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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, 2004
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, 2004 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 $20.04, as reported on The NASDAQ Stock Market) was
approximately U.S $1,394,430,000.
As of March 10, 2005 the registrant had 93,389,439 outstanding common
shares.
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1
DOCUMENTS INCORPORATED BY REFERENCE
The United States Securities and Exchange Commission, or the SEC, allows
us to disclose important information to you by referring you to other documents
we have filed with the SEC. The information that we refer you to is
"incorporated by reference" into this Form 10-K.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on May 25, 2005 are incorporated by reference into Part III of this
Annual Report on Form 10-K.
NOTE REGARDING REFERENCES TO QLT
Throughout this Form 10-K , the words "we", "us", "our", the "Company" and
"QLT" refer to QLT Inc., as a whole, including our wholly owned subsidiary QLT
USA, Inc., unless stated otherwise.
NOTE REGARDING 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, or U.S. GAAP. Effective
December 31, 2002, we adopted U.S. GAAP as our primary basis of disclosure on
Form 10-K. In addition, on December 31, 2002, we adopted the U.S. dollar as our
reporting currency. Prior to that date we reported in Canadian dollars and in
accordance with Canadian generally accepted accounting principles, or Canadian
GAAP.
We continue to maintain the Canadian dollar as our functional currency.
We have also prepared consolidated financial statements in accordance with
Canadian GAAP and in U.S. dollars, which are available on our website at:
www.qltinc.com.
NOTE REGARDING 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,
2004 2003 2002 2001 2000
------- ------- -------- -------- --------
High..................... $1.3970 $1.5750 $ 1.6128 $ 1.6023 $ 1.5600
Low...................... 1.1775 1.2923 1.5108 1.4933 1.4350
Average.................. 1.3017 1.4008 1.5704 1.5487 1.4855
Period End............... 1.2034 1.2923 1.5800 1.5925 1.4995
NOTICE REGARDING WEBSITE ACCESS TO COMPANY REPORTS
We make available on our website our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments to
those Reports, as soon as reasonably practicable after we electronically file
them with the SEC. Our website address is: www.qltinc.com.
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QLT INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2004
TABLE OF CONTENTS
ITEM 1. BUSINESS........................................................................................ 5
OVERVIEW.................................................................................................. 5
OUR APPROVED PRODUCTS..................................................................................... 11
OUR PRODUCTS UNDER REGULATORY REVIEW...................................................................... 14
OUR PRODUCTS IN DEVELOPMENT............................................................................... 15
OUR PROPRIETARY TECHNOLOGIES.............................................................................. 17
SIGNIFICANT COLLABORATIVE ARRANGEMENTS.................................................................... 18
PRODUCT MANUFACTURING..................................................................................... 20
FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS................................................. 21
SUPPLY OF MEDICAL LASERS REQUIRED FOR VISUDYNE THERAPY.................................................... 21
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS................................................................ 21
INTERNATIONAL DENTAL BUSINESS............................................................................. 23
COMPETITION............................................................................................... 24
GOVERNMENT REGULATION..................................................................................... 25
THIRD-PARTY REIMBURSEMENT................................................................................. 28
LIABILITY AND PRODUCT RECALL.............................................................................. 28
RESEARCH AND DEVELOPMENT.................................................................................. 29
HUMAN RESOURCES........................................................................................... 29
ITEM 2. PROPERTIES...................................................................................... 43
ITEM 3. LEGAL PROCEEDINGS............................................................................... 43
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 45
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS....................... 46
ITEM 6. SELECTED FINANCIAL DATA......................................................................... 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........... 51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................... 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............ 105
ITEM 9A. CONTROLS AND PROCEDURES......................................................................... 105
ITEM 9B. OTHER INFORMATION............................................................................... 105
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................................. 106
ITEM 11. EXECUTIVE COMPENSATION.......................................................................... 106
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................. 104
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................. 107
ITEM 14. PRINCIPAL ACCOUNTANTS' FEES AND SERVICES........................................................ 107
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES......................................................... 108
4
QLT INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the United States Private Securities Litigation Reform Act of
1995 which are based on our current expectations and projections. Words such as
"anticipate", "project", "expect", "forecast", "outlook", "plan", "intend",
estimate", "should", "may", "assume", "continue", and variations of such words
or similar expressions are intended to identify our forward-looking statements.
Forward looking statements include, but are not limited to, those in which we
state:
- anticipated levels of sales of our products;
- anticipated future operating results;
- our expectations regarding the pending patent-related litigation
against us;
- the anticipated timing and progress of clinical trials;
- the anticipated timing of regulatory submissions for our products;
- the anticipated timing and receipt of regulatory approvals for our
products; and
- the anticipated timing for and receipt of further reimbursement
approvals for our products in development.
We caution that actual outcomes and results may differ materially from those
expressed in our forward-looking statements because such statements are
predictions only and they are subject to a number of important risks factors and
uncertainties. Risk factors and uncertainties which could cause actual results
to differ from what is expressed or implied by our forward-looking statements
are described in this Annual Report 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". We encourage you to read those descriptions
carefully. We caution investors not to place undue reliance on the
forward-looking statements contained in this report. These statements, like all
statements in this report, speak only as of the date of this report, unless an
earlier date is indicated, and, except as required by law and the rules and
regulations of the SEC and Canadian regulatory authorities, we undertake no
obligation to update or revise the statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a global biopharmaceutical company dedicated to the discovery,
development and commercialization of innovative therapies in the fields of
ophthalmology, dermatology, oncology and urology. Our company was formed in 1981
under the laws of the Province of British Columbia, Canada.
Our first commercial product was in the field of photodynamic therapy, or
PDT, which uses photosensitizers (light activated drugs) in the treatment of
disease. Our primary commercial product, Visudyne(R), utilizes PDT to treat the
eye disease known as wet-form age related macular degeneration, or wet AMD, the
leading cause of blindness in people over the age of 55 in North America and
Europe.
Visudyne is commercially available in more than 70 countries, including
the U.S., Canada, Japan and the European Union countries, for the treatment of a
form of wet AMD known as predominantly classic subfoveal choroidal
neovascularization, or CNV, and in over 40 countries for the form of wet AMD
known as occult subfoveal CNV. Visudyne is reimbursed in the U.S. by the Centers
for Medicare & Medicaid Services for certain patients with the occult and
minimally classic forms of wet AMD. It is also approved in more than 55
countries, including the U.S., Canada and the European Union countries, for the
treatment of subfoveal CNV due to pathologic myopia (severe near-sightedness).
In some countries, including the U.S. and Canada, Visudyne is also approved for
presumed ocular histoplasmosis or other macular diseases. QLT developed and
commercializes Visudyne through a contractual alliance with Novartis Ophthalmics
(a division of Novartis Pharma AG).
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In November 2004, we acquired Atrix Laboratories, Inc., a Fort Collins,
Colorado based biopharmaceutical company focused on advanced drug delivery, for
which we paid aggregate consideration of $870.5 million, in cash and equity.
With our acquisition of Atrix (now our wholly owned subsidiary QLT USA, Inc.) we
have expanded and diversified our portfolio of approved products, products in
development or under regulatory review, and proprietary technologies. (For
product revenues, see our Consolidated Financial Statements - Note 21).
In addition to our lead commercial product Visudyne, as a result of the
Atrix acquisition, we now market, through commercial partners, the Eligard(R)
group of products for the treatment of prostate cancer, a line of dermatology
products and a line of dental products. The Eligard product line includes four
different commercial formulations of our Atrigel(R) technology combined with
leuprolide acetate for the treatment of prostate cancer. The U.S. Food and Drug
Administration, or FDA, has approved all four products: Eligard 7.5-mg
(one-month), Eligard 22.5-mg (three-month), Eligard 30.0-mg (four-month) and
Eligard 45.0-mg (six-month). The Eligard 7.5-mg and Eligard 22.5-mg products are
also approved in a number of other countries, including most European countries,
Canada, Australia and a number of Latin American countries.
Our newly acquired portfolio of dermatology products consists of both
proprietary and generic products that are commercialized, under regulatory
review, or in various stages of development. Our lead proprietary dermatology
product, Aczone(TM), is currently undergoing regulatory review; a new drug
application, or NDA, was filed with the FDA for Aczone in the third quarter of
2004. Our generic dermatology business, which is part of a 50/50 joint venture
with Sandoz, Inc., currently comprises five marketed products and five under
regulatory review.
Our efforts to increase our portfolio of marketed products are ongoing. We
have a number of product candidates in our development pipeline in addition to
Aczone including another photosensitizer, lemuteporfin (which we used to call
QLT0074), currently being studied in the treatment of benign prostatic
hyperplasia, or BPH, the most common prostatic disease. We carry out research
and pre-clinical projects, in fields such as ophthalmology, dermatology, and
oncology. We also conduct contract research and development work on product
candidates of third parties from which we can potentially derive royalty revenue
upon commercialization.
