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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, 2003
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 30, 2003 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.$12.70, as reported on The NASDAQ Stock Market) was
approximately U.S.$873,170,000.
As of February 29, 2004 the registrant had 69,430,020 outstanding
common shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 10 through 14 of Part III of this
Annual Report on Form 10-K will either be incorporated by reference to the proxy
statement for use in connection with the annual meeting of shareholders to be
held on May 26, 2004, or included as an amendment hereto, in each case within
120 days after our fiscal year, and in each case by directly supplying the
information within the Form. 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. Prior to that date 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 and in U.S. dollars, 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,
-------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- --------- -------- --------
High..................... $ 1.5750 $ 1.6128 $ 1.6023 $ 1.5600 $ 1.5302
Low...................... 1.2923 1.5108 1.4933 1.4350 1.4440
Average.................. 1.4008 1.5704 1.5487 1.4855 1.4858
Period End............... 1.2923 1.5800 1.5925 1.4995 1.4440
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, 2003
TABLE OF CONTENTS
Item 1. BUSINESS................................................................................................
Item 2. PROPERTIES..............................................................................................
Item 3. LEGAL PROCEEDINGS.......................................................................................
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................
Item 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS...............................
Item 6. SELECTED FINANCIAL DATA.................................................................................
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................
Item 9A. CONTROLS AND PROCEDURES.................................................................................
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................
Item 11. EXECUTIVE COMPENSATION..................................................................................
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................
Item 14. PRINCIPAL ACCOUNTANTS' FEES AND SERVICES..............................................................
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................................
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,
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, the anticipated timing and receipt of regulatory approvals for
expanded uses for Visudyne and for QLT's other products, and statements
regarding the intentions of QLT to expand its pipeline through strategic product
or technology acquisitions. These statements are predictions only and actual
events or 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, a division of Novartis Pharma 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 QLT's
other products, the outcome of QLT's applications for regulatory approvals for
expanded uses for Visudyne, QLT's need to fund its operating activities,
potential acquisitions or investments in products or technologies and the
successful development or acquisition of complementary or supplementary products
or product candidates, or technologies, 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 global bio-pharmaceutical company dedicated to the discovery,
development and commercialization of innovative therapies to treat eye diseases,
cancer and dermatological conditions. QLT was incorporated in 1981 under the
laws of the Province of British Columbia. QLT is a pioneer in the field of
photodynamic therapy ("PDT"), a field of medicine that uses photosensitizers
(light-activated drugs) in the treatment of disease
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 70 countries, including
the United States, Canada, Japan, Australia, New Zealand 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, Japan, Australia and
New Zealand, CNV due to pathologic myopia ("PM") in the United States, Canada
and the European Union and CNV due to presumed ocular histoplasmosis syndrome
("OHS") in the United States.
QLT is conducting clinical trials of its proprietary photosensitizer
QLT0074 in the treatment of benign prostatic hyperplasia ("BPH"), the most
common prostatic disease, and for androgenetic alopecia (male pattern baldness).
QLT is also evaluating preclinically the use of QLT0074 in certain
dermatological disorders.
In addition to developing its proprietary PDT products in new
indications QLT researches and develops other products by itself and in
collaboration with other companies. The Company is actively exploring
opportunities to expand its product pipeline by 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.
PRODUCTS APPROVED OR IN DEVELOPMENT (1)
PRODUCT/INDICATION LOCATION(S) REGULATORY STATUS
- ------------------------------------- --------------------------------------------- -------------------
VISUDYNE(R)
Predominantly classic subfoveal Over 70 countries including the United Approved
choroidal neovascularization ("CNV") States, Canada, Japan, Australia, New Zealand
in age-related macular degeneration and those of the European Union (2)
("AMD") ...........................
Occult with no classic subfoveal CNV Over 40 countries including Japan, Australia, Approved
in AMD............................. New Zealand, Switzerland and those of the
European Union
United States Phase III(3) study
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... Japan Approved
United States, Canada, European Union Phase III study
commenced(4)
QLT0074
Benign prostatic hyperplasia...... United States, Canada Phase I/II(5)
Ongoing study
Androgenetic alopecia............. Canada Phase II(6)
Ongoing study
________
(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) Enrollment in this study was completed in September 2003. 364 patients
are enrolled at 43 centers in North America.
(4) A Phase III study to generate confirmatory data for regulatory
submissions was commenced in 2003. Approximately 220 patients are
expected to be enrolled in 45-50 centers in North America, the U.K. and
Europe.
(5) This study commenced in March of 2003. It is a proof of concept study
intended to evaluate safety and preliminary efficacy. (6) This study
commenced in the third quarter of 2003. 96 patients are enrolled at 3
centers.
