PDL BioPharma Inc. (PDLI) is a small biotech company with a "big" patent process to create humanized antibodies, and ancillary processes. It manages its intellectual property by licensing it to other companies for royalty interests in their new drugs for humans (usually about a 3% interest). The Queen et al patent portfolio runs through 2014. However, the royalty deals runs for a much longer time. Plus there are many continuing extensions of the original royalty deals for new indications. There will likely be further royalty deals before the patents run out. PDLI has a great process, and it will almost certainly continue to generate great earnings for many years into the future. With the world economic situation weakening, this may be an excellent port in a storm for the next few years.
The company is a great dividend payer at 8.85%. It trades at a P/E of 5.63 and an FPE of 3.84. It is a steady stock with a Beta of 0.28. It has an average analysts' next 5 years EPS growth estimate of 14.00%. Both its FY2012 and FY2013 EPS average analysts' estimates have risen significantly in the last three months. This has happened when many other stocks have seen their EPS estimates fall in the weakening world economic environment. If it did not have to worry about its patent portfolio expiration, it would be trading at a much higher multiple. It still has a long lifetime, and it could decide to develop further intellectual property as well as many further drugs through royalty arrangements.
Some of PDLI's current commercialized products include: Avastin -- a cancer treatment, Herceptin -- a cancer treatment, Lucentis -- an age-related macular degeneration treatment, Xolair -- an asthma treatment, Tysabri -- an MS and Crohn's disease treatment, Synagis -- a prevention treatment of serious lower respiratory tract disease caused by respiratory syncitial virus (RSV), Mylotarg -- a myeloid leukemia treatment, and Actemra -- a rheumatoid arthritis treatment. Many of the above are blockbuster drugs being marketed by some of the biggest biotech companies in the world including Roche, Genentech, Chugai, Biogen Idec, Elan, Novartis, AstraZeneca/MedImmune, Abbott, Wyeth,, and Takeda. This is not a fly by night operation.
Plus there are many more indications for each of these drugs that are presently being developed. These will lead to further royalties for PDLI. For Avastin there are currently 12 other clinical trails in progress. For Herceptin there is one further clinical trial in progress. For Lucentis there are two further clinical trials in progress. For Xolair there are three other clinical trials in progress. For Tysabri there is one further clinical trial in progress. For Synagis there is one further clinical trial for motavizumab, the next generation of Synagis. For Mylotarg there is one further clinical trial in progress. For Actemra there is one further clinical trial in progress.
In addition to the "old' products and the possible further extensions of those products, PDLI has a pipeline of probable "new" products. These include Bapineuzumab -- a possible treatment for Alzheimer's disease, Solanezumab --- another treatment for Alzheimer's disease, Teplizumab -- a possible treatment for type 1 diabetes mellitus, and Trastuzumab-DM1-- a possible metastatic breast cancer treatment. I am sure there will be further additions to this list before the Queen et al patents run out.
Since PDLI does virtually no development work on these drugs (since 2007), it has little financial risk in their development. It can really only benefit. The chart below shows the steady growth in royalty revenue. Even with a few setbacks such as the recent removal by the FDA of Avastin as an approved treatment for breast cancer, the revenue stream has been growing steadily. I note that Avastin remains an approved treatment for other types of cancer such as colon, lung, kidney, and brain cancer. PDLI has been doing a great marketing/development job. This is likely to continue for the near term, and it is very important to the longer term health of the company.
The two year chart of PDLI provides some technical direction to the trade.
The slow stochastic sub chart shows that PDLI is currently overbought. The main chart shows that it is in a mild uptrend. The 50-day SMA is floating above the 200-day SMA. The price line is significantly above the 50-day SMA. You might want to wait for PDLI to fall back to the 50-day SMA or below before you buy it; or you may decide to average in. You could do both. In either case PDLI seems a strong buy for the next year or two at least. Its dividend far exceeds even very risky bond earnings, and its stock price has been steady. If anything, its stock price seems primed to go upward. PDLI's earnings are set to grow substantially. With this growth, it seems highly unlikely the stock will fall even in an extreme downturn. That's safety.
NOTE: Q1 2011 earnings were boosted by a final $10 million legal settlement. The apparent decline in earnings between Q1 2012 and Q1 2011 is misleading.
NOTE: Some of the fundamental financial data above was from Yahoo Finance.
Good Luck Trading.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PDLI over the next 72 hours.