Loeb's Third Point LLC Raises Stake in PDL BioPharma (PDLI) to 7.5%, Urges Change

UPDATE: In a 13D filing on PDL BioPharma Inc. (Nasdaq: PDLI), Dan Loeb's Third Point LLC disclosed a 7.5% stake (8.6 million shares) in the company. This is up from the 3.28 million share stake the firm held for the quarter ended December 31, 2006. Third Point disclosed a letter sent to the CEO and Board of Directors expressing disappointment and concern over the Company's high rate of spending and significant underperformance. Third Point urges the Company to cut costs and not pursue additional acquisitions.

In the letter Loeb said, "We believe that the significant value inherent in the Company's product line, royalty revenues and R&D pipeline has been obscured by excessive overhead and apparently undisciplined research spending. We at Third Point have had substantial experience working strategically with healthcare companies to enhance value(1) and we would welcome the opportunity to share our views and work constructively with you to help put the Company on the right track. We believe that, with our timely input, the Company should be able to reverse its significant underperformance."

A Copy of the Letter:

Dear Mr. McDade and PDLI Directors:

Funds advised by Third Point LLC ("Third Point") hold 8,000,000 shares of the common stock of PDL BioPharma, Inc. ("PDLI" or the "Company"), as well as options to purchase an additional 600,000 shares, collectively representing 7.5%of the common shares outstanding. We believe that the significant value inherent in the Company's product line, royalty revenues and R&D pipeline has been obscured by excessive overhead and apparently undisciplined research spending. We at Third Point have had substantial experience working strategically with healthcare companies to enhance value(1) and we would welcome the opportunity to share our views and work constructively with you to help put the Company on the right track. We believe that, with our timely input, the Company should be able to reverse its significant under performance.

I am certain that you and the Board share our consternation that since January1, 2004, the Company's share price has remained flat versus a 50% increase in the biotech index (BTK). This is particularly troubling given that the Company has received approximately $400M of royalty revenues over this time period, largely attributable to several of biotech's fastest-growing products, including Genentech's Avastin and Herceptin. By comparison, Genentech shares have doubled over this time period.

The past three years should have been a golden era for PDLI's shareholders:Genentech's successful development of both Avastin and Herceptin, from which PDLI earns royalties based on its antibody humanization patents, enabled royalty revenues to grow from $52.7M in FY'03 to $184M in FY'06. To review the facts, in February 2004 Avastin was approved for first-line metastatic colorectal cancer. Subsequently, in March and April 2005 respectively, Avastin was shown to extend survival in first-line non-small cell lung cancer and to improve progression-free survival in first-line metastatic breast cancer. Then, on April25, 2005, Genetench announced that Herceptin had demonstrated an improvement in disease-free survival in the adjuvant setting for early-stage breast cancer patients. Unfortunately, instead of channeling this royalty stream into earnings generation and expeditious product development, you made what we consider to bean ill-conceived purchase of ESP Pharma for $500M to gain access to productsCardene IV, Retavase and Busulfex.

I am sure that both you and the Board share our disappointment that, contrary to your guidance, these products have generated little net cash flow since this purchase. Moreover, Cardene, which represents close to 60% of the combined $165Mrevenue stream from the three products, will go generic in 2009. With the benefit of hindsight, it is apparent that your purchase of ESP Pharma has squandered $500M of your shareholder's money. It is easy to see how some in the biotech industry have accused you, in this instance, of engaging in a classic case of biotech empire building. Based on the failure of this acquisition and the significant discount to fair value at which the Company's shares trade, we urge you not to pursue any such further acquisitions. Additionally, given your disappointing efforts with ESP Pharma's products, we believe that you should NOT partner Ularitide in exchange for yet another specialty pharmaceutical product. Instead, to enhance shareholder value you should accept an upfront cash payment. Indeed, we believe that you should sell your ESP Pharma assets to a specialty pharmaceutical company and focus PDLI on its core strength of biotechnology product development. We welcome the opportunity to discuss with you and the Board these initiatives in person.

Compounding our concerns, PDLI shareholders have had little to show to date for the roughly $400M spent on research and development between 2004 and 2006. There has been only one new investigational new drug ("IND") application since 2004.While we believe that the pipeline prospects will become apparent to investors in 2007, we find it hard to comprehend - either historically or prospectively -the enormity of that level of spending. We remain extremely concerned that this apparently "run-away spending" will continue, especially since a significant portion of PDLI's royalty stream ends in 2014. Pipeline development and cash flow generation are not mutually exclusive. Cash flow generation and retention, or monetization, should be as high a priority as pipeline development. We encourage the Company to reduce its spending to essential product development and research which can be justified by satisfactory rate of return expectations.

Underlying our approach is our strongly held belief that PDLI's shares are significantly undervalued due to the market's worry that the Company is squandering valuable cash flow on undisciplined R&D spending as well as is concern that the Company will make another acquisition. We estimate that between now and the end of 2014, PDLI will generate close to $2.2B in revenues from its royalty stream. Discounting this back at the current cost of capital, we calculate that this revenue stream is worth $1.8B today, just slightly below PDLI's current market capitalization. In addition to these royalties, specialty pharmaceutical revenues should approximate $200M in 2007 and the Company has other valuable assets: an exciting, albeit slowly-progressing, product pipeline; undisclosed royalties that extend beyond 2014; approximately $430M in net operating loss carry-forwards; real estate and other assets that can be monetized; and a valuable antibody technology platform that should continue to generate new compounds over time.

We believe that, with our assistance, the Company could significantly close the value gap by taking several simple steps. We would like to work with management in developing a plan to streamline the cost structure and asset base at PDLI as soon as practicable. To that end, we would be willing to sign an appropriate NDA or other documents to work through this budgeting process and to share our views with management and the Board.

Our preliminary analysis shows that PDLI should, with some cost-cutting, be able to earn $1.00 per share in 2008 and to increase that to $1.50 per share in 2009.To be clear, we believe that PDLI can produce these results while it also does the following: conducts PIII trials for Nuvion, develops Daclizumab with BIIBfor multiple sclerosis, develops M200 with BIIB for numerous cancers, partners Ularitide, partners Daclizumab for asthma, develops HuLuc63 for multiple myeloma and advances the early stage pipeline.

