from Geoff Meacham of J.P. Morgan.

Geoff Meacham - J.P. Morgan

Hi guys, this is Terry calling for Geoff today. Thanks for taking the question. I was just wondering on the process to monetize the royalty stream, maybe you can talk about what you saw when you were going through the process that made you walk away. I’m wondering if there were any interest in acquiring the royalty stream and what the hurdle was there and also maybe you can talk about how this could potentially change going forward, as you did mention that you plan on revisiting it in the future.

Faheem Hasnain – President and CEO

Andrew, I’ll address that question. I guess the first point I make is that we don’t comment on the nature of any discussions we have with parties that relate to the royalties. Just stepping back for a moment, as folks are aware, we in October 2007 made the decision as an organization to pursue a process under which we then thought to sell the company as a whole or all of the assets of the company. In connection with that process, we explored multiple pathways. We evaluated alternatives and held discussions with respect to our royalty assets. In March of this year, we announced that we made a decision to terminate the process and then a month later in April, we made the decision to completely separate our biotechnology operation from the royalty assets. That plan, as we publicly disclosed to achieve that separation, was to do so via the spin-off of our biotechnology operations. At that time, as you recall, we also indicated and stated that we would evaluate monetization of the royalties.

So in connection with our decision to completely separate the biotechnology and royalty assets, we formalized a royalty related process and focused solely on that unique asset and in connection with having engaged an additional financial advisor to assist us in that undertaking. And as part of that formalized and royalty-only focused process we’ve undertook a number of the initiatives I outlined on the call; Having engaged a third party firm to project our licenses product sales through the life of the patents; working with a ratings agency to obtain ratings on debt in connection with a potential debt financing, and also obtained the consent of our licenses. As we were heavily in that process preparing to initiate our formal and comprehensive outreach to prospective buyers and investors, the market changed dramatically on us and in connection to the backup of those market conditions we just did not believe that it was appropriate for the company to take the next steps of attempting to actually consummate a transaction including initiating the outreach to investors. We just didn’t think it was the right time to do that. Over the long term, as we noted in the press release, we do believe that the optimal outcomes for this company and certainly should market conditions change, or certainly the leadership of the company, would be evaluated by circumstances that existed then.

Terry for Geoff Meacham - J.P. Morgan

Ok. You mentioned you would still seek to distribute the value of the royalty stream. Do you have any idea as to timing? Would if be a quarterly dividend or an annual dividend? What are your initial thoughts on that?

Faheem Hasnain – President and CEO

The determination has not been made yet and the goal in this entity would not be to generate interest income. The goal of the entity would be to return the cash-flow to the stockholders. The determination has not been made yet but whether it’s through online distributions or monetization, the end-game is to get the value of those royalties to the stockholders.

Terry for Geoff Meacham - J.P. Morgan

Ok. Just two housekeeping questions. Can you tell us what the value of your NOL is?

Faheem Hasnain – President and CEO

Sure. As of the initial estimate, because we don’t formally disclose the NOLs and credit balances until the end of each tax year, which obviously coincides with the calendar year – but as of the end of September 2008 our NOLs federal level was about 250 million and the federal credits were approximately 35 million.

Terry for Geoff Meacham - J.P. Morgan

Ok. And then state?

Faheem Hasnain – President and CEO

I’d love to follow up with you on that, but I don’t have it in front of me. Due to the severe budget concerns through the State of California, just some weeks ago – they suspended the use of NOLs for full years 2008 and 2009 and limited the use of tax credits so in connection with our evaluation to relocate the royalty company outside of California, the State has become less desirable to operate and that was one of the factors that drove our decision to seek to relocate our operations.

Terry for Geoff Meacham - J.P. Morgan

Ok. And just my last question is on the royalty rate on GinenTech Products manufactured and sold outside the US. Can you say what that royalty rate is?

Andrew Guggenhime

Due to the nature of the agreement we have, we haven’t disclosed the specific rate. What we have communicated obviously it’s a fixed and flat rate, and it’s a rate that is consistent with the rates we generate under our other license agreements, which, as we’ve talked about again is plus or minus 3%.


Okay, thank you.

Ami Knoefler

Thanks Terry.