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OUR APPROVED PRODUCTS
PRODUCT/INDICATION LOCATION(S) COLLABORATIVE PARTNER (S)
- ------------------ ----------- -------------------------
VISUDYNE(R)
Predominantly classic subfoveal choroidal Over 70 countries including Novartis
neovascularization, or CNV, in wet age-related the U.S., Canada, Japan,
macular degeneration, or AMD Australia, New Zealand and
those of the European Union
Occult with no classic subfoveal CNV in AMD Over 40 countries including Novartis
Japan, Australia, New
Zealand, Switzerland and
those of the European Union
Subfoveal CNV due to pathologic myopia Over 50 countries including Novartis
the U.S., Canada, and those
of the European Union
Predominantly classic subfoveal CNV due to presumed U.S. Novartis
ocular histoplasmosis syndrome
Minimally Classic CNV in AMD Japan Novartis
ELIGARD(R) 7.5-MG ONE-MONTH
Prostate cancer Over 30 countries, including sanofi-aventis, Mayne
the U.S., Canada, Australia, Pharma, MediGene/
25 European Union countries, Yamanouchi, Tecnofarma
Switzerland, and a number of
Latin American countries
ELIGARD(R) 22.5-MG THREE-MONTH
Prostate cancer Over 30 countries, including sanofi-aventis, Mayne
the U.S., Canada, Australia Pharma, MediGene/
25 European Union countries, Yamanouchi, Tecnofarma
Switzerland and a number of
Latin America countries
ELIGARD(R) 30.0-MG FOUR-MONTH
Prostate cancer U.S., Canada and Australia sanofi-aventis, Mayne
Pharma
ELIGARD(R) 45.0-MG SIX-MONTH FORMULATION
Prostate cancer U.S. sanofi-aventis
LIDOCAINE 2.5% / PRILOCAINE 2.5% CREAM AN AB-RATED
GENERIC TO EMLA(R) ANESTHETIC CREAM
Topical anesthetic U.S. Sandoz
7
PRODUCT/INDICATION LOCATION(S) COLLABORATIVE PARTNER (S)
- ------------------ ----------- -------------------------
MOMETASONE FUROATE OINTMENT USP, 0.1% AN AB-RATED
GENERIC TO ELOCON(R) OINTMENT 0.1%
Topical corticosteroid U.S. Sandoz
ERYTHROMYCIN AND BENZOYL PEROXIDE TOPICAL GEL, USP,
3%; 5%, AN AB-RATED GENERIC TO BENZAMYCIN(R)
Topical Anti-Acne U.S. Sandoz
BETAMETHASONE DIPROPIONATE CREAM USP, 0.05%
(AUGMENTED) AN AB-RATED GENERIC TO DIPROLENE(R) AF
CREAM 0.05%
Topical corticosteroid U.S. Sandoz
FLUTICASONE PROPIONATE CREAM, 0.05%, AN AB-RATED
GENERIC TO CUTIVATE(TM) CREAM, 0.05%
Topical corticosteroid U.S. Sandoz
ATRIDOX(R) (DOXYCYCLINE HYCALATE)
Antibiotic therapy for chronic periodontitis Over 15 countries including CollaGenex, PharmaScience
U.S. and Canada
ATRISORB(R)-DOXYCYCLINE FREEFLOW GTR BARRIER
Guided tissue regeneration and infection reduction Over 10 countries including CollaGenex, PharmaScience
following periodontal surgery U.S. and Canada
ATRISORB(R) FREEFLOW GTR BARRIER
Guided tissue regeneration following periodontal Over 10 countries including CollaGenex, PharmaScience
surgery U.S. and Canada
DOXIROBE(R) GEL
Periodontitis in companion animals U.S. and Canada Pfizer Animal Health
8
OUR PRODUCTS UNDER REGULATORY REVIEW
PRODUCT/INDICATION LOCATION(S) STATUS
- ------------------ ----------- ------
ELIGARD(R) 7.5-MG ONE-MONTH AND 22.5-MG THREE-MONTH
Prostate Cancer New Zealand, South Africa, Marketing authorization
Israel and a number of Latin applications filed and under
American countries review
ELIGARD(R) 45.0-MG SIX-MONTH
Prostate Cancer Canada and Australia Marketing authorization
applications filed
ELIGARD(R) 3.75-MG ONE-MONTH
Prostate Cancer Japan Marketing authorization
application filed February 2005
ACZONE(TM)
Acne vulgaris U.S. and Canada NDAs and marketing
authorization applications
filed
FIVE PRESCRIPTION GENERIC PRODUCTS U.S. Five ANDAs under review
MOMETASONE FUROATE TOPICAL SOLUTION USP, 0.1% AN
AB-RATED GENERIC OF ELOCON(R) LOTION 0.1%
Topical corticosteroid U.S. and Canada Tentative approval granted,
expected effective November
2007
MOMETASONE FUROATE CREAM USP, 0.1% AN AB-RATED
GENERIC OF ELOCON(R) LOTION 0.1%
Topical corticosteroid U.S. and Canada Tentative approval granted,
expected effective April 2007
9
OUR PRODUCTS IN DEVELOPMENT
PRODUCT/INDICATION LOCATION(S) STATUS
- ------------------ ----------- ------
VISUDYNE(R)
Occult with no classic subfoveal CNV in AMD U.S. Phase III study ongoing
ELIGARD(R)11.25-MG THREE-MONTH
Prostate cancer Japan Clinical study expected to be
initiated in 2005/2006
LEMUTEPORFIN
Benign prostatic hyperplasia U.S., Canada and Argentina Phase II study planned for
2005
DAPSONE TOPICAL CREAM
Rosacea U.S. and Canada Preclinical studies ongoing;
Filing of IND and Phase I
studies planned for 2005
ATRIGEL(R) - OCTREOTIDE THREE-MONTH
Symptoms of carcinoid syndrome and/or acromegaly U.K. Preclinical studies ongoing;
Filing of IND and Phase I
studies planned for 2005
10
OUR APPROVED PRODUCTS
VISUDYNE(R)
Visudyne is a photosensitizer developed by our company and Novartis
Ophthalmics for the treatment of choroidal neovascularization, or CNV, due to
wet AMD, the leading cause of severe vision loss in people over the age of 55 in
North America and Europe. We have been co-developing Visudyne with Novartis
Ophthalmics since 1995 pursuant to a product development, manufacturing and
distribution agreement which created a contractual alliance between our two
companies. Under that agreement, we are responsible for manufacturing and
product supply and Novartis Ophthalmics is responsible for marketing and
distribution.
ABOUT WET AMD
Wet AMD is an eye disease 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 in the elderly, 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.
Based upon proprietary market research, we estimate that worldwide approximately
500,000 new cases of wet AMD develop annually, of which approximately 200,000
develop in North America, approximately 200,000 develop in Europe and
approximately 100,000 develop in the remainder of the world.
There are three forms of wet AMD: predominantly classic, minimally classic
and occult. These forms are distinguished by the appearance of the lesions that
form at the back of the eye.
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 U.S., Canada, Japan,
Australia, New Zealand and those of the European Union.
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 as determined using fluoroscein 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. (For more
information regarding the status of regulatory approval and reimbursement for
Visudyne therapy in the occult form of the disease, see "Expansion and
Improvement of Visudyne Therapy - Occult AMD" below).
CNV due to Pathologic Myopia (PM)
Pathologic myopia, or 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, we estimate that the worldwide incidence of CNV
secondary to PM is approximately 50,000 new patients every year. We have
received regulatory approval of Visudyne for the treatment of subfoveal CNV due
to PM in over 50 countries, including the U.S., Canada and those of the European
Union.
CNV due to Presumed Ocular Histoplasmosis Syndrome (OHS)
Presumed ocular histoplasmosis syndrome, or OHS, is a condition caused by
a fungal infection endemic to certain areas in central and eastern U.S. It can
lead to severe, irreversible vision loss and is a leading cause of
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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 FDA approved Visudyne for
the treatment of subfoveal CNV secondary to OHS in 2001 and approval for this
indication was obtained in Canada in 2004.
Regulatory approval in Japan
In October 2003, health authorities in Japan approved Visudyne therapy for
all types of subfoveal CNV in AMD. Regulatory approval in Japan for the laser
devices used in Visudyne therapy was obtained by Carl Zeiss-Meditic AG, one of
our suppliers, in early 2004. The application for regulatory approval made by
Lumenis Japan, Ltd., our other supplier, is still pending. In April 2004, we
received reimbursement approval for Visudyne therapy from the Japanese
authorities.
ELIGARD(R)
Our proprietary Eligard products for prostate cancer incorporate a
leutinizing hormone-releasing hormone agonist, or LHRH agonist, known as
leuprolide acetate with our proprietary Atrigel drug delivery system. The
Atrigel technology allows for sustained delivery of leuprolide acetate for
periods ranging from one month to six months.
Clinical trials have demonstrated that the sustained release of an LHRH
agonist decreases testosterone levels to suppress tumor growth in patients with
hormone-responsive prostate cancer. The Phase III results for the Eligard 7.5-mg
one-month, 22.5-mg three-month, 30.0-mg four-month and 45.0-mg six-month
products demonstrated low testosterone levels with 99% of completing patients
achieving and maintaining suppression levels equivalent to castration before the
conclusion of the studies.
Our Eligard products are injected subcutaneously as a liquid with a small
gauge needle. The polymers precipitate after injection forming a solid implant
in the body that slowly releases the leuprolide as the implant is bioabsorbed.
ELIGARD(R) 7.5-MG ONE-MONTH PRODUCT
We received FDA approval for our Eligard 7.5-mg one-month product in
January 2002. Our collaborative partner sanofi-aventis Group, or sanofi-aventis,
commenced U.S. marketing of this product in May 2002.
In November 2001, MediGene AG, or MediGene, a German biotechnology
company, submitted a Marketing Authorization Application, or MAA, for our
Eligard 7.5-mg one-month product to the German pharmaceutical regulatory
authority, BfArM, as a Reference Member State under a Mutual Recognition
Procedure. MediGene received marketing authorization from the BfArM for our
Eligard 7.5-mg one-month product in December 2003. In January 2004, we entered
into an agreement with MediGene and Yamanouchi U.K. Limited, naming Yamanouchi
as our pan-European marketing partner. Yamanouchi launched this product in
Germany in May 2004. The Mutual Recognition Procedure was completed in the
European Union in December 2004 with approvals in twenty-four additional
European countries.
Mayne Pharma Pty. Ltd., or Mayne Pharma, received marketing approval of
our Eligard 7.5-mg one-month product from the Australian Drug Evaluation
Committee in November 2003 and launched the product in Australia in February
2004.
Sanofi-aventis Canada received notice of compliance from the Therapeutic
Products Directorate of Health Canada for our Eligard 7.5-mg one-month product
in November 2003 and launched the product in Canada in December 2003.
