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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-17082
QLT INC.
(Exact Name of Registrant as Specified in its Charter)
BRITISH COLUMBIA, CANADA N/A
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
887 GREAT NORTHERN WAY, VANCOUVER, B.C., CANADA V5T 4T5
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 707-7000
Securities registered pursuant to Section
12(b) of the Act:
NONE
Securities registered pursuant to Section
12(g) of the Act:
COMMON SHARES, WITHOUT PAR VALUE
COMMON SHARE PURCHASE RIGHTS
(Title of class)
--------------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [X] No [ ]
As of June 28, 2002, the aggregate market value of the common shares held
by non-affiliates of the registrant (based on the last reported sale price of
the common shares of U.S.$ 13.35, as reported on The Nasdaq Stock Market) was
approximately U.S.$ 903,914,216.
As of February 28, 2003, the registrant had 68,560,793 outstanding common
shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for use in connection with the
annual meeting of shareholders to be held on May 22, 2003, including information
as to directors' and officers' remuneration, principal holders of the
registrant's common shares, options to purchase common shares and interests of
management and others in material transactions, which proxy statement will be
filed with the Securities and Exchange Commission within 120 days after December
31, 2002, are incorporated by reference into Part III of this Report. A copy of
the proxy statement may be obtained upon written request to the Corporate
Secretary, QLT Inc., 887 Great Northern Way, Vancouver, British Columbia, Canada
V5T 4T5.
CURRENCY AND ACCOUNTING STANDARD
In this Annual Report on Form 10-K all dollar amounts are in U.S. dollars,
except where otherwise stated, and financial reporting is made in accordance
with U.S. generally accepted accounting principles ("U.S. GAAP"). Effective
December 31, 2002, the Company adopted U.S. GAAP as its primary basis of
disclosure on Form 10-K. In addition, on December 31, 2002, the Company adopted
the U.S. dollar as its reporting currency. In the past the Company reported in
Canadian dollars and in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP").
The Company continues to maintain the Canadian dollar as its functional
currency.
The Company has also prepared consolidated financial statements in accordance
with Canadian GAAP, which are available on the Company's website at:
www.qltinc.com.
EXCHANGE RATE
The table below shows relevant exchange rates which approximate the noon
buying rates in New York City as reported by the Federal Reserve Bank of New
York for cable transfers expressed in Canadian dollars for the five most recent
fiscal years of the Company.
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1999 2000 2001 2002
-------- -------- -------- -------- --------
High..................... $ 1.5770 $ 1.5302 $ 1.5600 $ 1.6023 $ 1.6128
Low...................... 1.4075 1.4440 1.4350 1.4933 1.5108
Average.................. 1.4836 1.4858 1.4855 1.5487 1.5704
Period End............... 1.5375 1.4440 1.4995 1.5925 1.5800
NOTICE REGARDING WEBSITE ACCESS TO COMPANY REPORTS
The Company makes available on its website its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments
thereto, as soon as reasonably practicable after such material is electronically
filed with the United States Securities and Exchange Commission. QLT's website
address is: www.qltinc.com.
QLT INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2002
TABLE OF CONTENTS
Item 1. BUSINESS.................................................................................................. 1
Item 2. PROPERTIES................................................................................................28
Item 3. LEGAL PROCEEDINGS.........................................................................................28
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................30
Item 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS.................................31
Item 6. SELECTED FINANCIAL DATA...................................................................................38
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................39
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................53
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................................54
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......................77
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................................78
Item 11. EXECUTIVE COMPENSATION....................................................................................78
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................78
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................79
Item 14. CONTROLS AND PROCEDURES...................................................................................79
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................................80
QLT INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements of QLT Inc.
("QLT") within the meaning of the Private Securities Litigation Reform Act of
1995, which involve known and unknown risks, uncertainties and other factors
which may cause our actual results to differ materially from any future results,
performance or achievements expressed or implied by such statements.
Forward-looking statements include, but are not limited to, those with respect
to: anticipated levels of sales of Visudyne(R), including patient and physician
demand for Visudyne therapy, anticipated future operating results, anticipated
timing for and receipt of further reimbursement approvals for Visudyne therapy
and QLT's other products, the anticipated outcome of pending patent and
securities litigation against QLT, the anticipated timing and progress of
clinical trials, the anticipated timing of regulatory submissions for expanded
uses for Visudyne and for QLT's other products, including tariquidar, and the
anticipated timing and receipt of regulatory approvals for expanded uses for
Visudyne and for QLT's other products, including tariquidar. These statements
are predictions only and actual events or our actual results may differ
materially. Factors that could cause such actual events or our actual results to
differ materially from any future results expressed or implied by such
forward-looking statements include, but are not limited to, the ability and
efforts of QLT's alliance partner, Novartis Ophthalmics AG, to commercialize and
market Visudyne, the outcome of pending patent and securities litigation against
QLT, QLT's ability to maintain and expand its intellectual property position,
the timing and success of planned or existing clinical trials for Visudyne and
for QLT's other products, including tariquidar; the outcome of QLT's
applications for regulatory approvals for expanded uses for Visudyne and for
QLT's other products, including tariquidar, the successful development or
acquisition of complementary or supplementary products or product candidates,
technologies or businesses, as well as the risk factors described below under
the headings "Business -- Risk Factors", "Legal Proceedings", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Notes to the Consolidated Financial Statements".
PART I
ITEM 1. BUSINESS
OVERVIEW
QLT is a bio-pharmaceutical company engaged in the development and
commercialization of innovative products in ophthalmology and oncology and in
other fields where the product can be marketed by a focussed specialty sales and
marketing team. QLT was incorporated in 1981 under the laws of the Province of
British Columbia. QLT is a pioneer in the field of photodynamic therapy, a field
of medicine that uses photosensitizers (light-activated drugs) in the treatment
of disease. QLT is also actively developing pharmaceutical products that do not
employ photodynamic therapy.
Visudyne(R), QLT's commercial product, is a photosensitizer used to treat
choroidal neovascularization ("CNV") in patients with the wet form of
age-related macular degeneration ("AMD"), the leading cause of severe vision
loss in people over the age of 50 in North America and Europe, as well as other
ocular conditions. Visudyne has been approved in over 65 countries, including
the United States, Canada and those of the European Union, for the treatment of
predominantly classic subfoveal CNV in AMD. In addition, Visudyne has been
approved in over 50 countries for extended indications, including occult CNV in
the European Union, Australia and New Zealand, CNV due to pathologic myopia
("PM") in the United States and the European Union and CNV due to presumed
ocular histoplasmosis syndrome ("OHS") in the United States.
QLT is currently conducting clinical trials of tariquidar, a new compound
which QLT in-licensed in 2001. One of the major barriers to successful cancer
treatment is the development of resistance by cancer cells to several drugs used
in chemotherapy, which is known as multi-drug resistance, or MDR. The current
clinical trials are determining the potential of tariquidar, which targets the
most common form of MDR, to increase the efficacy of chemotherapy treatment.
Phase III studies began in 2002 to assess tariquidar in the treatment of
non-small cell lung cancer, the most common form of lung cancer. A Phase II
study of tariquidar in the treatment of refractory breast cancer is also
ongoing. (See -"Non-PDT Products- Tariquidar").
QLT is evaluating its proprietary photosensitizer Visudyne (referred to as
verteporfin in respect of indications other than ophthalmic) for the treatment
of multiple basal cell carcinoma (a form of non-melanoma skin cancer), and the
proprietary photosensitizer QLT0074 in the treatment of benign prostatic
hyperplasia ("BPH"), the most common prostatic disease, and androgenetic
alopecia (male pattern baldness).
In addition to developing its proprietary PDT products in new indications,
and developing tariquidar, QLT is researching and developing other products by
itself and in collaboration with other companies for the treatment of cancer,
immune disorders and other conditions. The Company continues to seek growth
opportunities to build its product pipeline by developing new indications for
Visudyne, progressing with both early and late stage programs, and examining
potential strategic acquisitions of products, product candidates, technologies
or other businesses.
References in this Form 10-K to "QLT" and the "Company" include QLT Inc.
and/or one or more of its subsidiaries, unless the context indicates otherwise.
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PRODUCTS APPROVED OR IN DEVELOPMENT (1)
PRODUCT/INDICATION LOCATION(S) REGULATORY STATUS
------------------ ----------- -----------------
VISUDYNE(R)
Predominantly classic subfoveal Over 65 countries including the United Approved
choroidal neovascularization ("CNV") States, Canada, and those of the European
in age-related macular degeneration Union (2)
("AMD") ...........................
Subfoveal CNV in AMD............. Japan Application for Marketing
Authorization submitted
Occult with no classic subfoveal CNV Over 30 countries including Australia, New Approved
in AMD............................. Zealand, and those of the European Union
Canada and Switzerland Application for Marketing
Authorization
submitted
United States Phase III(3)
ongoing
Subfoveal CNV due to pathologic Over 50 countries including the United Approved
myopia............................. States, Canada, and those of the European
Union
Predominantly classic subfoveal CNV United States Approved
due to presumed ocular
histoplasmosis syndrome............
Minimally Classic CNV in AMD... United States, Canada, European Union Phase II ongoing
Diabetic macular edema............. United States Phase I/II ongoing
VERTEPORFIN (4)
Multiple basal cell carcinoma...... United States, Canada Phase III ongoing(5)
TARIQUIDAR(6)
Non-small cell lung cancer......... United States, Canada, European Union Phase III (7)
and Russia ongoing
Breast cancer...................... United States Phase II(8)
ongoing
QLT0074
Benign prostatic hyperplasia....... United States, Canada Phase I/II(9)
ongoing
Androgenetic alopecia.............. United States, Canada Phase I/II(10)
ongoing
- ---------
3
(1) The terms used in the above table and elsewhere are defined in this Annual
Report on Form 10-K. In particular, see "-- Government Regulation".
(2) The European Union includes Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain,
Sweden and the United Kingdom.
(3) This study has been initiated and enrollment is expected to be completed by
the end of 2003. Approximately 360 patients will be enrolled at up to 43 centers
in North America.
(4) Verteporfin is marketed under the tradename Visudyne(R) for ophthalmic
indications and is referred to as verteporfin in this Annual Report on Form 10-K
for non-ophthalmic indications.
(5) The Phase III study in multiple basal cell carcinoma commenced in October of
2002.
(6) Tariquidar has been accepted both as the United States Adopted Name (USAN)
and the Recommended International Nonproprietary Name (INN) for XR9576.
(7) This study was commenced in June 2002; on February 20, 2003, enrollment was
temporarily halted pending review of interim safety and efficacy analysis of
data from 150 patients enrolled in the trial, which is expected to occur in May
and June of 2003. (See "Non-PDT Products- Tariquidar").
(8) This study commenced in December 2001.
(9) This study commenced in March of 2003. It is a proof of concept study
intended to evaluate safety and preliminary efficacy.
(10) This study commenced in the third quarter of 2002. It is a proof of concept
study intended to evaluate safety and preliminary efficacy.
BUSINESS STRATEGY
QLT's business strategy is to pursue expanded indications for Visudyne
therapy and develop and commercialize other products which can be marketed by a
focussed specialty sales and marketing team, in ophthalmology, oncology and for
other diseases. QLT has expanded its research and development pipeline by
acquiring rights to new product candidates and access to new technologies. QLT
intends to continue to expand its product pipeline by continuing its
in-licensing efforts and pursuing strategic acquisitions.
