UPDATE 4-PDL drops after Genentech patent letter

* PDL says gets Genentech letter on European patents

* Letter says some products do not infringe PDL’s patents

* PDL to enforce rights to Europe patents through 2014

* PDL shares fall as much as 20 pct, touch 7-yr low
(Adds Genentech comment)

By Krishnakali Sengupta

BANGALORE, Aug 13 (BestGrowthStock) – PDL BioPharma Inc (PDLI.O: ),
which licenses its technology to Genentech, said the biotech
giant has claimed its drugs do not infringe PDL’s European
patents, throwing into doubt royalty revenue that accounts for
about a third of PDL’s sales.

Genentech, a unit of Roche Holding AG (ROG.VX: ), currently
makes royalty payments to PDL for the use of antibody
humanization technology in several of its products, including
blockbuster cancer drug Avastin.

Shares of PDL fell 20 percent to hit a more than 7-year low
of $4.97 in early trade, but recovered some of those losses to
trade at $5.20 Friday afternoon on Nasdaq.

PDL Chief Financial Officer Christine Larson said the
Genentech letter it received on Wednesday neither addressed the
issue of royalty payments nor challenged the validity of its
patents.

“The curious thing about this letter is that they are
basically saying that (Genentech) thinks the technology
described in the patents is not the technology that (they) are
using,” Larson told Reuters.

PDL contends that the two companies are bound by a 2003
deal, under which Genetech agreed that the PDL patents are
valid and cannot be challenged without facing substantial
damages.

It said the letter did not state what actions, if any, the
Roche unit intended to take with respect to its assertions.

The letter also did not make the claim that Genentech
products were not subject to PDL’s U.S. patents, which would
cover products made in the United States and sold there and
outside the country.

Genentech said in a statement that it expects a response
from PDL to its assertions, “but in general, our agreements and
discussions are confidential” and it had no further comment.

UNEXPECTED CHALLENGE

“This was totally unexpected and it clearly creates an
overhang on PDL’s stock, and we believe it will continue for at
least a quarter,” JMP Securities analyst Charles Duncan said.

Incline Village, Nevada-based PDL said royalties on the
Genentech products that are made and sold outside the United
States accounted for about 30 percent of its revenue in the
first half of 2010.

“We had an open dialogue with Roche in March, and none of
this came up then. So I don’t know what motivated them in the
last 5 months (to take this step),” CFO Larson told Reuters.

PDL asserted that its European patents on the technology
run through 2014 and it intends to vigorously enforce those
rights.
(Reporting by Krishnakali Sengupta in Bangalore, additional
reporting by Deena Beasley in Los Angeles; Editing by Anthony
Kurian and Gopakumar Warrier)

UPDATE 4-PDL drops after Genentech patent letter