Tecnofarma International Ltd, or Tecnofarma, launched Eligard 7.5-mg in
Argentina in May 2003, in Mexico in May 2004 and in Columbia in October 2004.
Tecnofarma obtained approvals in Bolivia, Chile, Columbia, Dominion Republic,
Mexico and Uruguay in 2004. Approvals in other Latin American countries are
pending.
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ELIGARD(R) 22.5-MG THREE-MONTH PRODUCT
In July 2002, we received approval from the FDA for our Eligard 22.5-mg
three-month product. Sanofi-aventis commenced marketing in the U.S. in September
2002.
In April 2002, MediGene submitted an MAA for our Eligard 22.5-mg
three-month product to the German pharmaceutical regulatory authority, BfArM, as
a Reference Member State under a Mutual Recognition Procedure and in January
2004 received marketing authorization. The three-month product was launched by
our collaborative partner Yamanouchi in Germany in May 2004. The Mutual
Recognition Procedure was completed in the European Union in December 2004 with
approvals in twenty-four additional European countries.
Mayne Pharma received marketing approval from the Australian Drug
Evaluation Committee in November 2003. Mayne Pharma launched the Eligard 22.5-mg
three-month product in Australia in February 2004.
In November 2003, sanofi-aventis Canada received notice of compliance from
the Therapeutic Products Directorate of Health Canada for our Eligard 22.5-mg
three-month product and launched the product in December 2003.
Tecnofarma received approval for Eligard 22.5-mg three-month product in
Argentina in February 2003, Mexico in January 2004 and Uruguay in December 2004.
ELIGARD(R) 30.0-MG FOUR-MONTH PRODUCT
In February 2003, we received FDA approval for Eligard 30.0-mg four-month
product, and sanofi-aventis commenced U.S. marketing of this product in March
2003.
Mayne Pharma received marketing approval for our Eligard 30.0-mg
four-month product from the Australian Drug Evaluation Committee in November
2003 and launched in February 2004
Sanofi-aventis Canada received a notice of compliance from the Therapeutic
Products Directorate of Health Canada for our Eligard 30.0-mg four-month product
in February 2004 and launched the product in Canada in the second quarter of
2004.
ELIGARD(R) 45.0-MG SIX-MONTH PRODUCT
Our Eligard 45.0-mg six-month product was approved by the FDA in December
2004. Sanofi-aventis commercially launched this product in the U.S. in February
2005.
GENERIC DERMATOLOGY PRODUCTS
LIDOCAINE 2.5% PRILOCAINE 2.5% CREAM
We received approval from the FDA for our abbreviated new drug
application, or ANDA, for Lidocaine 2.5%/ Prilocaine 2.5% cream in August 2003.
Our product is the AB-rated generic to EMLA Anesthetic Cream (lidocaine 2.5% and
prilocaine 2.5%) and is being marketed by our partner Sandoz.
ERYTHROMYCIN AND BENZOYL PEROXIDE TOPICAL GEL, USP, 3%
We received approval from the FDA for our ANDA for Erythromycin and
Benzoyl Peroxide Topical gel USP, 3%, in March 2004. Our product is the AB rated
generic to Benzamycin(R), and is being marketed by our partner Sandoz.
MOMETASONE FUROATE OINTMENT USP, 0.1%
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We received approval from the FDA for our ANDA for Mometasone Furoate
Ointment USP, 0.1% in November 2003. Our product is an AB-rated generic of
Elocon(R) brand of Mometasone Furoate Ointment USP, 0.1% and is being marketed
by our partner Sandoz.
BETAMETHASONE DIPROPIONATE CREAM USP, 0.05%
We received approval from the FDA for our ANDA for Betamethasone
Dipropionate Cream USP, 0.05% (augmented) in January 2004. Our product is an
AB-rated generic to Diprolene(R) AF Cream 0.05% brand augmented betamethasone
dipropionate, and is being marketed by our partner Sandoz.
FLUTICASONE PROPIONATE CREAM, 0.05%
We received approval from the FDA for our ANDA for Fluticasone propionate
cream 0.05%, in May 2004. Our product is AB rated generic to Cutivate(TM) cream,
0.05%, and is being marketed by our partner Sandoz.
DENTAL PRODUCTS
Atridox(R), which combines the Atrigel system and the antibiotic
doxycycline, is a minimally invasive treatment intended to control the bacteria
that cause periodontal disease.
Our Atrisorb-D(R) product also uses the Atrigel system to aid in the
guided tissue regeneration of tooth support following osseous flap surgery or
other periodontal procedures.
The exclusive U.S. marketing rights for our dental products are licensed
to CollaGenex Pharmaceuticals, Inc. in the U.S., to PharmaScience Inc. in
Canada, and to other pharmaceutical companies in other territories. CollaGenex
commenced U.S. marketing of Atridox and Atrisorb FreeFlow in 2001 and Atrisorb-D
in 2002.
We have recently announced our plan to reduce the number of licenses
outside North America because of low profitability in certain territories. These
licenses are not material to our business.
OUR PRODUCTS UNDER REGULATORY REVIEW
ELIGARD(R) 7.5-MG ONE-MONTH, 22.5-MG THREE-MONTH, 30.0-MG
THREE-MONTH
Marketing authorization applications have been filed and are under review
in New Zealand (Mayne Pharma), South Africa (Key Oncologics), Israel (Luxembourg
Pharma) and various Latin American countries (Tecnofarma).
ELIGARD(R) 45.0-MG SIX-MONTH
Sanofi-aventis Canada filed the Canadian new drug application, or NDA, in
May 2004 and Mayne Pharma filed the Australian NDA in April 2004.
ELIGARD(R) 3.75-MG ONE-MONTH
In February 2005, our collaborative partner Sosei Co. Ltd. submitted a
marketing authorization application for a 3.75-mg one-month dosage of Eligard
for the treatment of prostate cancer to the Japanese Ministry of Health, Labor
and Welfare requesting marketing approval for this formulation in Japan.
ACZONE(TM)
We are currently developing Aczone, our proprietary product for the
treatment of acne. Aczone incorporates dapsone, an anti-inflammatory and
antimicrobial drug, with our proprietary solvent microparticle system drug
delivery system, or SMP(TM). Dapsone is an antibiotic with a separate
anti-inflammatory activity, which may reduce inflammation associated with acne.
After topical application, the blood levels of dapsone are over 100 times less
14
than found when the compound is administered orally, significantly reducing the
potential for systemic side effects.
In January 2004, we completed two pivotal Phase III clinical efficacy
studies for our Aczone acne product. Over 3,000 patients were enrolled in these
double-blind, randomized, vehicle-controlled studies, which were conducted in
over 100 centers around the U.S. and Canada. In February 2005, we began a Phase
III clinical trial evaluating Aczone efficacy and safety when used in
combination with a retinoid or benzoyl peroxide. We filed an NDA with the FDA
for the Aczone acne product in August 2004 and Fujisawa Canada filed the
Canadian NDA in December 2005.
MOMETASONE FUROATE SOLUTION USP, 0.1%
In December 2003, we received tentative approval from the FDA for
Mometasone Furoate Lotion USP, 0.1%, an AB-rated generic of Elocon(R) lotion
0.1% currently on patent until 2007. Sandoz intends to market this product upon
patent expiration.
MOMETASONE FUROATE CREAM USP, 0.1%
In July 2004, we received tentative approval from the FDA for Mometasone
Furoate Cream USP, 0.1%, an AB-rated generic of Elocon(R) lotion 0.1% currently
on patent until 2006. Sandoz intends to market this product upon patent
expiration.
THREE UNDISCLOSED GENERIC DERMATOLOGY PRODUCTS
In January 2004, we announced that we submitted three ANDAs to the FDA for
approval of generic formulations of undisclosed dermatology products. With these
applications, we currently have five ANDA submissions under FDA review. Of the
generic topical products approved thus far, we were in each case the second or
later approval.
OUR PRODUCTS IN DEVELOPMENT
EXPANSION AND IMPROVEMENT OF VISUDYNE(R) THERAPY
QLT and Novartis Ophthalmics are engaged in efforts to expand the
indications for which Visudyne is approved. We are also continuing efforts to
improve the effectiveness of Visudyne therapy by exploring combination therapies
and the effect of reduced fluence, or light levels administered during the PDT
process.
Occult AMD
QLT and Novartis Ophthalmics have initiated a Phase III clinical trial
(referred to as the VIO Study, or Visudyne in Occult Study), to demonstrate that
Visudyne therapy is effective in reducing vision loss in patients with occult
AMD.
The VIO Study was initiated in 2002 as a follow-up study to an earlier
Phase III occult AMD trial (referred to as the VIP Trial) which showed
statistically significant outcomes for visual acuity endpoints and resulted in
approval of Visudyne for the treatment of occult AMD in over 40 countries. The
VIO Study is designed to confirm the results of the VIP Trial in patients with
similar lesion types and to obtain marketing authorization for this indication
in the U.S. While some benefit was seen in year one in the VIP Trial, the trial
did not achieve statistical significance in the primary outcome until year two.
The VIO Study did not achieve statistical significance at the 12-month time
point, however the Study prospectively designated both 12 and 24 months as
primary endpoints so that either time point would be sufficient to conclude that
the VIO Study is positive. Based on the recommendation of the Data and Safety
Monitoring Committee at the 12-month time point, the VIO Study is continuing to
its conclusion at 24 months and we expect results in late 2005.
15
Despite the lack of U.S. regulatory approval, in April 2004 the Centers
for Medicare & Medicaid Services, or CMS, in the U.S. implemented its decision
to provide coverage for Visudyne treatment to patients with AMD who have occult
and minimally classic lesions that are four disc areas or less in size and show
evidence of recent disease progression. Although our commercial partner Novartis
is not permitted to market Visudyne in these indications, sales are made in the
U.S. to physicians who are treating patients with occult and minimally classic
lesions.
