QLT pins company hopes on tiny plug

Every week Techvibes will be republishing an article from Business in Vancouver newspaper.

This article was originally published in issue #1042 – Oct. 13 – Oct. 19, 2009.

In a bid to reinvent itself and regain its status as B.C.’s most profitable biotech company, QLT Inc. is betting its future on a tiny plug less than two millimetres long.

On October 1, QLT (TSX:QLT; Nasdaq:QLTI) sold its U.S subsidiary in a stock-purchase deal worth up to US$230 million.

It was the last of a number of assets it put up for sale in 2008 to pay debt, boost shareholder value and focus its development energies on its punctal plug.

QLT will initially receive US$30 million from the sale of QLT USA and up to US$200 million in royalties, depending on sales of Eligard, a prostate-cancer treatment that has been QLT’s biggest seller in recent years.

QLT now has US$195 million in cash, which, when combined with the quarterly royalties it will receive from Eligard sales, provides the company with enough capital to bury its head in the lab for a number of years.

“We’re a small ocular-focused company now, which is what we wanted to be,” QLT’s president and CEO Bob Butchofsky said of the company’s year-long divestment process.

Eligard sales had largely offset the sales decline of QLT’s Visudyne, a treatment for macular degeneration, which is the leading cause of blindness in the elderly. Visudyne at one time was generating up to US$480 million annually, making QLT B.C.’s most profitable biotech company.

However, sales of Visudyne have continued to erode over the years as new competitors entered the market.

Worldwide sales of Visudyne were US$141.9 million in 2008.

In need of a new product, QLT acquired its punctal-plug program in 2007 in a $42 million acquisition of a California company.

The program, which involves the use of a plug that can be inserted into tear ducts to administer drugs to the eye, is still years away from receiving market approval, but it has shown promise in human clinical trials.

An optometrist or ophthalmologist can insert the 1.45-mm-long plugs into a patient’s tear duct in an office setting in minutes. They could potentially replace eye drops required to treat patients with such ailments as glaucoma, post-surgery inflammation and ocular allergy.

The plugs administer drugs to the eye over a 90-day period and eliminate the need for patients to apply treatments via eyedroppers.

Butchofsky noted that studies have shown that 50% of glaucoma patients fail to keep up with their eye-drop regimen after six months of treatment.

“People are needlessly losing their vision because they don’t like taking their eye drops,” said Butchofsky, noting that elderly patients in particular find it difficult to administer drops.

The punctal plugs are in Phase 2 clinical trials in combination with Latanoprost, which had sales of more than US$1 billion last year as a drop-administered treatment for ocular hypertension and glaucoma.

While the punctal plugs have not been approved as a drug-delivery system, they are currently used to block tear outflow in people suffering from dry eye.

Butchofsky said that in the best-case scenario QLT could enter the last phase of clinical trials in 2011 and file for regulatory approval in the United States in 2012.

QLT’s biggest hurdle is overcoming the plugs’ space constraints.

“That’s the secret sauce of this delivery technology,” said Butchofsky. “How do you get enough drugs to last 90 days in that small amount of space?”

In a note to clients following the sale of QLT USA, Douglas Miehm, an analyst with RBC Dominion Securities Inc., said the punctal-plug program continues to progress but it’s still too early in its development to demand much in value.

He maintained a sector perform rating for QLT, but suggested that investors take a “wait and see” approach until the likelihood of success of the punctal-plug technology is more evident and the lawsuit that QLT is entangled in involving a Massachusetts-based hospital has been resolved.

The plugs, in combination with Latanoprost, have shown positive results in 90-day human trials, but the company is upping the drug dosage to improve results.

QLT has competition from Vistakon Pharmaceuticals LLC, which is also testing a glaucoma treatment using punctal plugs.

Butchofsky nonetheless believes that – if QLT can get the dosage right – sales of its glaucoma treatment could surpass peak sales of Visudyne.