QLT'S PDT PRODUCTS
BACKGROUND
Photodynamic therapy or PDT is a minimally invasive medical procedure that
utilizes photosensitizers (light-activated drugs) to treat a range of diseases
associated with rapidly growing tissue (such as the formation of solid tumors
and abnormal blood vessels). PDT is a two-step process. First, the
photosensitizer is administered to the patient by intravenous infusion or other
means, depending on the condition being treated. While circulating in the
bloodstream, the photosensitizer attaches itself to molecules called
lipoproteins. Because rapidly-proliferating cells may require greater amounts of
lipoproteins, the photosensitizer may accumulate more quickly and in higher
concentrations in these cells than it does in normal cells. Second, a
pre-calculated dose of non-thermal light is delivered at a particular wavelength
to the target site to interact with the photosensitizer. The photosensitizer
traps energy from the light and causes oxygen found in cells to convert to a
highly energized form called "singlet oxygen" that causes cell death by
disrupting normal cellular functions. Since the photosensitizer and light have
no effect unless combined, PDT is a relatively selective treatment that
minimizes damage to normal surrounding tissue and allows for multiple courses of
therapy.
The most commonly noted side effect of photosensitizers is a transient skin
sensitivity to bright light. Recipients of PDT are advised to avoid direct
sunlight (or wear protective clothing) during the period of heightened skin
sensitivity. Patients' indoor activities are unrestricted and patients are
encouraged to undertake activities in ambient light, which helps to bring about
inactivation of residual photosensitizer molecules in the skin by a process
known as photobleaching. The period of skin photosensitivity varies among
different photosensitizers and is related to the dose given.
For external and ocular PDT applications (including in the treatment of
AMD), non-laser light sources or diode lasers have been developed and are
available to provide the necessary intensity of light required for PDT. For
applications of PDT to internal organs, physicians use lasers and fiber optics
to deliver the appropriate intensity of light to abnormal tissue. The
wavelength, or color, of light is critical to the activation
4
of the photosensitizer. Generally, a longer wavelength will penetrate tissue
more deeply and thereby activate the photosensitizer deeper in the target
tissue. See "-- Medical Devices for PDT".
VISUDYNE(R) THERAPY
Visudyne is a photosensitizer developed by QLT and Novartis Ophthalmics AG
("Novartis Ophthalmics"), formerly CIBA Vision, for the treatment of wet AMD,
the leading cause of severe vision loss in people over the age of 50 in North
America and Europe. QLT has been co-developing Visudyne with Novartis
Ophthalmics since 1995 pursuant to a product development, manufacturing and
distribution agreement which created a contractual alliance between the two
companies. Under that alliance, QLT is responsible for manufacturing and product
supply and Novartis Ophthalmics is responsible for sales, marketing and
distribution. In this Annual Report on Form 10K, the "alliance" or the
"Alliance" refers to QLT and Novartis Ophthalmics.
About Wet AMD
Wet AMD is characterized by the growth of abnormal blood vessels under the
central part of the retina, called the macula. Because these vessels do not
mature properly, they begin to leak and, over time, cause photoreceptor damage
that results in the formation of scar tissue and a loss of central vision.
Although the progression of the disease varies by patient, the majority of
patients with wet AMD become legally blind in the affected eye within
approximately two years following the onset of the disease.
Wet AMD accounts for approximately 15% of all AMD cases and is responsible
for approximately 90% of the severe vision loss associated with the disease.
Based upon its proprietary market research, QLT estimates that worldwide
approximately 500,000 new cases of wet AMD develop annually, of which 200,000
develop in North America, 200,000 develop in Europe and 100,000 develop in the
remainder of the world. Until Visudyne, no satisfactory treatment existed for
approximately 85% to 90% of wet AMD cases.
Visudyne(R) Approvals
Predominantly Classic CNV in AMD
Visudyne has been approved for marketing for predominantly classic
subfoveal CNV in AMD in over 65 countries, including the United States, those of
the European Union, Canada, Australia and New Zealand.
Visudyne therapy is typically performed as an outpatient procedure with the
goal of stopping or slowing the progression of wet AMD by selectively closing
the abnormal blood vessels that form due to AMD without damaging normal vessels
or photoreceptors.
In January of 2001, the Centers for Medicare and Medicaid Services ("CMS")
in the United States (formerly the Health Care Financing Administration)
announced their U.S. national coverage policy for Visudyne therapy in patients
with predominantly classic subfoveal CNV secondary to AMD, which policy was
formally issued later that year. In most provinces in Canada reimbursement for
all or part of the Visudyne therapy has been approved. Predominantly classic
reimbursement has also been approved in several countries in Europe, including
France, Germany, Italy and Switzerland.
CNV due to Pathologic Myopia (PM)
Pathologic myopia ("PM") is a degenerative form of near-sightedness that
occurs largely in persons aged 30 to 50 and can result in CNV. Based on
proprietary market research, QLT estimates that the worldwide incidence of CNV
secondary to PM is approximately 50,000 new patients every year. Before
Visudyne, there was no approved treatment for the majority of patients with PM.
Based on data from the Phase IIIb clinical studies for Visudyne therapy
(referred to as the "VIP Trial" - Verteporfin in Photodynamic Therapy) conducted
by QLT and Novartis Ophthalmics, QLT has received regulatory approval of
Visudyne for the treatment of subfoveal CNV due to PM in over 50 countries,
including the United States, Canada, and those of the European Union.
5
CNV due to Presumed Ocular Histoplasmosis Syndrome (OHS)
Presumed ocular histoplasmosis syndrome ("OHS") is a condition caused by a
fungal infection endemic to certain areas in central and eastern United States.
It can lead to severe, irreversible vision loss and is a leading cause of
blindness in adults who have lived in geographic areas where the soil mould
Histoplasma capsulatum is found. There are an estimated 100,000 people who are
at risk for vision loss within this endemic area.
Based on data from an open label safety study involving 26 patients with
OHS, the United States Food and Drug Administration (the "FDA") approved
Visudyne for the treatment of subfoveal CNV secondary to OHS in August of 2001.
The results of the open label study showed Visudyne was safe in patients with
OHS and that visual acuity improved from baseline by an average of one line on a
standard eye chart at six months with 27% of patients experiencing a visual
acuity improvement of three lines or more.
Expansion and Improvement of Visudyne Therapy
QLT and Novartis are engaged in efforts to expand the indications for which
Visudyne is approved to treat other forms of AMD and other ocular diseases. QLT
and Novartis are seeking approval for marketing authorization in Japan for
subfoveal CNV in AMD. The Alliance is also continuing efforts to improve
Visudyne therapy by exploring alternative treatment regimens.
Japan - Subfoveal CNV in AMD
QLT and Novartis Ophthalmics are conducting an open label registration study
of Visudyne in Japan in patients with classic-containing subfoveal CNV in AMD.
Enrollment in this Japanese study was completed at the end of 2000 with a total
of 64 patients recruited at five centers. Based on six-month data from this
study, in April of 2002, Novartis Ophthalmics, on behalf of the Alliance,
submitted applications for marketing authorizations for Visudyne therapy for
patients with subfoveal CNV in AMD. A decision on those applications is expected
during 2003.
Occult with no Classic CNV in AMD (VIP Trial and VIO Investigation)
In early 2001, QLT and Novartis Ophthalmics announced top-line 24-month
results from the Phase IIIb VIP Trial. Part of the VIP Trial (the "VIP Occult
Trial") was designed to investigate the efficacy and safety of Visudyne therapy
in wet AMD patients mainly with occult lesions ("occult" and "classic" are terms
used to describe different patterns of CNV leakage as seen on fluorescein
angiography). The VIP Occult Trial involved 339 AMD patients treated at 28
centers throughout North America and Europe over a period of 24 months. The
24-month results from the VIP Occult Trial indicated that Visudyne therapy
reduces the risk of both moderate and severe vision loss in an additional
population of patients with wet AMD who had lesions composed of occult CNV
without classic components.
The VIP Occult Trial included mainly patients with occult CNV without
classic components with presumed recent disease progression, plus some patients
with a component of classic CNV having vision better than 20/40. At the 24-month
examination, 46% of all patients treated with Visudyne therapy lost less than
three lines of vision, or 15 letters, on a standard eye chart (moderate vision
loss) compared to 33% of patients on placebo (p=0.023). With respect to severe
vision loss, 70% of Visudyne treated patients lost less than six lines of
vision, or 30 letters, on a standard eye chart versus 53% of patients on
placebo, representing a difference of 17% (p=0.001). At the 24-month time point,
Visudyne also showed statistically significant outcomes for other visual acuity
endpoints. On average, patients treated with Visudyne received five treatments
during the 24-month period.
Based on the two-year results of the VIP Occult Trial, during 2002 marketing
authorization for the treatment of occult subfoveal CNV secondary to wet AMD was
obtained for the European Union, Australia, and New Zealand.
The FDA advised QLT in 2001 that replication of the VIP Occult Trial results
would be required as the FDA considered the results of the VIP Occult Trial
inadequate for expansion of the Visudyne label to occult without classic CNV in
AMD. Accordingly, in response to the FDA's advice, QLT and Novartis
6
Ophthalmics initiated a Phase III clinical trial (referred to as the "VIO Study"
- - Visudyne in Occult) designed to investigate whether Visudyne therapy
significantly reduces the risk of vision loss compared with placebo treatment in
patients who have occult with no classic subfoveal CNV secondary to AMD.
Approximately 360 patients are being enrolled at approximately 43 centers and
followed for 24 months. Enrollment is expected to be completed by the end of
2003.
In March of 2002, the Centers for Medicare and Medicaid Services (CMS)
announced that they would not uphold their original intention to expand the
national coverage policy for Visudyne therapy to include reimbursement for
patients with occult only subfoveal CNV secondary to AMD, based on the two-year
results of the VIP Occult Trial. That decision was a reversal from the decision
communicated in the CMS's Decision Memorandum dated October 17, 2001.
Minimally Classic CNV in AMD (VIM Investigation)
QLT and Novartis Ophthalmics have initiated a Phase II clinical trial
(referred to as the "VIM Investigation" - Visudyne in Minimally Classic) to
study the efficacy and safety of a reduced light dose in patients with minimally
classic lesions of AMD. The goal of the VIM Investigation is to determine
whether patients with minimally classic subfoveal CNV due to AMD can benefit
from Visudyne therapy. The VIM Investigation is comprised of 117 patients. QLT
and Novartis Ophthalmics announced the six-month results of the VIM
Investigation on December 17, 2002. Early outcomes at six months showed that the
mean change in visual acuity scores of patients in both Visudyne treatment arms
was statistically better than the mean change of those patients who received
placebo. The VIM investigation will continue until the 24 month period to
confirm longer term benefit. The 12-month results of this investigation will be
known during the second quarter of 2003. The development strategy for this
indication is under consideration by the Company and Novartis Ophthalmics.
Early Retreatment Study (VER Investigation)
In August of 2002 QLT and Novartis Ophthalmics completed enrollment in Phase
IIIb clinical trials (referred to as the "VER Investigation" - Visudyne Early
Retreatment), designed to investigate the efficacy and safety of earlier
retreatment with Visudyne in patients with predominantly classic subfoveal CNV.
