This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "believes," "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including the risk factors set forth below, and for the reasons described elsewhere in this report. All forward-looking statements and reasons why results may differ included in this report are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

OVERVIEW

We are a biotechnology company focused on the discovery and development of novel antibodies in oncology and immunologic diseases. We receive royalties and other revenues through licensing agreements with biotechnology and pharmaceutical companies based on our proprietary antibody humanization technology platform. The technology subject to these licensing agreements has contributed to the development by our licensees of a number of marketed products. We currently have several investigational compounds in clinical development for oncology and immunologic diseases, two of which we are developing in collaboration with Biogen Idec MA, Inc. (Biogen Idec) and one of which we are developing in collaboration with Bristol-Myers Squibb Company (BMS). Our research platform is focused on the discovery of novel antibodies for the treatment of cancer and immunologic diseases.

During the period from March 2005 through early March 2008, we marketed and sold acute-care products in the hospital setting in the United States and Canada. We acquired the rights to three of these products, Cardene IV®, IV Busulfex® and Retavase®, which are non-antibody-based products, in connection with our acquisitions of ESP Pharma, Inc. as well as the rights to Retavasein March 2005. We subsequently acquired the rights to Cardene SR® in September 2006. These commercial products (together, the Commercial and Cardiovascular Assets) and the related operations (the Commercial and Cardiovascular Operations) were fully divested during the first quarter of 2008. We recognized a pre-tax loss of $64.6 million in connection with the sale of the Commercial and Cardiovascular Assets, which is presented within discontinued operations, during the nine months ended September 30, 2008. In August 2008, EKR Therapeutics, Inc. (EKR), which acquired certain of our Commercial and Cardiovascular Assets, received approval from the U.S. Food and Drug Administration (FDA) for a pre-mixed bag formulation of Cardene. Under the terms of the purchase agreement, we received a $25 million milestone payment from EKR as a result of this approval.

In March 2008, we sold our Minnesota manufacturing facility and related operations to an affiliate of Genmab A/S (Genmab), for total cash proceeds of $240 million. Under the terms of this agreement, Genmab acquired our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets therein, and assumed certain of our lease obligations related to our facilities in Plymouth, Minnesota (together, the Manufacturing Assets). In connection with this transaction, under the terms of a clinical supply agreement, Genmab agreed to produce clinical material for certain of our pipeline products until March 2010.

Also during March 2008, in an effort to reduce our operating costs to a level more consistent with a biotechnology company focused on antibody discovery and development, we commenced a restructuring plan pursuant to which we eliminated approximately 120 employment positions in the first quarter of 2008 and would eliminate approximately 130 additional employment positions over the subsequent 12 months (the Transition Employees). We offered these 130 Transition Employees and the approximately 300 employees that we expected to retain after the restructuring, retention bonuses and other incentives to encourage these employees to stay with the Company until the Spin-off of our biotechnology assets (see below) or with the Spin-off company after the separation transaction. In connection with this overall restructuring effort, we expect to incur significant transition-related expenses through March 2009, a portion of which will be recognized as restructuring charges.

In April 2008, we announced our intent to spin off our biotechnology assets and related operations (the Biotechnology Business) into a separate publicly traded entity apart from our antibody humanization royalty assets (the Spin-off) by the end of 2008. In the event that the Spin-off does occur, we expect to retain the rights to antibody humanization royalty revenues from current and future licensed products and plan to distribute this income to our stockholders, net of any operating expenses, debt service and income taxes. Subsequent to the potential Spin-off, we plan to have only a nominal number of employees to support our intellectual properties, manage our related licensing operations and provide for certain essential reporting and management functions of a public company. In connection with this process, we organized Facet Biotech Corporation (Facet Biotech), a wholly-owned subsidiary of PDL, which filed an initial Registration Statement on Form 10 with the Securities and Exchange Commission (SEC) during the third quarter of 2008. We will continue to fund Facet Biotech's operations through the Spin-off date, and we would transfer our biotechnology assets to Facet Biotech at the time of the Spin-off. We expect to capitalize Facet Biotech with approximately $405 million in cash at the completion of the Spin-off transaction, which we expect will occur in December 2008.

