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QLT closes book on past to ramp up ocular drug development

|Includes: Novelion Therapeutics, Inc. (NVLN)

QLT closes book on past to ramp up ocular drug development

February 9, 2010 by leonardzehr · Leave a Comment 

QLT’s turnaround has been nothing short of a casebook study, riding out a Perfect Storm where everything that could go wrong, did go wrong.

We have been through a tremendous amount of change, so we are excited to be moving forward and be in a position of strength,” CEO Bob Butchovsky said in an exclusive interview with  “All of the issues and challenges that we faced are behind us, we control our own destiny and drug development is front and centre again.”

Once at the pinnacle of drug development in 2000 after the launch of Visudyne photodynamic therapy to treat wet age-related macular degeneration (NASDAQ:AMD), QLT fell from grace five years later.  Competitive pressures began to shrink Visudyne’s market share and, combined with a disastrous acquisition, prompted three reorganizations and a turnover of senior management.

Mr. Butchovsky, who moved into the executive suite in February, 2006, tightened QLT’s focus to address unmet medical needs for ocular diseases and began to calm the turmoil in the organization.  At the end of 2007, the company (TSX:QLT (6.21 ↓2.97%); NASDAQ: QLTI) hired Goldman Sachs to spearhead the sale of non-core assets, obtained mainly in the acquisition of Atrix Labs of Colorado in 2004.

The strategy was a huge success.  It sold a dermatology drug Aczone for $150 million (U.S.), a drug delivery technology called Atrigel for $25 million, and its land and head office building in Vancouver for $65 million (Canadian) just before the credit crunch hit.

In the fourth quarter of last year, it settled a long-running lawsuit with the Massachusetts General Hospital over Visudyne royalties and restructured its two revenue streams, Eligard and Visudyne.  It sold QLT USA – the product rights associated with prostate cancer drug Eligard – in exchange for $20 million (U.S.) upfront, $10 million this year plus 80% of the annual royalties that it would have received up to $200 million.  “We basically net $230 million tax-free,” Mr. Butchovsky points out.

“In general, management was able to monetize assets for more than we had envisioned and it settled a material legal overhang for less than we had anticipated,” Cormark analyst David Dean said in a research report in November when he raised his price target on the stock to $5.35 from $2.65.

QLT also restructured its relationship with long-time marketing partner, Novartis (NVS 48.31 ↓1.59%).  It took back control of Visudyne and in January, started selling the product in the U.S. market with a newly launched sales force. It still receives 20% royalties on Visudyne sales by Novartis outside of the U.S.

“For the first time in a decade, we don’t have any legal overhangs, we’re cash flow positive, we had $195 million of cash at the end of the third quarter, we’ve narrowed our focus and have some exciting technologies,”  Mr. Butchovsky says.  “It’s an attractive story now.”

Within the current pipeline, QLT is rebuilding its profile to treat AMD by conducting clinical studies of Visudyne in combination with competitor Lucentis.  It is also advancing its punctal plug delivery system to address a broad range of ocular diseases that are currently being treated with eye drops, and is developing a synthetic retinoid compound as a potential treatment of Leber’s Congenital Amaurosis, an inherited disease that leads to retinal dysfunction and visual impairment beginning at birth.

At the end of 2009, the company acquired an early-stage ophthalmic compound that could have some potential as a second-line therapy in conjunction with its first punctal plug drug.

Mr. Butchovsky points out that 12-month studies using Visudyne in combination with Genentech (DNA 94.97 ↑0.00%)’s Lucentis have shown similar visual acuity outcomes that reduce overall treatment frequency with Lucentis, which involves injections into the eye.  “If that holds up over 24 months, it would be extremely positive.”

All the more so since Novartis largely stopped promoting the brand in the fourth quarter of 2008 because of the dominance of Lucentis.  “So just having our sales force back in place will be a positive,” he predicts.  During a conference call on March 10 to release fourth quarter earnings, he plans to give guidance for a turnaround in Visudyne sales this year.

“We’re not looking for extremely high levels of growth, but it’s important that we show some Visudyne growth over our current run rates and that’s the goal for this year.”  Worldwide Visudyne sales for the third quarter last year were $23.5 million.

