QLT's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Executives

Karen Peterson – IR Specialist

Robert Butchofsky – President and CEO

Cameron Nelson – VP, Finance and CFO

Analysts

Scott Henry – Roth Capital Partners

Steve (Ewe) – Leerink Swann

Phillippa Flint – Bloomberton

QLT, Inc. (QLTI) Q1 2012 Earnings Call May 3, 2012 8:30 AM ET

Operator

Hello. This is the Chorus Call Conference operator. Welcome to the QLT, Inc. First Quarter 2012 conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Karen Peterson, Investor Relations Specialist. Please go ahead.

Karen Peterson

Good morning, everyone, and welcome to QLT’s first quarter 2012 earnings conference call. If you have not yet received a copy of our press release, you can find it by visiting our website at www.qltinc.com. The conference call is being webcasted live and will be available on our website for the next 30 days.

Presenting today is Bob Butchofsky, our president and CEO and Cameron Nelson, Senior Vice President and Chief Financial Officer.

Before I turn the call over to Bob, let me review the Safe Harbor statement. On behalf of the speakers who follow, we caution investors that certain statements in this conference call are forward-looking statement within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and constitute forward-looking information within the meaning of Canadian Securities Laws.

For the purposes of this caution, we refer to such statements as forward-looking statements. Forward-looking statements are predictions, only which involve known and unknown risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied to making forward-looking statements and actual results may differ materially from those expressed or implied in such statements.

For additional information about the material factors or assumptions underlying such statements and about the material factors that may cause the actual results to vary from those expressed or implied in such statements, please consult our earnings press release, sent out early this morning and available on our corporate website as well as our filings with the U.S. Securities and Exchange Commission and the Canadian Securities Regulatory Authorities, including the risk factors detailed in the most-recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. QLT undertakes no obligation to update such information to reflect later events or developments, except as required by law.

This call also includes a discussion of non-GAAP financial measures as defined by applicable securities laws. Additional information concerning our presentation of non-GAAP financial measures has been included in the earnings press release issued today and posted on our website.

And with that, I’ll turn the call over to Bob.

Robert Butchofsky

All right, thanks a lot, Karen. Good morning, everyone, and thank you for joining us on our first quarter 2012 conference call.

I’ll start off with our financial results for the quarter, which were very much in line with our overall expectations. Broadly, Visudyne sales and increased R&D spending were consistent with the guidance we gave in February.

Overall, the main financial metric to highlight is the $3 million adjusted EBITDA loss. And in spite of that, our cash balance increased to $207 million because we received the final $6 million Canadian mortgage payment on our corporate headquarters that we sold just before the financial crisis in 2008.

Cam will walk you through the financials in more detail later on in the call, so I’m really going to spend most of my time this morning providing updates to our development pipeline, starting first with the review of the Synthetic Retinoid Program, followed by the Punctal Plug Delivery Program, and then a short discussion on Visudyne in the macular degeneration market.

So let’s start off with QLT091001, our Synthetic Retinoid product for inherited retinal diseases. AS most of you know, we recently announced a topline data for the retinitis pigmentosa, or RP Phase 1B trial, looking at only a single course of therapy in seven days.

It’s important to highlight that this data represents the first stage of examining the chronic dosing regimens and that we believe the expected treatment dosing regimen for 001 will be a one course of therapy administered more or less on a monthly basis.

Going back to the study, recall that the trial was a global, multi-center, open-label trial conducted among seven leading treatment centers for inherited retinal diseases; the original treatment center at Children’s Hospital at McGill University at Montreal and additional three treatment centers in the U.S., and another three treatment centers in Europe.

The trial enrolled a total of 17 subjects, 14 of which were deemed eligible for the per-protocol analysis and that was based on criteria laid out by the independent equivalent of a rating center at the Wilmer Eye Institute at Johns Hopkins University.

The study results showed a statistically significant average improvement in visual field at Day 7 and Day 14 of 34% and 29% respectively. And again, this was following a once-daily exposure to 001 administered orally for a total of seven days.

We subsequently submitted the data to the ARVO meeting, which is starting this meeting in Fort Lauderdale, Florida and the data has been accepted and will be presented next Thursday, May 10 as a late-breaker presentation.

The press release has generated considerable excitement about the data among thought leaders in the inherited retinal disease field, so very much looking forward to our 12-minute presentation next Thursday.

Following the actual ARVO presentation that morning, we’ve scheduled a conference call at 11:30 a.m. Eastern Time to review the presentation and also have a Q&A session on the data with several of the investigators and participants in the trial. You can access the replay of the conference call on our website later that day.

