Aug. 29 (Bloomberg) -- PDL BioPharma Inc., the developer of technology for cancer medicines, may fall in Nasdaq trading after it announced plans to sell off its only three drugs, halt work on the leading product candidate and make ``sizeable'' job cuts.

The company is changing plans to concentrate solely on discovering and developing antibody drugs for cancer and immune disorders, PDL Chairman L. Patrick Gage said in an interview yesterday. Divestiture of all products will ``significantly'' reduce earnings in the near term, PDL said in a statement.

PDL has moved to change its strategy this year, under pressure from its largest shareholder, Daniel Loeb's hedge fund Third Point LLC. PDL Chief Executive Officer Mark McDade, 52, agreed to resign earlier this month, citing the ``personal toll'' of an internal investigation into his conduct. Loeb pushed for PDL to seek a buyer and for Gage to step aside.

``It's time for PDL to stop the bleeding and to focus on an outright sale of the company,'' Loeb said in a telephone interview yesterday. ``It's worth substantially more than where it's trading today.''

PDL, founded in 1986, had an accumulated deficit of $570 million through the end of 2006, according to its annual report. The Fremont, California-based company's shares slid 18 percent in extended trading yesterday. They had dropped 15 percent through the close from a 52-week high of $27.70 on June 4, shortly after Loeb began to call for McDade's and Gage's resignations.

Selling Off Products

The company plans to divest all three drugs that it acquired from ESP Pharma Inc. in March 2005. PDL paid $325 million in cash for the products. The medicines -- Cardene, Retavase and IV Busulfex -- had $165 million in combined sales in 2006. The products are marketed to hospitals for emergencies.

The discontinued drug in development is Nuvion.

``It's very negative that Nuvion is lost,'' said Jason Kolbert, an analyst with Susquehanna Investment Group in Bala Cynwyd, Pennsylvania, in a telephone interview yesterday. ``On the other hand, unwinding the ESP acquisition is the strategic direction that shareholder activists like Third Point have been calling for.''

PDL dropped $4.35 to $19.25 in late trading yesterday after the report. Earlier it fell 6 cents to $23.60 in regular Nasdaq Stock Market composite trading. The company's shares had gained 17 percent this year as of yesterday's close.

Step Down

On a PDL conference call with analysts and investors after the announcement, Loeb, who runs New York-based Third Point, called for Gage to step down, echoing a demand he made in May, and offered to join the board himself.

``How can you look yourself in the mirror and remain on the board every day given the amount of value destruction you have presided over?'' Loeb asked Gage during the call. ``I'd encourage you to pursue a strategy to sell the company and not even consider a go-it-alone strategy.''

Gage, 65, has been on the PDL board since 2003 and became chairman in April. Gage is chairman of three other biotech companies and a partner with the venture capital firm Flagship Ventures, in Cambridge, Massachusetts.

``I'd like to reiterate our offer to serve on the board,'' Loeb added on the call.

Third Point held 11.4 million shares, or a 9.8 percent stake, as of July, according to data compiled by Bloomberg.

Forecast Suspended

PDL executives said on the conference call they expect to sell the drug assets by early 2008 and are suspending financial guidance for the year because of the change in the company's structure. Merrill Lynch is working with the board to evaluate the company's financial and strategic options and find the best use for the proceeds of the sale, McDade said.

PDL collects most of its revenue from royalties from sales of some of the world's top-selling cancer drugs, including Genentech Inc.'s Avastin and Herceptin. The medicines use PDL's patented technology to ``humanize'' antibodies so they aren't rejected by the patient's immune system. PDL generated $184 million in royalty income in 2006, the company has reported.

``We're going to focus our efforts and restructure our company to be the best,'' Gage said. ``We want to develop innovative products for large medical needs.''

The company had high hopes for Nuvion, the discontinued drug to treat ulcerative colitis, an inflammatory bowel disease. In April, the company said the drug advanced into the third of three phases of study generally needed for approval from the U.S. Food and Drug Administration. Analysts said the drug could have generated $350 million a year in sales.

Trial Halted

An independent group of safety monitors recommended that the company consider halting the trial after interim results showed it wasn't effective. More Nuvion patients in the clinical trial than expected needed to have their colons surgically removed, PDL Chief Medical Officer Mark McCamish said on the call.

PDL will now turn its attention to three drugs in clinical trials. One, daclizumab, is being developed jointly with Biogen Idec Inc. for multiple sclerosis. Two others are being studied for cancer, and PDL plans to ask regulators for permission to test another drug for cancer later this year.

``We've created a simpler and more focused path for PDL,'' McDade said on the conference call with analysts. ``We're significantly narrowing our scope of effort'' and ``going back to our core strengths,'' he said.

PDL is looking for a new CEO with a strong background in clinical medicine and product development, Gage said on the call. McDade said he will help in the search for his successor, with a goal of installing a new chief executive by year-end.

``A CEO with a different background and skill set would be better poised to lead PDL into its next phase,'' he said.

Job Cuts

The company had 1,100 employees at the end of 2006 and a net loss of $130 million in the year, according to data compiled by Bloomberg.

The company didn't say how many employees will lose their jobs, although ``it will be a substantial number,'' Gage said.

About 250 people work on the marketed products for PDL, Gage said. Those jobs will also be eliminated after the assets of the marketed products are sold, according to the company's statement.

PDL's board decided to sell the three drugs because the company would have needed to buy more specialized treatments to improve its financial performance. Gage declined to say how much the products might be worth.

The company still plans to move its headquarters from Fremont to new offices in nearby Redwood City, California, in October, Gage said. Loeb criticized the decision, which will cost $100 million, as wasteful spending. PDL will minimize the cost of the move because it will have fewer employees there, Gage said.

Merrill Lynch & Co. is advising the company on the product divestitures, and Bain & Co. assisted in the strategic review, Gage said.

``We listened carefully to our major shareholders, we heard their advice,'' Gage said. ``It became clear to us on the board that a strategic redirection was appropriate.''

To contact the reporter on this story: Luke Timmerman in San Francisco at ltimmerman@bloomberg.net; Avram Goldstein in Washington at agoldstein1@bloomberg.net

Last Updated: August 29, 2007 03:01 EDT