SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 6)
Under the Securities Exchange Act of 1934*
PDL BioPharma, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
69329Y104
- --------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Daniel S. Loeb
Third Point LLC
390 Park Avenue
New York, NY 10022
(212) 224-7400
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Michael A. Schwartz, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019-6099
(212) 728-8000
July 16, 2007
- --------------------------------------------------------------------------------
(Date of Event which Requires
Filing of this Schedule)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box: [ ]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE 13D
- ------------------------------ --------------------
CUSIP No. 69329Y104 Page 2 of 11 Pages
- ------------------------------ --------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Third Point LLC I.D. #13-3922602
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
0
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 11,400,000
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
11,400,000
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
11,400,000
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.8%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
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SCHEDULE 13D
- ------------------------------ --------------------
CUSIP No. 69329Y104 Page 3 of 11 Pages
- ------------------------------ --------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Third Point Offshore Fund, Ltd.
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
0
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 7,335,200
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,335,200
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
7,335,200
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.3%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- ----------- --------------------------------------------------------------------
SCHEDULE 13D
- ------------------------------ --------------------
CUSIP No. 69329Y104 Page 4 of 11 Pages
- ------------------------------ --------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Daniel S. Loeb
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
0
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 11,400,000
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
11,400,000
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
11,400,000
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.8%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ----------- --------------------------------------------------------------------
SCHEDULE 13D
- ------------------------------ --------------------
CUSIP No. 69329Y104 Page 5 of 11 Pages
- ------------------------------ --------------------
- ----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Jason Aryeh
- ----------- --------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
- ----------- --------------------------------------------------------------------
3 SEC USE ONLY
- ----------- --------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
- ----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- ----------- --------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
62,783
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 62,783
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- ----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
62,783
- ----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [ ]
- ----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.05%
- ----------- --------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ----------- --------------------------------------------------------------------
This Amendment No. 6 to Schedule 13D ("Amendment No. 6") amends the
Schedule 13D filed on March 5, 2007 (as amended by Amendment No. 1 thereto filed
on March 21, 2007, Amendment No. 2 thereto filed on April 11, 2007, Amendment
No. 3 thereto filed on April 18, 2007, Amendment No. 4 thereto filed on May 22,
2007, Amendment No. 5 thereto filed on May 31, 2007 and this Amendment No. 6,
the "Schedule 13D") and is being filed on behalf of Third Point LLC, a Delaware
limited liability company (the "Management Company" or "Third Point"), Third
Point Offshore Fund, Ltd., a Cayman Islands limited liability exempted company
(the "Offshore Fund"), Daniel S. Loeb, an individual ("Mr. Loeb", and together
with the Management Company and the Offshore Fund, the "Third Point Reporting
Persons"), and Jason Aryeh, an individual ("Mr. Aryeh", and together with the
Third Point Reporting Persons, the "Reporting Persons"). This Amendment No. 6
relates to the common stock, par value $0.01 per share (the "Common Stock"), of
PDL BioPharma, Inc., a Delaware corporation (the "Company").
The Management Company is the investment manager or adviser to a variety of
hedge funds and managed accounts (such funds and accounts, including the
Offshore Fund, the "Funds"). The Funds directly own the Common Stock to which
this Schedule 13D relates, and Mr. Loeb and the Management Company may be deemed
to have beneficial ownership over such Common Stock by virtue of the authority
granted to them by the Funds to vote and to dispose of the securities held by
the Funds, including the Common Stock. Mr. Aryeh may be deemed to have
beneficial ownership of the shares of Common Stock directly owned by JALAA
Equities, LP ("JALAA") by virtue of his ability to vote and/or to dispose of the
securities held by JALAA, including the Common Stock.
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 of the Schedule 13D is hereby amended and restated as follows:
The Funds have expended an aggregate of approximately $226,611,028 of their
own investment capital to acquire the 11,400,000 shares of Common Stock held by
them. The Offshore Fund has expended an aggregate of approximately $146,052,748
of its own investment capital to acquire its 7,335,200 shares of Common Stock.