The VER Investigation will investigate whether optimizing Visudyne treatment
frequency will lead to further improvements in stabilizing vision for aggressive
AMD disease, without adversely affecting the product's safety profile. The VER
Investigation is being conducted at 31 centers throughout North America and
Europe and involves 323 patients. In prior studies with Visudyne, patients were
given treatments of Visudyne every three months in case of leakage from CNV. The
VER Investigation protocol calls for re-evaluation and possible retreatments
with Visudyne every six weeks in the first six months of treatment in case of
leakage from CNV, instead of every three months. It is expected that results
from the VER Investigation will be available in the fourth quarter of 2003.
Altered/Delayed Light in Occult (VALIO)
QLT and Novartis Ophthalmics have initiated a Phase II clinical trial
(referred to as the "VALIO Study" - Visudyne with Altered (Delayed) Light In
Occult). The study is designed to investigate whether delaying the time of light
application to 30 minutes after the start of Visudyne infusion will improve
visual and angiographic outcomes in patients with subfoveal occult CNV with no
classic component compared to Visudyne therapy with light application at 15
minutes after the start of infusion. Approximately 60 patients with AMD have
been enrolled at seven centers in the United States and are being followed for a
period of twelve months. QLT and Novartis Opthalmics announced three-month
results in December, 2002. At three months, additional vision benefit over the
standard Visudyne regime was not apparent, results that were not unexpected at
such an early time point. The six-month outcomes are expected to become
available in the first half of 2003, and the 12-month results late in 2003.
Adjunctive Diclofenac (Voltaren) after Visudyne(R) (ADD-V Study)
Preclinical research by QLT and Novartis Ophthalmics has shown that
inhibiting the inflammatory responses seen in Visudyne therapy may increase the
benefit of the therapy. QLT and Novartis Ophthalmics
7
have initiated a Phase II trial (referred to as the "ADD-V Study" - Adjunctive
Diclofenac (Voltaren) after Visudyne) to determine whether the topical
application of the non-steroidal anti-inflammatory drug diclofenac reduces the
inflammation associated with Visudyne therapy and thereby improves the
treatment. 61 patients have been enrolled at 14 centers in North America.
Three-month results were announced in December, 2002. At three months additional
vision benefit over the standard Visudyne regime was not apparent.
Diabetic Macular Edema (VIDME Study)
QLT and Novartis Ophthalmics have initiated a Phase I/II clinical trial
(referred to as the "VIDME Study" - Visudyne In Treatment of Diabetic Macular
Edema). The VIDME Study is designed to assess the safety and preliminary
efficacy of Visudyne therapy in diabetic macular edema. 30 patients with diffuse
diabetic macular edema are enrolled at two centers in the United States and will
be followed for a period of three months. Three-month results from this study
are expected to become available during the first half of 2003.
VERTEPORFIN
Multiple Basal Cell Carcinoma
QLT has been evaluating verteporfin as an alternative treatment for certain
forms of non-melanoma skin cancer, including multiple basal cell carcinoma
("MBCC"). MBCC is a form of basal cell carcinoma ("BCC") in which patients
present with more than one BCC tumor. Each year over 800,000 cases of BCC are
diagnosed. QLT believes that a small subset of the BCC population who develop
multiple lesions may benefit from PDT with verteporfin.
The most common cause of BCC is chronic exposure to the sun. As a result,
areas of the body which are most frequently exposed to the sun, including the
face, neck and hands, are among the most likely areas to develop skin cancer
tumors. Some patients develop MBCC due to greater sensitivity to sun exposure
caused by genetic disorders or immunosuppressive therapy following an organ
transplant.
MBCC is more challenging to treat than single BCC because multiple tumors
have to be treated individually and are therefore more costly and time-consuming
to treat. When patients have a large number of BCCs, individual treatment of
each tumor is sometimes not feasible and dermatologists often have to limit
treatment to selected tumors rather than treating all tumors. Surgical therapy
in patients with MBCC may also not be acceptable to patients because of
undesirable or poor cosmesis. Using PDT with verteporfin to treat MBCC may allow
for the treatment of multiple tumors in one session and may result in more
acceptable cosmesis.
In October of 2000, QLT announced positive results for its Phase II study
using PDT with verteporfin to treat non-melanoma skin cancer. The open-label
study, conducted in North America, involved 54 patients, with a total of 421
tumors.
The highest light dose was found to be the most effective, with 98% of the
assessed tumors showing a complete clinical response six months after initial
treatment. There were no systemic safety issues. The most commonly reported
adverse events related to reversible pain at the treatment site. PDT with
verteporfin appears to offer a cosmetic outcome similar to or better than
current standard treatments for non-melanoma skin cancer which result in some
degree of scarring.
QLT and Novartis Ophthalmics agreed to co-develop verteporfin for
non-melanoma skin cancer and potentially other dermatological conditions in
mid-2001 through their Alliance. In October of 2002, QLT and Novartis
Ophthalmics initiated a Phase III clinical trial of verteporfin for the
treatment of patients with MBCC, with the aim of enrolling 180 patients.
Enrollment has not progessed as quickly as had originally been projected. QLT's
initial estimate for completion of enrollment was the end of 2003; however, that
estimate may have to be revised in the future if the current enrollment rate
continues to be slower than originally expected.
8
QLT0074
QLT0074 is a proprietary photosensitizer to which QLT has all rights. QLT is
currently developing QLT0074 for the treatment of benign prostatic hyperplasia
and androgenetic alopecia (male pattern baldness), and is also exploring its
application in other indications.
In 2001, based on the results of preclinical studies, QLT initiated and
completed a placebo-controlled Phase I study on healthy volunteers of both
genders of QLT0074 administered by single and repeated intravenous infusions.
Results showed that QLT0074 is a potent photosensitizer and is rapidly
eliminated from the human body.
Particulars of the ongoing and planned clinical studies for QLT0074 are set
out below.
Benign Prostatic Hyperplasia (BPH)
Benign prostatic hyperplasia ("BPH") is the most common prostatic disease.
According to the United States National Institute of Diabetes and Digestive and
Kidney Diseases, over 50% of men in their sixties and older have symptoms of
BPH. It is a progressive condition that results from an excessive benign growth
of prostatic tissue. The majority of patients with this disease will experience
more or less rapidly developing symptoms of urinary obstruction (lower urinary
tract symptoms) of progressive severity. The management of BPH symptoms
parallels the severity of the symptoms. Initially, watchful waiting is
recommended, followed by pharmacological treatment, minimally invasive therapy,
and finally prostate resection.
Preclinical studies completed in 2002 support the hypothesis that PDT with
QLT0074 may be useful in the treatment of BPH. In January of 2003 QLT secured
the agreement of the FDA to the start of the first efficacy and safety proof of
concept trial. In March 2003 QLT commenced a Phase I/II proof of concept
clinical study of QLT0074 in BPH to evaluate safety and preliminary efficacy.
Androgenetic Alopecia
Androgenetic alopecia (male pattern baldness) is a widespread condition for
which many men seek treatment. Present pharmacological therapies have limited
efficacy and have certain limitations or pose inconveniences. Hair transplants
provide satisfactory outcomes but are costly and invasive.
Preclinical studies conducted in 2001 suggest that under certain conditions,
PDT with QLT0074 may be useful in this indication. QLT commenced a Phase I/II
proof of concept clinical study with QLT0074 to evaluate safety and preliminary
efficacy in October of 2002. Six-month results from the Phase I/II study are
expected to become available in the second quarter of 2003.
NON-PDT PRODUCTS
TARIQUIDAR
Multi-Drug Resistance in Non-Small Cell Lung Cancer and Breast Cancer
Approximately 30% to 80% of cancers, depending on tumor type, are resistant
or can develop resistance to chemotherapy, leaving patients and doctors with few
options when conventional treatments fail. The most common form of resistance to
chemotherapy is multi-drug resistance ("MDR"), which occurs when chemotherapy
drugs are actively pumped out of tumor cells. MDR is seen with many of the most
widely used chemotherapeutic drugs used in the treatment of common cancers.
The expulsion of a chemotherapy drug is believed to be due in part to the
over-production in the cancer cell membrane of a protein pump known as
P-glycoprotein (P-gp). The goal of a multi-drug P-gp inhibitor is to effectively
block the P-gp pump, thereby permitting higher concentrations of
chemotherapeutic drug to remain within the tumor cell. If successful, such a
compound would be used in combination with certain chemotherapy drugs to
potentially increase the efficacy of the chemotherapy drugs.
9
In August of 2001, QLT entered into an exclusive development and license
agreement with Xenova Limited ("Xenova") in respect of tariquidar (formerly
called "XR9576"), a non-cytotoxic compound designed to inhibit P-gp mediated MDR
in certain common cancer types. Under the terms of the agreement, QLT has the
exclusive right to develop tariquidar in North America and Europe and to market
tariquidar in North America for the treatment of cancer.
Xenova began Phase IIa trials with tariquidar early in 1999 and completed
them in 2001. In these trials, the pharmacokinetic behaviour of tariquidar was
studied in combination therapy with a range of marketed cancer drugs, namely
vinorelbine, doxorubicin and paclitaxel. The primary purpose of these trials,
which were carried out at a number of centers in the United States and Europe,
was to assess the degree of pharmacokinetic interaction, if any, between
tariquidar and certain cancer drugs. During 2000 and 2001 QLT reported that
minimal clinically significant pharmacokinetic interaction between tariquidar
and widely used chemotherapy drugs was observed in the three Phase IIa trials.
In June of 2002 QLT commenced two Phase III clinical trials for non-small
cell lung cancer in combination with chemotherapy. At the time enrollment in the
two trials was commenced, QLT expected to enroll approximately 1,000 patients in
over 100 centers in North America, Europe and Russia. The two studies are
randomized, placebo controlled trials using tariquidar in combination with two
of the most commonly used chemotherapy treatment regimes (paclitaxel plus
carboplatin in the trial known as TLC1, and vinorelbine alone, in the trial
known as TLC2). The trials are designed to demonstrate the ability of tariquidar
to enhance the efficacy of chemotherapy agents. Overall survival is the
end-point in both trials.
In October of 2002, the FDA granted fast track review status to tariquidar
for the treatment of multi-drug resistance in non-small cell lung cancer
patients.
On February 20, 2003, QLT temporarily halted further enrollment in the two
trials, pursuant to the recommendation of the Data Safety and Monitoring
Committee ("DSMC"), based on safety concerns regarding toxicity levels, pending
an interim analysis of safety and efficacy, on 150 patients in the two trials
(the first 100 in TLC1, and the first 50 in TLC2). The interim analyses are
expected to occur in May of 2003, for TLC1, and June of 2003, for TLC2. Over 350
patients are currently enrolled in the trials. These patients will continue to
be treated in accordance with the trial protocol, also in accordance with the
recommendation of the DSMC. Prior to the temporary enrollment halt, QLT had
expected to complete enrollment in both trials during the fourth quarter of
2003.
In December of 2001, QLT began enrolling patients into its Phase II clinical
trial of tariquidar for the treatment of refractory breast cancer. This trial
may enroll up to 30 patients. The Company expects to complete enrollment in the
trial by the end of 2003.
STRATEGIC ALLIANCES AND COLLABORATIONS
Strategic alliances and collaborations are an integral part of QLT's
strategy for the research, development, manufacture and marketing of its
products.