BUSINESS STRATEGY
QLT's business strategy is to pursue expanded indications for Visudyne
therapy and develop and commercialize other products with particular focus on
the fields of ophthalmology, oncology, and
2
dermatology. QLT intends to expand its product pipeline by pursuing
opportunities for in-licensing and 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.
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.
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 brief 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 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, a division of Novartis Pharma AG, ("Novartis Ophthalmics") 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 marketing and distribution.
In this Annual Report on Form 10-K, the "alliance" or the "Alliance" refers to
QLT and Novartis Ophthalmics.
3
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 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, approximately 200,000 develop in Europe and
approximately 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 70 countries, including the United States, Canada,
Japan, Australia, New Zealand and those of the European Union.
The Centers for Medicare and Medicaid Services ("CMS") in the United
States (formerly the Health Care Financing Administration) issued their U.S.
national coverage policy for Visudyne therapy in patients with predominantly
classic subfoveal CNV secondary to AMD in 2001. 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, Switzerland, Austria, Denmark,
Greece, the Netherlands, Portugal and Spain.
Occult with no Classic CNV in AMD
In the "occult" form of wet AMD a different pattern of CNV leakage is
evident, and patients present with lesions which do not contain any classic-like
leakage which is detectable on fluorescent angiography. Visudyne has been
approved for the occult form of CNV in over 40 countries, including Australia,
New Zealand, Switzerland, Japan, and those of the European Union. The approvals
in those countries (other than Japan, which came later, as described below under
the heading "Regulatory Approvals in Japan") followed the two-year results from
a trial (the "VIP - (Visudyne in Photodynamic Therapy) Occult Trial") conducted
by the Company and Novartis Ophthalmics which indicated that Visudyne therapy
reduces the risk of both moderate and severe vision loss in the additional
population of patients with wet AMD who had lesions composed of occult CNV
without classic components. (For more information regarding the status of
regulatory approval and reimbursement for Visudyne therapy in the occult form of
the disease, see "Expansion of Visudyne Therapy - Occult with no Classic CNV"
below).
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 (Visudyne in Photodynamic Therapy) Trial") 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.
4
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.
The United States Food and Drug Administration (the "FDA") approved
Visudyne for the treatment of subfoveal CNV secondary to OHS in 2001. The
results of the Company's 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.
Regulatory approval in Japan
In October of 2003 health authorities in Japan approved Visudyne
therapy for all types of subfoveal CNV in AMD. This approval followed a 12-month
open label registration study of 64 patients at 5 centers. QLT and Novartis
Ophthalmics submitted applications for marketing authorizations in Japan in
April of 2002 and following the designation of Visudyne as an orphan drug in
Japan in June of 1997. Regulatory approval in Japan for the laser devices used
in Visudyne therapy was obtained by Carl Zeiss Co. Ltd., one of QLT's suppliers,
in early 2004. The application for regulatory approval made by Lumenis Japan,
Ltd., QLT's other supplier, is still pending. QLT'S application to authorities
in Japan for reimbursement for Visudyne therapy is pending.
Ongoing Development - Expansion and Improvement of Visudyne Therapy
QLT and Novartis Ophthalmics are engaged in efforts to expand the
indications for which Visudyne is approved to treat other forms of AMD and other
ocular diseases. The Alliance is also continuing efforts to improve the
effectiveness of Visudyne therapy by exploring alternative treatment regimens
and combination therapies.
Occult with no Classic CNV in AMD - the VIO Study
QLT and Novartis Ophthalmics have initiated a Phase III clinical trial
(referred to as the "VIO (Visudyne in Occult) Study") designed to confirm that
Visudyne therapy is effective in reducing vision loss in patients who have
occult with no classic subfoveal CNV secondary to AMD, in order to obtain
regulatory approval for this indication in the United States. 364 patients are
enrolled in the VIO Study at 43 centers and will be followed for 24 months. The
Company expects to have 12-month results in the fourth quarter of 2004.
The VIO Study is a follow-up study to the VIP Occult Trial which showed
that 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. QLT has since obtained marketing authorizations for the
treatment of occult subfoveal CNV secondary to AMD in over 40 countries. QLT is
pursuing the VIO Study to obtain marketing authorization for this indication in
the United States.
In January of 2004 the Centers for Medicare and Medicaid Services (CMS)
announced their intention to expand the national coverage policy for Visudyne
therapy to include reimbursement for patients with occult only subfoveal CNV and
minimally classic CNV secondary to AMD for lesion sizes up to 4 disc areas and
evidence of disease progression. Implementation of that coverage is anticipated
during 2004. CMS had earlier declined to provide such reimbursement, which
decision was announced in 2002 and constituted a reversal from the decision
memorandum issued by the CMS in response to the 24-month data from the VIP
Occult Trial. The CMS reconsidered its 2002 decision after convening a review of
the data by an independent medical panel which recommended expansion of the
reimbursement policy to include coverage for such patients. QLT is pursuing the
VIO Study to obtain marketing authorization for this indication in the United
States.