JALAA has expended an aggregate of approximately $1,139,360 of its own
investment capital to acquire the 62,783 shares of Common Stock that it holds.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended by adding the following
thereto:
On July 16, 2007, Third Point sent a letter to the non-management members
of the Company's Board of Directors, consisting of all members of the Board
other than Mark McDade, Chief Executive Officer of the Company, and Richard
Murray, Executive Vice President and Chief Scientific Officer of the Company. In
the letter, Third Point once again called upon the Board to terminate Mr. McDade
as Chief Executive Officer of the Company. Third Point also indicated its
support for a recent directive evidently given to an investment bank to explore
strategic alternatives, but expressed the belief that the process will be
ineffective so long as Mr. McDade remains CEO.
6
A copy of the letter is attached to this Schedule 13D as an exhibit and
incorporated herein by reference in its entirety.
Item 5. Interest in Securities of the Issuer.
Items 5(a), 5(b) and 5(c) of the Schedule 13D are hereby amended by the
following:
(a) As of the date of this Amendment No. 6, the Management Company and Mr.
Loeb beneficially own 11,400,000 shares of Common Stock (the "Third Point
Shares"). The Third Point Shares represent 9.8% of the 116,603,643 shares of
Common Stock outstanding as of May 2, 2007, as reported in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007. The
percentages used herein and in the rest of this statement are calculated based
upon this number of outstanding shares.
As of the date of this Amendment No. 6, the Offshore Fund directly
beneficially owns 7,335,200 shares of Common Stock, representing 6.3% of the
outstanding shares of Common Stock. None of the other individual Funds owns a
number of shares of Common Stock representing more than 5% of such total.
(b) The Management Company and Mr. Loeb share voting and dispositive power
over the 11,400,000 shares of Common Stock held by the Funds. The Management
Company, Mr. Loeb and the Offshore Fund share voting power and dispositive power
over the 7,335,200 shares of Common Stock held by the Offshore Fund. Mr. Aryeh
has sole voting power and dispositive power over the 62,783 shares of Common
Stock held by JALAA.
(c) Schedule A hereto sets forth certain information with respect to
transactions by the Funds (at the direction of the Management Company and Mr.
Loeb) in Common Stock since the most recent filing on Schedule 13D. Schedule B
hereto sets forth certain information with respect to transactions by the
Offshore Fund (at the direction of the Management Company and Mr. Loeb) in
Common Stock since the most recent filing on Schedule 13D.
All of the transactions set forth on Schedules A and B were effected in
open market transactions in the NASDAQ Global Select Market. Except as set forth
on Schedules A and B, since the most recent filing on Schedule 13D there were no
transactions in the Common Stock effected by any of the Management Company, Mr.
Loeb, the Offshore Fund or Mr. Aryeh, nor, in the case of the Management Company
and the Offshore Fund and to the best of their knowledge, any of their
directors, executive officers, general partners or members.
Item 7. Material to be Filed as Exhibits.
99.1. Letter, dated July 16, 2007, from Third Point to [Samuel Broder,
M.D., Karen A. Dawes, Bradford S. Goodwin, Laurence Jay Korn, Ph.D.,
and John S. Saxe, Esq., and L. Patrick Gage, Ph.D, members of the
Board of Directors of the Company].
[Signatures on following page]
7
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: July 16, 2007
THIRD POINT LLC
By: Daniel S. Loeb, Chief Executive Officer
By: /s/ Justin Nadler
--------------------------------
Name: Justin Nadler
Title: Attorney-in-Fact
THIRD POINT OFFSHORE FUND, LTD.
By: Daniel S. Loeb, Director
By: /s/ Justin Nadler
--------------------------------
Name: Justin Nadler
Title: Attorney-in-Fact
DANIEL S. LOEB
By: /s/ Justin Nadler
--------------------------------
Name: Justin Nadler
Title: Attorney-in-Fact
/s/ Jason Aryeh
-----------------------------------
Jason Aryeh
[SIGNATURE PAGE TO AMENDMENT NO. 6 TO SCHEDULE 13D
WITH RESPECT TO PDL BIOPHARMA, INC.]
