UPDATE (09/19/2014): PDL BioPharma announced on Sept. 17 that its auditor Ernst & Young had resigned on Sept. 11. The audit firm has not been specific as to the reason for its resignation. And the fact that there has been no disagreements or citations in E&Y’s audit reports with respect to the veracity of the firm’s financial statements over the last 2 years  – adds to the difficulty in determining how investors might interpret this news. To date, there has been no reports of wrongdoing or any issues raised with respect to the firm’s financials. PDL BioPharma has said it will be actively looking for another auditor in the coming weeks. We will be  monitoring the situation closely, and have put the firm under review for a possible ratings change.

What most of us don’t know – or simply choose not to think about – is that we all probably have hundreds of cancers over the course of our lives but in most cases our immune systems destroy them before they take hold. Given the important role the immune system plays in fighting cancer the holy grail of cancer treatment is figuring out how to teach the immune system to fight cancers that slip past it, a field known as immunotherapy.

Immunotherapies targeting cancer are already in use and generated about $1.1 billion in revenue in 2012. The market is expected to grow to $9 billion by 2025, with annual average growth of 23.8% per year, as new immunotherapy products continue coming to market. Analysts at Citigroup believe that if you include all immunotherapy drugs the market will be worth closer to $35 billion a year by 2025. 

PDL BioPharma (NSDQ: PDLI) plays a major role in developing that technology by providing tools for other researchers to make advances of their own. A major benefit of PDL’s business model and its involvement in a cutting edge market is the generous payout it makes to investors: Its dividend yield is 6.3%.

Its quarterly dividend is 15 cents for a total annual payout of 60 cents. And because the payout is only about 36% of earnings, the dividend is unlikely to decline and that leaves plenty of room for future increases.

The company owns a portfolio of patents and licenses for making humanized anti­bodies. Antibodies are the basic building blocks of the human immune system, with each antibody coded by the immune system to fight a specific disease. Many of those antibodies can be produce in laboratories using mice, but our immune systems recognize these as invaders, so they must be “humanized” by reorganizing the mouse antibodies to look more human and trick our bodies into accepting them.

While there are several ways of doing that, PDL’s patents cover one of the most common. Several drug companies, including major outfits such as Roche, Genetech, Wyeth and Novartis have licensed PDL’s technology to produce block­buster drugs such as the cancer treat­ment Herceptin, the macular degenera­tive disease treatment Lucentis and the asthma drug Xolair. The technology is also used to produce Perjeta, a breast cancer treatment that was approved in mid-2013 and is widely predicted to become a new blockbuster drug with annual sales in excess of $1 billion.

Under the licensing agreements which allow other companies to use technology protected by PDL’s patents, PDL collects a sliding percentage of total sales of the drugs the technology helped to develop.

PDL’s revenues have grown an average of 8.5% over the past five years while earnings have skyrocketed by 28.7% over the same period. That rapid earnings growth is because PDL’s margins are so large, with operating margins in excess of 90% for the past three years. Since the technology behind PDL’s patents was developed more than 20 years and forms the basis on which future developments are made by others, PDL doesn’t do research-intensive work and its staff consists of only about a dozen employees.

PDL is also working to earn money from new technologies being developed that aren’t related to its antibody business. In 2011, it began providing financing to late-state healthcare companies in exchange for royalties on future products. It also buys bonds and notes from companies developing new technologies and drugs.

Analysts are bullish on the company’s growth, boosting their third quarter earnings estimates from 56 cents per share to 71 cents, a better than 40% increase over the same period last year. The full-year earnings per share outlook as also jumped from $2.22 to $2.44 over the past month, well above last year’s $1.89.

With its surging profitability in a rapidly advancing field of medicine, PDL is a low-risk play on a high growth market. The company is a Buy up to $14.