We understand that certain exasperated shareholders (those who haven't sold their shares) have suggested that PDLI either undergo a change of management or sell the Company to the highest bidder. We do not recommend such a course at this time so long as you and the Board agree to take immediate and decisive action and implement the sort of plan discussed above.

We at Third Point can only imagine the frustration that you and the Board must feel given the 40% plunge in PDLI stock price over the past 12 months and the series of operational disappointments that led to this decline. In light of this, we understand the sense of vulnerability that led you to recently implement the shareholder-unfriendly poison pill. We believe that a better course than "circling the wagons" would be to cease money losing initiatives and wasteful practices so that the underlying cash generating ability and value of the Company can be fully developed and made visible to shareholders. We look forward to meeting with you to discuss how we can be of assistance.

Sincerely,
Daniel S. Loeb
Chief Executive Officer

Loeb's Wants PDLI's CEO's Head; Says Co Turned Away $30 Bid

Dan Loeb's Third Point LLC demands that PDL BioPharma's (Nasdaq: PDLI) CEO Mark McDade be terminated or resign.

In a letter to the company the firm said that. "We believe that a PDLI unencumbered by Mr. McDade's management blunders and wasteful spending will appreciate in value considerably, and thus we have increased our position by 1,100,000 shares and now beneficially own 9.7% of the Company's outstanding stock."

Loeb also said, "There is no better example of McDade's "empire building" philosophy, pathological selfishness and poor business judgment than his decision to build out PDLI's absurdly large and unnecessary new corporate headquarters (the "Taj Mahal"). It is appalling that Mr. McDade is spending nearly $100 million of our money to build out 450,000 square feet of leased space, much of which is completely unnecessary." Loeb said dedicated PDLI employees are to be significantly inconvenienced by the move, while it is close to McDade's home.

Loeb also said, "We also learned from sources we deem to be reliable that PDLI received a takeover bid from a large pharmaceutical company for more than $30 per share (approximately 50% above the current stock price), which Mr. McDade effectively dismissed out of hand as being grossly insufficient."

Loeb also said, "we believe that the Company should examine splitting into two publicly traded entities - one a commercial operation, and the other an R&D company"

Loeb said, " we would note that we have spoken with many business development directors from major and mid-sized pharmaceutical and biotechnology companies, and the consistent feedback is that Third Point is correct in its analysis of PDLI - that it is a poorly-managed company with substantial assets." One comment Loeb heard and quoted was, "McDade acts and spends like he runs a big pharma company, but he has none of the infrastructure, assets or managerial ability."

A Copy of the Letter:

Dear Mr. McDade and PDL BioPharma Board Members:

In our initial letter to you dated March 5, 2007, we expressed a sincere and strong interest, as PDL BioPharma's ("PDLI" or the "Company") largest shareholder, to work constructively and discreetly with management and the Board of Directors to implement the cost-cutting and other measures necessary to fully enhance the extraordinary value inherent within PDLI that is currently being obscured by the Company's equally extraordinary current levels of spending. Indeed, we are certain that you are aware that our initial overtures have been greeted by overwhelming shareholder support and positive Wall Street research reports. The Company's shares have also reacted positively, rising 15%, or increasing in value by over $300mm, as a result of our involvement - to the benefit of all shareholders. After our first telephone calls with management in March, we were hopeful that matters were moving in the right direction, as they agreed to retain either the leading consulting firm that we proposed, or one of similar stature, to analyze your excessive R&D and SG&A spending, and to seriously consider our highly- qualified nominees to the PDLI Board of Directors.

Unfortunately, our initial optimism that we could work constructively with management quickly faded through a series of subsequent telephone calls with Mr. McDade, culminating in a "slap-in-the face" on Friday, April 6th, in which it became abundantly clear that Mr. McDade has no intention of pursuing a constructive dialogue. It became apparent that the earlier dialogue was a charade intended to stall for time, a tactic we have seen employed many times before by underperforming CEOs. Mr. McDade's inexplicable insouciance towards us, along with numerous negative findings that emerged over the course of our ongoing investigation (the "Investigation") into Mr. McDade's managerial abilities, judgment and ethics (discussed below), led us to determine that it is in our best interests, and those of all shareholders, to terminate discussions with Mr. McDade.

Many fund managers who have been similarly rebuffed, and who have detected such a deficit in talent, probity and judgment as we have come to find in Mr. McDade, might come to the logical conclusion to "cut and run" and decrease their positions as one major mutual fund has done according to recent filings. Instead, we have come to a different view: we concluded that the Board of Directors has no choice but to immediately terminate Mr. McDade. We believe that a PDLI unencumbered by Mr. McDade's management blunders and wasteful spending will appreciate in value considerably, and thus we have increased our position by 1,100,000 shares and now beneficially own 9.7% of the Company's outstanding stock.

In support of our demands for Mr. McDade's immediate termination, we review below the content of our discussions and negotiations over the past month and elaborate on the specific significant mismanagement and waste for which Mr. McDade is directly culpable.

McDade's Insincerity and Disorganization

During the past month we had four separate calls with Mr. McDade in which we repeatedly expressed our concerns regarding spending levels and other planned strategic initiatives by the Company. In each call, we reiterated our interest in working with him and with the Board in order to better understand and rationalize the cost structure at PDLI and to help realize the many valuable, currently poorly-recognized assets embedded within the Company. From the very first conversation, we made it clear that, as PDLI's largest shareholder by a wide margin, Board representation would be essential, and we submitted to Mr. McDade the names of four highly-qualified candidates for consideration. On March 30th, Mr. McDade informed us that none of our four candidates fits the profile of what PDLI is looking for in a Board member, but that the Board would (reluctantly) consider one of our candidates. We replied that this was not acceptable, and demanded that two of the other three candidates be named to the Board. At our suggestion, and in response to his now obviously feigned interest, we provided to Mr. McDade that very afternoon the contact information for TWELVE references for our Board candidates - all of them senior management or Board members of public companies with whom we've worked (and, in most cases, served on boards with). Mr. McDade and his assistant sent follow-up emails with questions regarding the references list. However, when we spoke with Mr. McDade again this past Friday, he informed us that none of our candidates is "qualified" to serve on PDLI's board. Although Mr. McDade is dead wrong about this, what is truly galling, and what speaks directly to Mr. McDade's lack of character, professionalism, and competence, is that our references reported to us that Mr. McDade did not call a single one of them to hear first-hand about the tremendous value that our candidates have brought to shareholders by working on other public boards, both within and outside of the biotechnology arena.