5
Minimally Classic CNV in AMD - the VIM Investigation
QLT and Novartis Ophthalmics initiated a Phase II clinical trial
(referred to as the "VIM (Visudyne in Minimally Classic) Investigation") to
study the efficacy and safety of a Visudyne therapy in-patients with minimally
classic lesions of AMD in 2002. The VIM Investigation comprised of 117 patients.
The 12-month results 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. Based on the 12-month data, the
Alliance decided to continue this study for 24 months, the results of which were
announced in February of 2004. At 24-months patients treated with Visudyne had
statistically significant better mean visual acuity score change, with a p-value
of 0.02, or approximately 9 letters better than placebo patients, on a standard
eye chart. . A Phase III trial to generate confirmatory data for regulatory
submissions in respect of this indication was commenced in September of 2003.
Approximately 220 patients are expected to be enrolled in 45-50 centers in
Canada, the United Kingdom and Europe. Enrollment of new patients in U.S.
centers was temporarily halted following the January 2004 announcement by the
CMS of their intention to expand the national coverage policy for Visudyne
therapy to include reimbursement for patients with minimally classic CNV for
lesion sizes of up to 4 disc areas. Patients on study at the U.S. centers will
continue to be followed. The targeted completion date for enrollment in this
trial is the end of 2004 with 12-month results anticipated in 2005.
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 dermatological 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 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 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 by QLT in 2002 support the hypothesis
that PDT with QLT0074 may be useful in the treatment of BPH. In March 2003 QLT
commenced a Phase I/II proof of concept clinical study of QLT0074 in BPH to
evaluate safety and preliminary efficacy. The Company expects results from this
trial by the end of 2004.
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 by QLT in 2001 suggest that under certain
conditions, PDT with QLT0074 may be useful in this indication. QLT conducted a
Phase I/II proof of concept clinical study with QLT0074 to evaluate safety and
preliminary efficacy commencing in October of 2002. In October of 2003, QLT
commenced a Phase II study, enrollment in which was completed in February of
2004. 96 patients are
6
enrolled at 3 study sites. Six-month results from the Phase II study are
expected to become available by the end of the third quarter of 2004.
STRATEGIC ALLIANCE - NOVARTIS OPHTHALMICS
NOVARTIS OPHTHALMICS. In 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
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).
PRODUCT MANUFACTURING
QLT does not own or operate any manufacturing facilities at present.
The company is currently constructing a Pilot Manufacturing Facility
("PMF") within its existing headquarters facility. The PMF, which will produce
clinical trial material for development programs, is projected to cost $10
million, of which approximately $1.5M has been spent through December 31, 2003.
The facility is expected to be operational and qualified by the end of 2004.
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. The key
starting materials for the Visudyne manufacturing process are secured by
long-term supply agreements.
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".
Diode laser 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.,
Europe and elsewhere. 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".
7
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.
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, or 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".
GOVERNMENT REGULATION
OVERVIEW. All drugs developed or marketed in the United States,
including Visudyne, 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
8
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 comprehensive 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 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 human
volunteers 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
9
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 a 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 or
seriously debilitating 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.
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".
10
QLT currently has active INDs for the ongoing clinical trials for
Visudyne and for QLT0074 (BPH and androgenetic alopecia). 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 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. Eyetech
Pharmaceuticals, Inc., which is in partnership with Pfizer Inc. with respect to
their anti-VEGF aptimer, has reported results from its ongoing Phase II/III
clinical trials of its product candidate for the treatment of wet AMD and
announced its intention to file an NDA for all forms of wet AMD during the third
quarter of 2004. QLT believes that Pfizer, Genentech, Inc. (in collaboration
with Novartis Pharma AG), Alcon Laboratories, Inc., Iridex Corporation, Genaera
Corporation and GenVec, Inc. are also developing or may develop competitive
therapies targeted for AMD employing different technologies. 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
QLT is also aware that other companies are engaged in the development
of products that 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
11
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 at the earliest.
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. 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.
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 and the adjacent site were purchased (in 1998
and 2001, respectively) the vendors provided QLT with a Certificate of
Compliance, issued by the Ministry of Environment, Lands and Parks of the
Province of British Columbia, confirming that the land met 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, 2003, 2002, and 2001, QLT's total
research and development expenses were $ 44.9 million, $42.3 million and $42.9
million respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
12
HUMAN RESOURCES
As of February 29, 2004, QLT had 329 employees, of which 197 were
engaged in research, development, clinical and regulatory affairs, manufacturing
and process development, and medical devices. 132 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 29, 2004:
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------
Paul J. Hastings..................... 44 President, Chief Executive Officer and Director
Mohammad Azab, M.D................... 48 Executive Vice President, Research and Development and
Chief Medical Officer
Robert L. Butchofsky................. 42 Vice President, Marketing and Sales Planning
Alain H. Curaudeau................... 47 Senior Vice President, Project Planning and Management
Michael J. Doty...................... 57 Senior Vice President and Chief Financial Officer
Therese Hayes........................ 37 Vice President, Corporate Communications and Investor
Relations
Linda M. Lupini...................... 44 Senior Vice President, Human Resources and
Administration
William J. Newell.................... 46 Senior Vice President and Chief Business Officer
Maurice Wolin, M.D................... 46 Vice President, Scientific Affairs and Clinical Research
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.