Minimally Classic AMD
In February 2004, we announced the results of a Phase II clinical trial
[referred to as the "VIM (Visudyne in Minimally Classic) Investigation"] that
evaluated the efficacy and safety of Visudyne therapy in patients with minimally
classic AMD. At 24 months, this study found a statistically significant better
result with Visudyne than with placebo.
In September 2003, we commenced a Phase III trial, which we refer to as
the VMC Trial, to generate confirmatory data in respect of this indication.
However, in April 2004, the CMS implemented its decision to reimburse Visudyne
for minimally classic AMD with lesions of a certain size based on the positive
data from the VIM Investigation. In light of the CMS decision, the VMC Trial was
halted in October 2004.
Combination Trials
At present, there are four investigator-sponsored trials currently
underway to evaluate the potential of Visudyne in combination with the steroid
triamcinalone, including three independent trials and one we have initiated with
the National Eye Institute at the National Institute of Health. We are also
planning a combination trial of Visudyne and an anti-vascular endothelial growth
factor, or anti-VEGF, in mid-2005.
As a part of, or in addition to, the planned combination trials, we will
be investigating reduced fluence, or light levels, in the use of Visudyne
therapy to study the impact on the efficacy and safety of the treatment.
ELIGARD(R) 11.25-MG THREE-MONTH
Our collaborative partner Sosei Co. Ltd., or Sosei, plans to initiate a
Phase III bio-equivalence study in Japan with respect of this formulation for
the treatment of prostate cancer during 2005 or 2006.
DAPSONE TOPICAL CREAM
Dapsone topical cream is under development for the treatment of Rosacea.
We have completed preclinical studies and plan to file an investigational new
drug application, or IND, and initiate Phase I studies in 2005.
ATRIGEL(R)-OCTREOTIDE THREE-MONTH
We have developed a formulation of octreotide in the Atrigel delivery
system for the treatment of the symptoms of carcinoid syndrome and/or
acromegaly. We have completed preclinical studies and plan to file an IND and
initiate Phase I clinical studies in 2005.
LEMUTEPORFIN
Lemuteporfin (which we previously referred to as QLT0074) is a proprietary
photosensitizer to which we have all rights. We are currently developing
lemuteporfin for the treatment of benign prostatic hyperplasia. We halted
investigation of lemuteporfin for the treatment of androgenetic alopecia during
2004.
Benign Prostatic Hyperplasia
Benign prostatic hyperplasia, or BPH, is the most common prostatic
disease. According to the U.S. National Institute of Diabetes and Digestive and
Kidney Diseases, over 50% of men in their sixties and older have symptoms
16
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 methods of managing BPH symptoms depend
upon the severity of the symptoms. Treatments range in severity from
pharmacological treatment to minimally invasive therapy, and finally prostate
resection.
We concluded a Phase I/II proof of concept clinical study of lemuteporfin
for the treatment of BPH in 2004. The results showed that the treatment was well
tolerated by most patients and indications of early efficacy with a 3-month
improvement in average American Urological Association, or AUA, symptom scores
in all cohorts. We plan to continue development of lemuteporfin for BPH in a
Phase II study that will be initiated in the second quarter of 2005. This
controlled dose-ranging trial will include 180 patients across 25 centers.
Enrollment is expected to conclude by the end of 2005 with six-month follow-up
and results in 2006.
OUR PROPRIETARY TECHNOLOGIES
PHOTODYNAMIC THERAPY
Our product Visudyne utilizes our patented photodynamic therapy, or PDT,
technology.
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. Second, a pre-determined 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. Because
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.
For ocular PDT applications non-thermal lasers provide the necessary
intensity of light required. For applications of PDT to internal organs,
physicians use lasers and fiber optics to deliver the appropriate intensity of
light to abnormal tissue.
ATRIGEL(R) SYSTEM FOR INJECTABLE SUSTAINED RELEASE DRUG DELIVERY
Our Eligard products and dental products utilize the Atrigel drug delivery
system, our patented technology for the sustained release of drugs.
The Atrigel drug delivery system consists of biodegradable polymers,
similar to those used in biodegradable sutures, dissolved in biocompatible
carriers. Pharmaceuticals may be blended into this liquid delivery system at the
time of manufacturing or, depending upon the product, may be added later by the
physician at the time of use. When the liquid product is injected through a
small gauge needle or placed into accessible tissue sites through a cannula,
displacement of the carrier with water in the tissue fluids causes the polymer
to precipitate, forming a solid film or implant. The drug encapsulated within
the implant is then released in a controlled manner as the polymer matrix
biodegrades over a specified time period. Depending upon the patient's medical
needs, the Atrigel system can deliver small molecules, peptides or proteins over
a period ranging from days to months.
We believe that the Atrigel system may provide benefits over traditional
methods of drug administration such as tablets or capsules, injections and
continuous infusion as a result of the following properties:
- Broad Applicability - The Atrigel system is compatible with a broad
range of pharmaceutical compounds, including water soluble and
insoluble compounds and high and low molecular weight compounds,
including peptides and proteins.
- Systemic Drug Delivery - The Atrigel system can also be used to
provide sustained drug release into the systemic circulation.
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- Customized Continuous Release and Degradation Rates -- The Atrigel
system can be designed to provide continuous release of incorporated
pharmaceuticals over a targeted time period thereby reducing the
frequency of drug administration.
- Biodegradability - The Atrigel system will biodegrade and does not
require removal when the drug is depleted.
- Ease of Application - The Atrigel system can be injected or inserted
as flowable compositions, such as solutions, gels, pastes, and
putties, by means of ordinary needles and syringes, or can be
sprayed or painted onto tissues.
- Safety - All current components of the Atrigel system are
biocompatible and have independently established safety and toxicity
profiles.
SOLVENT MICROPARTICLE SYSTEM FOR TOPICAL DRUG DELIVERY
Our Aczone product utilizes our patented proprietary Solvent Microparticle
System, or SMP(TM). The SMP technology comprises a two-stage system designed to
provide topical delivery of highly water-insoluble drugs to the skin. The
combination of dissolved drug with a microparticle suspension of the drug in a
single formulation allows a controlled amount of the dissolved drug to permeate
into the epidermal layer of the skin, while a high level of the microparticle
drug is maintained just above the outermost layer of the skin for later
delivery.
SIGNIFICANT COLLABORATIVE ARRANGEMENTS
NOVARTIS OPHTHALMICS - JOINT COMMERCIALIZATION OF VISUDYNE(R) WORLDWIDE
Since 1995 we have had a contractual collaboration, which we often refer
to as an alliance, with Novartis Ophthalmics, a division of Novartis Pharma AG,
for the worldwide joint development and commercialization of PDT products for
eye diseases, including Visudyne. Under the terms of our collaboration
agreement, we are responsible for manufacturing and product supply of Visudyne
and Novartis Ophthalmics is responsible for marketing and distribution. We 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).
Our agreement with Novartis is in effect for a term expiring June 30,
2014, renewable by the parties for two further five year terms. Either our
Company or Novartis may terminate the NVO Co-development Agreement in the event
of an unremedied breach by the other party, or upon the dissolution or
insolvency of the other, or on 60 days notice to the other. The agreement
provides that, if Novartis were to terminate the agreement on 60 days notice to
our Company, it would be required to pay us a reasonable royalty on sales of
Visudyne thereafter.
SANOFI-AVENTIS GROUP - MARKETING OF ELIGARD(R) IN THE U.S. AND CANADA
Since late 2000, we have had a marketing agreement with sanofi-aventis
under which sanofi-aventis is the exclusive marketer of our Eligard 7.5-mg
one-month, 22.5-mg three-month, 30-mg four-month and 45-mg six-month prostate
cancer products in the U.S. and Canada. Our agreement provides that we
manufacture the Eligard products and receive an agreed upon transfer price from
sanofi-aventis as well as royalties on product sales.
MEDIGENE AG AND YAMANOUCHI U.K. LIMITED - MARKETING OF ELIGARD(R) IN
EUROPE
Since 2001, Medigene has been our development and regulatory partner for
Eligard in Europe. In 2004 we and Medigene selected Yamanouchi as the exclusive
marketer of the Eligard product line in Europe. Under the terms of our
agreements with both companies, we manufacture Eligard products and receive from
MediGene an agreed upon transfer price, royalties from sales and certain
reimbursement for development expenses.
SOSEI CO., LTD. - REGULATORY APPROVAL AND COMMERCIALIZATION OF ELIGARD(R)-
JAPAN
Since 2003, we have had an exclusive licensing agreement with Sosei to
develop and commercialize our Eligard 3.75-mg one-month and 11.25-mg three-month
products in Japan. Sosei is responsible for the Japanese regulatory submissions
for those products. In February 2005, Sosei filed for approval of the Eligard
3.75-mg one-month
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formulation. In December 2003, Sosei entered into a co-promotion agreement with
Nippon Organon K.K. for the Eligard products in Japan. Under that agreement,
upon commercialization, Nippon Organon and Sosei will be responsible for
co-marketing of Eligard in Japan.
OTHER ELIGARD(R) MARKETING COLLABORATIONS
We have partnered with a number of other companies to market Eligard
products throughout the world. Our Eligard marketing collaborations are set out
in the following table:
ELIGARD(R) MARKETING COLLABORATIONS
COMPANY TERRITORY
=============================== =================================================================
Han All Pharmaceutical Co. Korea
Key Oncologics South Africa
Luxembourg Pharmaceuticals, Ltd. Israel
Mayne Pharma Pty, Ltd. Australia, New Zealand
MediGene AG through its Albania, Andorra, Armenia, Austria, Azerbaijan, Belarus, Belgium,
sublicensee, Yamanouchi U.K. Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech
Ltd. Republic, Denmark, Estonia, Finland, France, Georgia, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein,
Lithuania, Luxembourg, Malta, Monaco, Netherlands, Norway,
Poland, Portugal, Republic of Moldova, Romania, Russian
Federation, San Marino, Slovakia, Slovenia, Spain, Sweden,
Switzerland, The former Yugoslav Republic of Macedonia, Turkey,
Ukraine, and United Kingdom, the Vatican City and Yugoslavia.
