Third Point LLC, et al. – ‘SC 13D/A’ on 5/22/07 re: PDL Biopharma, Inc. – EX-99.1

On:  Tuesday, 5/22/07, at 4:30pm ET   ·   Accession #:  899140-7-1037   ·   File #:  5-43256

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Amendment to General Statement of Beneficial Ownership   —   Schedule 13D
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SC 13D/A    Amendment No. 4                                       11     42K 
 2: EX-99.1     Letter to Pdli                                         5     22K 

EX-99.1   —   Letter to Pdli

EX-99.1
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                                                                    Exhibit 99.1

[Third Point Letterhead]

May 22, 2007                                                                    

Samuel Broder, M.D.                                                             
Ms. Karen A. Dawes                                                              
Mr. Bradford S. Goodwin                                                         
Laurence Jay Korn, Ph.D.                                                        
Richard Murray, Ph.D.                                                           
John S. Saxe, Esq.                                                              

PDL BioPharma, Inc.                                                             
34801 Campus Drive                                                              
Fremont, CA  94555                                                              

Dear Unconflicted Board Members:                                                

We are writing in response to the May 16, 2007 letter to us from L. Patrick     
Gage, Chairman of the Board of PDL BioPharma, Inc. ("PDLI" or the "Company"),   
and to address Dr. Gage's woefully unsatisfactory answers to us on our          
conference call of the same day. We had intended to respond to the issues raised
during that conference call in private correspondence with the Board; however,  
the Company's public release of Dr. Gage's letter compels us to respond publicly
as well.                                                                        

As you know, in our private letter to the Board two weeks ago, we demanded that 
the Board promptly act in the best interest of PDLI and its shareholders by:    

o    terminating Mark McDade's employment as Chief Executive Officer, 
o    adding three shareholder representatives to the PDLI Board, and  
     o    retaining an investment bank to explore strategic alternatives for the
Company.                                                    

Based on our continuing investigation, described below, into troubling PDLI     
management issues (the "Investigation"), we must now also demand that Dr. Gage  
be removed as Chairman of the Board and that Jeanmarie Guenot be dismissed as   
PDLI's head of business development.                                            

Results of the Investigation                                                    
----------------------------                                                    

In the course of the Investigation, we have spoken with dozens of current and   
former PDLI employees (many of whom are, or were, at senior levels in the       
Company, on both the corporate and scientific staffs); many senior managers of  
peers, both larger and smaller, in the biotechnology space; current and former  
managers and/or directors of                                                    

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Unconflicted Board Members                                                      
PDL BioPharma, Inc.                                                             
May 22, 2007                                                                    
Page 2                                                                          

Corixa Corporation and Signature BioScience, Inc., where Mr. McDade spent eight 
years prior to joining the Company; well-respected biotechnology industry       
consultants; many private equity firms that invest in the biotechnology space;  
and many others with knowledge of Mr. McDade's performance before and during his
tenure at PDLI. Based on this wide-ranging due diligence effort, we have reached
the following conclusions:                                                      

1)   Mr. McDade may have committed significant ethical breaches during his      
 tenure as Chief Executive Officer of PDLI. The underlying circumstances
persist today and strongly suggest that Mr. McDade may have put his   
personal interests above those of PDLI. While Dr. Gage's May 16 letter
   refers to "various allegations and innuendo," more than a few current and
    former employees of PDLI have described to us, both in writing and orally,
   substantially identical concerns about very specific improprieties. To be
clear, we did not seek out this information - it was all offered to us
   spontaneously by concerned parties. We were pleased to read in Dr. Gage's
letter of May 16 that the Board is investigating these matters, and we
   trust and expect that your inquiry into Mr. McDade's conduct will proceed
  expeditiously so that shareholder interests are not further jeopardized.