13
Dr. Azab became Executive Vice President, Research and Development and Chief
Medical Officer in 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 gynaecology 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. Dr. Azab obtained his medical degree from Cairo University and
post-graduate degrees from the University of Paris-Sud and the University of
Pierre and Marie Curie in France. Dr. Azab also has a Masters of Business
Administration degree from the Richard Ivey School of Business, University of
Western Ontario, Canada.
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 potential creation of a specialty sales force 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 and Botox(R), 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 , 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 Rhone-Poulenc Rorer 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
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 manufacturer and marketer 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
14
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.
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.
Maurice Wolin M.D. joined QLT in June of 2003 as Vice President,
Clinical Research and Medical Affairs, and became Vice President Scientific
Affairs and Clinical Research in February 2004. Before joining QLT, Dr. Wolin
served as Vice President, Oncology Research and Development at Chiron
Corporation. He held various positions of increasing responsibility in research
and development and medical affairs within Chiron between 1996 and 2003, and was
most recently responsible for directing all development efforts in Chiron's
oncology programs. Dr. Wolin is a board-certified hematologist/oncologist and is
a member of the American Society of Clinical Oncology and the American Society
of Hematology. Before joining the pharmaceutical industry, he was an Assistant
Professor of Medicine at the UCLA School of Medicine. Dr. Wolin received his
M.D. from the State University of New York at Buffalo Medical School.
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 MAY BE LESS THAN EXPECTED.
Our prospects are highly dependent on increasing the sales of our only
commercial product, Visudyne. Our revenues to date have consisted largely of
revenue from product sales of Visudyne. If sales of Visudyne decline or 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:
- perceptions by physicians and other members of the health care
community regarding 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;
- the results of product development efforts for new indications
for Visudyne;
- availability of sufficient commercial quantities of Visudyne;
15
- the placement and maintenance of a sufficient number of laser
systems or suitable alternate light sources in medical
facilities;
- price increases of Visudyne, and the price of Visudyne
relative to other drugs or competing treatments;
- the need for retreatment of Visudyne throughout the treatment
process not approximating 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, which may demonstrate better safety, efficacy or
cost-effectiveness than Visudyne;
- adverse side effects or unfavorable publicity concerning
Visudyne or other drugs in its class; and
- a decline in the incidence rates of wet AMD, such as might
result if preventative treatments in development are
successful.
OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE.
Until the fourth quarter of 2000, we had a history of operating losses.
Although we were profitable for the years 2000, 2001, 2002 and 2003, future
operating performance and profitability is not certain. Our accumulated deficit
at December 31, 2003 was approximately $8.1 million.
Our operating results may fluctuate from period to period for a number
of reasons. In budgeting 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 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;
- changes in pricing strategies for Visudyne, including
implementation of price increases or decreases for Visudyne;
- changes in reimbursement levels for Visudyne;
- seasonal fluctuations, particularly in the third quarter due
to decreased demand for Visudyne in the summer months;
- high levels of marketing expenses for Visudyne, such as may
occur upon the launch of Visudyne in a new market;
- fluctuations in currency exchange rates;
- unfavorable outcome of pending patent and securities
litigation against the Company;
- higher than expected operating expenses as a result of
increased costs associated with the development or
commercialization of Visudyne and our other product
candidates;
- increased operating expenses as a result of product,
technology or other acquisitions or business combinations; and
- a reduction in the incidence rate of wet AMD.
OUR PRODUCTS IN DEVELOPMENT MAY NOT ACHIEVE FAVORABLE RESULTS, MAY FAIL TO
ACHIEVE REGULATORY APPROVALS OR MARKET ACCEPTANCE, OR MAY ENCOUNTER DIFFICULTIES
WITH PROPRIETARY RIGHTS OR MANUFACTURING.
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
such product development is not successfully completed. The outcome of the
lengthy and complex process of new product development is inherently uncertain.
16
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 not
predictive of results obtained in large-scale clinical trials;
- unfavorable data during a clinical trial causing us to
determine that continuation of the trial is not warranted. For
example, in May of 2003 the Company halted its two Phase III
studies of tariquidar in non-small cell lung cancer after a
review of safety and efficacy data by the Independent Data
Safety Monitoring Committee;
- the FDA or other regulatory authorities suspending 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; and
- other business imperatives causing us to curtail a particular
development program.