NOVARTIS OPHTHALMICS. On February 6, 1995, the Company entered into an
agreement (the "NVO Co-Development Agreement") with Novartis Ophthalmics to
pursue worldwide joint development and commercialization of PDT products,
including Visudyne, as potential treatments for certain eye diseases through the
Alliance. Under the terms of that agreement, QLT is responsible for 40% to 50%
of research and development costs for Visudyne, and Novartis Ophthalmics is
responsible for the remaining 50% to 60% of such costs. QLT is responsible for
the manufacturing and product supply of Visudyne and Novartis Ophthalmics is
responsible for sales, marketing and distribution. QLT and Novartis Ophthalmics
share equally the profits realized on revenues from product sales after
deductions for marketing costs and manufacturing costs (including any
third-party royalties).
On July 23, 2001, the Company and Novartis Ophthalmics entered into an
agreement to amend the NVO Co-Development Agreement to include the
co-development of PDT with verteporfin to treat non-melanoma skin cancer and
other dermatological conditions. Under the terms of the amended NVO
Co-Development Agreement, Novartis Ophthalmics has committed to fund 100% of the
future development costs of verteporfin in non-melanoma skin cancer to a maximum
of $9.7 million or until the filing for marketing
10
approval in the United States or the European Union. Thereafter, each of QLT and
Novartis Ophthalmics will be responsible for 50% of any remaining development
costs, and QLT and Novartis Ophthalmics will share equally the profits realized
on revenues from product sales after deductions for marketing costs and
manufacturing costs (including any third-party royalties).
XENOVA. On August 13, 2001, the Company entered into an exclusive
development and license agreement with Xenova for tariquidar, a P-gp inhibitor
for multi-drug resistance in cancer which has completed Phase II clinical
trials. Under the agreement, QLT assumed responsibility for the continued
development of tariquidar in North America and Europe and acquired marketing
rights for North America. QLT paid Xenova an initial licensing fee of $10
million and agreed to make additional payments up to a maximum of $50 million
upon achievement of certain milestones. If tariquidar is commercialized, the
Company will pay a royalty to Xenova in the range of 15% to 22% based on the
level of North American sales. Under the agreement, Xenova contributes $2
million to QLT in respect of its development efforts during the first two years.
KINETEK PHARMACEUTICALS, INC. QLT and Kinetek Pharmaceuticals, Inc.
("Kinetek") are collaborating to develop compounds known as signal transduction
inhibitors for the treatment of ocular, immune system and kidney diseases
pursuant to a research and development agreement entered into during 2001. Under
that agreement QLT has an option to obtain an exclusive license for up to five
compounds. Under the terms of the option, the Company will have the right, on
making certain payments, to take over the clinical development and
commercialization of each compound at a specified stage of development. Further
information regarding Kinetek is provided in "Management Discussion and Analysis
- - (Writedown) Gain on Investments."
PRODUCT MANUFACTURING
QLT does not own or operate any manufacturing facilities at present.
Visudyne is currently manufactured in stages by several contract facilities
located in the U.S., Canada, Europe and Japan. QLT has long-term supply
agreements with Raylo Chemicals, Nippon Fine Chemicals of Japan, Parkedale
Pharmaceuticals, Merck KGaA, Harimex Ligos BV and Sato Pharmaceuticals for
manufacturing activities in the commercial production of Visudyne.
QLT has entered into a development agreement with R.P. Scherer West, Inc.
(formerly SP Pharmaceuticals L.L.C) in support of a secondary manufacturing
facility for certain activities in the commercial production of Visudyne. That
agreement contemplates the parties entering into a long-term supply agreement;
negotiations of the long-term supply agreement are in progress.
The key starting materials for the Visudyne manufacturing process are
secured by long-term supply agreements. No significant delays or interruption of
supply have been experienced with respect to the key starting materials for
Visudyne.
QLT is in the process of finalizing a development agreement with Raylo for
the manufacturing of tariquidar. QLT has entered into a Master Services
Agreement with Hollister-Steir (U.S.A.) for manufacturing tariquidar for
clinical supply.
QLT's other products are manufactured by various contract facilities in the
U.S., Canada, Europe and Japan.
MEDICAL DEVICES FOR PDT
An integral component of PDT is the requirement for a medical device or
devices to deliver light to the target tissue to activate the photosensitizer.
QLT leverages the expertise of medical device companies to develop and market
lasers, laser diodes and other photonic devices to use with its drugs. QLT
continues to play an active role with medical device companies in North America
and Europe to ensure the availability of commercial, state-of-the-art light
sources and delivery systems to the medical community. See " -- Government
Regulation".
11
Diode laster systems required for Visudyne therapy are manufactured and sold
by two medical device companies, Zeiss-Meditic ("Zeiss") (formerly Carl Zeiss,
Inc.) and Lumenis Ltd. ("Lumenis"), formerly Coherent Inc. The Alliance
collaborates with Lumenis and Zeiss for the supply of lasers for use in
conjunction with Visudyne therapy. Both Lumenis and Zeiss have portable diode
lasers that have been commercially approved for use with Visudyne in the U.S.
and Europe. Approximately 1,700 of these diode lasers have been placed with
medical facilities. With the FDA's approval of the device applications, QLT
transferred ownership of the regulatory approvals for the Lumenis and Zeiss
laser products to the respective companies. See "-- Government Regulation -
Regulation of Combination Products".
PATENTS AND PROPRIETARY RIGHTS
QLT seeks to protect its proprietary technology through patents and security
measures to the extent it deems appropriate. QLT currently owns or has rights
under a number of patents and patent applications that cover certain of its
technologies and products in the U.S., Canada and other jurisdictions.
QLT's policy is to file patent applications on a worldwide basis in such
jurisdictions as it deems beneficial depending on the subject matter. QLT also
relies on trade secrets to maintain its competitive position.
QLT has an exclusive worldwide license from the University of British
Columbia ("UBC") for all of the patents and know-how owned by UBC relating to
verteporfin, QLT0074 and certain additional photosensitizers and their use in
PDT. In the U.S. and other jurisdictions, verteporfin is claimed as a
composition of matter as well as for use in methods to destroy or impair the
function of unwanted cells.
QLT has numerous U.S. patents issued and many corresponding non-U.S. patents
issued relating to PDT. Some of these patents are general to photoactive agents
and others are limited to the use of verteporfin or QLT0074.
QLT has an exclusive license from Xenova to certain patent rights related to
tariquidar. The compound tariquidar and methods of using it to modulate
P-gp-mediated multidrug resistance in the treatment of tumors are the subject of
an issued U.S. patent held by Xenova and licensed to QLT. Equivalent patent
applications are pending in many other jurisdictions, including Canada.
In addition, QLT has several registered trademarks in the U.S. and Canada
and in other jurisdictions.
QLT indirectly receives government grants and other assistance for certain
of its research and development programs. The manner in which QLT commercializes
inventions developed through government assistance may be subject to certain
restrictions and control by the relevant government-funding agency. QLT does not
believe that any such restrictions will have any material adverse effect on the
commercialization of its products.
Although a patent has a statutory presumption of validity, the issuance of a
patent is not conclusive as to its validity or as to enforceability of its
claims. Accordingly, there can be no assurance that QLT's patents will afford
legal protection against competitors, nor can there be any assurance that the
patents will not be infringed by others or that others will not obtain patents
that QLT would need to license.
Unpatented trade secrets, improvements, confidential know-how and continuing
technological innovation are important to QLT's scientific and commercial
success. Although QLT attempts to and will continue to protect its proprietary
information through reliance on trade secret laws and the use of confidentiality
agreements with its corporate partners, collaborators, employees and consultants
and other appropriate means, there can be no assurance these measures
effectively will prevent disclosure of QLT's proprietary information or that
others will not develop independently or obtain access to the same or similar
information or that QLT's competitive position will not be affected adversely
thereby.
There are two pending lawsuits relating to QLT's rights to two U.S. patents.
See "Legal Proceedings".
12
GOVERNMENT REGULATION
OVERVIEW. All drugs developed or marketed in the United States, including
Visudyne, tariquidar and QLT's other products, are subject to extensive and
rigorous regulation by the United States federal government, principally the
FDA, and by state and local governments in the United States. The regulatory
clearance process is lengthy, expensive and uncertain. The Federal Food, Drug,
and Cosmetic Act (the "FDC Act"), and other federal statutes and regulations,
govern or influence the development, design, testing, manufacture, labeling,
storage, approval, advertising, promotion, sale and distribution of such
products. Failure to comply with applicable FDA and other regulatory
requirements can result in sanctions being imposed on QLT or the manufacturers
of its products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the U.S., refusals of the FDA to grant approval of drugs or to allow QLT to
enter into government supply contracts, withdrawals of previously approved
marketing applications and criminal prosecutions.
In addition to the applicable FDA requirements, QLT is subject to Canadian
regulations governing clinical trials and sales and the regulations in any other
country in which QLT proposes to market drugs. In the EU countries and Canada,
regulatory requirements and approval processes are similar in principle to those
in the United States.
Depending on the type of drug for which approval is sought, there are
currently two potential tracks for marketing approval in the EU countries:
mutual recognition and the centralized procedure. These review mechanisms may
ultimately lead to approval in all EU countries, but both methods grant each
participating country some decision-making authority in product approval.
Whether or not FDA approval has been obtained, approval of a product by the
comparable regulatory authorities in Europe, Canada and other countries must be
obtained prior to the commencement of marketing of the product in those
countries. The approval process varies from country to country and the time
required may be longer or shorter than that required for FDA approval.
Unapproved new drugs in the U.S. can only be exported from the U.S. to certain
countries if they are approved in the country of import and otherwise comply
with the laws of that country, among other requirements. There can be no
assurance that QLT will be able to obtain necessary U.S., Canadian or foreign
clearances or approvals, where necessary, on a timely basis, if at all, for any
of its products under development, and delays in receipt or failure to receive
such clearances or approvals, the loss of previously received clearances or
approvals, or failure to comply with existing or future regulatory requirements
could have a material adverse effect on QLT's business, financial condition and
results of operations.
Drugs manufactured or distributed pursuant to FDA approvals are subject to
pervasive and continuing regulation by the FDA and certain state agencies.
Manufacturers are subject to inspection by the FDA and those state agencies, and
must comply with the host of regulatory requirements that apply to drugs
marketed in the U.S., including the FDA's labeling regulations, Good
Manufacturing Practice ("GMP") requirements, adverse event reporting
(requirements that a manufacturer report to the FDA certain types of adverse
events involving its products), and the FDA's general prohibitions against
promoting products for unapproved or "off-label" uses. Non-compliance with
applicable regulatory requirements could result in enforcement action by the
FDA, which could have a material adverse effect on QLT.
REGULATION OF DRUGS. Different types of FDA regulation apply to various drug
products, depending upon whether they are marketed only upon the order of a
physician or over-the-counter, are biological drugs, or are controlled drugs
such as narcotics. Product development and approval within this regulatory
framework takes a number of years, involves the expenditure of substantial
resources and is uncertain. Many drug products that initially appear promising
ultimately do not reach the market because they are not found to be safe and
effective or cannot meet the FDA's other regulatory requirements. In addition,
there can be no assurance that the current regulatory framework will not change
or that additional regulation will not arise at any stage of QLT's product
development that may affect approval, delay the submission or review of an
application or require additional expenditures by QLT.