As a reminder ladies and gentlemen, if you would like to ask a question that is * then the number 1 on our telephone keypad. Your next question comes from Katherine Xu with Credit Suisse.

Katherine Xu – Credit Suisse

Hi, good afternoon. I’m just curious, with regards to the PDL, the (inaudible) going forward, what kind of cost structure are you looking at, such as operating expenses, and tax structure, you’re moving out of (inaudible) or moving offshore?

Andrew Guggenhime

Katherine, this is Andrew, I’ll take that question, you faded out a little but at the end, but let me take the first part of the question in terms of the expected cost structure and operating expenses. We expect it to be a very lean and very high margin business. We expect the number of employees in the organization to be in the single digits, obviously with John at the helm as President and CEO, you’ll have an employee base in the single digits, obviously a board to govern the company, and a fairly limited number of ongoing day to day expenses, we expect a lean cost structure. There’s one area where the expenses are more likely to be involved is in the area of outside legal fees. A you well know we’re currently litigating with Alexion, and that, and other matters will cause that spend area to be volatile, but we’re expecting ballpark, in the $10 or so million on an annual basis in terms of total operating expenses.

Katherine Xu

How about tax structure?

Andrew Guggenhime

Tax structure is clearly dependent on the location, obviously wherever we are we’ll have the federal tax rate of 35%, in California the effective tax rate is about 5.75%, under a move to another state that could go as low as zero, and California NOLs and tax credits that we have currently wouldn’t be applicable.

Katherine Xu

Could you give us an update on dicluzimab in transplants, what is the strategy there?

Mark McDade

As we mentioned, we decided not to pursue diac in asthma, continuing to evaluate diac in transplant, potentially moving forward to a confirmatory type of, we’ll announce when that happens, and when we’ve gone through our overall strategic review to evaluate the programs.

Katherine Xu

Do you think you will partner that, or push it forward yourself?

Mark McDade

Depending on our strategic review, we’ll have to make decisions on that. we would like it to move forward with a Phase II, but beyond that moving forward, cover a trial, launch things of nature, that would have to be determined after a strategic review.

Katherine Xu

Thank you.


Your next question comes from Tom McGahren with Merrill Lynch.

Tom McGahren – Merrill Lynch

Hi everyone, the question on Facet Biotech, just thinking about expense estimates, operating expenses, in the past you’ve mentioned some numbers, just looking to see if those numbers have come down, and also about the downsizing of the facilities of the company.

Faheem Hasnain

Thanks Tom, it’s Faheem, I’ll take that question. As we mentioned, Tom, we’re still going through our strategic review and we’ll be in a much clearer position at the beginning of the year to provide some guidance, but my initial assessment would suggest that we will be targeting a runway beyond three years. How much beyond three years will clearly depend on the outcome of that strategic assessment, but that certainly is our intention. In terms of the facilities, we are still going through that process of looking at potential partners and ways to be able to sublease the current facility that we are in one way or the other, whether it’s an outright sublease or it’s a consolidation of the facility, we’ll be looking quite aggressively to decrease our overall expense exposure.

Tom McGahren – Merrill Lynch

Andrew, you mentioned a more detailed outlook down the road, but in terms of the buys you expect, do your estimates include royalties on Atemra?

Andrew Guggenhime

What we do expect when we finalize the details of the type of guidance we’ll issue, but we do expect to be generating royalties on sales of that product once approved.

Tom McGahren – Merrill Lynch

Then the lastly on dacluzomab in asthma, are there any possibilities for out-licensing it? I know you’re stopping development, but can you sell it to someone else?

Andrew Guggenhime

We will continue to evaluate the potential, it’s a great molecule in various immunological applications, so that would certainly be something we would consider, but don’t anticipate an action on that in the near future.

Tom McGahren – Merrill Lynch

Thanks a lot.

Andrew Guggenhime

Thanks Tom.


There are no further questions; I would like to hand the conference back to management.

Ami Knoefler

Thank you all for joining our call today, if you have any follow up questions members of management and the IR team are here to take them for you. Thank you very much and have a good afternoon.


Ladies and Gentlemen this does conclude today’s teleconference, you may now all disconnect.

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