PDL BioPharma Inc. disclosed a plan that would take it from a commercial operation back to a development-stage company, and with the news, reported the failure of its lead development candidate.

The Fremont, Calif., company said it will sell its commercial assets, consisting of cardiovascular products that generated revenues of $187.2 million in the 12-month period that ended June 30. And it discontinued development of the pivotal Phase III program for the monoclonal antibody Nuvion (visilizumab) in ulcerative colitis, due to insufficient efficacy and an inferior safety profile compared to intravenous steroids alone.

Along with the reorganization, PDL expects a "sizeable" work force reduction, in addition to the elimination of the 250 employees who support the commercial cardiovascular products once the sale of those assets is completed.

PDL now has 1,192 employees. Employee-reduction totals will be determined following a review this fall, a PDL official said.

The cardiovascular programs to be sold include the marketed products Cardene, Retavase and IV Busulfex - brought in through PDL's $475 million acquisition of ESP Pharma Inc. in March 2005 - and ularitide, a synthetic form of a natriuretic peptide that is in Phase II development in acute decompensated heart failure.

PDL's stock (NASDAQ:PDLI) fell $4.80 Wednesday, or 20.3 percent, to close at $18.80, reducing the company's market capitalization to about $2.2 billion.

The company had cash and equivalents of $436 million as of June 30.

PDL officials said the divestment and employee cutbacks are designed to move the company's focus to discovery and development of antibodies for treating cancers and certain immunological diseases. It said the action came after a months-long review of its business and product portfolio that concluded the cardiovascular products are no longer a good fit, both in terms of the longer timeline now expected to gain approval of pipeline products and for the company's planned direction.

Kimberly Lee, a biotechnology analyst at Pacific Growth Equities LLC, said there remains uncertainty and risk in the company's pipeline and in its management.

PDL announced Aug. 20 that CEO Mark McDade would be resigning by the end of the year, a decision he made after he was cleared in an internal investigation of alleged improper personal conduct and breach of fiduciary duty. The company also has been subject of disgruntled shareholders, who brought certain allegations against McDade, while its largest shareholder has called for the sale of the company.

"It's good they are doing something about their situation," Lee told BioWorld Today. "There's been a lot of shareholder activism. They need to refocus and figure out how they are going to spend their money and bring shareholder value back. So in that way," she said, the changes are positive, although questions remain surrounding management and a now-thinner pipeline.

The end of the Nuvion Phase III program, which included the RESTORE 1 and 2 studies, came after a review by a data monitoring committee discovered the unfavorable efficacy and safety data.

Those studies were being run in patients with intravenous steroid-refractory ulcerative colitis. The RESTORE 2 trial was initiated in July, following a positive review by data monitors in April of the Phase II portion of the Phase II/III RESTORE 1 trial.

Separately, Nuvion is being tested in a Phase II trial in Crohn's disease. PDL is partnered with Biogen Idec Inc. in development of the Phase II antibody daclizumab for multiple sclerosis.

Also in the PDL pipeline are volociximab, an anti-alpha5beta1 integrin antibody that is in open-label Phase II trials in solid tumors; HuLuc63, a humanized antibody that binds to CS1 that is in Phase I trials in multiple myeloma; oncology product PDL 192 in preclinical development; and several research-stage candidates.

PDL said it planned to provide an update on plans for its R&D programs in mid-November.

PDL hired Merrill Lynch & Co. to advise it on the sale of the cardiovascular products, which generated sales of $49 million in the second quarter. PDL's second-quarter revenue total of $138 million also included about $80 million in royalty payments from sales of nine products that incorporate its antibody technology - including Avastin, Herceptin, Xolair, Raptiva and Lucentis from Genentech Inc. - and about $9 million from licensing and other revenues.

Lee placed a value of about $400 million on the ularitide product and $220 million on the marketed products gained through the ESP acquisition. PDL has said it planned to find a partner before beginning Phase III trials of ularitide in Europe.

Lee, along with a few other analysts, downgraded PDL's stock following the Nuvion setback and reorganization plan. She changed her recommendation from "buy" to "neutral," and lowered the stock's value to $21 from $29.

Biotech analyst Joel Sendek at Lazard Capital Market maintained a "buy" rating on the stock but reduced his price target to $25 from $30. The bulk of the value for both Sendek and Lee was placed on the royalty stream, at $16 and $15 per share, respectively.