Ranbaxy Laboratories Ltd. India
Sanofi-aventis Group U.S., Canada
Sosei Co., Ltd. Japan
Tecnofarma International Ltd. Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica,
Dominican Republic, Ecuador, El Salvador, French Guiana,
Guatemala, Guyana, Honduras, Mexico, Nicaragua, Panama,
Paraguay, Peru, Suriname, Uruguay, Venezuela
FUJISAWA HEALTHCARE, INC. - ACZONE(TM) DEVELOPMENT AND COMMERCIALIZATION
IN NORTH AMERICA
Fujisawa Healthcare, Inc., or Fujisawa, has been our collaborative partner
for the development and commercialization of Aczone in North America. Our
collaboration, license and supply agreement grants Fujisawa the exclusive North
American marketing and distribution rights for our Aczone acne treatment
product. Upon commercialization, we will manufacture Aczone and will receive
from Fujisawa an agreed upon transfer price as well as a royalty on sales of
Aczone. As part of our collaboration with Fujisawa, we are also co-developing
19
additional indications for the topical use of dapsone. For these additional
indications, Fujisawa is responsible for a significant portion of the research
and development costs.
SANDOZ INC. - MARKETING OF GENERIC PRESCRIPTION DERMATOLOGY PRODUCTS -
U.S.
We entered into a development and supply agreement with Sandoz, Inc., or
Sandoz, a subsidiary of Novartis Pharma AG,to develop generic topical
prescription dermatology products for the U.S. Under the terms of the agreement,
we are responsible for validation, formulation, and development, including
required clinical studies and regulatory submissions for the products. Sandoz is
responsible for commercialization of the products. Sandoz reimburses us for one
half of the research and development expenses we incur, and both parties share
equally in the net profits from the sale of the products.
PFIZER, INC. - COLLABORATIVE RESEARCH AND OUT-LICENSE OF OUR DRUG DELIVERY
TECHNOLOGY
In 2000, we entered into a non-exclusive comprehensive research and
worldwide licensing agreement with Pfizer Inc., or Pfizer, to provide Pfizer
with rights to our proprietary drug delivery systems in the development of new
Pfizer products. Under this agreement, Pfizer provides funding to develop
sustained release formulations of selected Pfizer compounds. We have
co-manufacturing rights and will receive royalties on the sales of products that
are successfully developed and commercialized under this agreement and certain
milestone payments. This is a five year agreement renewable after five years
unless either party elects to terminate.
In January 2004, Pfizer completed Phase I clinical testing of a novel bone
growth product formulated in our Atrigel sustained-release drug delivery system.
Pfizer has announced its intention to advance the product into additional human
clinical testing. As of December 31, 2004, all other products under our
agreement with Pfizer were in preclinical stages of development.
BIO DELIVERY SCIENCE INTERNATIONAL - OUT-LICENSE OF BEMA TECHNOLOGY
In July 2004, we entered into an agreement with Arius Pharmaceuticals,
Inc., now Bio Delivery Systems International, or BDSI, to develop and market our
proprietary Bio Erodible Muco Adhesive, or BEMA, drug delivery system. The BEMA
delivery system is a polymer-based system designed to deliver systemic levels of
drugs across oral mucosal tissues. All research and development related to the
BEMA technology, including ownership of three existing INDs and certain
manufacturing equipment were transferred to BDSI. Under the terms of the
agreement, we may receive cash payments upon achievement of milestones,
including up to an aggregate of $5 million with respect to the first two
products, an additional $1 million with respect to each additional product
thereafter, and $2 million upon achieving a certain level of net sales. We may
also receive reimbursement for research and development support and royalties on
commercial sales of BEMA products.
PRODUCT MANUFACTURING
Visudyne is currently manufactured in stages by several contract
facilities located in the U.S., Canada, Europe and Japan. We have long-term
supply agreements with Raylo Chemicals Inc., Nippon Fine Chemicals of Japan,
Parkedale Pharmaceuticals Co., Ltd., Orgapharm S.A.S., a subsidiary of Orgasynth
(formerly Merck Sante), Harimex Ligos BV and Sato Pharmaceuticals Co., Ltd. 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.
We manufacture our full line of Eligard finished products, Aczone topical
dermatological product, generic dermatology products, and dental products at our
58,000 square foot manufacturing facility in Fort Collins, Colorado. Some
intermediate portions of the manufacturing process are performed by a third
party (See Risk Factors). We also enter into selective agreements to perform
contract manufacturing of third party products in order to utilize available
manufacturing capacity at this facility.
A pilot manufacturing facility was recently constructed within our
existing headquarters in Vancouver, British Columbia. This facility will be used
in conjunction with our Fort Collins facility to produce clinical trial material
for development programs.
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We own substantially all of our laboratory and manufacturing equipment,
which we consider to be adequate for our research, development and testing
requirements for the foreseeable future.
FINANCIAL INFORMATION ABOUT SEGMENTS AND GEOGRAPHIC AREAS
The geographic information required herein is contained in Note 21 to our
Consolidated Financial Statements "Segmented Information" of this Annual Report
on Form 10-K and is incorporated by reference herein.
SUPPLY OF MEDICAL LASERS REQUIRED FOR VISUDYNE THERAPY
Visudyne therapy requires a physician to deliver a dose of non-thermal
light at a particular wavelength to target tissue in the eye in order to
activate the photosensitizer. We do not manufacture the lasers required to
deliver this light. Diode laser systems required for Visudyne therapy are
manufactured and sold by at least two medical device companies, Carl
Zeiss-Meditic AG, and Lumenis Ltd., formerly Coherent Inc. We collaborate with
Lumenis and Carl Zeiss-Meditic for the supply of lasers for use in conjunction
with Visudyne therapy. Both Lumenis and Carl Zeiss-Meditic have portable diode
lasers that have been commercially approved for use with Visudyne in the U.S.,
Europe and elsewhere. Approximately 2,000 of these diode lasers have been placed
with medical facilities around the world. (See "Risk Factors").
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
We seek to protect our proprietary technology by obtaining patents to the
extent we consider it advisable, and by taking contractual measures and other
safeguards to protect our trade secrets and innovative ideas We currently own or
have acquired rights to a number of patents and patent applications for the
technologies utilized in our commercial products and products under review and
in development in the U.S., Canada and other jurisdictions.
Our policy is to file patent applications on a worldwide basis in those
jurisdictions where we consider it beneficial, depending on the subject matter
and our commercialization strategy. The most significant patents owned or
licensed by us are described below.
VISUDYNE(R)
Verteporfin, the active ingredient in Visudyne, is protected by granted
patents in major markets. These patents are owned by the University of British
Columbia, or UBC, and exclusively licensed by us. We entered into a license
agreement with UBC in 1988 which granted us a worldwide exclusive
royalty-bearing license, with the right to sublicense, to know-how and patents
relating to porphyrin derivates, including verteporfin, the active ingredient in
Visudyne. The license terminates upon the expiration of all of the licensed
patents. UBC has the right to terminate the license upon: our bankruptcy or
winding up, our failure to pay royalties owing, or our breach of contract which
is not remedied within 30 days.
In the United States, verteporfin is covered by Patent Nos. 4,920,143 and
5,095,030, both having an expiration date of April 24, 2007. We have applied
for, and expect to be granted, a term extension of Patent No. 5,095,030 pursuant
to U.S. legislation that allows the extension of the term of one patent relating
to a product that is subject to regulatory review. Based upon the FDA's
determination of the regulatory review period for Visudyne, published in the
Federal Register on September 28, 2004 (Vol. 69, No.187) the term of the
5,095,030 patent could be extended until January 5, 2012. In Europe, verteporfin
is covered by European Patent 0352076, for which we applied for and received an
extension of patent term until July 18, 2014. In Japan, verteporfin is covered
by JP 2834294, having an expiration date of January 20, 2008 and JP 2137244,
having an expiration date of July 19, 2009. We have applied for, and expect to
receive, an extension of patent term for both of these patents.
We also have an exclusive worldwide license from the Massachusetts General
Hospital, or MGH, of MGH's rights in a U.S. patent relating to verteporfin which
MGH owns jointly with us, and to all foreign equivalents (which rights
21
are non-exclusive if exclusive rights are not available in any foreign
jurisdiction). The term of the MGH license continues on a country by country
basis for so long as any such patent right remains in effect. The U.S. patent
expires in 2015. Under the MGH license, we make royalty payments to MGH based on
Visudyne sales.
We own or exclusively license patents covering the Visudyne drug product
relating to the lipid-based formulation of verteporfin. U.S. Patent No.
5,214,036, which expires on May 25, 2010, is owned by the UBC and exclusively
licensed by us. U.S. Patent No. 5,707,608 expires on August 2, 2015, with
foreign equivalents expiring in 2016. U.S. Patent No. 6,074,666 expires on
February 5, 2012, with foreign equivalents expiring in 2013. In addition to
these patents, we own or license several patents and patent applications
covering alternative formulations of verteporfin.
We own or license patents covering certain approved uses of Visudyne. U.S.
Patent Nos. 4,883,790 and 5,283,225, both of which expire on January 20, 2006,
cover methods of treating target tissues and destroying unwanted cells using
Visudyne and are owned by UBC and exclusively licensed to us. U.S. Patent No.
5,756,541, expiring on March 11, 2016, with foreign equivalents expiring in
2017, is co-owned by Novartis and us and covers methods of using Visudyne to
improve visual acuity in subjects having unwanted ocular neovasculature. U.S.
