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Interview with Prof. Bruce Greenwald; Insight in Value Investing

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 4.3/5 (57 votes)


Halis - 6 years ago    Report SPAM
Sorry Bruce, but I like United Health Group better than Well Point =/
Halis - 6 years ago    Report SPAM
Also, PDL Pharma still doesn't make sense to me. Any company could split off R&D into a different company, but I don't see the benefit. Sure the "annuity stream" company could report bigger numbers, but at some point the R&D division would go broke and need capital, which would most likely have to come from the annuity stream company. I doubt they could get it from banks or equity investors simply because who wants to invest in an R&D only sinkhole?

Sure if R&D churns out home run after home run, everyone is happy, but that would be the case anyway. Once R&D runs out of money, the parent has to pick up the tab and there go all those extra earnings with a huge writeoff.

I don't know, I'm just not gettin it.
Bob Marley
Bob Marley - 6 years ago    Report SPAM
After a quick scan of their annual report and website, I believe PDL Pharma has no obligation to any R&D division. It's not a parent/subsidiary situation - the royalty annuity stream was created as a completely separate company that has no obligation to any other company. So PDL basically receives royalties, pays minimal administrative expenses (7 employees), and distributes most of the remainder to shareholders (dividends of $1.00 per share on a ~$5.00 stock).

There are still some risks to the annuity stream as the patents expire in 2013 and 2014. The value beyond that is kind of an unknown. So it appears that annual dividends of around $1.00 per share through 2013 or 2014 are fairly certain and beyond that it is up to management to try to create additional value.

Overall though, it seems like an interesting company at the right price.
alan redhead
Alan redhead premium member - 6 years ago
Batbeer2 premium member - 6 years ago
@ Bob

You are right. The two divisions were split and spun off to the shareholders. If memory serves, Klarman bought pre split. The PDLI ticker now represents just one of the two former divisions.

If memory serves there were some serious special dividends too.

The fact that the shares trade for less doesn't mean they are cheaper. You get a lot less for a share of PDLI than when Klarman first bought.

J Edward
J Edward - 6 years ago    Report SPAM
Several years ago, PDLI split into two separate entities. The royalty stream based on the Queen et al patents stayed with PDLI. The R&D division, along with a ton of cash, was spun off as Facet Biotech (FACT). Facet was then bought by Abbott. The spin-off unlocked a lot of shareholder value.

PDLI is now simply a revenue stream, dispersing cash to shareholders as management deems appropriate. The patents generally expire towards the end of 2014, although PDLI will receive royalties from drugs manufactured before, but sold after, the patent expiration. Unless the company purchases further patents/revenue streams, the stock will be worthless once the final patent revenue has been received.

PDLI recently agreed to settle a patent dispute with MedImmune for 92.5M. The stock has dropped since.

The recent price drop may be due to concern that PDLI will not be able to defend their patents, thus decreasing future revenue. The majority of PDLI's patent revenue comes via Roche/Genentech, which PDLI has slapped with a $1 billion claim for challenging patents.

Is PDLI a good value today? That depends on your estimates for what the patents will bring in over the next few years. There is a presentation on PDLI's website if you are interested in seeing their projections.

If you're still interested, you can listen to the earnings call on Monday.

Klarman has stated numerous times that he likes complex investments. Complexity leads many investors to give up, which leads to less competition, as this thread may indicate :)

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