Schedule A
----------
(Transactions by the Funds in Common Stock
since the most recent filing on Schedule 13D)
Date Transaction Shares Price Per Share($)
---- ----------- ------ ------------------
- --------------- ------------------- ----------------- --------------------------
05/31/07 BUY 127,400 27.51
- --------------- ------------------- ----------------- --------------------------
05/31/07 SELL (127,400) 27.51
- --------------- ------------------- ----------------- --------------------------
06/29/07 BUY 83,300 23.30
- --------------- ------------------- ----------------- --------------------------
06/29/07 SELL (83,300) 23.30
- --------------- ------------------- ----------------- --------------------------
Schedule B
----------
(Transactions by the Offshore Fund in Common Stock
since the most recent filing on Schedule 13D)
Date Transaction Shares Price Per Share($)
---- ----------- ------ ------------------
- --------------- ------------------- ----------------- --------------------------
05/31/07 BUY 49,400 27.51
- --------------- ------------------- ----------------- --------------------------
06/29/07 SELL (53,600) 23.30
- --------------- ------------------- ----------------- --------------------------
[Third Point Letterhead]
July 16, 2007
Samuel Broder, M.D.
Ms. Karen A. Dawes
Mr. Bradford S. Goodwin
Laurence Jay Korn, Ph.D.
John S. Saxe, Esq.
L. Patrick Gage, Ph.D
PDL BioPharma, Inc.
34801 Campus Drive
Fremont, CA 94555
Dear PDL Non-Management Board Members:
We are dismayed by the lack of progress that the Board has made in addressing
the concerns that we have set forth, most recently in our meeting in Palo Alto
on June 19th. In the four weeks that have elapsed since that meeting, the only
official communication that we have received from the Company has been a cursory
"form letter" from Patrick Gage. Although we understand that you recently
directed your financial and business advisors to explore all options to increase
shareholder value, we believe that directive will prove futile so long as Mr.
McDade remains CEO.
Accordingly, it is critical that you, the non-management directors, exercise
your fiduciary duty and finally take action: terminate Mr. McDade before he is
allowed to destroy shareholder value at our Company for even one more day. For
the many reasons of which you have been apprised, and understand well, as long
as you allow Mark McDade to remain as Chief Executive Officer of PDL BioPharma
("PDL", or "the Company") you are not acting in the best interests of, nor
fulfilling your fiduciary duty to, PDL's shareholders.
We know that most of you understand the "chain of command" at companies
incorporated in Delaware. However, if there is any uncertainty concerning
directors' legal responsibilities, we suggest that you consult immediately with
your counsel at DLA Piper, who will certainly confirm to you that:
1) A board of directors must work for, and only for, the company's
shareholders,
2) A company's management team serves at the discretion of the board of
directors and
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 2
3) The board of directors is responsible for ensuring that a company's
management team works effectively and in the best interests of the
company's shareholders
Too often we've come across public company directors who don't understand or
accept these legal principles, and, in fact, believe instead that they work for,
or as equal partners with, a company's management team. We fear, based on
empirical evidence, that a minority of the PDL Board members may still hold
those erroneous beliefs. As you can imagine, it is in such situations, wherein
directors become too closely aligned with senior management, and thus fail to
police them properly, that ineffective and/or unethical managers are often
allowed to remain in office despite the obvious destruction of shareholder value
they cause.
We trust that you are well aware of, and have paid especially close attention
to, the recent shareholder-friendly initiatives undertaken by both the boards of
Pfizer and Schering-Plough. It is now time for each of you to fulfill your own
fiduciary obligations by immediately taking the necessary and obvious
"shareholder-friendly" actions to benefit PDL's shareholders.
Many Reasons for McDade's Immediate Dismissal from PDLI
- -------------------------------------------------------
Mr. McDade's record of incompetence, egregiously bad business judgment and
serious ethical lapses has been well documented by one of PDL's founders,
numerous current and former employees, as well as by Third Point. These concerns
undoubtedly have been weighing on your minds as you have been considering the
future of the Company. It is abundantly clear that the most immediate, positive,
obvious and profoundly shareholder-friendly action that you can and should take
is to remove Mark McDade as CEO of our Company. We have presented you with
overwhelming evidence, both professional and personal, as to why Mr. McDade's
continued employment as CEO of PDL is unquestionably against the best interests
of the Company's shareholders, and we know that you have uncovered additional
supportive evidence and sources during your ongoing months-long investigation.