Subsequent to the Spin-off, we intend to continue to operate as an independent, publicly traded Delaware company, but we plan to relocate our corporate headquarters and ongoing business operations to a new location outside California. Currently, we are evaluating potential locations that would meet our ongoing business needs while also providing a more favorable cost structure.

In parallel with our Spin-off preparations, we also had been evaluating opportunities to monetize our antibody humanization royalty assets through a potential sale or securitization transaction; however, primarily due to current market conditions, we are not currently pursuing a monetization transaction, but will continue to evaluate whether such a transaction in the future is in the best interests of our stockholders. Absent a monetization transaction, as previously announced, we expect to distribute our income, net of operating expenses, debt service and income taxes, to our stockholders.

In April 2008, we declared a special cash dividend of $4.25 per share of common stock (the Dividend), which was paid in May 2008 using the proceeds from the sale of the Commercial and Cardiovascular Assets and the Manufacturing Assets. Based on the total shares outstanding as of the May 5, 2008 record date, the total Dividend was expected to be $507.0 million, of which $506.4 million was paid in May 2008. The remaining $0.6 million unpaid portion of the Dividend related to the dividend payable on employee restricted stock awards that were unvested as of the date of the Dividend and would be paid to employees when and if they vest in the underlying restricted stock awards. Through September 30, 2008, we had paid out $0.2 million upon vesting of restricted stock awards, and had reversed $0.1 million of the accrual as a result of forfeitures of restricted stock awards prior to vesting.

In August 2008, we entered into a collaboration agreement with BMS for the joint development, manufacture and commercialization of elotuzumab in multiple myeloma and other potential oncology indications. Under the terms of the agreement, BMS has an option to expand the collaboration to include PDL241, another anti-CS1 antibody, upon completion of certain pre-agreed preclinical studies currently underway. In connection with the closing of this agreement in September 2008, we received an upfront cash payment of $30 million from BMS, and we are eligible to receive development and commercialization milestones based on the further successful development of elotuzumab and, if it is included in the collaboration, PDL241. See Collaborative and Strategic Agreements for further details on the agreement.

In September 2008, we announced the appointment of Mr. Faheem Hasnain as our new president and chief executive officer (CEO), effective October 1, 2008. If the Spin-off does occur, Mr. Hasnain will become president and CEO of Facet Biotech.

In November 2008, we announced the appointment of John P. McLaughlin to become president and CEO of PDL following the planned spin-off of Facet Biotech. Following the planned spin-off, Mr. McLaughlin will lead the remaining royalty company, which will continue to operate under the PDL BioPharma name.

We were organized as a Delaware corporation in 1986 under the name Protein Design Labs, Inc. In 2006, we changed our name to PDL BioPharma, Inc.

Research and Development Programs

We have several antibodies in various stages of development for cancer and immunologic diseases. The table below lists the antibodies for which we are pursuing development activities either on our own or in collaboration. These product candidates are at early stages of development. None of our product candidates have been approved by the FDA and none of them have been commercialized. Not all clinical trials for each product candidate are listed below. As part of our transition services agreement with EKR, which purchased the rights to Cardene, Retavase and ularitide, including all trademarks, patents, intellectual property, inventories and related assets in March 2008, we continue to provide research and development services for certain life cycle management activities for Cardene. Under this agreement, EKR reimburses us for all costs and

expenses incurred in connection with these activities, all of which have been reflected as discontinued operations. As this is no longer an on-going PDL-sponsored program, we have excluded Cardene from the table below. The development and commercialization of our product candidates are subject to numerous risks and uncertainties, as noted in our "Risk Factors" in this Quarterly Report.