Now, let me turn briefly to the overall status of the program. We’ve had a series of meetings with the FDA in the U.S. and the EMA in Europe and we continue to make progress on a design and implementation of a pivotal trial in LCA. Importantly, we’ve recently completed a six-month repeat dosing study. This study was initiated last year to provide critical information on chronic intermittent dosing regiments in healthy adult volunteers to support the pivotal programs for LCA and for RP.

This study was done in a total of 35 subjects and it involved dosing with QLT091001 administered once daily at doses of either 20, 40 or 60 milligrams per meters squared, given for seven consecutive days, once per month for six monthly cycles.

The results of this repeat dosing safety trial did not show any new or unexpected adverse events, suggesting that intermittent monthly dosing is a viable treatment regimen in both the LCA and RP patient populations.

This repeat dosing safety data in healthy adults, along with our pre-clinical package was recently shared with the FDA and based on the agency’s feedback thus far, we believe our pre-clinical package should be sufficient for pivotal trial.

I know that many of you are interested in retreatment data in the LCA and RP patient populations. We are conducting a study with repeat courses of therapy as part of the Phase 1B trials for both LCA and RP patients. From this retreatment data, we hope to learn if repeat exposure to 001 in patients has a safety profile consistent with our other studies and also to assess the potential treatment benefit with chronic retreatment up to three months.

It’s important to note that the second course of therapy for all patients in the LCA program has or will be occurring at least one year after their first exposure to the drug. Now, this is just due to the timing of the original dosing, which started in 2009 and where we are today with the repeat dosing, which just started this year. So this is an important point to highlight since the first retreatment data generated is really just a subsequent exposure to drug and does not reflect the intended treatment regimen for pivotal study or for registration. We will gather additional safety and efficacy information from this repeat treatment data, taking into account any change in patient status or any decline since the first treatment course.

So where are we? To date, we’ve retreated patients in both the LCA and RP trials and we are collecting and analysing the data as we speak. For the LCA patient population, I mentioned on the last call that all of the retreatments will be taking place at the McGill site in Montreal, the original treatment center for the LCA trial.

Since many of the children in that study came from great distances, as far away as Brazil, China and Eastern Europe, and many of the kids are still in school, we face the usual logistical challenges of having only one international treatment center and the difficulties for patients and their parents to travel to Montreal for the month of testing required in the protocol.

So that’s the reality for the LCA trial. But for patients in the RP trial, we don’t face the same logistical challenges since most patients live relatively close to one of the participating study centers. Therefore, we expect the retreatment data will be a closer approximation of what we expect the treatment regimen to ultimately be. These results should become available to us in the second half of the year and we expect to generate longer-term follow up on the RP patients in the next year as well.

In both trials, LCA and RP, patients are eligible for up to three additional courses of treatment with 001. And these weekly doses will not be administered more frequently than once per month.

We continue to advance the program with regulatory agencies and I believe we will have enough data in the coming weeks to enable us to finalize our recommendations for an appropriate retreatment schedule in the LCA pivotal trial. The completion of the six-month retreat dosing trial in normal adult volunteers is a big piece of this process. Finalizing issues with the FDA around design of the trial is one of the remaining steps and then we would need to schedule the equivalent of an end-of-Phase II meeting with the agency.

Given the usual preparation time, we expect that meeting would not take place until at least the third quarter, which would mean that assuming the meeting is positive, the earliest the LCA pivotal trial could start is the fourth quarter of this year.

For RP, we anticipate following a similar protocol as the LCA pivotal study and plan to initiate a potential pivotal trial in RP next year. In the meantime, we will continue to generate longer-term follow up and determine the effects of multiple courses of treatment on this patient population.

So let me summarize. We believe we’ve shown that repeat dosing, as frequently as one week on medication every month appears to be a viable treatment regimen to explore in the pivotal trial and that will likely form the basis for our recommendation to the regulatory agencies.

We expect to learn more about the safety profile of 001 and the LCA retreatment trial and although the retreatments are occurring more than a year after the patient’s initial treatment, we expect to learn more about the effect of a regular dosing regimen. We should also learn more about the proposed treatment regimen in the RP patient population because they can potentially be retreated more frequently given that most of the patients enrolled in the study have a local treatment center. And finally, we expect to proceed towards implementing a pivotal trial in LCA before year end.

Now, that’s it for the retinoid program. I want to turn now to the Punctal Plug Drug Delivery System Program in glaucoma. So there’s not much new to report since our last quarterly call on February 23. We are still actively enrolling patients in the Phase II Glau-12 and 13 glaucoma trials using latanoprost in our Punctal Plug Drug Delivery System. Our goal is to get a total of 110 subjects enrolled into the two trials. Recall that the Glau-12 trial is designed to see if there’s a dose response in a double-plugging regimen where we place Punctal Plugs with latanoprost in both the upper and the lower punctum.