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. We may lose market opportunities resulting from delays
and uncertainties in the regulatory approval process for new indications
involving Visudyne and other products in development.
IF WE DO NOT ACHIEVE OUR PROJECTED DEVELOPMENT GOALS IN THE TIME FRAMES WE
ANNOUNCE AND EXPECT, THE COMMERCIALIZATION OF OUR PRODUCTS MAY BE DELAYED AND,
AS A RESULT, OUR STOCK PRICE MAY DECLINE.
From time to time, we estimate the timing of the accomplishment of
various scientific, clinical, regulatory and other product development goals,
which we sometimes refer to as milestones. These milestones may include the
commencement or completion of scientific studies and clinical trials and the
submission of regulatory filings. From time to time, we publicly announce the
expected timing of some of these milestones. All of these milestones are based
on a variety of assumptions. The actual timing of these milestones can vary
dramatically compared to our estimates, in some cases for reasons beyond our
control. If we do not meet these milestones as publicly announced, the
commercialization of our products may be delayed and, as a result, our stock
price may decline.
FAILURE OF NOVARTIS OPHTHALMICS TO EFFECTIVELY MARKET VISUDYNE WOULD REDUCE
POTENTIAL REVENUES.
A significant portion of our revenues depends on the efforts of
Novartis Ophthalmics in promoting and selling Visudyne. If Novartis Ophthalmics
does not dedicate sufficient resources to the promotion and sale of Visudyne, or
if Novartis Ophthalmics fails in its marketing efforts, or if marketing and
distribution expenses are excessive, the revenues we receive from the sale of
Visudyne would decrease and our business and operating results would be
adversely affected.
VISUDYNE SALES ARE WORLDWIDE, AND CURRENCY FLUCTUATIONS MAY IMPAIR OUR REPORTED
FINANCIAL RESULTS.
Our product Visudyne is marketed worldwide. In 2003, approximately 51%
of total Visudyne sales were in the United States, with Europe and other markets
responsible for the remaining 49%. We expect that international revenues will
continue to account for a significant percentage of our revenues for the
foreseeable future. A significant portion of our business is conducted in
currencies other than the U.S. dollar, which is our
17
reporting currency. The Canadian dollar is our functional currency. We recognize
foreign currency gains or losses arising from our operations in the period
incurred. As a result, currency fluctuations between the currencies in which we
do business, particularly the U.S. dollar, the Euro, the Canadian dollar and the
Swiss franc, have caused and could continue to cause significant foreign
currency transaction gains and losses. We cannot predict the effects of exchange
rate fluctuations on our future operating results because of the number of
currencies involved, the variability of currency exposures and the potential
volatility of currency exchange rates. We engage from time to time in currency
hedging techniques to mitigate the impact of currency fluctuations on our
financial results and cash flows, but we cannot be assured that our strategies
will adequately protect our operating results or balance sheet from the full
effects of exchange rate fluctuation.
WE ARE DEPENDENT ON THIRD PARTIES TO DEVELOP AND COMMERCIALIZE SELECT 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 on 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 ON THE SUCCESS AND CONTINUED SUPPLY OF
THIRD-PARTY MEDICAL DEVICE COMPANIES WITH COMPLEMENTARY LIGHT SOURCE AND LIGHT
DELIVERY DEVICES BY THIRD PARTY SUPPLIERS.
We currently depend on two third party suppliers to provide the laser
light delivery devices for Visudyne therapy. 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 on the success of these 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 Novartis Ophthalmics have strategic
relationships cease to carry on business, or if, as a result of industry
consolidation, financial down-turn or for other reasons, they no longer supply
complementary light sources or light delivery systems or if they are unable to
achieve the appropriate placements of light sources and ensure an uninterrupted
supply of light delivery systems, sales of Visudyne and our revenues from the
sale of Visudyne may be adversely affected. We may not be able to secure
additional or replacement arrangements with other satisfactory medical device
companies to complement or replace the activities of our current providers.
WE MAY BE UNABLE TO HAVE MANUFACTURED OR CONTINUE TO HAVE MANUFACTURED
EFFICIENTLY COMMERCIAL QUANTITIES OF VISUDYNE OR OUR OTHER PRODUCTS IN
COMPLIANCE WITH FDA AND OTHER REGULATORY REQUIREMENTS OR OUR PRODUCT
SPECIFICATIONS.
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 as well as our
product specifications. Our contract manufacturers' manufacturing and quality
procedures may not achieve or maintain compliance with applicable FDA and other
regulatory standards or product specifications, 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 (voluntarily or involuntarily),
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 or our product specifications. In
many cases, prior approval by regulatory authorities may be required before any
changes can be instituted.
