UPDATE 2-PDL says gets August royalty payment from Genentech

Wed Sep 1, 2010 3:16pm EDT

* Says received $73.8 mln from Genentech in Q3 -- CEO

* Sees Q3 rev of $86 mln vs est $83.6 mln

* Says responds to Genentech patent letter

* Says files complaint against Genentech in Nevada court (Adds details, analyst comments; updates stock movement)

By Krishnakali Sengupta and Rajarshi Basu

BANGALORE, Sept 1 (Reuters) - PDL BioPharma Inc (PDLI.O) said it received all royalty payments due in August from licensee Genentech, relieving concerns that it would not see some of the money after the biotech giant said its products did not infringe PDL's patents.

The payment raised hopes of a settlement in the dispute that arose after the Roche (ROG.VX) unit disagreed on the scope of PDL's European patents covering its antibody humanization technology, threatening royalties that amount to a third of PDL's sales. [ID:nSGE67C0ER]

In a reply to Genentech Tuesday, PDL said the assertions were without merit, and cautioned that Genentech had waived its right to challenge the validity of PDL's patent rights as part of a 2003 settlement.

"The royalty payment was due (Monday), and they paid the full amount without any reservations," PDL Chief Executive John McLaughlin told Reuters.

The company said it received a total payment of $73.8 million from Genentech and expects the next payment in late November.

JMP Securities analyst Charles Duncan said Roche has started shifting manufacturing of the products under the PDL license outside the United States, where PDL is entitled to higher royalties than it sees in the United States.

"We believe that the most probable outcome at this point involves agreement on a tiered royalty structure being applied worldwide," Duncan said.

Under the tiered structure in effect in the US, the royalty rate declines as sales increase and hits 1 percent when product sales exceed $4 billion. Outside the country Genentech has to pay a flat rate of 3 percent regardless of sales.

In its statement Wednesday, the company said it filed a complaint in the Second Judicial District of Nevada to enforce its rights under the 2003 settlement.

"(But) we have not yet served the complaint on Genentech," McLaughlin said, as "we hope that this disagreement will be resolved amicably."

JMP's Duncan expects the dispute to be resolved within the next 12 months.

PDL also forecast third-quarter revenue slightly above Wall Street estimates on higher sales of drugs that license its technology, including the ones involved in the ongoing patent dispute.

The company expects third-quarter revenue of about $86 million, compared with analysts' consensus estimate of $83.6 million for the period.

The company's shares, which have fallen 8 percent since the news of Genentech's patent letter, were trading up 5 cents at $5.72 Wednesday on Nasdaq. They touched a high of $5.77 earlier in the session. (Reporting by Krishnakali Sengupta and Rajarshi Basu in Bangalore; Editing by Anthony Kurian, Aradhana Aravindan)

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