                                                            Phase of
Product Candidate         Description/Indication           Development          Collaborator

Daclizumab                Multiple sclerosis        Phase 2                     Biogen Idec
                          Transplant maintenance    Initiation of phase 2            -
                                                    being evaluated
Volociximab (M200)        Solid tumors              Phase 1 and phase 2         Biogen Idec
Elotuzumab (HuLuc63)      Multiple myeloma          Phase 1                         BMS
PDL192                    Solid tumors              Phase 1
PDL241                    Immunologic deseases      Preclinical                      *
Other preclinical         Onclogy/Immunology        Multiple candidates under
research candidates                                 evaluation

Daclizumab. Daclizumab is a humanized monoclonal antibody that binds to the alpha chain (CD25) of the interleukin-2 (IL-2) receptor on activated T cells, which are white blood cells that play a role in inflammatory and immune-mediated processes in the body. Daclizumab is the active component of the drug Zenapax, which has been approved for acute transplant rejection and has been marketed by Hoffman La-Roche (Roche).

Beyond transplant induction therapy, we believe that this antibody mechanism has potential in a number of inflammatory diseases, including multiple sclerosis and as maintenance therapy in patients who have undergone organ transplant. We have created a new high-yield manufacturing process and a higher concentration formulation required to move daclizumab into chronic treatment of these immunological diseases. Currently, we have a worldwide strategic development collaboration for daclizumab with Biogen Idec in multiple sclerosis and other immunologic disease areas in which we share development costs and commercial rights. Outside of the Biogen Idec collaboration, we wholly own the rights for daclizumab in respiratory and transplant maintenance indications.

Daclizumab in Multiple Sclerosis:

We and our partner, Biogen Idec, are currently testing daclizumab as a monotherapy for relapsing multiple sclerosis in a phase 2 study. In 2007, we and Biogen Idec announced that the CHOICE trial, a phase 2, randomized, double-blind, placebo-controlled trial of daclizumab conducted in 270 patients, met its primary endpoint in relapsing MS patients being treated with interferon beta. These data showed daclizumab administered at 2 mg/kg every two weeks as a subcutaneous injection added to interferon beta therapy significantly reduced new or enlarged gadolinium-enhancing lesions at week 24 compared to interferon beta therapy alone. We and Biogen Idec continue to evaluate the results of the CHOICE study to help further inform the development of daclizumab for multiple sclerosis.

In the first quarter of 2008, we and Biogen Idec initiated a phase 2 monotherapy trial of daclizumab, the SELECT trial, to advance the overall clinical development program in relapsing MS. This trial is currently ongoing. Results of this study will further guide the potential later stage development of daclizumab in which we anticipate Biogen Idec will play a lead role, leveraging their experience in the commercialization of treatments for multiple sclerosis.

Daclizumab in Asthma:

We have previously conducted a phase 2 double-blind placebo controlled clinical trial for daclizumab in patients with moderate to severe asthma. In connection with our ongoing portfolio review process, commercial evaluation and discussions with the FDA, we have decided to no longer pursue development of daclizumab in this indication at this time.

Daclizumab in Transplant Maintenance: A potential extension of daclizumab clinical use is in transplant maintenance. Data from various studies have suggested a role for daclizumab in this indication, and we are evaluating opportunities and potential next steps for this program.

Volociximab (M200). Volociximab is a chimeric monoclonal antibody that inhibits the functional activity of a5ß1 integrin, a protein found on activated endothelial cells. Blocking the activity of †5ß1 integrin has been found to prevent angiogenesis, which is the formation of new blood vessels that feed tumors and allow them to grow and metastasize.

We believe that volociximab may have potential in treating a range of solid tumors and that its role in angiogenesis may also aid in the treatment of age related macular degeneration (AMD). Currently, we have a worldwide strategic development partnership with Biogen Idec for volociximab in oncology. We and Biogen Idec also have an out-licensing agreement with Ophthotech Corporation for its development in AMD.

Volociximab in Solid Tumors: We and our partner, Biogen Idec, are currently investigating volociximab in various open-label clinical trials in patients with advanced solid tumors. This includes phase 1-2 and phase 1 clinical trials in ovarian and non-small cell lung cancer. Previously, we had conducted studies of voloxicimab in third-line ovarian cancer, pancreatic cancer, renal cell carcinoma and melanoma. These data and associated analyses have contributed to our understanding of the mechanism and safety profile of voloxicimab, and we are applying this knowledge to our ongoing programs. We plan to continue to evaluate the data from our ongoing studies and collaborate with Biogen Idec on the future development plans for this antibody.