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If our manufacturers produce one or more product batches which do not
conform to FDA, other regulatory requirements, or our product specifications, or
if they introduce changes to their manufacturing processes, our manufacturing
expenses may increase materially, our product inventories may be reduced to
unacceptable levels and/or our ability to meet demand for Visudyne may be
detrimentally impacted. For example, during November 2003 two Visudyne batches
did not pass quality inspection and product inventories and our revenues were
negatively impacted (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 in Notes to the Consolidated
Financial Statements).
We depend on several third parties in the United States, 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.
THE SUCCESS OF VISUDYNE 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 US 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 introduce reimbursement changes which affect
Visudyne or our current or future product candidates, sales of such products
could be negatively affected. For example, in the United States, the US Congress
recently introduced legislation that has changed the methodologies under which
the Medicare program reimburses for office-administered therapies. The Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 reduced the rate
of reimbursement for Visudyne and certain other drugs by allowing reimbursement
based on 85% of the average wholesale price, down from 95%. QLT has requested an
exception for the rate adjustment for 2004, but there can be no assurance that
such exception will be granted.
There can be no assurance that any of our applications or
re-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.
PATIENT ENROLLMENT MAY NOT BE ADEQUATE FOR OUR CURRENT TRIALS OR FUTURE CLINICAL
TRIALS.
Our future prospects could suffer if we fail to develop and maintain
sufficient levels of patient enrollment in our current or future clinical
trials. Our willingness and ability to complete clinical trials is dependent on,
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 inability to secure regulatory approval to modify
previously approved clinical trial protocols;
- the existence of competing protocols;
- the size and longevity of the target patient population;
- the proximity of patients to clinical sites;
- the eligibility criteria for the trials; and
- the patient dropout rates for the trials.
For example, the Company has recently temporarily halted U.S.
enrollment in our VIM trial which might result in a delay in our meeting the
targeted enrollment completion date of end of 2004. Delays in planned patient
enrollment may result in increased costs, delays or termination of clinical
trials, which could materially harm our future prospects.
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VISUDYNE AND OUR OTHER PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT
THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET.
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 labeling 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 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
that 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, Inc./Pfizer Inc., Genentech, Inc./Novartis
Ophthalmics, Alcon Laboratories, Inc., Iridex Corporation, Genaera Corporation
and GenVec, Inc. Some of these treatments are in late-stage clinical
development. 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. If competing treatments for AMD are
introduced to the market, Visudyne's market share could be eroded or retreatment
rates reduced. The terms of our agreement with Novartis Ophthalmics do not
restrict Novartis Ophthalmics from developing or commercializing, whether by
itself or in collaboration with third parties, non-PDT products that could be
competitive with our products that utilize PDT for ophthalmological indications,
including Visudyne. We are aware that Novartis Ophthalmics has entered into a
development and commercialization collaboration with Genentech, Inc. with
respect to the Genentech product, Lucentis, in the field of ophthalmology
outside of North America.
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
for which we have ongoing development programs. These and other companies also
may be involved in competitive activities of which we are not aware.
THE INCIDENCE OF WET AMD MIGHT BE REDUCED IF THERAPIES CURRENTLY IN DEVELOPMENT
OR CURRENTLY AVAILABLE TO PREVENT OR REDUCE THE RISK OF DEVELOPMENT OF WET AMD.
QLT is aware of reports that a trial has been or is about to be
initiated of a treatment for patients with the dry form of AMD who are at high
risk of developing wet AMD, with the objective of preventing the occurrence of
wet AMD. QLT is also aware of published reports in patient with dry AMD showing
the supplemental vitamin therapies reduce the risk of development of wet AMD. If
these studies show that therapies are effective or if supplemental vitamin usage
becomes commonplace in patients with dry AMD, the incidence of wet AMD, which
often develops in patients initially diagnosed with dry AMD, might be reduced,
and Visudyne sales and the Company's revenues could be materially affected.
WE DEPEND ON KEY PERSONNEL, AND IF WE DO NOT ATTRACT AND RETAIN KEY PERSONNEL,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Our success depends on 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 IDENTIFYING, NEGOTIATING OR
INTEGRATING FUTURE ACQUISITIONS, BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES.
We may not be successful in identifying, 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. Competition for attractive
acquisition or alliance targets can be intense, and there can be no guarantee
that we will succeed in completing such transactions.
Even if we are successful in these negotiations, these transactions
create risks, such as:
- difficulty assimilating the operations, technology and
personnel of the combined companies;
20
- 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; and
- additional losses from any equity investments we might make.
We might not succeed in addressing these risks or we might not be able
to make acquisitions and business combinations, joint ventures or strategic
alliances on terms that are acceptable to us, which might adversely affect our
earnings. In addition, any businesses we may acquire may incur operating losses.