Moreover, one of our director candidates, Mr. Jason Aryeh, emailed to Mr. McDade contact information for his references, followed up with a confirmatory call to Mr. McDade's assistant Diana, and sent a second email to ensure its receipt. Nonetheless, Mr. McDade claimed days later never to have seen this important correspondence so essential to evaluating our candidates' qualifications to join the PDLI board, and even then he did nothing with the information it contained (despite assurances to the contrary). How can Mr. McDade purport to effectively run a public biotechnology company with a market capitalization of over $2 billion when he cannot even manage his own Microsoft Outlook inbox?

It is now clear to us that we've wasted the last month attempting to engage in a productive dialogue with Mr. McDade, while his only objective was to buy himself more time. We've been engaged in discussions with the Company for over a year about our concerns, and have heard management's explanations and excuses countless times over that entire period. The unfortunate truth is that so long as Mr. McDade remains CEO, which we expect will not be much longer, the Company will have no intention of doing the "right thing" by scaling back SG&A and R&D spending to economically justifiable levels.

We also want to emphasize that during the course of our discussions over the past month it became clear that Mr. McDade does not see the benefits of adding representatives of the major owners of the Company to the Board. In fact, he told us that the Board's ideal next candidate(s) would be a late- stage development expert. We have explained to Mr. McDade why adding shareholder representatives is vital at this point, as management is demonstrably not effectively telling the PDLI story to the world - as evidenced by the major disconnect between the current stock price of PDLI and the much higher inherent asset value of the Company. Additionally, it is obvious that PDLI needs to understand the investment community's perspective regarding the Company's economically unjustifiable spending. On this point, as noted earlier, we are pleased that the Company has agreed to hire a major consulting firm immediately to undertake the critical analysis of all of the Company's current and planned SG&A and R&D spending, with the goal of materially cutting back on both if they are deemed to be economically imprudent.

McDade's Taj Mahal - Massive Waste, a Shorter Commute for McDade and a Slip for his Yacht, but a Longer Commute for Employees

There is no better example of McDade's "empire building" philosophy, pathological selfishness and poor business judgment than his decision to build out PDLI's absurdly large and unnecessary new corporate headquarters (the "Taj Mahal"). It is appalling that Mr. McDade is spending nearly $100 million of our money to build out 450,000 square feet of leased space, much of which is completely unnecessary. But what is most troubling is what this says about his overall business judgment and qualification to continue to run the Company. As examples:

* Mr. McDade decided to lease, and build out, the Taj Mahal (reportedly the largest corporate lease deal, as measured in square footage, signed in the Bay Area in 2006) despite the fact that members of PDLI's financial team reportedly advised him that the expenditures were both unnecessary and imprudent;

* Mr. McDade has, from the beginning of this project, apparently been fixated on when his boat slip in the marina adjacent to the new corporate headquarters will be ready (one would think that the CEO of a Company, the stock price of which was down 40% last year - and the second worst performer in the entire biotechnology index - would have more important priorities), and

* Mr. McDade has made it clear in private that one of the key drivers behind his decision to relocate the Company from Fremont to Redwood City is that the new headquarters location will lead to a far shorter commute to work for him from his home in Woodside (not only less than one-half the mileage, but he will not have to cross any heavily-trafficked Bay bridges to get to the new headquarters). For those unfamiliar with the geography, below is a map detailing the pertinent locations:

(Photo: http://www.newscom.com/cgi-bin/prnh/20070411/NYW097)

Although the propinquity of the Taj Mahal to McDade's home is convenient for PDLI's imperial CEO, scores of current dedicated PDLI employees are to be significantly inconvenienced by the move. This issue was so significant that the Company's attorneys felt that it was an issue that merited disclosure in the risk section of PDLI's 2006 10-K:


We believe that the move of our corporate headquarters from Fremont, California to Redwood City, California, in the second half of 2007, may before and for a period after the move cause employee turnover to increase and make retaining key employees more difficult because our new headquarters is 12 miles away from our current headquarters and on the other side of the San Francisco Bay, which will increase the commute time of the many employees that reside in and around Fremont, California and the greater East Bay Area of the San Francisco Bay area.

Premium Offer Rebuffed? ... Strategic Alternatives Should be Reviewed Immediately

We also learned from sources we deem to be reliable that PDLI received a takeover bid from a large pharmaceutical company for more than $30 per share (approximately 50% above the current stock price), which Mr. McDade effectively dismissed out of hand as being grossly insufficient. While we share the view that PDLI is significantly undervalued, we believe that due care requires management to present all such expressions of interest to the Board. We are not necessarily advocating a sale of the Company at this time (although it should be carefully considered), but we believe that if such bidding interest exists, it should be carefully weighed against the present value of the Company in a scenario where it executes its long term operating plan under new, better-qualified management.

In addition, we believe that the Company should examine splitting into two publicly traded entities - one a commercial operation, and the other an R&D company. We believe that material incremental value could be created through such a separation and have raised this concept with Mr. McDade (not surprisingly, given his empire-building mindset, he had not given this structure a thought previously, and laughed dismissively - or perhaps defensively - when we suggested it). We would be happy to share with the Board our analysis as to why we believe that separating PDLI into two public companies would create significant shareholder value. Finally, we firmly believe that any deals currently being contemplated to encumber Ularitide, or to commit the Company to further R&D spending on this product, should be suspended while the above analyses are ongoing.

In Monday's press release announcing Max Link's resignation from the Board, Mr. McDade again referred to "continuing to build stockholder value by leveraging our antibody platform ...." Perhaps Mr. McDade uses a different, more favorable, group of stock charts than we do, but ours show that PDLI was down 40% last year; was flat in the three years from 2004 to 2006 while the biotech index gained 50% (and the stocks of PDLI's partners flourished); and, by the way, is only up this year because the market has reacted favorably to Third Point's involvement.