Specifically:
1) We have presented you and your advisors with evidence that Mr. McDade
was engaged in discussions with a large pharmaceutical company for
approximately six months in late 2006 and early 2007 that could have
led to an acquisition of PDL in the $32-$34 per share range (or more,
as this was just the initial indicated range). As we have discussed,
at least two in-person meetings were held at the CEO-to-CEO level,
many additional discussions took place with the potential acquirer's
business development head and other senior managers, and investment
bankers were involved in these discussions (which were clearly aimed
at an acquisition of the Company rather than simply partnering
discussions). As we have related to you, we believe that the deal did
not transpire because Mr.
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 3
McDade insisted on being the only point of contact at PDL until the
very end of the process, was unresponsive to due diligence demands and
was unreasonable in his dealings with this company.
While we do not believe that $32-$34 is a fair valuation for PDL, we
are very troubled - in fact, astonished - that Mr. McDade kept the
existence of these advanced discussions a secret from the Board, thus
preventing you from fulfilling your fiduciary duties by deciding how
best to handle this process for the benefit of PDL's shareholders.
And, indeed, how do we know whether there have been similar situations
where the Board was kept in the dark, to the collective detriment of
the Company and its shareholders? We believe that this episode alone
is grounds for dismissal of Mr. McDade, as he breached his duty to
keep the Board fully informed of material developments at the Company
that could significantly impact shareholder value, and because he
demonstrated that he cannot be trusted going forward to reveal to the
Board other material information that might be best for shareholders -
versus his own self-interest.
2) We have also provided you with evidence that Mr. McDade did not fully
and honestly communicate to the Board the advice that he received from
the Company's internal and external financial advisors not to move
PDL's corporate headquarters to Redwood City. As we have noted in
previous letters, and as is supported in correspondence that we have
forwarded to you from PDL employees (as well as your own due diligence
on this matter), this move will unnecessarily cost the Company $100
million in up-front costs in addition to significant ongoing
incremental operating expenses. Clearly this money could have been far
better utilized to benefit shareholders by advancing the Company's
pipeline. In addition, many important employees have already left PDL
as a result of the pending move, and many others plan to resign once
the move takes place later this year.
3) We have provided you with some of the considerable unsolicited
incoming correspondence and contacts (unprecedented in our history in
both volume and universally negative sentiment!) showing that PDL has
been, and continues to be, an increasingly dysfunctional company under
Mr. McDade's stewardship. As you are further aware, both from us and
your own investigation, the Company has lost a disproportionate number
of senior employees under Mr. McDade (and Rich Murray as well) in all
areas of the Company - but most alarmingly within the scientific
staff. These employees were either forced out by, or left as a result
of, current management's blatant favoritism and poor strategic vision
and execution. As a result, virtually all of the senior scientists who
developed the critical and innovative technologies that formed the
foundation of PDL are no longer at the Company. Our correspondents and
contacts have universally reported that PDL's work environment is rife
with employee unhappiness and self-interested management, one in which
blind loyalty to Mr. McDade is rewarded over
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 4
competence, and that PDL is a company with no coherent regulatory or
R&D strategy, in which senior management is not accessible to
subordinates (even those also at senior levels) and is detached from
day-to-day operations. And only favoritism, or worse, seems to be
capable of explaining the mysterious rise of Jeanmarie Guenot, and,
before her, Laurie Torres. To the extent that the Board continues to
retain Mr. McDade, it must shoulder the ultimate blame for this
dysfunctional work environment.
4) As you know, Mr. McDade has consistently disappointed the financial
community by missing the earnings and sales projections and product
development timelines that he has forecast, and has consistently
exceeded expense (both SG&A and R&D) estimates. Moreover, Mr. McDade
has been grossly ineffective in communicating "the PDL story" to the
investment community. Consequently, since our first SEC filing over
four months ago the vast majority of "sell side" research analysts
have spoken out in favor of Third Point's proposals for the Company;
you are, of course, well aware of this, as we've shared many of these
reports with you. However, the fallout from Mr. McDade's mismanagement
and credibility deficit can be seen most clearly in the stock charts
we provided to you as part of our comprehensive 75-page board meeting
handout last month (the summary page of which is attached as an
exhibit to this letter) - PDL's stock has performed woefully in recent
years (before Third Point's investment in the stock was made public),
relative to the stocks of its partners, biotech peers, and the markets
in general. The quantifiable expression of the stock market's view of
the "McDade liability" is that when we accumulated our stake in PDL
the enterprise value of the Company was BELOW the net present value of
the Company's current royalty streams (and we believe it is now
trading at just a small premium to the value of these royalties). In
other words, up until the public revelation of our involvement in
PDL's stock (i.e., until investors believed that there was hope that
change was on the way), investors ascribed NEGATIVE value to
everything in the Company other than the royalties from the Queen
patent portfolio. There is no better measure of Mr. McDade's value
destruction and lack of credibility with the investment community than
the fact that, in the aggregate, investors believe that PDL's
specialty pharma products, NOLs, real estate, technology platform and
entire R&D pipeline have a negative value in Mr. McDade's hands!