WE ARE A DEFENDANT IN A PENDING SECURITIES CLASS ACTION LAWSUIT THAT MAY REQUIRE
US TO PAY SUBSTANTIAL DAMAGES OR OTHERWISE SERIOUSLY HARM OUR BUSINESS.
Securities class action litigation is often expensive and
time-consuming, and the outcome of such litigation is often uncertain.
Regardless of its outcome, the securities 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, despite our
insurance, the securities class action lawsuit may require us to pay substantial
damages and may otherwise seriously harm our business. (See - Item 3. Legal
Proceedings.)
WE ARE A DEFENDANT IN PENDING INTELLECTUAL PROPERTY AND PATENT LAWSUITS THAT MAY
REQUIRE US TO PAY SUBSTANTIAL ROYALTIES OR DAMAGES, MAY SUBJECT US TO OTHER
EQUITABLE RELIEF OR MAY OTHERWISE SERIOUSLY HARM OUR BUSINESS.
We are a party to two lawsuits filed against us by Massachusetts Eye
and Ear Infirmary ("MEEI"). (See - Item 3. Legal Proceedings.)Although we
believe that the claims of MEEI in these lawsuits are without merit, these
lawsuits may not ultimately be resolved in our favor. If they are not resolved
in our favor, we may be obligated to pay damages, may be obligated to pay an
additional royalty or damages for access to the inventions covered by claims in
issued US patents, may be subject to such equitable relief as a court may
determine (which could include an injunction) or may be subject to a remedy
combining some or all of the foregoing.
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. 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. In addition, we have 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 as therapeutics or diagnostics. Under our license
agreement with UBC, if we fail to make any required payments to UBC, UBC would
have the right to terminate these licenses.
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.
21
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.
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 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. 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. In addition, substantial, complex or extended litigation could cause
us to incur large expenditures and distract our management.
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 US 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
they must comply with the host of regulatory requirements that usually apply to
drugs marketed in the United States, 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 products to be imported into or exported out of the United
States, FDA refusal 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
22
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, the 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 IN THE FUTURE, AND OUR PROSPECTS FOR OBTAINING IT
ARE UNCERTAIN.
Our business may not generate the cash necessary to fund our operations
and anticipated growth. 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 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 the results 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 not be able to engage in desirable acquisition or
in-licensing opportunities and may have to reduce substantially or eliminate
expenditures for research, development, clinical testing, manufacturing and
marketing for Visudyne and our other products.
VARIOUS PROVISIONS OF OUR CHARTER AND OUR SHAREHOLDER RIGHTS PLAN MAY HAVE THE
EFFECT OF IMPEDING A CHANGE IN CONTROL, MAKING REMOVAL OF THE PRESENT MANAGEMENT
MORE DIFFICULT OR RESULTING IN RESTRICTIONS ON THE PAYMENT OF DIVIDENDS AND
OTHER DISTRIBUTIONS TO THE SHAREHOLDERS.
With shareholder approval, we have adopted a shareholder rights plan
that will be in effect for six years commencing March 17, 2002, subject to
further confirmation by shareholders after three years. The general effect of
the plan is to require anyone who seeks to acquire 20% or more of our
outstanding common shares to make a bid complying with specific provisions
included in the plan. In certain circumstances, holders of common shares may
acquire additional shares of QLT (or those of the acquiror) at a 50% discount
from the then-prevailing market price. The provisions of the plan could prevent
or delay the acquisition of our company by means of a tender offer, a proxy
contest or otherwise, making it more difficult for shareholders to receive any
premium over the current market price that might be offered.
Our authorized preference share capital is available for issuance from
time to time at the discretion of our board of directors, without shareholder
approval. Our charter grants the board of directors the authority, subject to
the corporate law of British Columbia, to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed on any wholly
unissued series of preference shares, including any dividend rate, voting
rights, conversion privileges or redemption or liquidation rights. The rights of
any future series of preference shares could have an adverse effect on the
holders of our common shares by delaying or preventing a change of control,
making removal of the present management more difficult or resulting in
restrictions on the payment of dividends and other distributions to the holders
of common shares.
THE MARKET PRICE OF OUR COMMON SHARES IS EXTREMELY VOLATILE.