Patent No. 5,798,349, which expires on August 25, 2015, is co-owned by us,
Massachusetts General Hospital and Massachusetts Eye and Ear Infirmary and
covers methods of treating AMD using Visudyne. U.S. Patent No. 5,770,619, which
expires on November 12, 2012, with foreign equivalents expiring in 2013, is
owned by UBC and exclusively licensed to us and covers methods of using Visudyne
to treat neovasculature involving a reduced interval between drug and light
administration. In addition to these patents covering on-label uses of Visudyne,
we own or license several other patent applications relating to alternative
methods of using Visudyne in the treatment of ocular diseases, including AMD.
LEMUTEPORFIN (PREVIOUSLY CALLED QLT0074)
Lemuteporfin is protected by granted patents in major markets. All of
these patents are jointly owned by UBC and us. UBC has exclusively licensed
these patents to us. In the U.S., lemuteporfin is covered by Patent No.
5,929,105 which has an expiration date of May 7, 2017. If lemuteporfin is
approved by the FDA for marketing in the U.S., we plan to apply for a term
extension for U.S. Patent No. 5,929,105 pursuant to U.S. legislation that allows
the extension of the term of one patent relating to a product that is subject to
FDA review. In Europe, we own European Patent No. 983273 covering lemuteporfin.
This patent has been granted and was subsequently validated in 18 European
jurisdictions including France, Germany, Italy, Spain, and the United Kingdom.
All of the resultant national patents have an expiration date of May 6, 2018.
Where national law allows, we plan to apply for Supplementary Protection
Certificates for the patents resulting from European Patent 983273 pursuant to
the relevant European Union Regulation. In Japan we own Japanese Patent 3378889
covering lemuteporfin, which has an expiration date of May 6, 2018. We intend to
apply for a term extension for this patent.
We own or license patents and patent applications covering the use of
lemuteporfin in prostatic disorders such as benign prostatic hyperplasia. If the
pending applications are granted, these patent rights will expire from 2013 to
2024.
We own additional patent applications covering alternative formulations
and methods of use of lemuteporfin.
We own or license additional patent applications relating to photodynamic
therapy, including numerous other photosensitizers, and methods of using
photosensitizers.
ELIGARD(R)
The Eligard one-, three-, four- and six-month products are protected by
granted patents in major markets. We own the following U.S. granted patents
covering the Atrigel drug delivery system used to deliver leuprolide acetate,
the active ingredient in the Eligard product: 4,938,763, expiring on October 3,
2008, 5,278,201, expiring on January 11, 2011, 5,324,519, expiring on June 28,
2011, 5,599,552, expiring on February 4, 2014, 5,739,176, expiring on October 3,
2008, and RE37950, expiring on October 3, 2008. The Atrigel drug delivery system
is protected in Europe by European Patent 436667, expiring on September 27,
2009, and European Patent539751, expiring on October 1, 2012 and in Japan by
Japanese Patent 2992046, expiring on September 27, 2009.
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Our U.S. Patents Nos. 6,626,870 and 6,773,714, both expiring on October
28, 2018, cover the Eligard drug products, and methods of making and using them.
Foreign equivalents of these patents are pending in Europe, Japan, Canada and
other countries.
ACZONE(TM)
We own a number of patents which protect Aczone in major markets. In the
U.S., Aczone is covered by Patent Nos. 5,863,560 and 6,620,435 which have
expiration date of September 11, 2016. In Europe, Aczone is covered by European
Patent No.957900. This patent has been granted and was subsequently validated in
17 European jurisdictions including France, Germany, Italy, Spain, and the
United Kingdom. All of the resultant national patents have an expiration date of
September 10, 2017. Equivalent applications or patents exist in Australia,
Canada, and Japan. We also own patent applications covering Aczone. If granted,
these patent rights will expire from 2022 to 2025.
GENERALLY
In addition to patent protection, we also rely on trade secrets,
proprietary know-how and continuing technological innovation to develop and
maintain a competitive position in our product areas.
We require our collaborative partners and potential business partners,
consultants and employees who might have access to or be provided with
proprietary information to sign confidentiality undertakings.
Our patent position and proprietary technologies are subject to certain
risks and uncertainties. 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 our
patents will afford legal protection against competitors, nor can there be any
assurance that the patents will not be infringed by others, nor that others will
not obtain patents that we would need to license.
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 protect our
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 our proprietary information or
that others will not develop independently or obtain access to the same or
similar information or that our competitive position will not be affected
adversely thereby.
There are four pending lawsuits relating to our patent rights. We discuss
those lawsuits in more detail in the section of this report headed "Legal
Proceedings", which we encourage you to read.
We have included information about these and other risks and uncertainties
relating to protection of our proprietary information under the heading "Risk
Factors".
Our products and services are sold around the world under brand-name
trademarks which we own or are authorized to use by others. We have several
registered trademarks in the U.S. and Canada and in other jurisdictions.
INTERNATIONAL DENTAL BUSINESS
Since February 2000, our wholly owned subsidiary Atrix Laboratories GmbH,
based in Germany, has managed our business relationships with European
distributors for dental products. Atrix Laboratories GmbH currently holds the
marketing authorizations for European sales of Atridox. In 2005, we began
closing the operations of Atrix Laboratories GmbH, as part of our plan to
significantly reduce our international dental business. Our international dental
business is not material to our overall business.
23
COMPETITION
The pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Our competitors include
major pharmaceutical and biopharmaceutical companies, many of which have
financial, technical and marketing resources significantly greater than ours and
substantially greater experience in developing products, conducting preclinical
and clinical testing, obtaining regulatory approvals, manufacturing and
marketing. In addition, many biopharmaceutical companies have formed
collaborations with large, established pharmaceutical companies to support
research, development and commercialization of products that may be competitive
with our 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 we are not aware, or products or treatments that may be developed in
the future, may adversely affect the marketability of products developed by us.
VISUDYNE(R)
We are aware of a number of competitors or potential competitors to
Visudyne.
In January 2005, Eyetech Pharmaceuticals, Inc., in partnership with
Pfizer, commercially launched its product Macugen(R), which has FDA approval for
treatment of all forms of wet AMD. Macugen now competes with Visudyne.
In addition, Alcon, Inc. has announced that it has completed its final
submission to the FDA in respect of its pending NDA for its product Retaane(R),
for the treatment of wet AMD. Alcon has also submitted European Marketing
Authorization Applications for this product. Alcon recently announced that it
has obtained priority review and expects a decision from the FDA in May of 2005.
If that decision is favorable, it is possible that Retaane could be competing
with Visudyne as early as during 2005.
Genentech, Inc., in collaboration with Novartis Pharma AG, is currently
conducting two Phase III studies of its product Lucentis, for the treatment of
AMD. Data from the two ongoing Phase III trials is expected in the second and
fourth quarters of 2005 respectively. If that data is successful, this product
could be commercially launched during 2006.
We believe that Iridex Corporation, Genaera Corporation and GenVec, Inc.
are also developing or may develop competitive therapies targeted for wet 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.
ELIGARD(R)
There are a number of approved products on the market with which our
Eligard products compete. These include AstraZeneca's Zoladex(R) product, Bayer
Pharmaceuticals Corporation's Viadur(R) product, Pfizer's Trelstar(R) product
and TAP Pharmaceuticals, Inc.'s Lupron(R) product.
ACZONE(TM)
Upon FDA approval and commercialization, our Aczone product will directly
compete against several other prescription topical products for the treatment of
acne. These include, but are not limited to, erythromycin/benzoyl peroxide,
clindamycin/benzoyl peroxide, tretinoin, and adapalene products. Aczone will
also compete indirectly with systemic prescription products and topical
over-the-counter therapies.
ATRIDOX, ATRISORB, ATRISORB-D
24
Competitors of our dental products include OraPharma, Inc., whose
Arestin(TM) product is used for the treatment of periodontal disease.
GENERALLY
We are also aware that other companies are engaged in the development of
products that might become competitive to our products, but none are considered
as advanced as those of the companies mentioned above.
We believe that these competitors are or might be conducting preclinical
studies and clinical testing on their own or with certain third parties in
various countries for a variety of diseases and medical conditions in which we
have ongoing development programs. These and other companies also may be
involved in competitive activities of which we are not aware.
An important competitive factor is the timing of market introduction of
products by us or our competitors. Accordingly, the relative speed with which we
and our 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.
Our competition will be determined in part by the potential indications
for which our products are developed and ultimately approved by regulatory
authorities. The development by competitors of new treatment methods for those
indications for which we are developing products could render our products
non-competitive or obsolete. We expect that competition among products approved
for sale will be based, among other things, on product efficacy, safety,
reliability, availability, price and intellectual property protection.
GOVERNMENT REGULATION
The research and development, preclinical studies and clinical trials, and
ultimately, the manufacturing, marketing and labeling of our products, are
subject to extensive regulation by the FDA and other regulatory authorities in
the U.S. and other countries. The U.S. Food, Drug and Cosmetic Act and its
regulations govern, among other things, the testing, manufacturing, safety,
efficacy, labeling, storage, record keeping, approval, clearance, advertising
and promotion of our products. Preclinical studies, clinical trials and the
regulatory approval process typically take years and require the expenditure of
substantial resources. If regulatory approval or clearance of a product is
granted, the approval or clearance may include significant limitations on the
indicated uses for which the product may be marketed.
FDA REGULATION -- APPROVAL OF THERAPEUTIC PRODUCTS
Visudyne, Eligard, Aczone, our generic dermatology products, as well as
our Atridox and Doxirobe Gel products are regulated in the U.S. as drugs. The
steps ordinarily required before a drug may be marketed in the U.S. include:
- preclinical studies;
- the submission of an IND to the FDA, which must become effective
before human clinical trials may commence;
- adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug;
- the submission of an NDA or ANDA to the FDA; and
- FDA approval of the application, including approval of all labeling.
Preclinical tests include laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the potential safety and
efficacy of the product. Preclinical tests must be conducted in compliance with
good laboratory practice regulations. The results of preclinical testing are
submitted as part of an IND to the FDA. A 30-day waiting period after the filing
of each IND is required prior to the commencement of clinical testing in humans.