In this study, we’re using the same drug dosing as the Glau-11 trial; that being 141 micrograms with 95 micrograms in the lower plug and 46 micrograms in the upper plug. This arm of the study compares with the new and higher dose of 190 micrograms and that consists of 95 micrograms in each the lower and the upper punctum.

Additionally, the Glau-13 trial is underway and this study is designed to assess whether the positioning of plugs is a greater significance than the dose. That will help us determine if the additional efficacy we demonstrated in Glau-11 last year was due to the positioning of the plug in the upper lid.

Now, both of these trials will inform us of the duration of the efficacy since the trials will enable follow up of patients for up to 90 days. Recall that our Glau-11 study only followed patients for 30 days.

As I mentioned, both the Glau-12 and 13 trials are actively enrolling patients and we expect to announce data from the trials in the second half of this year.

Additionally, we have an ongoing device-only trial in which we are making design modifications to our proprietary upper plugs with the goal of improving the overall retention rate. Our goal is to complete our design changes in the upper plug so we can finalize our plug design. If this, and our other Phase II development activities are successful, our goal is to initiate pivotal trial for this molecule in the second half of 2013.

One new piece of news for the Punctal Plug platform is we recently received approval from the FDA for our investigational new drug application, enabling us to initiate the first proof of concept trial in a second molecule for glaucoma and that molecule is travoprost, the generic name for Travatan and Travatan Z from Alcon Novartis.

Travoprost has consistently been the second most prescribed prostaglandin analog behind latanoprost, and according to IMS data, U.S. sales last year were approximately $450 million. We feel the molecule has required potency based on our in vitro models to be a viable product in our Punctal Plug Delivery System.

We plan to initiate a Phase I dosing trial with travoprost looking at several dosing parameters. We’ll look at two drug loads, essentially high and low, and we’ll remove plugs at specified time intervals to compare the in vitro allusion profiles to the in vivo results. We’ll also try to correlate efficacy findings, essentially reduction and intraocular pressure to the drug loads we are delivering with the goal being to establish early effective dosing regimen and this is a key learning we take forward from our experience with latanoprost.

Finally, we will also explore the impact of single versus double plugging and the impact of upper versus lower plug placement. The result using this development plan should guide us to a more robust Phase II trial.

Now, glaucoma continues to be a significant growth opportunity largely because of the patient demographic trends. The aging population of patients generally are living longer and we feel that this $6 billion overall market provides a very viable market for two molecules utilizing our drug delivery platform.

The poor compliance and adherence with current standard of care therapy, ocular eye drops leaves the door open for a minimally-invasive sustained delivery platform such as ours and we remain very excited about the opportunities to compete in the glaucoma market.

Going back to the overall pipeline picture, we have a corporate objective of advancing our current pipeline so we can potentially have three Phase III pivotal studies occurring next year and that would include the LCA trial was 001, the RP trial was 001 and the latanoprost punctal plug program in glaucoma. In addition, we expect that if the Phase I travoprost program is successful, it could move to Phase II next year. We’ll still have our eyes on initiating a clinical trial with an NSAID formulated in our punctal plug platform to treat post-surgical inflammation.

To sum up our development milestones for the remainder of this year, the RP data will be presented at ARVO next week. We’re having ongoing discussions with the FDA and the EMA about implementing a pivotal program for LCA before year end. We’ll have ongoing generation of retreatment data in both LCA and RP patient populations. We’ll be sharing that with regulatory agencies in short order. And we expect to complete enrollment in the latanoprost punctal plug trials and report data in the second half of this year.

We also plan to initiate the proof of concept trial in travoprost in our proprietary punctal plug system over the summer.

Now, I want to turn briefly to Visudyne. We may have another development milestone to add for next year. We recently announced that the FDA granted this orphan drug designation for Visudyne for the treatment of central serous retinopathy, which is CSR, and also known as central serous chorioretinopathy, or CSC.

Now, this disorder is characterized as leaking fluid under the retina and most typically affects one eye, usually in male patients between the ages of 20 and 50 years of age.

Published research already suggests that Visudyne may have promising results in this patient population. We are interested in ongoing studies of CSR, including one being conducted by the Macular Society, which is a leading international society of retina specialists and key opinion leaders. We plan to exam this emerging data as well as work with external advisors to help us better understand the potential for pursuing an additional indication in this area for Visudyne.

If wanted, based on that data in the feedback, we will begin discussions with the FDA regarding a potential pivotal design to attempt to seek approval to market Visudyne for this indication. We’d expect to have a discussion about the feasibility of pursuing this indication with the FDA prior to year end and then look at how we might proceed with the development plan. And we’ll provide more updates as we evaluate this potential opportunity.

On the commercial side, we had another solid quarter with Visudyne sales in the first quarter, our average daily U.S. vial sales were 61 vials per day, essentially stable with 63 vials per day we generated in the fourth quarter last year.