The activities required before a new drug product may be marketed in the
U.S. primarily begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry and other characteristics and animal
studies to assess the potential safety and efficacy of the product as
formulated. Many preclinical studies are regulated by the FDA under a series of
regulations called the current Good
13
Laboratory Practice ("GLP") regulations. Violations of these regulations can, in
some cases, lead to invalidation of the studies, requiring such studies to be
replicated.
The entire body of preclinical development work necessary to administer
investigational drugs to human volunteers or patients, along with relevant
manufacturing information about the drug and the proposed clinical protocol, is
summarized in an Initial New Drug ("IND") application to the FDA. FDA
regulations provide that human clinical trials may begin 30 days following
receipt of an IND application, unless the FDA advises otherwise or requests
additional information, clarification or additional time to review the
application. There is no assurance that the submission of an IND will eventually
allow a company to commence clinical trials. Once trials have commenced, the FDA
may stop the trials, or particular types of trials, by placing a "clinical hold"
on such trials because of concerns about, for example, the safety of the product
being tested. Such holds can cause substantial delay and in some cases may
require abandonment of a product.
Clinical testing involves the administration of a drug to healthy human
volunteers or to patients under the supervision of a qualified principal
investigator, usually a physician, pursuant to an FDA reviewed IND protocol.
Each clinical study is conducted under the auspices of an Institutional Review
Board ("IRB") in respect of each of the clinical sites at which the study will
be conducted. An IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the clinical site. Human
clinical trials typically are conducted in three sequential phases, but the
phases may overlap. Phase I clinical studies consist of testing the product in a
small number of patients or normal volunteers, primarily for safety, in one or
more dosages, as well as characterization of a drug's pharmacokinetic and/or
pharmacodynamic profile. In Phase II, in addition to safety, the efficacy of the
product is evaluated in a patient population. Phase III clinical studies
typically involve additional testing for safety and clinical efficacy and an
expanded population at geographically dispersed sites. A clinical plan, or
"protocol," accompanied by the approval of an IRB, must be submitted to the FDA
prior to commencement of each Phase of clinical study. All patients involved in
a clinical study must provide informed consent prior to their participation. The
FDA may order the temporary or permanent discontinuance of a clinical study at
any time for a variety of reasons, particularly if safety concerns exist. These
clinical studies must be conducted in conformance with the FDA's bioresearch
monitoring regulations.
A company seeking FDA approval to market a new drug that is a new chemical
entity must file an New Drug Application (an "NDA") with the FDA pursuant to the
FDC Act or a Market Authorization Application ("MAA") in Europe. In addition to
reports of the preclinical and clinical trials conducted under an effective IND
application, the NDA includes information pertaining to the preparation of the
drug substance, analytical methods, drug product formulation, details on the
manufacture of finished products and proposed product packaging and labeling.
Submission of an NDA does not assure FDA approval for marketing. The application
review process generally takes one to three years to complete, although reviews
of treatments for cancer, AIDS, and other life-threatening diseases may be
accelerated, expedited or subject to fast track handling. The process may take
substantially longer if, among other things, the FDA has questions or concerns
about the safety and/or efficacy of a product. In general, the FDA requires at
least two properly conducted, adequate and well-controlled clinical studies
demonstrating efficacy with sufficient levels of statistical and clinical
significance. However, additional information may be required. For example, the
FDA also may request long-term toxicity studies or other studies relating to
product safety or efficacy. Notwithstanding the submission of such data, the FDA
ultimately may decide that the application does not satisfy its regulatory
criteria for approval and may not approve the NDA. Finally, the FDA may require
additional clinical tests following NDA approval to confirm safety and efficacy
(Phase IV clinical studies).
In addition, the FDA may in some circumstances impose restrictions on the
use of the drug that may be difficult and expensive to administer. Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems occur after the product reaches the market. After a
product is approved for a given indication, subsequent new indications or dosage
levels for the same product are reviewed by the FDA via the filing and upon
approval of a supplement. The supplement is much more focused than the original
application and deals primarily with safety and effectiveness data related to
the new indication or dosage. Finally, the FDA requires reporting of certain
safety and other information that becomes known to a manufacturer of an approved
drug. If an active ingredient of a drug product has been previously approved,
there may be other types of drug applications that can be filed that are less
time-consuming and costly. No assurance exists that any of these types of drug
applications will be available or benefit QLT.
14
The product testing and approval process is likely to take a substantial
number of years and involve expenditure of substantial resources. There can be
no assurance that any approval will be granted on a timely basis, or at all. The
FDA also may require postmarketing testing and surveillance to monitor the
record of the product and continued compliance with regulatory requirements.
Upon approval, a prescription drug may only be marketed for the approved
indications in the approved dosage forms and at the approved dosage. Adverse
experiences with the product must be reported to the FDA.
Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's current GMP regulations for drugs.
In complying with the GMP regulations, manufacturers must continue to expend
time, money and effort in product, record keeping and quality control to assure
that the product meets applicable specifications and other requirements. In
addition, advertising and promotional materials relating to QLT's drugs are
subject to regulation by the FDA. The FDA periodically inspects manufacturing
facilities in the U.S. and abroad in order to ensure compliance with applicable
GMP requirements and all other regulatory requirements. Failure of QLT or QLT's
contract manufacturers of Visudyne to comply with the FDA's GMP regulations or
other FDA regulatory requirements could have a significant adverse effect on
QLT's business, financial condition and results of operations. See "-- Product
Manufacturing".
QLT currently has active INDs for the ongoing clinical trials for Visudyne
and for verteporfin for the treatment of various ocular indications and multiple
basal cell carcinoma. In addition, QLT has active INDs for QLT0074 (BPH and
androgenetic alopecia) and tariquidar (non-small cell lung cancer and breast
cancer). It is uncertain if and when QLT will submit NDAs for any of these drugs
for any of the studied indications. There can be no assurance that any of these
studies will be completed or, if completed, will demonstrate that the drugs are
safe and effective for their intended uses, nor can assurance be given that
approval will be granted by the FDA on a timely basis, or at all, for any of
these drugs for the studied indications.
REGULATION OF COMBINATION PRODUCTS. Medical products containing a
combination of drugs, including biologic drugs, or devices may be regulated as
"combination products" in the U.S. A combination product generally is defined as
a product comprised of components from two or more regulatory categories
(drug/device, device/biologic, drug/biologic, etc.). Each component of a
combination product is subject to the requirements established by the FDA for
that type of component, whether a drug, including a biologic drug, or device.
In order to facilitate premarket review of combination products, the FDA
designates one of its centers to have primary jurisdiction for the premarket
review and regulation of both components. The FDA makes the determination
whether a product is a combination product or two separate products on a
case-by-case basis.
OTHER REGULATIONS. QLT is subject to numerous federal, state, provincial and
local laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
QLT will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
materially adverse effect upon QLT's ability to do business. Unanticipated
changes in existing regulatory requirements, failure of QLT to comply with such
requirements or adoption of new requirements could have a material adverse
effect on QLT.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. QLT's competitors include major
pharmaceutical and bio-pharmaceutical companies, many of which have financial,
technical and marketing resources significantly greater than those of QLT and
substantially greater experience in developing products, conducting preclinical
and clinical testing, obtaining regulatory approvals, manufacturing and
marketing. In addition, many bio-pharmaceutical companies have formed
collaborations with large, established pharmaceutical companies to support
research, development and commercialization of products that may be competitive
with QLT's products. Academic institutions, government agencies and other public
and private research organizations also are conducting research activities and
seeking patent protection and may commercialize products on their own or through
joint ventures. The existence of these products, or other products or treatments
of which QLT is not aware, or
15
products or treatments that may be developed in the future, may adversely affect
the marketability of products developed by QLT.
QLT is aware of a number of competitors or potential competitors developing
therapies in markets of interest to QLT, including AMD. In particular, QLT
believes that EyeTech Pharmaceuticals and Pfizer, Genentech, Inc., Alcon
Laboratories, Inc., and Iridex Corporation are developing or may develop
competitive therapies targeted for the AMD employing different technologies,
several of which involve injections directly into the eye.
QLT is also aware that other companies are engaged in the development of
products which might become competitive to QLT's products, but none are
considered as advanced as those of the companies' mentioned above.
QLT believes that these competitors are or might be conducting preclinical
studies and clinical testing on their own or with certain third parties in
various countries for a variety of diseases and medical conditions in which we
have ongoing development programs. These and other companies also may be
involved in competitive activities of which we are not aware.
An important competitive factor is the timing of market introduction of
products by QLT or its competitors. Accordingly, the relative speed with which
QLT and QLT's present and future collaborative partners can develop products,
complete the clinical trials and approval processes and supply commercial
quantities of products to the market is critical. QLT does not believe that
regulatory approval for the products of the competitors named above would be
obtainable before the end of 2004.
QLT's competition will be determined in part by the potential indications
for which QLT's products are developed and ultimately approved by regulatory
authorities. The development by competitors of new treatment methods for those
indications for which QLT is developing products could render QLT's products
non-competitive or obsolete. QLT expects that competition among products
approved for sale will be based, among other things, on product efficacy,
safety, reliability, availability, price and intellectual property protection.
LIABILITY AND PRODUCT RECALL
The testing, manufacture, marketing and sale of human pharmaceutical
products entail significant inherent risks of allegations of product defects.
The use of QLT's products in clinical trials and the sale of such products may
expose QLT to liability claims alleged to result from the use of such products.
These claims could be made directly by patients or consumers, healthcare
providers or others selling the products. In addition, QLT is subject to the
inherent risk that a governmental authority may require the recall of one or
more of QLT's products. QLT currently carries clinical trials and product
liability insurance to cover certain claims that could arise during the clinical
studies of QLT's products, or during the commercial use of Visudyne. The limits
of liability under the insurance policy are $20 million per incident and per
year in the aggregate. Such coverage and the amount and scope of any coverage
obtained in the future may be inadequate to protect QLT in the event of a
successful product liability claim, and there can be no assurance that the
amount of such insurance can be increased, renewed or both. A successful product
liability claim could materially adversely affect the business, financial
condition or results of operations of QLT.
Further, liability claims relating to the use of QLT's products or a product
recall could negatively affect the Company's ability to obtain or maintain
regulatory approval for its products. QLT has agreed to indemnify certain of its
collaborative partners against certain potential liabilities relating to the
manufacture and sale of QLT's products.
ENVIRONMENT
QLT seeks to comply with all applicable statutory and administrative
requirements concerning environmental protection. It is not anticipated that
expenditures for environmental protection will have a material adverse effect on
QLT's capital expenditures, earnings or competitive position.
16
QLT is the owner of the land on which its head office and research
facilities are located in Vancouver, British Columbia, and an adjacent site.
When the head office site was purchased in 1998, the vendor provided QLT
with a Certificate of Compliance, issued by the Ministry of Environment, Lands
and Parks of the Province of British Columbia, concerning the satisfaction of
environmental standards and regulations as prescribed or required under the
Waste Management Act (British Columbia).
When the adjacent site was purchased by QLT in 2001, the vendor provided QLT
with a Certificate of Compliance issued by the Ministry of Environment, Lands
and Parks of the Province of British Columbia, concerning the remediation of the
lands to meet environmental standards and regulations as prescribed or required
under the Waste Management Act (British Columbia).
In addition, QLT has an indemnification from the vendor of both properties
concerning future environmental liabilities associated with the property. See
"-- Properties".