Mr. Butchovsky says the Visudyne sales team will number around 15 people.  “By virtue of their presence and getting our story out there again, there will be a positive benefit, and in the second half this year, we should start to see results of the sales team and their efforts.”

The current business plan is to reposition Visudyne for patients who have been treated with Lucentis and are not progressing well.  “So we will definitely take a second-line approach to where Visudyne will be used in a treatment paradigm for AMD,” he adds.

While QLT is best known for Visudyne, which once had an annual run rate of $500 million, it is banking on its punctal plug platform to be its long-term revenue driver.  About 80% of the R&D budget is earmarked to advance the plug program, which the company views as a potential replacement for eye drops.

Punctal plugs are small devices that have been around for years and are placed in the tear duct of the eye.  Traditionally, they have been used to keep more tears on the surface of the eye.  But QLT is using them as a drug delivery tool – initially for glaucoma, the second largest cause of blindness in the Western world, with about 100 million patients globally.

Most patients diagnosed with glaucoma take eye drop medications.  But the problem with eye drops is that they tend to burn and sting, making them difficult to administer and to achieve compliance, especially among seniors.  Studies have shown that only 50% of patients who are treated for glaucoma adhere to their eye drop regimens beyond six months.  “We think we offer a very attractive alternative,” Mr. Butchovsky contends.

QLT has several Phase 2 studies under its belt using a molecule called latanaprost, which is sold by Pfizer (PFE16.74 ↓2.56%) under the trade name Xalatan.  It is the largest ophthalmic eye drop product, with 2008 sales of some $1.75 billion, but it comes off patent in 2011.

In four doses tested so far, QLT has obtained a 3.5 mm mercury reduction in inter-ocular pressure.  “Our goal is to get a 5 mm mercury reduction in pressure.  And we think we can do that by continuing to increase the drug load we provide through the system,” he figures. On the March 10 conference call, the company will be reporting data from three additional drug formulations.

The plugs as they are currently designed, are only about 1.5 mm long, so “the secret in this technology is to get enough drug on a very small amount of space to get a therapeutic response,” he adds.  “The good news is that we have demonstrated that we can get a response for 90 days. The challenge now is to increase the amount of that response and the overall efficacy, and we plan on doing that by increasing the drug load we deliver.”

While dosing is one piece of the puzzle, the other problem with plugs is that they can fall out of the eye.  “So we are developing a proprietary plug and will have more information about it on March 10,” he promises.  In the first generation plug, QLT achieved about a 50% retention rate over 90 days, climbing to 65% to 70% in the second generation device.  “Our goal is to reach a 90% retention rate for 90 days, and we will report some preliminary third-generation device-only data on March 10 as well.”

QLT also plans to announce on March 10 the next drug that it is putting on the plug platform.  “Areas of interest would be other medications for glaucoma, ocular allergy, dry eye and potentially something for post-surgical information control,” he says.  “Our business model is use drugs that we know work in the first couple of formulations.”

In a best case scenario, QLT plans to conduct a Phase 2B study this year with latanaprost plugs and a pivotal Phase 3 study in 2011.  While it plans to retain the commercial rights in North America, Mr. Butchovsky suggests the company may look for marketing partners in Europe and Japan at the end of the Phase 2B study to generate an upfront milestone payment that would shoulder some of the financial burden for the Phase 3 study.

QLT’s latest acquisition, a beta blocker known as OT-730, has been under investigation for the treatment of glaucoma.  The compound has a different mechanism of action than latanaprost, “so these two drugs hopefully would have some synergy used together,” he offers.  OT-730 also appears to act without certain cardiovascular side effects associated with other ophthalmic beta blockers.

QLT initially plans to advance the drug as an eye drop, with formulations that may include higher dosages and a sustained release profile.  It hopes to have a formulation in clinical studies in the second half of this year.

Mr. Butchovsky calls QLT’s synthetic retinoid compound more of a traditional high-risk biotech program.  Leber’s Congenital Amaurosis is an orphan disease and children born with LCA are legally blind, because they don’t produce the chemical that transmits light impulses to the brain.

In animal studies with the molecule currently under investigation, “we think we were able to demonstrate functional vision,” Mr. Butchovsky says.  The company is currently in a Phase 1B study with children that have LCA and results of the study are due in the first half of this year.

Disclosure: No positions