2)   A number of our sources highlighted the circumstances under which Jeanmarie
   Guenot, currently PDLI's head of business development, was hired; several
   also reported widespread disbelief within the Company that Dr. Guenot was
    qualified to advance through the ranks as she has. The sentiment expressed
to us was that no acceptable explanation can account for her initial  
 appointment or continued employment as head of business development. In
  fact, the Investigation uncovered at least one senior executive who left
    PDLI over what he considered unfairly favorable treatment of Dr. Guenot to
the detriment of the Company and its other employees. Given these     
 indications of an employee morale problem, as well as concerns that Dr.
   Guenot's continued employment at PDLI is not in the best interests of the
 Company's shareholders, we trust that you will focus on this issue as a
priority concern.                                                     

3)   Many truly talented scientists at PDLI appear to have left the Company     
during Mr. McDade's tenure for the following reasons: (A) Mr. McDade's
 promotion of lesser-qualified scientists to senior positions within the
   group; (B) the Company's lack of financial discipline; and (C) their view
   that Mr. McDade's acquisitions and R&D development strategies were poorly
  conceived and executed. Again, this conclusion is based on many incoming
    calls, letters and emails from former senior scientists at the Company, as
  well as the letter recently released by Cary Queen. While Dr. Gage would
     characterize Dr. Queen's letter as the product of a "disgruntled employee,"
 Dr. Queen is, as you know, highly regarded within the biotechnology and
investment communities, and an important consultant to PDLI. It is    
virtually unprecedented for an ex-manager, board member, and company  
founder to publicly release such a broadside against an incumbent     
   management, and it is therefore especially meaningful when it is done. We
trust that you have                                                   

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Unconflicted Board Members                                                      
PDL BioPharma, Inc.                                                             
May 22, 2007                                                                    
Page 3                                                                          

  given due consideration to the views and concerns Dr. Queen expressed in
his letter - his trenchant observations on a company he knows so well 
     deserve particular weight, and we cannot dismiss as a coincidence that they
 reflect and reinforce the many letters that we have received from other
past and present PDLI employees.                                      

4)   Our due diligence has reinforced our already strong conviction that both   
PDLI's internal financial team, and its external financial advisors,  
     strongly counseled Mr. McDade not to move corporate headquarters to Redwood
City from Fremont because of the disruption to the employee base, and 
   because they deemed the move to be both unnecessary and overly expensive.
   Disturbingly, the correspondence we have received from current and former
     PDLI employees has confirmed that this unnecessary move has already caused,
 and will continue to cause, PDLI to lose significant scientific talent.

In conclusion, we have rarely, if ever, received as much unsolicited and        
universally negative correspondence from past and current employees of one of   
our portfolio companies - much of it coming from the senior scientist level -   
than we have received with respect to PDLI. While Dr. Gage may attribute this to
"disgruntled employees," as one of the scientists who contacted us said, "the   
dislike of McDade and his business decisions and favoritism definitely has a    
meaningful p-value; it's definitely statistically significant."                 

The Full Board Gets Half the Story                                              
----------------------------------                                              

It appears from Dr. Gage's May 16 letter that he has decided merely to pay lip  
service to our demands - by doing just the bare minimum possible to "move the   
ball forward" - while continuing to string us along and further entrench an     
undeserving management. This cynical course of action was in full evidence when 
Dr. Gage disingenuously suggested in his letter that Third Point had "elected"  
not to make a presentation at your recent Board meeting.                        

Nothing could be more misleading. After a two hour meeting with Dr. Gage and Mr.
McDade on May 7, it was mutually agreed that it would be unnecessary for us to  
present our views to the full Board later in the week because we were assured   
that Dr. Gage and Mr. McDade would do so. That joint decision followed          
correspondence in which Dr. Gage insisted that we follow his prescribed         
"agenda" for any Board presentation that we might make, which included questions
that we, as outsiders, would have no means of adequately addressing. Given the  
constraints Dr. Gage and Mr. McDade sought to impose on our presentation to the 
Board, and given their assurances that our concerns would be adequately         
communicated to the Board, we agreed to forgo a Board presentation and to rely  
on those assurances.                                                            

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Unconflicted Board Members                                                      
PDL BioPharma, Inc.                                                             
May 22, 2007                                                                    
Page 4                                                                          

Since receiving Dr. Gage's May 16 letter, we have come to doubt that Dr. Gage   
and Mr. McDade have fully and fairly presented our views to the Board. This     
lapse calls to mind our significant doubt that Mr. McDade ever properly         
disclosed to the Board what we understand to have been serious interest         
expressed by at least one pharmaceutical company in purchasing PDLI at a        
significant premium late last year. As we have said before, we are concerned    
that Mr. McDade kept those discussions from the Board, and unilaterally caused  
the discussions to end. We know for a fact that he now denies to investors that 
such discussions took place.                                                    