In addition, the FDA may, at any time during this 30-day period, or anytime
thereafter, impose a clinical hold on
25
proposed or ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA authorization.
Clinical trials to support NDAs are typically conducted in three
sequential phases, but the phases may overlap. In Phase I, the initial
introduction of the drug into healthy human subjects or patients, the drug is
tested to assess metabolism, pharmacokinetics and pharmacology and safety,
including side effects associated with increasing doses. Phase II usually
involves studies in a limited patient population to:
- assess the efficacy of the drug in specific, targeted indications;
- assess dosage tolerance and optimal dosage; and
- identify possible adverse effects and safety risks.
If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials are
undertaken to further demonstrate clinical efficacy and to further test for
safety within an expanded patient population at multiple study sites. Phase I,
Phase II or Phase III clinical studies may not be completed successfully within
any specified time period, if at all, with respect to any of our products
subject to such testing.
After successful completion of the required clinical testing, generally an
NDA is submitted. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the Food, Drug and Cosmetic Act and User Fee
legislation, the FDA has up to 12 months in which to review the NDA and respond
to the applicant. The FDA may refer the application to an appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendation of an advisory committee. If the FDA evaluations of
the NDA and the manufacturing facilities are favorable, the FDA may issue either
an approval letter or an approvable letter. The approvable letter usually
contains a number of conditions that must be met to secure final FDA approval of
the NDA. When, and if, those conditions have been met to the FDA's satisfaction,
the FDA will issue an approval letter. If the FDA's evaluation of the NDA or
manufacturing facility is not favorable, the FDA may refuse to approve the NDA
or issue a non-approvable letter that often requires additional testing or
information. Even if regulatory approval is obtained, a marketed product and its
manufacturing facilities are subject to continual review and periodic
inspections. In addition, identification of certain side effects after a drug is
on the market or the occurrence of manufacturing problems could cause subsequent
withdrawal of approval, reformulation of the drug, additional preclinical
testing or clinical trials and changes in labeling.
Failure to comply with the FDA or other applicable regulatory requirements
may subject a company to administrative sanctions or judicially imposed
sanctions such as civil penalties, criminal prosecution, injunctions, product
seizure or detention, product recalls, or total or partial suspension of
production. In addition, non-compliance may result in the FDA's refusal to
approve pending NDAs or supplements to approved NDAs, pre-market approval
application, or PMA, or PMA supplements and the FDA's refusal to clear
pre-market notifications of new medical devices.
FDA REGULATION - APPROVAL OF MEDICAL DEVICES
Our Atrisorb GTR Barrier products are regulated in the U.S. as medical
devices. Certain medical devices are generally introduced to the market based on
a pre-market notification, or 510(k) submission, to the FDA. Under a 510(k)
submission, the sponsor establishes that the proposed device is "substantially
equivalent" to a legally marketed Class I or Class II medical device or to a
Class III device for which the FDA has not required registration through a
pre-market approval, or PMA. If the sponsor cannot demonstrate substantial
equivalence, the sponsor will be required to submit a PMA, which generally
requires preclinical and clinical trial data, to prove the safety and
effectiveness of the device.
FDA REGULATION - POST-APPROVAL REQUIREMENTS
Even if regulatory clearances or approvals for our products are obtained,
our products and the facilities manufacturing our products are subject to
continued review and periodic inspections by the FDA. Each U.S. drug
26
and device-manufacturing establishment must be registered with the FDA. Domestic
manufacturing establishments are subject to biennial inspections by the FDA and
must comply with the FDA's current good manufacturing practices, or cGMP, if the
facility manufactures drugs, and quality system regulations, or QSRs, if the
facility manufactures devices. In complying with cGMP and QSRs, manufacturers
must expend funds, time and effort in the area of production and quality control
to ensure full technical compliance. The FDA stringently applies regulatory
standards for manufacturing.
The FDA also regulates labeling and promotional activities. Further, we
must report certain adverse events involving our drugs and devices to the FDA
under regulations issued by the FDA.
EUROPEAN REGULATION - APPROVAL OF MEDICINAL PRODUCTS
Our Eligard and Atridox products are regulated in Europe as medicinal
products. In 1993, legislation was adopted which established a new and amended
system for the registration of medicinal products in the European Union, or EU.
The objective of this system is to prevent the existence of separate national
approval systems that have been a major obstacle to harmonization. One of the
most significant features of this system was the establishment of a European
Agency for the Evaluation of Medicinal Products. Under this system, marketing
authorization may be submitted at either a centralized or decentralized level.
The Centralized Procedure is administered by the European Agency for the
Evaluation of Medicinal Products. This procedure is mandatory for the approval
of biotechnology products and is available at the applicant's option for other
innovative products. The Centralized Procedure provides, for the first time in
the EU, for the granting of a single marketing authorization that is valid in
all EU member states.
REGULATORY CONSIDERATIONS FOR OVER THE COUNTER DRUG PRODUCTS
An over the counter, or OTC, drug may be lawfully marketed if:
- the drug is generally recognized as safe and effective, or GRAS/E;
- the drug is the subject of an approved NDA; or
- the drug complies with a tentative final or final monograph
published by the FDA as part of the OTC review.
Prior FDA approval is required only if an NDA is submitted. A company
makes the determination as to which route to market is the most appropriate. If
a company determines that the drug product is GRAS/E or is covered in a
monograph, it is the company's responsibility to substantiate the safety and
efficacy of the formulation and that the dosage form and claims are applicable
under GRAS/E or monograph status. Most OTC drug products are marketed pursuant
to an FDA monograph.
There are several other regulatory requirements applicable to all OTC drug
products. These requirements pertain to labeling, drug registration and listing,
and manufacturing. With regard to labeling, the regulations require certain
language for statement of identity, net contents, adequate directions for use,
and name and address of the manufacturer, and their placement on the finished
package, as well as additional warning statements when relevant to the product.
All OTC manufacturers must register their establishments with the FDA and submit
to the FDA a list of products made within five days after beginning operations,
as well as submit a list of products in commercial distribution. The FDA must
inspect all registered establishments at least every two years and OTC drug
products must be manufactured in accordance with cGMP regulations. If the FDA
finds a violation of cGMPs, it may enjoin a company's operations, seize product,
or criminally prosecute the manufacturer.
ABBREVIATED NEW DRUG APPLICATIONS (ANDAS)
Any products emanating from our generic topical dermatological business
are subject to the ANDA approval process. The Food, Drug and Cosmetic Act, as
amended in 1984, established a statutory procedure to permit the marketing
approval for duplicate and related versions of previously approved pioneer drug
products. The procedure
27
provides for approval of these "duplicate" or generic drugs through an ANDA. The
process provides for approval for duplicate or related versions of approved
drugs whose patents have expired and that have been shown through the ANDA
requirements to be as safe and effective as their brand name counterparts but
without the submission of duplicative safety and efficacy data. Therefore, the
process is intended to encourage competition by decreasing the time and expense
of bringing generic drugs to market.
Generic drug products are required to be shown as bioequivalent to the
pioneer drug product via an in-vivo bioavailability study. In addition, the ANDA
must contain information on the production and analytical testing of the drug
product and provide a certification regarding patent status of the pioneer drug.
To obtain approval, the ANDA must verify that the generic drug product is
bioequivalent to the pioneer drug product, that the necessary procedures and
controls are in place to produce the generic product under cGMP and that the
applicant has complied with the patent requirements of the Food, Drug and
Cosmetic Act.
The innovator company holding patents for the pioneer drug product may
challenge an ANDA on the basis of alleged patent infringement. Such a legal
challenge can delay the approval of an ANDA for up to 30 months. Post approval,
generic drug products are subject to labeling, promotional, and cGMP compliance
requirements.
ADDITIONAL REGULATORY ISSUES
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
a patent which claims a product, use or method of manufacture covering drugs and
certain other products may be extended for up to five years to compensate the
patent holder for a portion of the time required for research and FDA review of
the product. This law also establishes a period of time following approval of a
drug during which the FDA may not accept or approve applications for certain
similar or identical drugs from other sponsors unless those sponsors provide
their own safety and effectiveness data. We cannot provide assurance that we
will be able to take advantage of either the patent term extension or marketing
exclusivity provisions of this law.
Various aspects of our business and operations are regulated by a number
of other governmental agencies including the U.S. Occupational Safety and Health
Administration and the SEC.
THIRD-PARTY REIMBURSEMENT
Government and private insurance programs, such as Medicare, Medicaid,
health maintenance organizations and private insurers, fund the cost of a
significant portion of medical care in the U.S. Governmental imposed limits on
reimbursement of hospitals and other health care providers have significantly
impacted their spending budgets. Under certain government insurance programs, a
health care provider is reimbursed a fixed sum for services rendered in treating
a patient, regardless of the actual charge for such treatment. Private
third-party reimbursement plans are also developing increasingly sophisticated
methods of controlling health care costs through redesign of benefits and
exploration of more cost-effective methods of delivering health care. In
general, these government and private measures have caused health care providers
to be more selective in the purchase of medical products.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and we cannot provide assurance that adequate
third-party coverage will be available. Limitations imposed by government and
private insurance programs and the failure of certain third-party payers to
fully, or substantially reimburse health care providers for the use of the
products could seriously harm our business.
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 our products in clinical trials and the sale of such products may
expose us 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, we are subject to the
inherent risk that a governmental authority may require the recall of one or
more of our products. We currently carry clinical
28
trials and product liability insurance in amounts up to $25 million to cover
certain claims that could arise during the clinical studies or commercial use of
our products. Such coverage and the amount and scope of any coverage obtained in
the future may be inadequate to protect us 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.