RESEARCH AND DEVELOPMENT
During the years ended December 31, 2002, 2001, and 2000, QLT's total
research and development expenses were $42.3 million, $42.9 million and $32.8
million respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
HUMAN RESOURCES
As of February 28, 2003, QLT had 336 employees, of which 179 were engaged in
research, development, clinical and regulatory affairs, manufacturing and
process development, and medical devices. 157 of these employees were engaged in
administration, commercial operations and materials management, corporate
communications, corporate development, finance, information technology, human
resources and marketing and sales planning. All QLT employees are located in
Canada. None of QLT's employees belong to a labor union and QLT considers its
relationship with its employees to be good. QLT believes it offers competitive
compensation, incentive and fringe benefit programs, which include equity
participation plans.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set out below is certain information with respect to the Company's executive
officers as of February 28, 2003:
NAME AGE POSITION
---- --- --------
Paul J. Hastings..................... 43 President, Chief Executive Officer and Director
Mohammad Azab........................ 47 Senior Vice President and Chief Medical Officer
Robert L. Butchofsky................. 41 Vice President, Marketing and Sales Planning
Alain H. Curaudeau................... 46 Senior Vice President, Project Planning and Management
Michael J. Doty...................... 56 Senior Vice President and Chief Financial Officer
Therese Hayes........................ 36 Vice President, Corporate Communications and Investor
Relations
17
NAME AGE POSITION
---- --- --------
Linda M. Lupini...................... 43 Senior Vice President, Human Resources and
Administration
Lawrence D. Mandt.................... 50 Senior Vice President, Quality and Regulatory Affairs
William J. Newell.................... 45 Senior Vice President and Chief Business Officer
Ian Patrick, 60 Vice President, Manufacturing and Pharmaceutical
Ph.D.................... Development
Paul J. Hastings was appointed President, Chief Executive Officer and a
Director of the Company effective February 17, 2002. From January 2001 to
February 15, 2002, Mr. Hastings was President, CEO and a Director of Axys
Pharmaceuticals, Inc., where he was responsible for all aspects of the
organization including leading the strategic acquisition of Axys by Celera
Corporation. Since starting his career in 1984 with Hoffman La Roche, Mr.
Hastings has held various positions of increasing responsibility with notable
biotech and pharmaceutical companies. From June 1999 to January 2001, Mr.
Hastings was President of Chiron BioPharmaceuticals. From June 1998 to June
1999, Mr. Hastings was President and Chief Executive Officer of LXR
Biotechnology. From 1994 to 1998, amongst his positions of increasing
responsibility at Genzyme, Mr. Hastings was Vice-President, Global Marketing,
Genzyme Corporation; Vice-President, General Manager of Genzyme Therapeutics
Europe; President, Genzyme Therapeutics Europe; and President, Genzyme
Therapeutics Worldwide. From 1988 to 1994, included in Mr. Hastings' increasing
positions of responsibility at Synergen, Mr. Hastings was Vice-President,
Marketing and Sales of Synergen, Inc. and Vice-President, General Manager of
Synergen Europe, Inc. Mr. Hastings holds a Bachelor of Science in Pharmacy from
the University of Rhode Island. Mr. Hastings is a member of the boards of
directors of several organizations including ViaCell Inc., B.C.'s Leading Edge
Endowment Fund, Arriva Pharmaceuticals, the B.C. Biotech Association and
Vancouver's St. Paul's Hospital.
Mohammad Azab, M.D., joined the Company as Vice President, Clinical Research
and Medical Affairs in 1997 and was promoted to Senior Vice President, Clinical
Research and Medical Affairs in March 2000. Dr. Azab became Chief Medical
Officer in February of 2003. Prior to joining QLT, Dr. Azab spent five years
with Zeneca Pharmaceuticals in Manchester, England, where he was responsible for
international clinical development of oncology and gynecology drugs and three
years with Sanofi as worldwide medical manager of oncology. Dr. Azab has been
actively involved in the development of several currently approved drugs mainly
in the fields of oncology and ophthalmology. Before joining industry, Dr. Azab
practiced as an oncologist and lectured in oncology at the Institute Gustave
Roussy, the University of Paris-Sud in France and at Cairo University in Egypt.
Dr. Azab has authored over one hundred papers and abstracts and is a member of
the American Society of Clinical Oncology and the European Society of Medical
Oncology.
Robert L. Butchofsky joined QLT in 1998 as Associate Director, Ocular
Marketing and was appointed Vice President, Marketing and Sales Planning in
September 2001. Mr. Butchofsky is now responsible for the ongoing marketing of
Visudyne as well as the creation of an oncology sales force within QLT to market
new products currently in development. Prior to joining QLT, Mr. Butchofsky
spent eight years at Allergan where he built an extensive background with ocular
products including sales, health economics, worldwide medical marketing, and
product management. Prior to joining Allergan, Mr. Butchofsky spent several
years managing clinical trials at the Institute for Biological Research and
Development. Mr. Butchofsky holds a Bachelor of Arts degree in Biology from the
University of Texas and a Masters of Business Administration from Pepperdine
University.
Alain H. Curaudeau joined QLT in 2000 as Vice President, Project Planning
and Management and was promoted to Senior Vice President, Project Planning and
Management in July 2001. He came to QLT with extensive global experience in
pharmaceutical R&D after serving more than 15 years with Rhone-Poulenc Rorer
("RPR"), a major international pharmaceutical company. Mr. Curaudeau's tenure
with RPR included 14 years of progressively senior positions in project
management, in France and in the U.S. Most recently he was designated head of
Project Management for Aventis, a new company formed in 1999 by the merger
between RPR and Hoechst AG. Mr. Curaudeau holds a Bachelors and Masters degree
in Pharmacy from the University of Chatenay-Malabry, Paris, France. He is also a
graduate of the Toxicology and
18
Pharmacokinetics Programs from the same university and received academic
training in toxicological pathology from the National Veterinary School in
Toulouse, France.
Michael J. Doty joined QLT as Senior Vice President and Chief Financial
Officer of the Company in November 2001. Mr. Doty is a Certified Public
Accountant with more than 25 years of experience in a wide range of financial,
administrative and planning positions at companies such as 3M, Honeywell, Inc.
and Reckitt & Colman, PLC (now Reckitt Benckiser PLC). Prior to joining QLT,
from May 1999 to October 2001, he was Senior Vice President and Chief Financial
Officer of Inamed Corporation, a global supplier of medical devices. From 1997
to 1999, Mr. Doty was the Vice President and Chief Financial Officer of O-Cedar
Brands, Inc., a private consumer product company based in Cincinnati, and from
1994 to 1997, he was the Vice President and Chief Financial Officer of White
Systems, Inc., a manufacturer and software developer. Mr. Doty holds Bachelor of
Chemistry, Institute of Technology and Bachelor of Science, Business
Administration degrees from the University of Minnesota and a Master of Business
Administration degree from the University of St. Thomas.
Therese Hayes became Vice President, Corporate Communications and Investor
Relations in February, 2003. Ms. Hayes joined QLT in 2001 as Senior Director,
Corporate Communications and Investor Relations. Ms. Hayes is responsible for
all aspects of internal and external communications and investor relations for
the Company. Ms. Hayes brought 15 years of management experience in healthcare
and biotechnology, including scientific research, financial and scientific
communications and business development to QLT. Prior to joining QLT, Ms. Hayes
was Vice President Corporate Communications at SangStat Medical Corporation, a
biotechnology company based in California. Ms. Hayes holds a Bachelor of Science
degree from the University of Waterloo, a Masters of Microbiology and Immunology
and a Masters of Health Administration, both from the University of Ottawa.
Linda M. Lupini was promoted to Senior Vice President, Human Resources and
Administration in February of 2003. Ms. Lupini joined QLT in 1997 as Director,
Human Resources, and was promoted to Vice President, Human Resources and
Administration in March 2000. Ms. Lupini joined QLT after serving as Human
Resources Director at MacDonald Dettwiler and Associates Ltd., a leading
technology firm in Western Canada. Ms. Lupini, who holds a Bachelor of Arts
degree in psychology from the University of British Columbia, is a member of
several human resource and industry associations and is currently serving as a
member representing employers on the British Columbia Employment Standards
Tribunal.
Lawrence D. Mandt joined QLT in 1999 as Vice President, Regulatory Affairs
and was promoted to Senior Vice President, Quality and Regulatory Affairs in
September 2000. Mr. Mandt brought 25 years of experience and a strong base of
scientific research and regulatory and medical affairs management when he joined
the Company. During his 15 years at the U.S.-based headquarters of Bausch &
Lomb, he rose through progressively senior positions in clinical and biological
research management before joining CIBA Vision where he led the regulatory and
medical affairs team and was their chief liaison with the FDA. In addition to
previous posts held at Merck Sharp & Dohme and Amstar, Mr. Mandt, who holds a
Bachelor of Science degree in Biology from Mankato State University, has also
been an active member in a number of industry organizations.
William J. Newell joined QLT as Senior Vice President and Chief Business
Officer in June of 2002. Mr. Newell is a lawyer with extensive legal and
business development experience. Prior to joining QLT, Mr. Newell was Senior
Vice President, Corporate and Business Development of Celera Genomics
(previously Axys Pharmaceuticals). Mr. Newell joined Axys in 1998 and held
various positions of increasing responsibility including Vice President, General
Counsel and Senior Vice President, Corporate and Business Development and
General Counsel. Prior to joining Axys Mr. Newell was a partner in the law firm
of McCutchen, Doyle, Brown & Enersen LLP, where he specialized in strategic
business transactions, including mergers and acquisitions and licensing and
financing transactions. Mr. Newell is a member of the board of BIOTECanada.
Ian Patrick Ph.D. became Vice-President, Manufacturing and Pharmaceutical
Development in February of 2003. Dr. Patrick joined QLT in 2001 after several
years as a consultant to the British biotechnology industry where he specialized
in regulatory affairs including redesign and validation of facilities, processes
and controls. He has many years of experience in manufacturing and process
development as well as project management and facility development, and he began
his career as a research scientist. Dr. Patrick has his
19
Bachelor of Science degree (Honours) and his Ph.D. from Leeds University in the
United Kingdom. He is a long standing Fellow of the Royal Society of Chemistry
in the U.K.
To complement its own expertise in various fields, QLT utilizes scientific
consultants and advisors, all of whom have formal consulting agreements with the
Company.
RISK FACTORS
In addition to the other information included in this Annual Report, you
should consider carefully the following factors, which describe many, but not
necessarily all, of the risks, uncertainties and other factors that may
materially and adversely affect our business, financial condition and operating
results. We are identifying these as important factors that could cause actual
events or our actual results to differ materially from those contained in any
written or oral forward-looking statements within the meaning of the Private
Securities Reform Act of 1995 made by us or on our behalf in this Annual Report
or elsewhere. We are relying upon the safe harbor for forward-looking statements
and any such statements are qualified by reference to the cautionary statements
set out elsewhere in this Annual Report.
FUTURE SALES FROM VISUDYNE(R) MAY BE LESS THAN EXPECTED.
Our prospects are highly dependent upon increasing the sales of our only
commercial product, Visudyne. Our revenues to date have consisted largely of
revenue from product sales of Visudyne by Novartis Ophthalmics. If sales of
Visudyne fail to increase, it would have a material adverse effect on our
business, financial condition and results of operations.