5) Mr. McDade lacks the ability to communicate with the investment
community effectively in part because he has a poor understanding of
even basic financial concepts - another major concern we have
communicated to the PDL Board many times. As we have discussed, he was
puzzled when we discussed the concept of internal rate of return (IRR)
analyses on research and development projects, and indeed called us
back to ask what we meant by this. He readily admitted to us that he
has not properly thought through nor effectively utilized PDL's tax
credits, which has and will result in reduced value for PDL
shareholders. (We do not mean to suggest that PDL's CEO must be a tax
expert - all we expect is that he or
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 5
she take ownership of the issue and develop a plan with the
appropriate experts rather than ignoring an important and readily
exploitable Company asset.)
Also, as you know, Mr. McDade was the driving force behind PDL's
controversial decision to purchase ESP Pharma, which soon thereafter
resulted in asset writedowns. Incredibly, and embarrassingly, as
recently as two weeks ago Mr. McDade tried to spin the ESP acquisition
to the financial community as a success story - rather than properly
admitting that while it might have made some sense strategically at
the time the deal was struck, given Messrs. McDade and Murray's abject
failure to advance the PDL pipeline effectively, it has ceased to make
sense for the Company and has been, therefore, indisputably
disappointing.
Of course, as evidence of Mr. McDade's lack of financial acumen one
need only look at his demonstrated propensity to overspend wildly. We
have already presented you with our analysis (corroborated by multiple
brokerage research reports that were also included in our information
package, as well as the study being performed by Bain at our request)
showing that PDL is massively overspending on R&D and SG&A versus peer
biotech companies and pointing out that these ratios will soon become
astronomical when PDL's specialty pharma revenues decline as patents
begin to expire in a couple of years - despite what Messrs. McDade and
Gage would have you believe through their attempted manipulation of
numbers. This is, unfortunately, not just an isolated example of his
overspending. Another sobering example is Mr. McDade's experience as
CEO of Signature BioScience directly prior to his joining PDL.
Specifically, we suggest that you read again (and PDL investors not
familiar with Mr. McDade's history as a CEO should read for the first
time) the East Bay Business Times story dated February 15, 2002
entitled "Biotech firm makes deals in new strategy."(1) In this story
(included in your packages along with other stories and correspondence
regarding Mr. McDade's background), you have undoubtedly noted that
the "gameplan" Mr. McDade laid out for Signature is disquietingly
similar to the one he has been trying to implement at PDL: imprudently
and unproductively overspending on R&D and to acquire products,
building headcount exponentially and squandering much-needed corporate
capital by moving unnecessarily to a fancy new corporate headquarters.
What the story doesn't say is that within a year Signature went
bankrupt, in no small part as a result of Mr. McDade's out-of-control
spending. Mr. McDade's stewardship at PDL has shown that he clearly
has not learned his lesson about out-of-control spending. We sincerely
hope that you are struck by the similarities here and will not allow
history to repeat itself at PDL.
- ---------------------------
(1) http://www.bizjournals.com/eastbay/stories/2002/02/18/story4.html
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 6
6) Lastly, we have presented you with copious correspondence from current
and former PDL employees charging that Mr. McDade has committed
serious ethical breaches at PDL that have compromised the interests of
PDL's shareholders. Specifically, we believe, based on numerous
incoming emails, faxes and telephone calls, as well as our own
diligence, that Mr. McDade has promoted unqualified people to senior
positions within PDL (or allowed them to maintain their jobs) as the
result of personal relationships, not job-based performance. As you
are aware, these issues have often been described as "open secrets"
within PDL. While Mr. McDade's personal life should be just that -
"personal" - it has become a concern of ours (and should be of yours)
due to apparent serious breaches of corporate policy that, most
importantly, appear to have seriously harmed PDL's shareholders.