We have, unfortunately, encountered similar CEO / Chairman teams in the past. By
this we mean an autocratic CEO and a Chairman who is the CEO's chief apologist  
and, therefore, unable to look at any set of critical facts objectively (which  
is why we argue that Mr. Gage must be removed from the Board as well). We know  
from experience that it is virtually impossible to have a constructive dialogue 
with such a twosome, and very difficult for other board members to break ranks  
with them - despite well-founded concerns that the CEO and Chairman are not     
acting in the best interests of shareholders.                                   

In light of these doubts and the unhealthy dynamic of a CEO / Chairman team     
screening communications between shareholders and the rest of the Board, we now 
believe it is important for us to have a direct dialogue with all of PDLI's     
directors - not just Pat and Mark. Accordingly, we remain prepared to present   
our views to the Board at the earliest possible date, and to speak with each of 
you individually also.                                                          

Strengthening the Board and the Company                                         
---------------------------------------                                         

We have said repeatedly that the PDLI Board is filled with very impressive      
members of the scientific community, and that is why we suggested adding        
additional members to the Board, rather than replacing current members. While we
are certainly highly knowledgeable about the scientific issues, our real        
expertise is in running businesses (which includes intelligently imposing       
financial discipline on corporate spending); making money for investors;        
understanding what is, and is not, in the best interests of shareholders (the   
owners of the Company); and understanding and communicating clearly with the    
financial markets (unlike Mr. McDade's chronic inability to tell PDLI's story to
investors). These are all valuable traits that any board of directors, charged  
solely with promoting the best interests of shareholders, should embrace. We    
therefore remain certain that we can add substantial incremental value for      
PDLI's shareholders by serving on the Company's Board - an assessment that the  
directors, management teams and shareholders of Ligand Pharmaceuticals, Nabi    
BioPharmaceuticals, Ception Pharmaceuticals and many companies outside the      
biotechnology space can validate.                                               

We would be pleased to provide any of you with multiple references at any of    
these companies (we provided them to Mr. McDade almost two months ago, but he   
never bothered to contact any of these references), who will attest to the      
significant contributions we have made to each of those companies. We are also  
confident that                                                                  

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Unconflicted Board Members                                                      
PDL BioPharma, Inc.                                                             
May 22, 2007                                                                    
Page 5                                                                          

virtually all Wall Street analysts who follow PDLI (as evidenced by their       
research reports covering our involvement in the Company), a vast majority of   
PDLI's shareholders (many of whom have telephoned us to express their support - 
including several of the largest long-only shareholders) and a large number of  
current and former PDLI employees (many of whom have also phoned to voice their 
support) believe that our active involvement in the Company would be of         
significant benefit for all constituencies.                                     

Despite Dr. Gage's and Mr. McDade's repeated assertions, we do not believe that 
the Board is unanimous in its support of Mr. McDade. We understand that some    
Board members are, at least, privately questioning whether Mr. McDade is the    
right person to lead PDLI given the poor financial performance of the Company,  
the waning support of shareholders and the ethical and strategic concerns that  
have now surfaced. It is perhaps telling that in his May 16 letter to us, Dr.   
Gage retreated from purportedly speaking on behalf of the whole Board and       
instead offered only his personal support for Mr. McDade. While we understand,  
and have experienced first hand, how difficult it is for board members to break 
ranks with their CEO and Chairman, we hope that most members of the Board can   
draw the tough but necessary conclusion that continuing to support Mr. McDade is
the wrong decision for PDLI's shareholders.                                     

We trust that you, as the unconflicted members of the Board, will quickly take  
steps to do what is best for PDLI's shareholders. Any of you should feel free to
call us at any time should you any questions regarding the substance of this    
letter or any of the other communications that we have had with the Company.    

Sincerely,                                                                      

/s/ Daniel S. Loeb                                                              

Daniel S. Loeb                                                                  

cc:  L. Patrick Gage, Ph.D.                                                     
Mark McDade                                                           

Dates Referenced Herein   and   Documents Incorporated by Reference

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