Although the stock had a good run back in 2000 when it peaked just above $80, it has been below $20 recently. Many investors gave up on the company and were not willing to wait the years necessary for the company to bring a product to market, but they were shortsighted. While the company doesn’t have its own drug yet, it has been using its technology in partnership with other companies. They receive a royalty on drugs that are developed using their technology. One drug that has recently been approved is Avastin, which is a colorectal cancer drug developed by Genentech. While PDLI gets only a small royalty, it goes right to the bottom line.

PDLI is also working on their own pipeline. They have a few early stage drugs that are promising but it takes a long time to determine their value.

Q: Maybe you could describe a stock for which you had high expectation that did not work out, and, specifically, how you reacted to the situation?

A: Often times we do take a long-term approach and hold on to stocks even though they are not performing. But when it is clear that the company’s situation has changed, we don’t hesitate selling.

A good example would be American Italian Pasta. They are a pasta manufacturer, but don’t run restaurants. They recently gave guidance that their outlook had become cloudy due to the low carbohydrate diet craze. We had already starting questioning the potential impact of the craze, and the management warning was icing on the cake. We sold out. While we still believe in the company, we just felt that there was a better place for our clients’ money than waiting for the craze to end or for the company to reinvent itself.

Q: We are starting to see more and more success stories in the e-commerce and e-retailing space. Blue Nile is one example, but there are a number of other online companies that are having some success in the jewelry business. What are your views of online retailing and how do you evaluate the trends?

A: Five years ago everyone believed that online retailing would eat into the business of all the brick and mortar companies. That didn’t happen. Instead, many of the brick and mortar retailers have benefited by building very healthy online businesses that are adding profits to the bottom line.

If you look at companies like Williams Sonoma, this is the first year their online business is going to pass catalogue sales. So consumers have definitely become comfortable shopping over the Internet. There are a number of strictly Internet-based companies, like Amazon and Blue Nile, which have found a niche and successfully exploited it to the detriment of some brick and mortar retailers. But at this point, I can’t think of another sector that faces a big risk from an online startup.