We are confident that we have the support of a majority of PDLI's shareholders, and clearly have the support of a large number of sell-side research analysts. Indeed, Prudential upgraded PDLI from a hold to a buy on March 25th in a report headlined "Calls for Strategic Changes Increasing; Could Spark Stock Rally if Implemented." Prudential's report then went on to say:

The public pressure being applied by Third Point could lead to positive dramatic changes in the company. The primary reason for our change of heart is that we believe some drastic measures would have to be taken to transform this company from a slow moving, yet costly specialty/biotech company to a more focused biotech company that can deliver returns that match investors' expectations.

On that same day Merrill Lynch wrote a positive report entitled "Does Third Point have a point?" - with the answer being a resounding "yes."

Lastly we would note that we have spoken with many business development directors from major and mid-sized pharmaceutical and biotechnology companies, and the consistent feedback is that Third Point is correct in its analysis of PDLI - that it is a poorly-managed company with substantial assets. A few comments we heard from this well-respected and knowledgeable group include:

McDade acts and spends like he runs a big pharma company, but he has none of the infrastructure, assets or managerial ability.

PDLI has enviable assets, but they will never get the benefit of them with McDade running the Company. He needs to be thrown out immediately.

He has consistently disappointed the Street by missing revenue and earnings projections and development timelines. Why will it be any different going forward?

What PDLI needs is financial discipline and new management.

Needless to say, we agree wholeheartedly with these opinions. We are confident that some members of PDLI's Board share our negative sentiment towards Mr. McDade. We urge these members to speak up and take action to dismiss him immediately. Indeed, we believe that there are several Board members who are far more capable that Mr. McDade of managing PDLI properly and would ask that they volunteer to serve as interim-CEO at a minimum, while the Company reassess its spending plans and analyzes all options to maximize value for PDLI's shareholders.

When Mr. McDade became CEO in 2002, he made a pledge to create shareholder value. Nearly five years later he has not lived up to his pledge. It is now time to put the valuable assets of this Company into more capable hands, either by bringing in a high-quality CEO or selling the assets to a larger, better-run company, before the Company's asset values are further diminished by uncontrolled and wasteful spending under his ineffective stewardship. Mr. McDade has said repeatedly that he serves at the will of shareholders, and would immediately step down if shareholders do not want him running the Company anymore. It is clear to us that a majority of PDLI's shareholders share our views, so we therefore demand that Mr. McDade stop hiding behind the Company's corporate defenses and newly-instituted poison pill and live up to his word by resigning. (We believe that we can deliver consents from a majority of the Company's shareholders calling for Mr. McDade's resignation to prove our point.) Also, we have high regard for the professional scientific personnel at PDLI, and the scientific accomplishments of many PDLI Board members, and believe that the languishing share price deprives them of opportunities to be appropriately rewarded for their efforts.

We would be pleased to speak directly with the Board, once Mr. McDade is terminated, to work together constructively to achieve our goal, and your fiduciary duty, to run the Company properly in order to create maximum value at PDLI for all stakeholders.

Sincerely,
Daniel S. Loeb
Chief Executive Officer

Loeb's Third Point Lowers Stake in PDL BioPharma (PDLI) to 5.1%

In an amended 13D filing on PDL BioPharma, Inc. (Nasdaq: PDLI), Daniel Loeb's Third Point LLC disclosed a 5.1% stake (6,000,000 shares) in the company. This is down from the 9.7% stake (11,300,000 shares) he disclosed in a prior filing.

Third Point sent a letter to the Board of Directors in which it acknowledged positive developments relating to the Company's announced intentions to commence a sale process but expressed concern that the Board does not include a Third Point representative and that the Company is being led by L. Patrick Gage as Interim Chief Executive Officer. In the letter, Third Point reiterated its belief that the shares remain undervalued and stated that, as one of the Company's largest shareholders, it will be carefully tracking developments at the Company and assessing its options.

A Copy of the Letter:

PDL Board Members:

We are encouraged by PDL's October 1st press release announcing that the Board will actively seek the sale of the entire Company or all of its component pieces. We are also pleased with the progress apparently being made by the Merrill Lynch investment bankers in spear heading this process and advancing it expeditiously to a successful conclusion.

Despite these positive developments, we are disappointed that the sale process is still being led by a Board that does not include a Third Point representative, and that Patrick Gage remains the Company's CEO, despite having demonstrated his unsuitability. Accordingly, although we remain convinced that PDLI shares are undervalued, and that a sale will maximize shareholder value, in light of your continuing refusal to provide us with a voice in the Company's affairs through a Board seat, we have reduced our position.

Despite the reduction in our PDLI position, we have maintained a holding above the 13D filing threshold, and remain one of the Company's largest shareholders. We will be carefully watching developments, and assessing our options, as events unfold.

Sincerely,
Daniel S. Loeb

Activist Target PDL BioPharma (PDLI) Up in Flames; Loeb And Others Likely To Turn Up The Heat

Shares of Dan Loeb (Third Point LLC) activist target PDL BioPharma (Nasdaq: PDLI) are down 20% today after the company announced a significant realignment, including a planned sale of commercial assets and the termination of the Nuvion phase 3 program. Adding to the downside pressure is the cloudiness regarding the sale of the company as a whole, which is what investors, including Loeb, wanted.

PDLI said it engaged Merrill Lynch to advise it on the sale of the rights to its various commercial assets (Cardene, Retavase, IV Busulfex and ularitide), but made no mention on the review of alternatives related to the sale of the entire company. On the conference call, when asked by Deutsche Bank analyst Jennifer Chao about a sale of the entire company, PDLI danced around the issue.

When a Third Point LLC analyst was selected to ask a question on the call, Dan Loeb himself got on the phone to address the company. Loeb expressed his delight that McDade is now out as CEO and noted that the company is finally taking action on a divestiture of assets. Loeb again called for Chairman Patrick Gage to step down and advised that PDLI's board pursue a strategy to sell the company as a whole and not go it alone. Loeb also asked that a representative appointed by Third Point be added to the board.