A number of factors may affect the rate and breadth of market acceptance of
Visudyne, including:
- - Perception by physicians and other members of the health care community on
the safety and efficacy of Visudyne
- - Patient and physician demand for Visudyne
- - Novartis Ophthalmics' effectiveness in marketing and selling Visudyne
- - Reimbursement policies of various government and third-party payors
- - Availability of sufficient commercial quantities of Visudyne
- - The placement and maintenance of a sufficient number of laser systems or
suitable alternate light sources in medical facilities
- - The price of Visudyne relative to other drugs or competing treatments
- - The need for retreatment of Visudyne throughout the treatment process may
not approximate retreatment rates during clinical development
- - The scope and timing of additional marketing approvals and favorable
reimbursement programs for expanded uses of Visudyne
- - Increased competition for Visudyne from new or existing products
- - Adverse side effects or unfavorable publicity concerning Visudyne or other
drugs in its class
20
OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE.
Until the fourth quarter of 2000, QLT had a history of operating losses.
Although QLT was profitable for the years 2000, 2001 and 2002, future operating
performance is not certain and the Company may not be able to maintain operating
profitability. Our accumulated deficit at December 31, 2002 was approximately
$52.9 million.
Our operating results may fluctuate from period to period for a number of
reasons. In budgetting our operating expenses, some of which are fixed in the
short term, we assume that revenues will continue to grow. Even a relatively
small revenue shortfall or a small increase in operating expenses may cause a
period's results to be below our expectations. A revenue shortfall or increase
in operating expenses could arise from any number of factors, such as:
- - Lower than expected revenues from sales of Visudyne by Novartis Ophthalmics
- - Changes in our product pricing strategies
- - High levels of marketing expenses for Visudyne, in particular outside of the
United States
- - Fluctuations in currency exchange rates
- - Unfavorable outcome of pending patent or securities litigation against QLT.
See "Legal Proceedings"
- - Higher than expected operating expenses as a result of increased costs
associated with the development or commercialization of Visudyne,
tariquidar, and our other product candidates
- - Increased operating expenses as a result of product, technology acquisitions
or other acquisitions or business combinations
OUR PRODUCT DEVELOPMENT EFFORTS FOR VISUDYNE(R), TARIQUIDAR AND OUR OTHER
PRODUCTS IN DEVELOPMENT MAY NOT YIELD MARKETABLE PRODUCTS DUE TO UNFAVORABLE
RESULTS OF CLINICAL STUDIES OR TRIALS, FAILURE TO ACHIEVE REGULATORY APPROVALS
OR MARKET ACCEPTANCE, PROPRIETARY RIGHTS OF OTHERS OR MANUFACTURING ISSUES.
Our success depends on our ability to successfully develop and obtain
regulatory approval to market new pharmaceutical products. Development of a
product requires substantial technical, financial and human resources even if
the product is not successfully completed.
Our potential products may appear to be promising at various stages of
development yet fail to reach the market for a number of reasons, including:
- - Lack of sufficient treatment benefit or unacceptable safety issues during
preclinical studies or clinical trials
- - Lack of commercial market opportunity
- - Results from preclinical and early clinical studies may not be predictive of
results obtained in large scale clinical trials
- - The FDA may suspend our clinical trials at any time if, among other reasons,
it concludes that patients participating in such trials are being exposed to
unacceptable health risks
- - Failure to receive necessary regulatory approvals after completion of
clinical trials
- - Existence of conflicting proprietary rights of third parties
- - Inability to develop manufacturing methods that are efficient,
cost-effective and capable of meeting stringent regulatory standards
21
Additional regulatory approvals will also be needed to expand the uses for
which Visudyne may be marketed in the United states and the European countries
and other markets where it is already approved or applications are pending, and
those approvals may be delayed, may not be obtained or may be more limited than
anticipated.
Pursuant to the recommendation of the Data Safety and Monitoring Committee
of the two Phase III studies of tariquidar in non small cell lung cancer,
enrollment in these trials has been halted pending an interim satefy and
efficacy analyses of 150 patients already enrolled in the two trials. There can
be no assurance that the Data Safety and Monitoring Committee will recommend
that enrollment in these trials recommence following these analyses. These
trials remain blinded, and QLT cannot predict what might be the outcome of the
interim analyses.
FAILURE OF NOVARTIS OPHTHALMICS TO EFFECTIVELY MARKET VISUDYNE(R) WOULD REDUCE
POTENTIAL REVENUES.
We are reliant on the efforts of Novartis Ophthalmics in promoting and
selling Visudyne. If Novartis Ophthalmics does not dedicate sufficient resources
to the promotion of Visudyne, or if Novartis Ophthalmics fails in its marketing
efforts, the revenues we receive from the sale of Visudyne would decrease and
our business and operating results would be adversely affected.
VISUDYNE(R) SALES ARE WORLDWIDE, AND CURRENCY FLUCTUATIONS MAY IMPAIR OUR
REPORTED FINANCIAL RESULTS.
In most significant markets, Visudyne is sold in the local currency.
Although we implement currency hedging techniques to mitigate the impact of
currency fluctuations on our financial results, these techniques do not
eliminate the effects of foreign currency fluctuations with respect to
anticipated revenues or cash flows, and, as they are short term in nature, do
not protect us from prolonged periods of currency fluctuations.
WE ARE DEPENDENT UPON THIRD-PARTIES TO DEVELOP AND COMMERCIALIZE SOME OF OUR
PRODUCT CANDIDATES.
Our strategy for the research, development, manufacture and marketing of
Visudyne and our other products includes entering into various arrangements with
third parties and therefore is dependent upon the subsequent success of these
third parties in performing their responsibilities under such arrangements.
Although we believe that parties to such arrangements have an economic incentive
to succeed in performing their contractual responsibilities, the amount and
timing of resources to be devoted to these activities generally are not under
our control. We cannot predict whether such parties, including Novartis
Ophthalmics, will perform their obligations as expected or whether significant
revenue will be derived or sustained from such arrangements. To the extent such
parties do not perform adequately under our various agreements with them, the
development and commercialization of our products may be delayed, may become
more costly to us or may be terminated.
In some cases, these agreements may be terminated by the other party with
limited notice, and, in certain circumstances, the other party may acquire
certain rights to the products under development upon termination.
IN THE FIELD OF PDT, WE ARE DEPENDENT UPON THE SUCCESS AND CONTINUED SUPPLY OF
THIRD-PARTY MEDICAL DEVICE COMPANIES WITH COMPLEMENTARY LIGHT SOURCE AND LIGHT
DELIVERY DEVICES.
Because PDT requires a light source, and in some instances a light delivery
system, to be used in conjunction with our photosensitizers, we are dependent
upon the success of medical device companies in placing and maintaining light
sources with the appropriate medical facilities and in distributing the light
delivery systems. If the medical device companies with whom we or our
collaborative partners have strategic relationships are unable to achieve the
appropriate placements of light sources and ensure an uninterrupted supply of
light delivery systems, as applicable, if they terminate the collaborative
arrangements to pursue more profitable market opportunities, or if they, as a
result of industry consolidation or for other reasons no longer supply
complementary light sources or light delivery systems, the sale of Visudyne by
our distribution partners and our share of revenues from the sale of Visudyne
may be adversely affected. We may not be able to secure additional arrangements
with other leading medical device companies to complement the activities of our
current providers.
22
WE MAY BE UNABLE TO HAVE MANUFACTURED OR CONTINUE TO HAVE MANUFACTURED
EFFICIENTLY COMMERCIAL QUANTITIES OF VISUDYNE(R), OR OUR OTHER PRODUCTS, SUCH AS
TARIQUIDAR, IN COMPLIANCE WITH FDA AND OTHER REGULATORY REQUIREMENTS.
Our ability to conduct clinical trials and commercialize Visudyne and our
other products, either directly or in conjunction with others, depends, in large
part, on our ability to have such products manufactured at a competitive cost
and in accordance with FDA and other regulatory requirements. Our contract
manufacturers' manufacturing and quality procedures may not achieve or maintain
compliance with applicable FDA and other regulatory standards, and, even if they
do, we may be unable to produce or continue to produce commercial quantities of
Visudyne and our other products at an acceptable cost or margin.
If current manufacturing processes are modified, or the source or location
of our product supply is changed, regulatory authorities will require us to
demonstrate that the material produced from the modified or new process or
facility is equivalent to the material used in the clinical trials or products
previously approved. Any such modifications to the manufacturing process or
supply may not achieve or maintain compliance with the applicable regulatory
requirements. In many cases, prior approval by regulatory authorities may be
required before any changes can be instituted.
We depend on several third parties in the U.S., Canada, Europe and Japan to
manufacture Visudyne and, if such third parties fail to meet their respective
contract commitments, we may not be able to supply or continue to supply
commercial quantities of the product or conduct certain future clinical testing.
We have limited experience in the manufacture of tariquidar, and may be
unsuccessful in securing a long-term supply agreement for the commercial
manufacture of tariquidar on terms which are favorable to the Company.
THE SUCCESS OF VISUDYNE(R) AND OUR OTHER PRODUCTS MAY BE LIMITED BY GOVERNMENTAL
AND OTHER THIRD-PARTY PAYORS.
The continuing efforts of governmental and third-party payors to contain or
reduce the costs of health care may negatively affect the sale of Visudyne and
our other products. Our ability to commercialize Visudyne and our other products
successfully will depend in part on the timeliness of and the extent to which
adequate reimbursement for the cost of such products and related treatments is
obtained from government health administration authorities, private health
insurers and other organizations in the U.S. and foreign markets. Product sales,
attempts to gain market share or introductory pricing programs of our
competitors could require us to lower our prices which could adversely affect
our results of operations. We may be unable to set or maintain price levels
sufficient to realize an appropriate return on our investment in product
development. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products or newly approved product indications.
Third-party payors are challenging the price and cost-effectiveness of
medical products and services, and the adoption of new legislation and
regulations affecting the pricing of pharmaceuticals could further limit
reimbursement for medical products and services. To the extent such governmental
or private third-party payors focus their efforts on Visudyne or our current or
future product candidates, sales of such products could be negatively affected.
There can be no assurance that any of our applications for reimbursement for
all or any component of Visudyne therapy will result in approvals or that our
current reimbursement approvals will not be reduced or reversed in whole or in
part. For example, during 2002 the CMS aanounced that they would not uphold
their original intention to expand the national coverage policy for Visudyne
therapy to include reimbursement for patients with occult only subfoveal CNV
secondary to AMD. That decision constituted a reversal of the CMS' original
position.
23
PATIENT ENROLLMENT MAY NOT BE ADEQUATE FOR OUR CURRENT TRIALS OR FUTURE CLINICAL
TRIALS.
Our business could suffer if we fail to develop and maintain sufficient
levels of patient enrollment in our current or future clinical trials. Our
ability to complete clinical trials is dependent upon, among other factors, the
rate of patient enrollment, which is a function of many factors, including:
- - The nature of our clinical trial protocols or products
- - The existence of competing protocols
- - The size and longevity of the target patient population
- - The proximity of patients to clinical sites
- - Eligibility criteria for the trials
- - Patient drop out rates for the trials
Delays in planned patient enrollment may result in increased costs, delays
or termination of clinical trials, which could materially harm our business.
