PDLI

PDL BioPharma, Inc. (PDLI)

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PDL BioPharma Inc. (PDLI)

Q3 2010 Earnings Call Transcript

November 10, 2010 4:30 pm ET

Executives

Angela Bitting – IR, Bitting Communications

John McLaughlin – President and CEO

Cris Larson – VP and CFO

Analysts

Charles Duncan – JMP Securities

Joel Sendek – Lazard Capital Markets

Jason Kantor – RBC Capital Markets

Kim Lee – Global Hunter Securities

Daniel Weisman [ph] – Weis Company [ph]

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 PDL BioPharma Incorporated earnings conference call. My name is Malalia and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Angela Bitting, Please proceed.

Angela Bitting

Thank you all for joining us today. Before we begin, let me remind you that the information we will cover today contains forward-looking statements regarding our financial performance and other matters and our actual results may differ materially from 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 Investor section on our Web site at pdl.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 from 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.

I’ll now turn the call over to John McLaughlin, President and CEO of PDL BioPharma.

John McLaughlin

Thanks, Angela, and good afternoon, everyone. Also with me today is Cris Larson, our Vice President and Chief Financial Officer. Before Cris discusses our financial results, I’d like to provide an update on the situation with respect to Genentech, Roche and Novartis. In August, we received a letter from Genentech at the behest of Roche and Novartis asserting that Avastin, Herceptin, Lucentis and Xolair, do not infringe the supplementary protection certificates, or SPCs, granted to PDL by various countries in Europe and asking for PDL’s views on the matter. The letter does not describe what actions, if any, Genentech intends to take.

As background, our SPCs were applied for and granted by the relevant National Patent Offices in Europe and by their terms specifically cover the Genentech products by their generic name. The letter refers only to those products that are both made and sold outside the United States. It does not suggest the Genentech products do not infringe PDL’s U.S. patents, which covers products made in the U.S. and sold anywhere.

At the end of August and subsequent to the receipt of the letter from Genentech, we received our regular quarterly payment from Genentech that included royalties generated on all worldwide sales of Genentech products. The next royalty payment from them is due at the end of November. It’s important to note that we believe that the SPCs are enforceable against the Genentech products and that Genentech owes us royalties on sales of their products on a worldwide basis. As such we intend to vigorously assert our SPC based patent rights.

In August, we responded to Genentech stating that we believe its assertions are without merit and that we disagree fundamentally with its assertions of non-infringement. We have had discussions with Genentech regarding this matter. If we cannot reach our mutually agreeable resolution, we will vigorously enforce our rights, including the rights under the agreements with Genentech. To this end, we’ve filed a complaint in Nevada naming Genentech, Roche and Novartis as defendants.

By way of background, PDL and Genentech entered into a definitive agreement in 2003 to resolve intellectual property disputes between the two companies at that time. The agreement limits Genentech’s ability to challenge infringement of our patent rights and waives Genentech’s right to challenge the validity of our patents.

Specific breaches of this settlement agreement required Genentech to pay us liquidated and other damages up to $1 billion. This amount is calculated based on a retroactive royalty rate of 3.75% on past sales of the Genentech products that were made in the U.S. and sold anywhere in the world, as well as interest, among other items. In addition, breaches of the 2003 settlement agreement would entitle us to either terminate our license agreements with Genentech or be paid a flat royalty of 3.75% on future sales of Genentech products made in the U.S. and sold anywhere in the world, regardless of the sales volume.

As you know, today our agreements provide that we receive a tiered royalty rate on sales of product made in U.S. and sold anywhere in the world. The royalty rate starts at 3% and decreases to 1% on annual aggregate sales of $4 billion or more. We receive a flat 3% royalty rate on sales of product that is manufactured and sold outside of United States.

Specifically in our Nevada complaint, we allege that the communication received from Genentech, (inaudible) requested by Roche and Novartis in August, constitutes a breach of Genentech’s obligations under the 2003 settlement agreement. We allege that Roche and Novartis knowingly interfered with PDL’s contractual relationship with Genentech in conscious disregard of PDL’s rights. We’re seeking a declaratory judgment from the court that Genentech is obligated to pay royalties to PDL on international sales of its products. In addition, we’re seeking liquidated or other damages as well as legal fees.

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