Tuesday, February 16, 2010

Investment idea in PDLI

Here is a summary of what the company does: PDL BioPharma, Inc. (PDL) is engaged in the business of management of its antibody humanization patents and royalty assets, which consist of the Company’s Queen et al. patents and license agreements with several biotechnology and pharmaceutical companies. The Company receives royalties based on these license agreements on sales of a number of humanized antibody products marketed, and also receives royalty payments on additional humanized antibody products. The Company receives royalties on sales of nine humanized antibody products, which include Avastin, Herceptin, Xolair, Raptiva, Lucentis, Synagis, Tysabri, Mylotarg and Actemra.

As you can see this company receives royalties for the antibody's that it has created and patented. I have been doing a lot of reading up on this company because I was really confused when I saw that it paid a 15% dividend. But after digging a bit deeper it looks like this company's earnings power is good until it major patents expire in 2014, assuming they don't patent new antibodies. So this is not a company you buy and hold forever. But I think that it will perform well over a 2 year holding period. It already has two $0.50 dividends scheduled to be paid out in April and October. I am always skeptical when I look at BioPharma names as I got burned pretty good on one. But the difference now is I don't blindly go into a company. And I want to see that the company is making money and will continue to do so for the foreseeable future.

Here is a daily chart of PDLI:

Also plotted you will see the earnings history as well as the dividend history. It looks like the sell in December was due to the payment of the $1.67 special dividend that was paid out.

Here is the announcment of the dividends this year:

Distribution Dates of April 1 and October 1, 2010
INCLINE VILLAGE, Nev., Jan. 28 /PRNewswire-FirstCall/ -- PDL BioPharma, Inc.
(PDL) (Nasdaq: PDLI) today announced that it will pay two special dividends to
its stockholders in 2010. Each of the dividends will be $0.50 per share. The
first special dividend will be paid on April 1, 2010 to all stockholders who
own shares of PDL on March 15, 2010, the Record Date. The second special
dividend will be paid on October 1, 2010 to all stockholders who own shares
of PDL on September 15, 2010, the Record Date.

 Again I plan to use the sell of puts to enter this trade as I did in ANH. I am going to sell 3 Feb '10 $7.50 puts. Right now they are trading at $0.80, which would get me a purchase price of $6.70 exactly where the stock is trading right now. I am going to try and squeeze an extra nickle out of the bid x ask spread. If not I will just sell it for the $0.80. Based on the probabilities I have about a 33.5% chance of them expiring worthless. Again I am okay with this as I would achieve a higher percentage return then just collecting the dividend. If you want to see the math see my post on ANH.

Sell 3 Feb '10 7.50 puts @ -0.85.


  1. So far I have two investment ideas (ANH, PDLI) and two trade ideas (STEC, DF).

  2. I was exercised and took delivery of 300 shares.