Protein Design Labs Inc. is planning to replace old debt with new after gaining $250 million through the sale of convertible subordinated notes in a private placement.

Fremont, Calif.-based PDL said it might use up to $155 million of the net proceeds to redeem outstanding convertible notes.

"For our company, the primary impetus [for the offering] is consistent with an effort to reduce the cost of capital and to provide some additional flexibility in terms of financing the ongoing expansion of our manufacturing facilities," James Goff, PDL's senior director of corporate communications, told BioWorld Today. "The key thought is to continue to lower the cost of capital."

The company recently upgraded its manufacturing plant in Plymouth, Minn., to handle small commercial batches of products. Previously, the facility was used for clinical trial-sized batches. More ambitiously, PDL has begun construction nearby on a 210,000-square-foot plant to produce commercial-grade products. Scheduled for completion in three years, the Brooklyn Park, Minn., facility is projected to cost $190 million.

"It's a key element of our strategies going forward," Goff said. "We think that being able to control our own destiny in terms of manufacturing is a strategic advantage."

He added that PDL also would use the funds to acquire products and technologies and for other general corporate purposes, such as collateral for the first three years of interest payments on the notes.

Due in 2023, the notes will bear interest at an annual rate of 2.75 percent, payable semi-annually. The holders gained an option to convert the notes into PDL's common stock at a conversion price of about $20.14 per share, subject to adjustment in certain circumstances.

The initial conversion price represents a 33 percent premium over the Tuesday's $15.14 closing bid of the stock. On Wednesday, the company's stock (NASDAQ:PDLI) lost 32 cents to close at $14.82.

PDL also granted the buyers a 30-day option to purchase an additional $50 million in notes. Noteholders may require PDL to redeem their notes upon the occurrence of certain events, and PDL may elect to redeem the notes on or after Aug. 16, 2008.

As of March 31, PDL reported holdings of $592.2 million in cash, cash equivalents and marketable securities. The company, which reported quarterly net income of $4.1 million for the same period, had 90.2 million shares outstanding at the time.

In its pipeline, PDL is studying several products for inflammatory bowel disease. During the second quarter, the company began a randomized, double-blinded, placebo-controlled Phase II trial of daclizumab for ulcerative colitis. Another Phase II program is designed to evaluate HuZAF (anti-gamma interferon antibody) in two trials for Crohn's disease. Goff said PDL expects results in the first quarter of next year.

The company also is developing Nuvion (visilizumab), a humanized antibody for severe ulcerative colitis. PDL expects to begin a Phase I/II trial later this year to study lower doses of Nuvion in that indication.