PDL BIOPHARMA, INC. PDL BIOPHARMA, INC. PDL BIOPHARMA, 2007 ANNUAL REPORT 2007 ANNUAL 1400 Seaport Blvd. Redwood City, CA 94063 Tel: 650-454-1000 Fax: 650-454-2000 ANNUAL REPORT www.pdl.com MANAGEMENT Transfer Agent and Registrar Stock Listing BNY Mellon Shareowner Services Our common stock trades on the NASDAQ L. Patrick Gage, Ph.D. P. O. Box 358015 Global Select Market under the symbol Interim Chief Executive Officer Pittsburgh, PA 15252-8015 “PDLI.” We had never declared any cash Richard Murray, Ph.D. dividends on our capital stock prior to or Executive Vice President and March 2008, when we declared a $4.25 480 Washington Blvd. Chief Scientific Officer per share of common stock dividend. Jersey City, NJ 07310-1900 We also announced in March 2008 that we Andrew Guggenhime Tel: 800-522-6645 (US) plan to spin off our biotechnology related Senior Vice President and 201-680-6578 (outside US) assets, which we intend to complete by Chief Financial Officer TDD for hearing impaired: the end of 2008, and that thereafter we Mark McCamish, M.D., Ph.D. 800-231-5469 (US) plan to distribute future antibody human- Senior Vice President and 201-680-6610 (outside US) ization royalty revenues, net of any operat- Chief Medical Officer www.bnymellon.com/shareowner/isd ing expenses, debt service and income Jaisim Shah Independent Auditors taxes, to our stockholders. Senior Vice President, Marketing Ernst & Young LLP Price Range of Common Stock and Business Affairs Palo Alto, CA As of March 31, 2008, we had approxi- Francis Sarena Corporate Counsel mately 242 common stockholders of record. Because brokers and other Our antibody humanization technology has Executive Director, DLA Piper US LLP institutions hold many of these shares on Chief Legal Officer and Secretary San Francisco, CA made possible nine life–changing medicines. behalf of stockholders, we are unable to We’re currently focused on leveraging our BOARD OF DIRECTORS Annual Meeting estimate the total number of stockhold- 2008 Annual Meeting of Stockholders will ers represented by the record holders, but core expertise to discover and develop a new Karen A. Dawes be held on May 28, 2008 at 9 a.m. at PDL we believe that they are well in excess of L. Patrick Gage, Ph.D. stream of innovative antibody products tar- BioPharma, 1400 Seaport Blvd., Redwood record holders. The following table sets geting oncology and immunologic diseases, Brad S. Goodwin City, CA 94063 forth the quarterly high and low bid prices Joseph Klein III while we work to optimize the value of our for a share of PDL common stock for the Laurence Jay Korn, Ph.D. CORPORATE GOVERNANCE fiscal years ended December 31, 2006 and successful antibody humanization royalties. Richard Murray, Ph.D. DOCUMENTS 2007, as reported by the NASDAQ Global Jon S. Saxe, Esq. PDL’s corporate governance guidelines, Select Market. annual report, SEC filings, and code of CORPORATE INFORMATION conduct for directors, officers (including 2006 High Low Corporate Headquarters our principal executive officer, principal Q1 $ 33.30 $ 27.15 1400 Seaport Blvd. financial officer and principal accounting Q2 $ 32.97 $ 16.79 Redwood City, CA 94063 officer) and employees can be obtained Q3 $ 19.95 $ 16.39 Tel: 650-454-1000 free on our website at www.pdl.com. Q4 $ 23.29 $ 18.70 Fax: 650-454-2000 Additionally, stockholders may receive www.pdl.com copies upon request to: 2007 High Low Corporate and Investor Relations Q1 $ 21.69 $ 18.78 PDL BioPharma, Inc. Q2 $ 27.46 $ 23.02 1400 Seaport Blvd. Q3 $ 24.16 $ 20.23 Redwood City, CA 94063 Q4 $ 21.31 $ 17.72 Tel: 650-454-1508 Fax: 650-454-2000 Design: Helene Sherlock l Photograph: Kingmond Young LETTER TO OUR STOCKHOLDERS May 2008 The past year has been one of tremendous change for PDL BioPharma, marked by a series of events that, by the end of 2008, should result in two separate public companies: a streamlined antibody–focused bio- technology organization that we plan to spin-o from PDL BioPharma, and the current company, which will administer the successful antibody humanization royalties. We believe these two separate companies would enable investors to realize the full value of each of PDL BioPharma’s current assets. Our decisions and actions in 2007 were aimed at optimizing the value of each of our core assets. First, we recognized the need for our Board of Directors and management to undertake a thorough strategic review process. As a result, we rst concluded that our commercial products were no longer a strategic t for the company, and we began a process to sell these assets. We subsequently decided also to seek buyers for the company as a whole or for our other individual assets – a decision we felt could deliver additional value for our stockholders. By the end of 2007, we were pleased to announce an agreement to sell our oncology product, IV Busulfex, to Otsuka Pharmaceuticals. In early 2008, we then announced