Investors, led by Loeb, will likely turn up the heat on PLDI to sell the whole company. Loeb may also initiate a proxy fight to get his way. Even with today's setback many analysts still see significant value in PDLI, with some estimates over $30 per share (stock currently at $19). It is unclear why the company is reluctant to sell as a whole ---- it is without a doubt what most investors want. I would venture to guess that within the next 6-9 months the company will pursue a sale as a whole, voluntarily or forced.

UPDATE: Loeb issued a late-afternoon press release disclosing a letter sent today to the Board of Directors:

In the August 28th conference call, PDL BioPharma ("PDL" or the "Company") Chairman, Patrick Gage, sent a confusing and unwelcome message about PDL's strategy. Dr. Gage's message is especially disconcerting because we believe a significant majority of PDL's shareholders and board members share the view that the Company should be sold in its entirety or in pieces and that the entire proceeds should be returned to shareholders.

Only eight days before the conference call, the Company announced that the board was continuing its ongoing corporate strategic review in conjunction with Merrill Lynch & Co. While we understand that the announced sale of the Company's commercial operations is simply the first step in exploring the sale of the entire Company, Dr. Gage failed to communicate this clearly. Instead, he gave the impression that repositioning the Company could be an alternative to selling the Company.

Dr. Gage's destructive, "go-it-alone" research and development approach (contrary to the wishes of PDL's shareholders) -- combined with his history as chief apologist for Mark McDade's failed strategies and his own spotty record as a Board member at other public companies (witness the poor stock price performance of Neose Technologies, where he is also Chairman, as well as the similarly dismal performance of ArQule during his time on that Board) -- lead us to respectfully request that Dr. Gage step down from his role as Chairman and a member of the Board. We believe that his chances for re-election to the Company's staggered board at the next annual meeting are slim, and his "lame duck" status further impairs his credibility.

Although we are mystified as to why it took so long, we view favorably the belated adoption of Third Point's recommendations: that PDL has agreed to sell its specialty pharmaceuticals business, drastically reduce operating and r&d costs, and retain an investment banker to examine all options to maximize value for shareholders. We also acknowledge the resignation of Mark McDade as CEO, which we have also been advocating. We were, however, perplexed as to why he was present on yesterday's conference call, and why he has retained anything more than a consulting role at the Company.

A prompt sale of all of PDL, in whole or in pieces, will generate significant value for shareholders. In this regard, while we are of course disappointed by the termination of Phase III trials of Nuvion after 6 years of development -- a failure that underscores the Company's inability to successfully commercialize drugs -- we remain convinced that there is substantial value and interest in the Company's royalty stream, commercial products, manufacturing assets and pipeline of promising drugs, provided they are placed under the management of companies better suited to exploit the assets and successfully develop and commercialize the pipeline. Nuvion was not a major component of our estimated value of PDL, and we continue to believe that PDL's shareholders would realize a substantial premium in a change of control transaction.

We reiterate the previous offer of the Third Point nominees to serve on the board, where they can be expected to work constructively with management, other board members and representatives of Merrill Lynch to bring the strategic review to the successful conclusion of maximizing value for all PDL shareholders.

Sincerely,
Daniel S. Loeb

Loeb Reiterates Call for PDLI's CEO's Head; Says Company Should Follow MEDI to the Auction Block

Large PDL BioPharma (Nasdaq: PDLI) shareholder Third Point LLC, run by Daniel Loeb, confirmed what they called a "very disappointing" response to their recent requests and reiterated its demand that CEO Mark McDade step down, citing his misteps including unnecessary spending on the Company's corporate headquarters (Loeb called it the Taj Mahal) as well as wasteful R&D and SG&A spending.

Third Point requested that the Company founder and board member Laurence Korn be immediately installed as acting chief executive officer and chairman.



ThirdPoint said PDLI's Board should act in a similar fashion to MedImmune's (Nasdaq: MEDI) board, which announced last week that they engaged Goldman Sachs to explore a sale of the Company.

Third Point ended saying, "In sum, we ask the Board to look past personal loyalty to Mr. McDade and think objectively about his performance and about the Board's duty to shareholders. We are confident that you will come to the conclusion that Mr. McDade must go and that an investment bank should be engaged to explore strategic alternatives expeditiously."

Press Release from Third Point

Loeb's Third Point Reiterated its Demand That PDL BioPharma (PDLI) CEO Be Terminated; Notes Banker Hired

In an amended 13D filing on PDL BioPharma, Inc. (Nasdaq: PDLI), Daniel Loeb's Third Point LLC, a 9.8% holder, reiterated its demand that Mark McDade be terminated immediately as CEO 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.

A Copy of the Letter:

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
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. 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 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 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.

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 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.

Sincerely,

Daniel S. Loeb

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%,>

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 >41/2X 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 >31/4X, $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- http://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

Loeb's Third Point Want PDL BioPharma (PDLI) Chairman Removed

In an amended 13D filing on PDL BioPharma Inc. (Nasdaq: PDLI), 9.8% Daniel Loeb's Third Point LLC disclosed a new letter to the company demanding that Dr. Gage be removed as Chairman of the Board and that Jeanmarie Guenot be dismissed as PDLI's head of business development.

In the past, Third Point demanded the company terminate CEO Mark McDade, add three shareholder representatives to the PDLI Board and retain an investment bank to explore strategic alternatives for the Company.

PDL BioPharma (PDLI) Co-Founder Queen Supports Third Point LLC's Proposals for a New Direction

PDL BioPharma (Nasdaq: PDLI) co-founder Cary Queen, Ph.D disclosed a letter to the company supporting the proposals of hedge fund Third Point LLC for a new direction at PDL that emphasizes efficiency, focus on product development, and profitability, under the leadership of a new Chief Executive Officer.

Third Point, run by Daniel Loeb, has been pushing for a sale of the company among other things. Link to past reports on the Third Point/PDLI situation.

A Copy of the Letter:

TO THE DIRECTORS OF PDL BIOPHARMA:

I write to you as cofounder of the Company, inventor of the patents from which PDL derives much of its revenues, a significant shareholder, and a senior executive and Director of PDL for most of its history. I write to you in support of the proposals of Third Point LLC for a new direction at PDL that emphasizes efficiency, focus on product development, and profitability, under the leadership of a new Chief Executive Officer.