Each of the six issues above is cause for the immediate dismissal of Mr. McDade
and compelling evidence that he is not the right person to lead PDL. In
addition, we note that Mr. McDade failed to discuss certain litigation
strategies with the Board which apparently led to the resignation of the PDL
Board's former Chairman earlier this year; and, he has attempted,
unsuccessfully, to sell the investment community on his long-term plan for PDL
while at the same time selling significant amounts of his own stock. We also
want to remind you that while we have been communicating with the PDL Board
about our concerns for over four months, we have had raised these same concerns
directly with Mr. McDade for over a year.
In contrast to Mr. McDade's gross and unarguable incompetence, we continue to be
impressed with the industry backgrounds and accomplishments of the
non-management members of the PDL Board - and appreciate the good reputations
that you have built during your respective careers in this field. Again, we urge
you to uphold your obligations as shareholder fiduciaries by immediately
removing Mr. McDade as CEO before he can further tarnish this Company - and its
Board - with the negative and embarrassing reputation that he has so
unfortunately earned.
The McDade Investigation
- ------------------------
While we were happy to learn that the Audit Committee has recently brought on
Latham & Watkins to assist in the ongoing investigation of Mark McDade, we
remain concerned about the thoroughness of the investigation, which has already
taken many months. Specifically (and we believe that others involved share these
concerns), we believe that the attorney initially retained to conduct the
investigation, and still responsible for most of it: 1) is not sufficiently
qualified to run an investigation of this scope and importance, 2) may not be
truly independent, as we fear that PDL's regular corporate counsel may have
played an important role in the retention of the investigating firm, 3) has
failed to ask pertinent and obvious questions of the interviewees, 4) has been
extremely passive in her approach to the investigation (for instance, key former
executives and Board
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 7
members of PDL were not contacted until at least a month into the
investigation), 5) has still not contacted important financial advisors with
knowledge of the issues being examined, 6) had still not spoken with Mark McDade
or other senior executives of PDL as of two weeks ago, 7) was unable to supply
the Audit Committee with the arrest record of a key employee whose termination
we also support, 8) does not possess the necessary investigative skills, nor
mandate to bring in specialists, and 9) has not investigated PDL's or other
email systems that are likely to yield important evidence.
We find these lapses impossible to comprehend if this is truly intended to be an
earnest investigation. While we are deeply troubled by the negligence exhibited
in the investigation, we do want to state clearly that Mr. McDade's removal as
CEO should not wait until the conclusion of this investigation; for all of the
reasons delineated earlier in this letter (lack of candor with the Board on
issues critical to creating/destroying shareholder value, mass exodus of
talented personnel from the Company, with more coming imminently; loss of
credibility with the financial community; inability to create value for
shareholders over many years, etc.), Mr. McDade should unequivocally be removed
immediately as CEO regardless of the timing or results of the investigation,
while the investigation should be continued as necessary to support the legal
argument of terminating Mr. McDade for cause.
It was undoubtedly clear to all of you, given the inexplicably discourteous way
that we (by far PDL's largest shareholder) were treated by your Chairman during
our meeting last month (which led to one of you taking him to task for it during
the meeting) that our views and conversations had not been accurately portrayed
to you by Messrs. McDade and Gage in the months leading up to the meeting. We
believe that our meeting cleared up these biased, self-interested
characterizations and trust, then, that the Board now understands that based on
substantial persuasive evidence we are simply asking you to take actions in the
best interest of ALL PDL shareholders. Again, to highlight, these actions are to
1) terminate Mr. McDade immediately, and then promptly thereafter, 2) empower a
truly independent investment banker to conduct a full and unbiased study of all
possible strategic outcomes for shareholders, so that the Board is in full
possession of such analysis before making any further critical decisions (as you
know, in our handout we presented you with our latest analysis showing that PDLI
is worth over $40 per share to a strategic buyer - our due diligence with
potential acquirers subsequent to our meeting has confirmed this. However, we
are open to whatever outcome is best for PDL shareholders, so long as a true and
thorough process, and careful review by the Board, is first conducted.).
As you all know, we have many other specific concerns related to the fact that
PDL shareholders' best interests have clearly been given short-shrift under Mr.