Volociximab in Eye Disorders: We and Biogen Idec have licensed voloxicimab for ophthalmic indications to Ophthotech for various milestones and eventual royalties on potential product sales.

Elotuzumab (HuLuc63). Elotuzumab is a humanized monoclonal antibody that binds to CS1, a cell surface glycoprotein that is highly expressed on myeloma cells but minimally expressed on normal human cells. Elotuzumab also may induce anti-tumor effects through antibody-dependent cellular cytotoxicity (ADCC) activity on myeloma cells. We believe elotuzumab has significant potential as a targeted therapy for multiple myeloma.

Elotuzumab is currently in phase 1 clinical studies as both a monotherapy in relapsed refractory patients and combination therapy as a second line treatment in patients with multiple myeloma. We have previously published early results from the ongoing monotherapy study reflecting early pharmacokinetic (PK) and tolerance data. We also published strong preclinical data supporting the use of elotuzamab in combination with other agents. In July 2008, we initiated a phase 1 combination trial of elotuzumab with Revlimid® (lenalidomide) in patients with multiple myeloma. Two additional trials are ongoing, one of elotuzumab in combination with Velcade® (bortezomib) and a second trial of elotuzumab as a monotherapy in this same patient population.

Preclinical data from our elotuzumab program are suggestive of the anitibody's biologic activity. Our scientific rationale supporting the development of this antibody includes potent reduction of human multiple myeloma tumors in animal models, destruction of multiple myeloma cells directly from patients, and an extensive analysis of the target for elotuzumab, CS1, which is highly expressed in almost all cases of multiple myeloma independent of stage of prior therapy.

In August 2008, we entered in to a collaboration agreement with BMS for the joint development, manufacture and commercialization of elotuzumab in multiple myeloma and other potential oncology indications. See Collaborative and Strategic Agreements for further details on the agreement.

PDL192. PDL192 is a humanized monoclonal antibody that binds to the TWEAK (tumor necrosis factor-like weak inducer of apoptosis) receptor (TweakR), also known as Fn14 or TNFRSF12A, a cell surface glycoprotein with homology to the family of tumor necrosis factor (TNF) receptors. PDL192 appears to have dual mechanisms of action, where the binding to the target results in a biological signal detrimental to the cancer cell. In addition, PDL192 may be able to recruit the immune system to also mediate ADCC activity to help destroy the tumor. Our scientists have demonstrated that TweakR is over-expressed in a number of solid tumor indications including pancreatic, colon, lung, renal, breast and head and neck cancers, and ongoing scientific work will help prioritize those tumors for therapeutic testing. In preclinical studies, PDL192 also has been shown to significantly inhibit tumor growth of various models of human cancer in mice. We filed the IND for PDL192 in the second quarter of 2008 and have initiated a phase 1 dose escalation program in solid tumors.

PDL241. PDL241 is a novel humanized monoclonal antibody that also binds to the CS1 glycoprotein but to a different region compared to elotuzumab. We believe PDL241 may have potential in immunologic diseases. We are currently conducting preclinical toxicology and IND-enabling studies for this lead preclinical candidate which we hope to advance into the clinic. Preclinical data including its target and potential mechanism will be made available in conjunction with any future IND filing for this antibody. Under the terms of our collaboration agreement with BMS to develop elotuzumab, BMS has an option to expand the collaboration to include the PDL241 antibody upon completion of certain pre-agreed preclinical studies.

Preclinical research candidates. We are currently evaluating a series of discovery-stage antibody and target combinations, as well as multiple next-generation antibodies, for their suitability to progress into the clinic. Our goal is to continue to characterize a pool of novel and next generation antibodies, from which we can advance the most promising candidates into clinical development.