PDL's problem is clear, as dramatically illustrated in a graph available at www.FixPDL.com, which compares the performance of PDL's royalty and license revenues with its stock price and the BTK index in the years 2004 -- 2006.The BTK index, which comprises many of PDL's competitors and comparable companies, climbed 43% over that period. PDL's royalty and license income, measured over each 4-quarter interval, grew by about 250%, from about$72 million to $249 million. Yet PDL's stock price fell 15%. Can there be any doubt that if PDL management had simply let more of the dramatic revenue increase reach the bottom line while focusing on timely development of PDL's own products, the result would have been far better? The moderate improvement in PDL's stock price in 2007 is due to the hope for change created by ThirdPoint's activities, and will evaporate if that hope is not fulfilled. The astonishing under performance of PDL relative to competitors and to PDL's own potential can only be a result of a complete breakdown in the strategy of the CEO, Mr. Mark McDade, and of the confidence of the investor community in his ability to lead the Company.

The reasons for the problem are no less clear: lack of focus that has led to critical product development delays, out-of-control spending, and an especially ill-considered acquisition of ESP Pharma. The other Directors at the time of the acquisition will recall how vigorously -- to the point of acrimony -- I opposed it. But it brings me no pleasure now to observe how fully events have justified my protests. The multiple write downs of the acquired products, so far totaling about $90 million, indicates that their sales potential was greatly exaggerated, partly due to apparent channel stuffing by ESP (see the MD&A section of PDL's 2005 Annual Report). In my opinion, this could, should and would have been discovered during due diligence before the acquisition, had PDL's CEO not predetermined that the deal would be consummated. The synergies always touted by the investment bankers in such situations have of course failed to materialize, as PDL has no products of its own to sell. The key product obtained with the acquisition soon faces patent expiration, and PDL has no convincing strategy to avoid loss of most of its sales. The purchase left PDL laden with debt and with diluted shares. Most importantly, the acquisition of two niche non-antibody cardiovascular drugs had absolutely nothing to do with PDL's business of developing novel antibodies to address important medical needs in cancer andautoimmune disease. The result has been complete confusion in the investor community and within PDL itself as to the strategy of the Company.

Meanwhile, development of PDL's key product Nuvion(R), which is critical for the future of the Company, was delayed by about two years. While PDL'sChief Medical Officer apparently took the fall for the delay and left the Company, I am convinced that the root cause for this major failure was the multiple, conflicting demands imposed on the management team and especially the Clinical Department by the CEO. Programs to develop or expand the market for two products obtained with the ESP purchase -- Ularitide and Retavase(R)-- needed to be implemented, doubtless taking vital attention away from PDL'sown products. It is also a reasonable assumption that PDL evaluated many other company and product acquisition opportunities before and after ESP,perhaps some even less sensible, further distracting management attention from the hard but vital mission of the Company to develop new drugs. PDL's lack of focus is undoubtedly a symptom of Mr. McDade's personal lack of focus, as shown by his decision in January 2007 to become Lead Director of Cytokinetics,Inc., in the apparent belief that things are going so swimmingly at PDL that they need only part of his attention!

Despite the slow progress of the company's clinical pipeline and the abandonment of numerous programs -- Terlipressin, daclizumab for asthma and for transplantation, HuZAF -- the company's headcount and R&D and SG&A spending have grown unchecked. Headcount has almost tripled in the 4-1/2years since Mr. McDade became CEO, and R&D spending is up a staggering 350%(from $57.98 million in 2002 to $260.66 million in 2006). The CEO has chosen to emphasize a non-GAAP measure of net income that eliminates depreciation and amortization -- i.e., posits that R&D buildings and acquired products come for free -- apparently to distract attention from the fact that he has no time line for the Company to become GAAP profitable. With so much of PDL's revenues coming from cost-free royalties, I concur with Third Point and many of PDL's other investors that this is unacceptable.

Two particularly dubious decisions made by PDL's CEO have accelerated the loss of investor confidence. First was the announcement on May 2, 2006, that the Company was substantially reducing its guidance for non-GAAP net income(by about 60 - 80%) because of the decision to conduct a large Phase 3clinical trial for Ularitide. It was immediately obvious to observers such as myself that a company having no experience whatever with trials in the cardiovascular field, and which had never conducted a clinical trial involving more than about two hundred patients, couldn't conceivably conduct a trial necessarily involving thousands of heart failure patients, in which safety of the product would be a primary concern. This must have eventually become clear even to PDL's CEO because the Company quietly shelved the whole idea towards the end of 2006 in favor of searching for a partner. However, the damage had already been done: the decision to forgo announced financial targets represented a major breach of faith with PDL's investors, and demonstrated beyond doubt that the Company's appetite for spending was unlimited. PDL's share price fell about 25% the day after the decision was announced, and as much as 40% over the next 3 months. PDL has yet to recover from this collapse, and its CEO never will.

Second, and perhaps even more incomprehensible, is the CEO's decision to abandon PDL's established R&D and office facilities in Fremont, CA, on the east side of the San Francisco Bay, and relocate over 500 employees to new facilities on the Silicon Valley side of the Bay. PDL currently owns two buildings in Fremont which, while lacking architectural pzazz, are of recent vintage and built out only a few years ago to the Company's specifications with state-of-the art research, preclinical and process development facilities. Because the East Bay has not fully revived from the dot-com bust, PDL is literally surrounded with buildings that can be leased at attractive rates and by empty lots on which PDL could construct new buildings when necessary. In contrast, PDL's planned new facility consists of two enormous glass-and-steel structures worth about $200 million -- money that over time will be captured from PDL as lease payments -- and containing about450,000 sq. ft. -- double the floor area of PDL's currently owned and leased Fremont facilities. The new facility has jogging trails by the water,convenient fitness facilities, and many other amenities. Most of PDL's s hareholders shall of course not have a chance to enjoy these amenities, but they will be asked to accept a large write off when PDL sells its existing facilities at a fraction of their cost. Worse, they will need to pay for an extremely expensive build-out of hundreds of thousands of square feet of R&D and office space to replace the space being abandoned, at a cost that will far exceed PDL's entire cash flow for 2007 -- albeit this expense will not be included in PDL's non-GAAP net income, which conveniently excludes depreciation. Moreover, many of PDL's employees have organized their lives to take advantage of the Company's location in the East Bay and will choose not to follow PDL in its peregrinations. The loss of essential staff, added toPDL's already excessive rate of employee turnover and the general disruption caused by a move of this magnitude, will severely hamper the Company during a critical year for its clinical programs. PDL's assertion at its recent Q1conference call that moving to such large and expensive facilities is more cost-effective than simply staying put in the Company-owned R&D buildings, and leasing adjacent office space as needed, is not credible on its face. I call upon the Board of PDL BioPharma to halt this mad enterprise.