an agreement to sell our commercial and cardiovascular assets, consisting of product rights to Cardene, Retavase and ularitide, to EKR Therapeutics. Shortly thereafter, we entered into an agreement to sell our large–scale manufacturing facility to Genmab. We determined that each transaction re ected the value of the particular asset and provided the best return for our stockholders in light of other alternatives. In total, these three transactions pro- vided initial proceeds of over $500 million in cash, which we subsequently announced would be returned to stockholders through a special cash dividend. In March 2008, we ended the formal sale process for the company and announced a restructuring to focus on our core expertise in antibody discovery and development. As we then assessed our remaining core assets – our biotechnology operations and our royalty stream – we determined that separating them would best enable our stockholders to realize their values fully and independently. To achieve this separation, in April 2008, we announced our intent to spin o the bio- technology component of our business from our antibody humanization royalty stream. This transaction is anticipated to occur by the end of 2008. Following the spin-o of the biotechnology operations, PDL BioPharma would retain rights to the an- tibody humanization royalty revenues from all current and future licensed products. These include the products on which PDL currently generates royalties, which totaled $221 million in revenues for the full year of 2007. We look forward to additional potential royalties from one recently approved product and another in registration, and there are many more in various stages of development that could contribute to growth of this royalty stream prior to the expiration of our humanization patents in 2014. In parallel to the spin–o process, we are pursuing e orts to sell or otherwise monetize some or all of the value of the antibody humanization royalties, and we believe our plan to separate them from our biotech- nology assets enhances our ability to e ect such a transaction. Subsequent to the spin–o , PDL intends to distribute future royalty revenues, net of any operating expenses, debt service and income taxes, to stockholders. As a separate public company, our streamlined biotechnology operations would continue to focus on the discovery and development of innovative antibodies in the areas of oncology and immunology. We will apply our experience and knowledge in novel target identi cation and antibody engineering to create new therapies, extending our current pipeline of promising antibody product candidates. We are also excited about leveraging our core antibody technologies with breakthrough protein engi- neering approaches to optimize antibody therapeutics. Such capabilities form the backbone for our biotechnology operations and suggest a stream of antibody candidates for our development pipeline going forward. Of course, the more visible area of value creation for the new company in the near term will be advance- ment of our clinical candidates, led by daclizumab in multiple sclerosis (MS) and other immunologic dis- eases such as asthma. Results from PDL-designed and -executed placebo-controlled phase 2 clinical trials of daclizumab in MS and in asthma met their primary endpoints, and we are advancing this promising antibody in both areas of signi cant unmet need. We are pleased to continue to work on the MS program with Biogen Idec, the leader in this therapeutic eld. We also continue to work with them on volociximab, our antibody currently being tested in ovarian and lung cancers. Two additional innovative antibodies from our discovery research are in earlier stages of development. HuLuc63 is in phase 1 evaluation for multiple myeloma, and during 2008, we plan to extend the program with combination therapy trials and fully explore the antibody’s potential in other disease areas. PDL192 is another exciting “ rst-in-class” antibody that we plan to advance into clinical development in 2008. PDL192 has demonstrated compelling activity in preclinical solid tumor models, the data for which were rst presented to the scienti c community in the spring of 2008, and we look forward to moving this important program ahead in the coming years. Now that we’ve set our strategic course, our focus turns to the implementation of a timely and smooth spin-o transaction. A key objective is to determine the leadership, including new CEOs for PDL and for the biotechnology company post-separation. As our planning continues during the year, we intend to update you with additional details regarding the structure, leadership, and nancial operations of both companies. We would like to close with our sincere thanks to our stockholders, employees, and partners without whose support we would not be able to move forward successfully on our stated path.