VISUDYNE(R), TARIQUIDAR AND QLT'S OTHER PRODUCTS MAY EXHIBIT ADVERSE SIDE
EFFECTS THAT PREVENT THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL
FROM THE MARKET.
Visudyne (or verteporfin), tariquidar and QLT's other products may exhibit
undesirable and unintended side effects that may prevent or limit their
commercial adoption and use.
Even after approval by the FDA and other regulatory authorities, Visudyne
and our other products may later exhibit adverse side effects that prevent
widespread use or necessitate withdrawal from the market. New unexpected side
effects not previously observed during clinical trials could emerge in the
future. The manifestation of such side effects could cause our business to
suffer. In some cases, regulatory authorities may require labelling changes that
could add warnings or restrict usage based on unexpected side effects seen after
marketing a drug.
WE MAY FACE COMPETITION AND NOT BE SUCCESSFUL IN ADDRESSING IT.
We may be unable to contend successfully with current or future competitors.
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. Our competitors include major
pharmaceutical and bio-pharmaceutical companies, many of which have or have
access to financial, technical and marketing resources significantly greater
than ours and substantially greater experience in developing and manufacturing
products, conducting preclinical and clinical testing, and obtaining regulatory
approvals
We are aware of certain products manufactured or under development by
competitors that are used for the prevention and treatment of certain diseases
which we have targeted for product development. The existence of these products,
or other products or treatments of which we are not aware, or products or
treatments that may be developed in the future, may adversely affect the
marketability of our products.
We are aware of a number of competitors developing treatments for AMD,
including EyeTech Pharmaceuticals, Genentech, Inc., Alcon Laboratories, Inc.,
and Iridex Corporation. We also believe that Visudyne could be competing against
surgical or other treatments for AMD, including macular translocation,
submacular surgery and laser photocoagulation, among others.
We believe that each of these competitors is or might be conducting
preclinical studies and clinical testing on their own or with certain third
parties in various countries for a variety of diseases and medical conditions in
which we have ongoing development programs. These and other companies also may
be involved in competitive activities of which we are not aware.
24
WE DEPEND ON KEY PERSONNEL, AND IF WE DO NOT ATTRACT AND RETAIN KEY PERSONNEL,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our success depends upon the continued contributions of our executive
officers and scientific and technical personnel. Many of our key
responsibilities have been assigned to a relatively small number of individuals.
The competition for qualified personnel is intense, and the failure to secure
the services of key personnel or loss of services of key personnel could
adversely affect our business.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN NEGOTIATING OR INTEGRATING
FUTURE ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES.
We may not be successful in initiating or completing negotiations to expand
our operations and market presence by future product, technology or other
acquisitions and business combinations, joint ventures or other strategic
alliances with other companies. If we are successful in these negotiations,
these transactions create risks, such as:
- - Difficulty assimilating the operations, technology and personnel of the
combined companies
- - Disruption of our ongoing business, including loss of management focus on
existing businesses and other market developments
- - Problems retaining key technical and managerial personnel
- - Expenses associated with the treatment of in-process research and
development and amortization of other purchased intangible assets
- - Impairment of relationships with existing employees, customers and business
partners
- - Additional losses from any equity investments we might make
We may not succeed in addressing these risks, and we may not be able to make
acquisitions and business combinations, joint ventures or strategic alliances on
terms that are acceptable to us. If we are not successful, our earnings may be
adversely affected. In addition, any businesses we may acquire may incur
operating losses.
WE ARE A DEFENDANT IN A PENDING CLASS ACTION LAWSUIT THAT MAY REQUIRE US TO PAY
SUBSTANTIAL DAMAGES OR OTHERWISE SERIOUSLY HARM OUR BUSINESS.
Class action litigation is often expensive and time-consuming and the
outcome of such litigation is often uncertain. Regardless of its outcome, the
class action lawsuit may cause us to incur significant expenses and divert the
attention of our management and key personnel from our business operations. In
the worst case, the class action lawsuit may require us to pay substantial
damages and may otherwise seriously harm our business. See "Legal Proceedings".
WE MAY NOT BE ABLE TO OBTAIN AND ENFORCE EFFECTIVE PATENTS TO PROTECT OUR
PROPRIETARY RIGHTS FROM USE BY COMPETITORS, AND PATENTS OF OTHER COMPANIES COULD
REQUIRE US TO STOP USING OR PAY TO USE REQUIRED TECHNOLOGY.
We may not be able to obtain and enforce patents, to maintain trade secret
protection for our technology and to operate without infringing on the
proprietary rights of third parties. The extent to which we are unable to do so
could materially harm our business.
We have applied for and will continue to apply for patents for certain
aspects of Visudyne and our other products and technology. Such applications may
not result in the issuance of any patents, and any patents now held or that may
be issued may not provide us with a preferred position with respect to any
product or technology. It is possible that patents issued or licensed to us may
be challenged successfully. In that event, to the extent a preferred position is
conferred by such patents, any preferred position held by us would be lost.
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If we are unable to secure or to continue to maintain a preferred position,
Visudyne and our other products could become subject to competition from the
sale of generic products.
Patents issued or licensed to us may be infringed by the products or
processes of other parties. The cost of enforcing our patent rights against
infringers, if such enforcement is required, could be significant, and the time
demands could interfere with our normal operations.
It is also possible that a court may find us to be infringing validly issued
patents of third parties. In that event, in addition to the cost of defending
the underlying suit for infringement, we may have to pay license fees and/or
damages, and may be enjoined from conducting certain activities. Obtaining
licenses under third-party patents can be costly, and such licenses may not be
available at all. Under such circumstances, we may need to materially alter our
products or processes.
Although we believe that the claims of MEEI in the lawsuits described under
"Legal Proceedings" are without merit, these lawsuits may not ultimately be
resolved in our favor. If either or both lawsuits are not resolved in our favor,
we may be obliged to pay an additional royalty or damages for access to the
inventions covered by the claims in the issued U.S. patents. Unpatented trade
secrets, improvements, confidential know-how and continuing technological
innovation are important to our scientific and commercial success. Although we
attempt to and will continue to attempt to protect our proprietary information
through reliance on trade secret laws and the use of confidentiality agreements
with our corporate partners, collaborators, employees and consultants and other
appropriate means, these measures may not effectively prevent disclosure of our
proprietary information, and, in any event, others may develop independently, or
obtain access to, the same or similar information.
WE MAY FACE FUTURE PRODUCT LIABILITY CLAIMS THAT MAY RESULT FROM THE SALE OF
VISUDYNE(R) AND OUR OTHER PRODUCTS.
The testing, manufacture, marketing and sale of human pharmaceutical
products entail significant inherent risks of allegations of product liability.
Our use of such products in clinical trials and our sale of Visudyne and our
other product candidates may expose us to liability claims allegedly resulting
from the use of these products. These claims might be made directly by
consumers, healthcare providers or others selling our products. We carry
clinical trials and product liability insurance to cover certain claims that
could arise during the clinical trials for our product candidates, or during the
commercial use of Visudyne. The limits of liability under the insurance policy
are $20 million per incident and per year in the aggregate. Such coverage, and
any coverage obtained in the future, may be inadequate to protect us in the
event of a successful product liability claim, and we may not be able to
increase the amount of such insurance or even renew it. A successful product
liability claim could materially harm our business.
WE MAY BE UNABLE TO COMPLY WITH ONGOING REGULATORY REQUIREMENTS.
Visudyne and our products under development are subject to extensive and
rigorous regulation for safety, efficacy and quality by the U.S. federal
government, principally the FDA, and by state and local governments. To the
extent Visudyne and our products under development are marketed abroad, they are
also subject to export requirements and to regulation by foreign governments.
The regulatory clearance process is lengthy, expensive and uncertain. We may not
be able to obtain, or continue to obtain, necessary regulatory clearances or
approvals on a timely basis, or at all, for Visudyne or any of our products
under development, and delays in receipt or failure to receive such clearances
or approvals, the loss of previously received clearances or approvals, or
failure to comply with existing or future regulatory requirements could
materially harm our business.
Drugs manufactured or distributed pursuant to the FDA's approval are subject
to pervasive and continuing regulation by the FDA, certain state agencies and
various foreign governmental regulatory agencies such as the EMEA. Manufacturers
are subject to inspection by the FDA and those state agencies, and must comply
with the host of regulatory requirements that usually apply to drugs marketed in
the U.S., including but not limited to the FDA's labelling regulations, Good
Manufacturing Practice requirements, adverse event reporting, and the FDA's
general prohibitions against promoting products for unapproved or "off-label"
uses. Our failure to comply with applicable requirements could result in
sanctions being imposed on us. These sanctions could include warning letters,
fines, product recalls or seizures, injunctions, refusals to permit
26
products to be imported into or exported out of the United States, refusals of
the FDA to grant approval of drugs or to allow us to enter into governmental
supply contracts, withdrawals of previously approved marketing applications and
criminal prosecutions.
We, our contract manufacturers and manufacturers of light sources and
delivery systems used with Visudyne and our other PDT products under development
are subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. In addition, advertising and promotional materials relating to
medical devices and drugs are, in certain instances, subject to regulation by
the Federal Trade Commission or the FDA. We, our contract manufacturers and
manufacturers of light sources and delivery systems used with Visudyne and our
PDT products under development may be required to incur significant costs to
comply with such laws and regulations in the future, and such laws or
regulations may materially harm our business. Unanticipated changes in existing
regulatory requirements, failure of us, our contract manufacturers or
manufacturers of light sources and delivery systems used with Visudyne and our
PDT products under development to comply with such requirements or the adoption
of new requirements could materially harm our business.
WE MAY NEED ADDITIONAL CAPITAL, AND OUR PROSPECTS FOR OBTAINING IT ARE
UNCERTAIN.
We may be unable to obtain necessary additional capital in the future. Our
business may not generate the cash necessary to fund our operations and we
expect that the funding requirements for our operating activities will continue
to increase substantially in the future, primarily due to the expanded clinical
testing of Visudyne, tariquidar and our other products. The amount required to
fund additional operating expenses will also depend on other factors, including
the status of competitive products, the success of our research and development
programs, the extent and success of any collaborative research arrangements and
as a result of product, technology or other acquisitions or business
combinations. We could seek additional funds in the future from a combination of
sources, including product licensing, joint development and other financing
arrangements. In addition, we may issue debt or equity securities if we
determine that additional cash resources could be obtained under favorable
conditions, or if future development funding requirements cannot be satisfied
with available cash resources. Additional capital may not be available on terms
favorable to us, or at all. If adequate capital is unavailable, we may have to
reduce substantially or eliminate expenditures for research, development,
clinical testing, manufacturing and marketing for Visudyne, tariquidar and our
other products. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources".
VARIOUS PROVISIONS OF OUR CHARTER AND OUR SHAREHOLDER RIGHTS PLAN MAY HAVE THE
EFFECT OF IMPEDING A CHANGE OF CONTROL, MAKING REMOVAL OF THE PRESENT MANAGEMENT
MORE DIFFICULT OR RESULTING IN RESTRICTIONS UPON THE PAYMENT OF DIVIDENDS AND
OTHER DISTRIBUTIONS TO THE SHAREHOLDERS.
With shareholder approval, the Company has adopted a shareholder rights plan
which will be in effect for six years commencing March 17, 2002, subject to
further confirmation by shareholders after three years. The general effect of
t