I realize there is a natural inclination for a Board faced with a shareholder insurrection to circle the wagons and adopt a defensive posture.Before doing so, I urge the Directors to take a step back and ask yourselves some questions. Has the performance of PDL's stock price over the past three years been satisfactory to you? Has the acquisition of ESP Pharma brought the expected benefits, and has the price been justified by time? Was the delay in developing Nuvion acceptable? Is the approximately $100 million cost of building out PDL's new facilities the best use for that money, and is the build-out coming in within that already huge number? Is the lack of any plan to achieve profitability as conventionally measured, more than 20 years after the founding of PDL, what you expected when hiring Mr. McDade? Has the departure since Mr. McDade arrived of virtually every executive and key person who built PDL, down to the Staff Scientist level and up to the Chairman of the Board, indicative of a well-respected CEO and well-run company? Are you pleased that PDL's under performance has been so glaring as to attract the attention of a major activist hedge fund? Simply put, can things go on this way? Only if the Board can answer in the affirmative to most or all of these questions would the retention of Mr. McDade be justified.

Finally, in the interest of transparency, I want to remind you that I am still a consultant to the Company, and just two weeks ago was pleased to participate in the successful defense of PDL's key humanization patent in Europe. I see no conflict between my roles as consultant and advocate for change at PDL, as I believe that in both roles I am acting in the best interest of the Company, which of course needs to be distinguished from the purely personal interest of Mr. McDade in keeping his job.

Thank you for your attention to my comments.

Sincerely,

Cary Queen, Ph.D.

Loeb's Third Point LLC Raises Stake in PDL BioPharma (PDLI), Wants Four Board Seats, Retain Consulting Firm

In an amended 13D filing on PDL BioPharma Inc. (Nasdaq: PDLI), Dan Loeb's Third Point LLC disclosed an 8.8% stake (10.1 million shares) in the company. This is up from the 7.5% stake (8.6 million shares) in the original 13D filing.

Loeb also disclosed a new letter to the company's CEO, requesting four candidates be added to the Company's Board of Directors. Loeb also stated that he had been in discussions with a prominent consulting firm and that he would like the Board to retain that firm to review corporate and research and development spending. Loeb demanded, in the transmission, a definitive response from the CEO and the PDLI board, by the close of business on Thursday, March 22nd, as to whether they have agreed to add the four to the Board.

Summary of Loeb's Third Point LLC 13F

Daniel Loeb's Third Point LLC issued their latest 13F for the quarter ended June 30, 2007:

New Stakes:

Abraxas Petroleum Corp. (AMEX: ABP) 1,207,572 shares, Aeroflex Inc. (Nasdaq: ARXX) 1,260,000 shares, Apartment Investment & Management Co. (NYSE: AIV) 755,000 shares, Applera Corp-Applied Biosystems Group (NYSE: ABI) 200,000 shares, Atmel Corp. (Nasdaq: ATML) 24,400,000 shares, BEA Systems Inc. (Nasdaq: BEAS) 9,650,000 shares, BioFuel Energy Corp. (Nasdaq: BIOF) 1,250,000 shares, CIT Group Inc. (NYSE: CIT) 750,000 shares, Citadel Broadcasting Corporation (NYSE: CDL) 4,396,163 shares, Clear Channel Communications Inc. (NYSE: CCU) 2,750,000 shares, Cypress Bioscience Inc. (Nasdaq: CYPB) 100,000 shares, Dillard's Inc. (NYSE: DDS) 1,000,000 shares, Dominion Resources Inc. (NYSE: D) 400,000 shares, Douglas Emmett Inc (NYSE: DEI) 2,750,000 shares, Greenlight Capital Re, Ltd. (Nasdaq: GLRE) 800,000 shares, Herbalife Ltd. (NYSE: HLF) 1,000,000 shares, Home Solutions of America Inc. (Nasdaq: HSOA) 100,000 share PUT, ICICI Bank Ltd. (NYSE: IBN) 1,110,000 shares, Invesco Plc (NYSE: IVZ) 850,000 shares, Linn Energy, LLC (Nasdaq: LINE) 1,733,331 shares, Medis Technologies Ltd. (Nasdaq: MDTL) 100,000 shares, NuStar GP Holdings LLC (NYSE: NSH) 2,000,000 units, OM Group Inc. (NYSE: OMG) 2,050,000 shares, Post Properties Inc. (NYSE: PPS) 165,000 shares, T. Rowe Price Group, Inc. (Nasdaq: TROW) 100,000 shares PUT, Symantec Corporation (Nasdaq: SYMC) 500,000 shares, UBS AG (NYSE: UBS) 150,000 shares, United Therapeutics Corp. (Nasdaq: UTHR) 250,000 shares, Vantage Energy Services, Inc. (AMEX: VTG) 1,875,000 shares, Veeco Instruments Inc. (Nasdaq: VECO) 1,425,000 shares, Victory Acquisition Corp. (AMEX: VRY) 2,200,000 shares, Willbros Group Inc. (NYSE: WG) 1,500,000 shares