Further, liability claims relating to the use of our products or a product
recall could negatively affect our ability to obtain or maintain regulatory
approval for our products. We have agreed to indemnify certain of our
collaborative partners against certain potential liabilities relating to the
manufacture and sale of our products.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 2004, 2003, and 2002, our total
research and development expenses were $50.1 million, $44.9 million and $42.3
million respectively. See: "Our Products in Development" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
HUMAN RESOURCES
As of March 1, 2005 we had 474 employees, 317 of whom were engaged in
research, development, clinical and regulatory affairs, manufacturing and
process development, and medical devices, and 157 of whom were engaged in
administration, corporate communications, corporate development, finance,
information technology, human resource, legal and marketing and sales planning.
None of our employees belongs to a labor union and we consider our relationship
with our employees to be good. We believe we offer competitive compensation.
OUR EXECUTIVE OFFICERS
Set out below is certain information with respect to our executive
officers as of March 15, 2005:
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------------------
Paul J. Hastings........................... 45 President, Chief Executive Officer and Director
Mohammad Azab, M.D......................... 49 Executive Vice President, Research and Development and
Chief Medical Officer
Robert L. Butchofsky....................... 43 Senior Vice President, Marketing and Sales Planning
Alain H. Curaudeau......................... 48 Senior Vice President, Project Planning and Management
Michael J. Doty............................ 58 Senior Vice President and Chief Financial Officer
Michael Duncan............................. 42 President, QLT USA, Inc.
Therese Hayes.............................. 38 Vice President, Corporate Communications and
Investor Relations
29
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------------------
Linda M. Lupini............................ 45 Senior Vice President, Human Resources and
Organizational Development
William J. Newell.......................... 47 Senior Vice President and Chief Business Officer
Jim Redenbarger............................ 51 Vice President, Operations
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 and Arriva Pharmaceuticals.
Mohammad Azab, M.D., joined the Company as Vice President, Clinical
Research and Medical Affairs in 1997 and was promoted to Senior Vice President,
Clinical Research and Medical Affairs in March 2000. Dr. Azab became 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. Dr. Azab
is a member of the board of directors of Xenon Pharmaceuticals Inc..
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 was promoted to Senior Vice President, Marketing
and Sales Planning in early March of this year. 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
30
extensive global experience in pharmaceutical R&D after serving more than 15
years with Rhone-Poulenc Rorer (RPR), a major international pharmaceutical
company. Mr. Curaudeau's tenure with RPR included 14 years of progressively
senior positions in project management, in France and in the U.S. Most recently
he was designated head of Project Management for aventis, a new company formed
in 1999 by the merger between Rhone-Poulenc Rorer and Hoechst AG. Mr. Curaudeau
holds Bachelors and Masters degrees 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 extensive 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. Mr. Doty is a
director and Associate Chair of the B.C. Biotech Association.
Michael Duncan joined QLT in 2004 when the company merged with the former
Atrix Laboratories, Inc. Prior to becoming President of QLT USA, Mr. Duncan was
the Vice President and General Manager at Atrix. In his over nine years at
Atrix, Mr. Duncan has also held the positions of Senior Vice President,
Technical Operations as well as Vice President, Manufacturing and Process
Development. Previous to his career with Atrix he served as Director of
Production Operations for Geneva Pharmaceuticals, Inc. and as a Production
Planner at Roxanne Laboratories, Inc. Mr. Duncan holds a Bachelor of Science in
Business Administration from Regis University in Denver, Colorado.
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 from 1998 to 2001. 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
Organizational Development in February 2003. Ms. Lupini joined QLT in 1997 as
Director, Human Resources, and was promoted to Vice President, Human Resources
and Administration in March 2000. Ms. Lupini joined QLT after serving as Human
Resources Director at MacDonald Dettwiler and Associates Ltd., a leading
technology firm in Western Canada. Ms. Lupini, who holds a Bachelor of Arts
degree in psychology from the University of British Columbia, is a member of
several human resource and industry associations and serves as a board member of
the Simon Fraser University MBD Program Advisory Committee and a board member of
the BC Human Resources Council of Canada.
William J. Newell joined QLT as Senior Vice President and Chief Business
Officer in June 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 and Vancouver's
St. Paul's Hospital Foundation. Mr. Newell is a graduate of Dartmouth College
(1979) and obtained his law degree from University of Michigan Law School in
1983.
31
Jim Redenbarger joined us in 2004 as Vice President, Operations. He brings
an extensive biopharmaceutical background with more than 25 years of experience
in pharmaceuticals, devices and biotechnology. Most recently he was a principal
at Growth Management Consulting, where he consulted to companies such as Amgen,
Array BioPharma, Myogen, Vitrolife, diaDeXus and Replidyne regarding operations,
start-up, facilities, growth and strategic planning. Previously, Mr. Redenbarger
was Vice President of Operations at Synergen. He is a graduate of Purdue
University, where he earned his Bachelor of Science in Microbiology.
RISK FACTORS
In addition to the other information included in this Annual Report, you
should consider carefully the following factors, which describe 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.
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 2000-2003 (2004 was impacted by a
charge of $236.0 million for purchase of in-process research and development
related to the Atrix acquisition -- see Note 4 to the Financial Statements),
future operating performance and profitability are not certain. Our accumulated
deficit at December 31, 2004 was approximately $173.8 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, Eligard or our
other products;
- changes in pricing strategies or reimbursement levels for Visudyne,
Eligard or our other products;
- 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-related litigation against the
Company;
- higher than expected operating expenses as a result of increased
costs associated with the development or commercialization of
Visudyne, Eligard and our other products and candidates; and
- increased operating expenses as a result of product, technology or
other acquisitions or business combinations.
WE RECENTLY ACQUIRED ATRIX LABORATORIES, INC.; WE MAY BE UNABLE TO SUCCESSFULLY
INTEGRATE THE TWO COMPANIES.
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Achieving the anticipated benefits of our recent acquisition of Atrix
Laboratories, Inc., or Atrix, will depend in part upon our ability to integrate
the two companies' businesses in an efficient and effective manner. Atrix was
headquartered in Fort Collins, Colorado, and QLT Inc. is headquartered in
Vancouver, British Columbia, Canada. The process of integrating the operations
and technology of two organizations that have historically been headquartered in
separate countries can take many months and there can be no assurances that we
will be able to accomplish the integration smoothly or successfully. Our failure
to do so may result in a significant diversion of management's time from ongoing
business matters, and may have a material adverse effect on the business,
results of operation and financial condition of the combined company.
IF WE ARE UNABLE TO PRESERVE THE COMMERCIAL RELATIONSHIPS WHICH WERE FORMED BY
ATRIX, WE MAY NOT REALIZE ALL OF THE ANTICIPATED BENEFITS OF THE ACQUISITION.
The former Atrix established a number of commercial relationships with
third parties that are individually or collectively important to the success of
what is now QLT USA. For example, Atrix formed strategic relationships with
collaborators to help it commercialize and market its products, such as its
relationship with sanofi-aventis for the United States and Canadian
commercialization and marketing of the Eligard products. If our relationship
with those collaborators, such as Fujisawa, Medigene, Sandoz, or sanofi-aventis
was impaired, it could delay the applicable collaboration program or result in
expensive arbitration or litigation and QLT USA's revenue may significantly
decrease and its ability to develop and commercialize its technologies may be
hindered.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL AT QLT USA OUR BUSINESS MAY SUFFER AND
INTEGRATION OF THE COMBINED COMPANY MIGHT BE NEGATIVELY IMPACTED.
The success of our integration of the acquisition of Atrix depends in part
on our ability to retain highly qualified management and scientific personnel
previously employed by Atrix. While we believe we have retained highly qualified
management or scientific personnel of the former Atrix, it is possible that some
of such individuals may decide not to remain. The vesting of all options
outstanding under Atrix's stock option plans were accelerated prior to
completion of the acquisition, which may reduce the financial incentive of
former Atrix employees to remain with the combined company. If key QLT USA
employees choose to terminate their employment in the near future, our business
relationships or research and development activities may be adversely affected,
management's attention may be diverted from successfully integrating the
combined company to focusing on identifying suitable replacements, and the
combined company's business may suffer. In addition, we may be unable to locate
suitable replacements for any key employees that leave the company or offer
employment to potential replacements on reasonable terms.
FUTURE SALES OF VISUDYNE(R), ELIGARD(R) AND OUR OTHER PRODUCTS MAY BE LESS THAN
EXPECTED.
Our prospects are dependent on the sales of our primary commercial
product, Visudyne, and to a lesser extent those of Eligard and our other
products. Our revenues to date have consisted largely of revenue from product
sales of Visudyne. If sales of Visudyne, Eligard or our other products 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
and continued use of our commercial products, including:
- perceptions by physicians and other members of the health care
community regarding the safety and efficacy of our products;
- patient and physician demand;
- the results of product development efforts for new indications for
Visudyne, Eligard, and our other products;
- availability of sufficient commercial quantities of Visudyne,
Eligard and our other products;
- price changes for our products, and the price of our products
relative to other drugs or competing treatments;
- the need for retreatment of Visudyne throughout the treatment
process not approximating retreatment rates during clinical
development;
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- the scope and timing of additional marketing approvals and favorable
reimbursement programs for Visudyne, Eligard, and our other
products;
- adverse side effects or unfavorable publicity concerning Visudyne,
Eligard or our other products;
- a decline in the market for Visudyne, or incidence rates of wet AMD,
such as might occur if preventative treatments currently in
development are successful; or
- a decline in the markets for Eligard or our other products;
as well as the other factors which are described in this section.
WE FACE NEW COMPETITION FOR VISUDYNE(R), WE MAY FACE ADDITIONAL COMPETITION,
ELIGARD(R) AND ALL OF OUR OTHER APPROVED PRODUCTS FACE COMPETITION. WE MAY NOT
BE SUCCESSFUL IN ADDRESSING COMPETITION FOR VISUDYNE, ELIGARD OR OUR OTHER
PRODUCTS.
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 biopharmaceutical companies, many of which have access
to financial, technical and marketing resources significantly greater than ours
and