McDade. However, as we believe that many of these issues will be remedied by
terminating Mr. McDade's employment, we will agree to hold off for the very
near-term on raising these issues publicly in anticipation of the PDL Board
deciding to take immediate action to fulfill its fiduciary duties.
Non-Management Board Members
PDL BioPharma, Inc.
July 16, 2007
Page 8
Sincerely,
/s/ Daniel S. Loeb
Daniel S. Loeb
Attachment: Outline Provided to PDL Directors for June 19, 2007
Meeting with Third Point
Attachment
Outline for Meeting with PDL Biopharma Directors on 6/19/07
-----------------------------------------------------------
A. Lack of Financial Discipline:
----------------------------
1. R&D as a percentage of product sales is 126% in 2007, 126% 2008E &
124% in 2009E
a. Most industry comps are <30%, AMLN 29%, GENZ 18%, GILD 14%,
MEDI 29%, AMGN 23%, CELG 28%
b. No comparables even approach PDL's (as Queen patent
royalties are not product sales) (additional analysis
provided in package)
2. R&D has increased by >4 1/2X since 2002 (Mark McDade's tenure) from
$58M to $265M
a. Extraordinary R&D expense increase has been
(counter-intuitively) accompanied by a sharp decrease in R&D
productivity, as no NCE's discovered since 2002 have
progress past PI development
3. SG&A has increased by >3 1/4X, $32M to $105M, since 2004, the year
prior to the ESP acquisition
a. Extraordinary SG&A increase has unfortunately been
accompanied by increasingly negative Free Cash Flow: ($10M)
in 2005 to ($25M) in 2007E (ML)
b. Since the ESP acquisition, the percentage increase in SG&A,
228%, is triple the increase in (ESP) product sales 69%
(incl. Retavase)
c. Headcount has tripled since 2002
B. Inability to Deliver on Plan/Expectations:
-----------------------------------------
1. Ularitide clinical development & partnership delayed (PII results were
released in 4/05)
2. Nuvion development delayed (PI/II results released in 5/05, PII/III
trials continue to enroll)
3. Consistently misses EPS & revenue expectations (despite providing
company guidance)
C. Circumvention of the Board:
--------------------------
1. Acquisition negotiations with major pharma (in H2 `06) not disclosed
to Board of Directors
2. Lawsuit filed without thoroughly venting with Chairman/Board (led to
exodus of PDL's Chairman who stayed with Alexion).
3. Internal & external financial advisors counseled McDade against moving
headquarters
D. Support for Third Point's Position from Multiple Constituencies:
---------------------------------------------------------------
1. Dr. Cary Queen's public letter & website- www.fixpdl.com
2. Respected biotech CEO, Jean-Jacques Bienaime, proactively joins Third
Point's effort
3. Plethora of employee correspondence (copies provided in package)
4. Wall Street sell-side analysts: Merrill Lynch, Prudential, Wachovia,
Deutsche Bank, Susquehana, Leerink Swan (copies provided in package)
5. Preponderance of shareholders, incl. largest during past decade,
support Third Point
6. Stock price appreciation follows Third Point's involvement (events
graph provided)
E. Reasons to Add 3 Third Point Nominees to PDL Board:
--------------------------------------------------
1. Experience making money for our investors- grown assets from $6M to
$6B in 12 years
2. Experience restructuring biotech companies, i.e. Ligand, Nabi, Ception
(Fulcrum)
3. Experience working collegially & productively with existing/legacy
boards
4. Abundance of value-added industry contacts, incl. CEO's, BD execs,
analysts, IB's
5. Bring a differentiated, Wall Street oriented perspective/expertise to
augment the existing Board member's scientific, legal & operational
expertise
6. PDL's shareholders & analysts have spoken with their wallets and their
recommendations
Solutions:
- ----------
1) Add 3 Third Point nominees to PDL's Board of Directors
2) Slow the progression of the Ularitide & Nuvion Partnerships until all
alternatives are considered. Note that antibody company valuations
(i.e. Medimune $15B, Domantis $454 {pre-clinical assets}, Cambridge
Antibody $1.2B {3% royalty on Humira}) far exceed that of specialty
pharma companies (additional analysis provided in package).
3) Replace Mark McDade as CEO