The stock prices of pharmaceutical and bio-pharmaceutical companies,
including QLT, are extremely volatile, and it is likely that the market price of
our common shares will continue to be highly volatile. During 2003, the closing
market price of our common shares on NASDAQ has ranged from a low of $7.73 per
share in the first quarter to a high of $19.55 in the fourth quarter. Our stock
price could be subject to wide fluctuations in response to a number of factors,
including:
- announcements by us or our competitors of significant
acquisitions, strategic relationships, joint ventures or
capital commitments;
- announcements by us or our competitors of technological
innovations or new commercial products;
23
- results of clinical trials for Visudyne and our other products
under development;
- developments relating to patents, proprietary rights and
potential infringement;
- expense and time associated with obtaining government
approvals for marketing of Visudyne and our other products
under development;
- reimbursement policies of various government and third-party
payors;
- public concern over the safety of Visudyne and our other
products under development or those of our competitors;
- changes in estimates of our revenue and operating results;
- variances in our revenue or operating results from forecasts
or projections;
- recommendations of securities analysts regarding investment in
our stock;
- governmental medical price discussions; and
- factors beyond our control which affect the stock markets
generally, including, but not limited to, current political
and economic events, market and industry trends and broad
market fluctuations;
- adverse developments in the litigation in which the Company is
a party.
These broad market and industry factors may materially and adversely
affect our stock price, regardless of our operating performance.
ITEM 2. PROPERTIES
QLT owns and occupies a 160,000 square feet facility and office on the
2.3 acre site where its head office and research facilities are located. QLT
also owns an additional 2.6 acres of land immediately adjacent to its head
office and research facilities. There is currently no proposal to construct
facilities on the adjacent site.
The Company believes that its existing facilities are adequate to meet
its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Certain of the Company's legal proceedings are discussed below and in
Note 21 to the consolidated financial statements, "Contingencies". While the
Company believes these proceedings are without merit and intends to vigorously
defend against these claims, it is impossible to predict accurately or determine
the eventual outcome of these proceedings.
PATENT LITIGATION WITH MEEI
The First MEEI Lawsuit
On April 24, 2000 Massachusetts Eye and Ear Infirmary ("MEEI") filed a
civil suit against the Company in the United States District Court for
the District of Massachusetts seeking to establish exclusive rights for
MEEI as the owner of certain inventions relating to the use of
verteporfin as the photoactive agent in the treatment of certain eye
diseases including Age Related Macular Degeneration ("AMD"). During
2002 the Court granted summary judgement in favor of QLT, dismissing
all counts of MEEI's complaint against the Company in this lawsuit.
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The lawsuit (Civil Action No. 00-10783-JLT) relates, in part, to an
ongoing dispute involving U.S. Patent No. 5,798,349 (the " '349
Patent") which was issued on August 25, 1998 to the Company, MEEI and
Massachusetts General Hospital ("MGH") as co-owners. The complaint
alleged breach of contract, misappropriation of trade secrets,
conversion, misrepresentation, unjust enrichment, unfair trade
practices and related claims and asked that the Court: (i) declare MEEI
the owner of certain inventions claimed in the '349 Patent; (ii) enjoin
the Company from infringement of those claims or any action that would
diminish the validity or value of such claims; (iii) declare that the
Company breached an agreement with MEEI to share equitably in any
proceeds derived as a result of collaboration leading to the '349
Patent; (iv) impose a constructive trust upon the Company for any
benefit that the Company has or will derive as a result of the '349
Patent; and (v) award MEEI monetary relief for misappropriation of
trade secrets in an amount equal to the greater of MEEI's damages or
the Company's profits from any such misappropriation, and double or
treble damages under Massachusetts law.
The Company's counterclaim, filed in 2000 against MEEI and two
employees of MEEI, sought: (i) to correct inventorship on the '349
Patent by adding an additional MGH researcher as a joint inventor; (ii)
a declaration that the Company and MGH are joint owners of the '349
Patent; (iii) a determination that MEEI is liable to the Company for
conversion and unfair trade practices under Massachusetts law; (iv) an
injunction to prohibit MEEI from prosecuting any patent application
claiming subject matter already claimed in the '349 Patent; and (v) an
award of damages and attorneys' fees.
In 2002, QLT moved for summary judgement against MEEI on all counts of
MEEI's complaint in Civil Action No. 00-10783-JLT. The Court granted
QLT's motions, thus dismissing all of MEEI's claims in this lawsuit.
Final judgement of dismissal was entered in April 2003. In May 2003
MEEI filed a notice of appeal. With respect to QLT's counterclaim
requesting correction of inventorship of the `349 patent to add an
additional MGH inventor, the Court stayed the claim pending the outcome
of Civil Action No. 01-10747-EFH, described below. QLT voluntarily
dismissed the remainder of its counterclaims in Civil Action No.
00-10783-JLT without prejudice in April 2003.
The Second MEEI Lawsuit
On May 1, 2001 the United States Patent Office issued United States
Patent No. 6,225,303 (the "'303 Patent") to MEEI. The `303 Patent is
derived from the same patent family as the '349 Patent and claims a
method of treating unwanted choroidal neovasculature in a shortened
treatment time using verteporfin. The patent application which led to
the issuance of the `303 patent was filed and prosecuted by attorneys
for MEEI and, in contrast to the '349 patent, named only MEEI
researchers as inventors.
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