Raised Stakes: Acadia Pharmaceuticals Inc. (Nasdaq: ACAD) from 350,000 shares to 475,000 shares, Alkermes, Inc. (Nasdaq: ALKS) from 750,000 shares to 2,835,000 shares, ATP Oil & Gas Corp. (Nasdaq: ATPG) from 2,000,000 shares to 2,500,000 shares, Eddie Bauer Holdings, Inc. (Nasdaq: EBHI) from 1,200,000 shares to 1,425,000 shares, Bausch & Lomb Inc. (NYSE: BOL) from 300,000 shares to 1,605,000 shares, Candela Corp. (Nasdaq: CLZR) from 1,275,000 shares to 2,120,000 shares, Charming Shoppes Inc. (Nasdaq: CHRS) from 2,2000,000 shares to 5,250,000 shares, CSX (NYSE: CSX) from 1,300,000 shares to 2,000,000 shares, CV Therapeutics, Inc. (Nasdaq: CVTX) from 1,350,000 shares to 5,900,000 shares, Cypress Semiconductor Corporation (NYSE: CY) from 750,000 shares to 5,300,000 shares, DAIMLERCHRYSLER (NYSE: DAI) from 322,000 shares to 447,000 shares, DepoMed Inc. (Nasdaq: DEPO) from 325,000 shares to 4,735,000 shares, Flamel Technologies SA (Nasdaq: FLML) from 225,000 shares to 920,000 shares, Freedom Acquisition Holdings Inc. (NYSE: FRH) from 1,500,000 shares to 2,700,000 shares, Granite Construction Inc. (NYSE: GVA) from 1,350,000 shares to 3,500,000 shares, Infineon Technologies AG (NYSE: IFX) from 1,800,000 shares to 2,600,000 shares, Nabi Biopharmaceuticals (Nasdaq: NABI) from 5,750,000 shares to 6,890,000 shares, Norfolk Southern Corp. (NYSE: NSC) from 1,250,000 shares to 1,350,000 shares, Northern Orion Resources Inc. (AMEX: NTO) from 7,600,000 shares to 8,600,000 shares, NYSE Euronext, Inc. (NYSE: NYX) from 1,650,000 shares to 4,849,700 shares, PDL BioPharma Inc. (Nasdaq: PDLI) from 8,450,000 shares to 11,400,000 shares, Questar Corp. (NYSE: STR) from 325,000 shares to 3,500,000 shares, Synovus Financial Corp. (NYSE: SNV) from 5,500,000 shares to 7,375,000 shares, Tronox Inc. (NYSE: TRX) from 450,000 shares to 2,500,000 shares, Union Pacific Corp. (NYSE: UNP) from 500,000 shares to 700,000 shares

Lowered Stakes:

Acorda Therapeutics, Inc. (Nasdaq: ACOR) from 2,290,000 shares to 1,000,000 shares, AEP Industries Inc. (Nasdaq: AEPI) from 1,000,000 to 0, Alexion Pharmaceuticals, Inc. (Nasdaq: ALXN) from 400,000 shares to 0, BearingPoint (NYSE: BE) from 3,000,000 to 0, Bristol-Myers Squibb Co. (NYSE: BMY) 200,000 to 0, Cephalon Inc. (Nasdaq: CEPH) from 375,000 shares to 200,000 shares, Clearwire Corporation (Nasdaq: CLWR) 150,000 shares to 0, Embarq Corp. (NYSE: EQ) from 325,000 shares to 225,000 shares, Euroseas, Ltd. (ESEA) from 262,212 shares to 0, FMC Corp. (NYSE: FMC) from 700,000 shares to 0, FEI Co. (Nasdaq: FEIC) from 2,130,000 shares to 1,950,000 shares, General Motors Corporation (NYSE: GM) from 1,000,000 to 0, ICO GLOBAL COMM CL A (Nasdaq: ICOG) from 4,500,000 shares to 2,245,000 shares, Invitrogen Corp. (Nasdaq: IVGN) from 800,000 shares to 750,000 shares, Koninklijke Philips Electronics NV (NYSE: PHG) from 685,000 shares to 400,000 shares, Leap Wireless International Inc. (Nasdaq: LEAP) from 750,000 shares to 575,000 shares, Martin Marietta Materials Inc. (NYSE: MLM) from 2,575,000 shares to 550,000 shares, Mastercard Incorporated (NYSE: MA) from 1,900,000 shares to 1,600,000 shares, MDS, Inc. (NYSE: MDZ) from 1,350,00 shares to 0, Molex Inc. (Nasdaq: MOLX) 475,000 shares to 181,700 shares, Motorola Inc. (NYSE: MOT) 3,000,000 shares to 0, Neurochem Inc. (Nasdaq: NRMX) from 250,000 to 0, Neurocrine Biosciences Inc. (Nasdaq: NBIX) from 1,215,000 shares to 0, Onyx Pharmaceuticals Inc. (Nasdaq: ONXX) from 1,080,000 shares to 500,000 shares, Plains Exploration & Production Company (NYSE: PXP) from 2,000,000 shares to 0, QIMONDA AG (NYSE: QI) from 400,000 shares to 0 ,QUALCOMM (Nasdaq: QCOM) from 500,000 shares to 0, Ryerson Inc. (NYSE: RYI) from 1,975,000 shares to 0, SAIC, Inc. (NYSE: SAI) from 300,000 shares to 0, Sears Holdings Corporation (Nasdaq: SHLD) from 500,000 shares to 0, SunPower Corporation (Nasdaq: SPWR) from 559,800 shares to 336,800 shares, Talisman Energy Inc. (NYSE: TLM) from 3,750,000 shares to 1,000,000 shares, Temple-Inland Inc. (NYSE: TIN) from 300,000 shares to 0, Tronox Inc. (NYSE: TRX) from 900,000 shares to 0, Verigy, Ltd. (Nasdaq: VRGY) 900,000 shares to 800,000 shares

Maintained Stakes:

Ariad Pharmaceuticals Inc. (Nasdaq: ARIA), Burlington Northern Santa Fe Corp. (NYSE: BNI), CBS CORP CL B (NYSE: CBS), Chipotle Mexican Grill, Inc. (NYSE: CMG), Coleman Cable, Inc. (Nasdaq: CCIX), Core-Mark Holding Company, Inc. (Nasdaq: CORE), Dade Behring Holdings Inc. (Nasdaq: DADE), EXCO Resources Inc. (NYSE: XCO), Flow International Corp. (Nasdaq: FLOW), Harrah's Entertainment Inc. (NYSE: ET), IHOP Corp. (NYSE: IHP), Kansas City Southern (NYSE: KSU), Ligand Pharmaceuticals Inc. (Nasdaq: LGND), Loral Space & Communications, Inc. (Nasdaq: LORL), Massey Energy Co. (NYSE: MEE), Pogo Producing Co. (NYSE: PPP)