I mentioned on our last conference call that we had not seen any impact of Regeneron’s VEGF trap no Visudyne sales and that was true throughout the first quarter. However, in April, we did experience some softness in Visudyne sales and attribute that to the Ilaya launch. We’ll continue to emphasize Visudyne’s unique mechanism of action through our direct promotional efforts and we remain confident in the long-term viability of Visudyne for appropriate patients with macular generation, especially when persistent activity’s present after anti-VEGF therapy.

We are also on track to file an application for approval for a new photodynamic treatment, or PTD laser in the first half of this year. Historically, most PMA submissions are reviewed in six months so if our PMA is approved, we’re currently planning on launching the new laser in early 2013.

Before I turn the call over to Cam, I just want to highlight the newest member of the QLT senior management team. We recently announced that Chris Muller joined the company as Chief Commercial Officer. Chris has over 20 years of direct ocular sales and marketing experience and I’m very pleased that he’s joined the team and shares our growing enthusiasm for the commercial potential of our maturing pipeline.

His primary responsibility for the remainder of this year will be preparing for a potential global launch of QLT001 and subsequent launch of LPPDS in North America. Chris’s plan will help us decide whether we keep our commercial rights to QLT001 globally as many other orphan-focused companies have done, or whether we seek a partnership outside North America.

Chris will be responsible for preparing and ultimately implementing launch plans for all of our ocular-focused product candidates in North America.

So that’s it for my prepared comments. Cam will now take a couple minutes to walk you thought the first quarter financial results.

Cameron Nelson

Thanks, Bob. From a financial perspective, the first quarter was relatively straightforward. So I’m going to very briefly outline our Q1 results, and then we’ll open the call up for Q&A.

Starting with Visudyne sales, worldwide sales in Q1, 2012, were $22.5 million, which was up 3.1% from the first quarter of 2011, and basically flat sequentially from Q4 2011. The regional split for sales in Q1, 2012, was U.S., 5.2 million; Europe, 6.0 million; and rest of world, 11.3 million.

U.S. end-user demand averaged 61 vials per day in the quarter, compared to 65 vials per day in Q1, 2011, and 63 vials per day in the fourth quarter of 2011.

There were no significant changes in U.S. distributor inventory balances within the quarter, and our distributors ended Q1 holding about eight days of supply, which is in line with typical inventory levels.

Now turning to the financial statements. In the first quarter, we reported total revenue of $9 million. Of this, net product revenue is $5.5 million, which included the $5.2 million of U.S. Visudyne sales plus reimbursements from Novartis for rest-of-the-world royalties, and other expenses. Also, there were no product shipments to Novartis in the first quarter this year, or in the prior year quarter.

Royalty revenue, which is the 20% royalty that we earn on Novartis’ sales of Visudyne outside the U.S., was $3.5 million in Q1, up 4.6% from the prior year period, and in line with the increase in Visudyne sales outside the U.S..

R & D expense was $12.6 million in the first quarter of 2012, up 30% from the same period in 2011 due to increases in both the retinoid and punctual plug programs.

In Q1, 2012, approximately 52% of R&D expense related to the retinoid program, and 44% was on the (inaudible) program. While in last year’s first quarter, the retinoid and plug each accounted for about 48% of total R&D spent.

SG&A expense was $6.4 million in the quarter, down $0.7 million from Q1, 2011. However, SG&A expense in Q1, 2011, included $0.8 million of separation costs related to the departure of the former CMO. So without this item, SG&A would have been up just slightly year over year.

Investment and other income in the quarter was driven by gains on the fair value change and our contingent consideration asset, which totaled $1.9 million.

On the balance sheet, the contingent consideration asset was reported at $93 million, which was split into a current and long-term portion. This amount represents the estimated present value of the approximately $105 million in payments that, as of March 31, 2012, we expect to be paid from Eligard Royalties over the next three to four years.

Our adjusted EBITDA, plus contingent consideration, was a loss of $3.1 million in the first quarter, and this included contingent consideration earnings from Eligard of $7.6 million in the quarter. Despite the negative adjusted EBITDA, our cash balance increased by $1.6 million in Q1, and we ended the quarter with just over $207 million of cash.

In January, we collected the $6 million Canadian mortgage that was outstanding at the end of 2011. So this was the final installment owed to us, and beginning this period, we no longer have a mortgage receivable on our books.

And finally, on the quarter’s results, CapEx, capital expenditures in Q1 were approximately $0.5 million. And with that, I’ll turn it back to Bob.

Robert Butchofsky

All right, thanks a lot, Cam. I think, Operator, at this point we can open up the call for questions.

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator instructions). The first question comes from Scott Henry of Roth Capital, please go ahead.