Technology Outlicense Agreements

We have licensed and will continue to offer to license our humanization patents in return for license fees, annual maintenance payments and royalties on product sales. The humanized antibody products listed below are currently approved for use by the FDA and are licensed under our patents.

Licensee                                        Product Name
Genentech, Inc. (Genentech)                     Avastin™
                                                Herceptin®
                                                Xolair®
                                                Raptiva®
                                                Lucentis®
MedImmune, Inc. (a subsidiary of AstraZeneca)   Synagis® (1)
Wyeth                                           Mylotarg®
Elan Corporation, Plc (Elan)                    Tysabri®
Roche                                           Zenapax® (2)

(2) Roche is obligated to pay us royalties on Zenapax only once product sales have reached a certain threshold; we have not received royalties on sales of Zenapax since the first quarter of 2006 and we do not expect to receive royalty revenue from Roche's sales of Zenapax in the future.

In our quarterly report on Form 10-Q for the period ended June 30, 2008, we disclosed that we expected to receive royalty revenues from UCB S.A. (UCB) on sales of UCB's Cimzia®antibody product beginning in the third quarter of 2008. We believe that these royalty revenues are due under the Patent License Agreement, effective October 19, 2001 (the "Celltech License Agreement"), that we entered into with Celltech Therapeutics Limited ("Celltech"), which was acquired by UCB. Under the Celltech License Agreement, we licensed to Celltech certain rights under our Queen et al patents. On September 15, 2008, UCB informed us that it has taken the position that its Cimzia product does not infringe the Queen et al. patents and, therefore, does not intend to pay to us royalties under the Celltech License Agreement on sales of the Cimziaproduct.

We intend to continue to defend and enforce our rights under the Queen et al patents and to enforce our rights under the Celltech License Agreement.

Collaborative and Strategic Agreements

We have a collaboration agreement with Biogen Idec for the joint development, manufacture and commercialization of daclizumab in MS and indications other than transplant and respiratory diseases, and for shared development and commercialization of volociximab (M200) in all indications. Under our collaboration agreement with Biogen Idec, we share equally the costs of all development activities and, if any of the products are commercialized, all operating profits. If the products under our collaboration with Biogen Idec are successfully developed in multiple indications and all milestones are achieved, the agreement with Biogen Idec provides for development, regulatory and sales-based milestone payments totaling up to $660 million. Of this amount, the agreement provides for $260 million in development and regulatory milestone payments related to daclizumab and $300 million in development and regulatory milestone payments and $100 million in sales-based milestone payments related to volociximab. To date, we have received $10 million of these milestone payments under our collaboration with Biogen Idec.

In August 2008, we entered into a collaboration agreement with BMS for the joint development, manufacture and commercialization of elotuzumab in multiple myeloma and other potential oncology indications. Under the terms of the agreement, BMS has an option to expand the collaboration to include the PDL241 antibody upon the completion of certain pre-agreed preclinical studies. In connection with the closing of this agreement in September 2008, we received an upfront cash payment of $30 million from BMS, and we are eligible to receive development and commercialization milestones based on the further successful development of both elotuzumab and PDL241, if it is included in the collaboration. If BMS exercises its option to expand the collaboration to include PDL241, we would receive an additional cash payment of $15 million upon such exercise.

Under the terms of our collaboration agreement with BMS, BMS funds 80% of the worldwide development costs and we fund 20%. The companies would share profits on any U.S. sales of elotuzumab, with us receiving a higher portion of the profit share than represented by our 20% share of development funding. Outside the United States, we would receive royalties on net sales. In addition, we could receive additional payments of up to $480 million based on pre-defined development and regulatory milestones and up to $200 million based on pre-defined sales-based milestones for elotuzumab in multiple myeloma and other potential oncology indications. If BMS exercises its option to expand the collaboration to include PDL241, we could receive additional payments of up to $230 million based on pre-defined development and regulatory milestones and up to $200 million based on pre-defined sales-based milestones. The same division of development costs and profit sharing that apply to elotuzumab would apply to PDL241.

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