QLT Inc. (Nasdaq:QLTI) (TSX:QLT) ("QLT" or the "Company") today reported financial results for the third quarter ended September 30, 2010. Unless specified otherwise, all amounts are in U.S. dollars and in accordance with U.S. GAAP.
"We are very pleased to have recently announced the expansion of our Phase 1b trial of QLT091001 into patients with Retinitis Pigmentosa," said Bob Butchofsky, President and Chief Executive Officer of QLT. "We also are pleased to have initiated two important clinical trials in our punctal plug drug delivery platform, a Phase II study of latanoprost for patients with glaucoma, and a Phase II proof-of-concept study with olopatadine for patients with ocular allergies. We expect to announce data from both of these studies in the first half of 2011."
2010 THIRD QUARTER FINANCIAL RESULTS
Worldwide Visudyne® Product Sales
Visudyne sales for the third quarter were $20.5 million, a decrease of 12.9% from the third quarter of 2009. Sales in the U.S. were $5.2 million, down 15.4% from the prior-year third quarter, while sales outside the U.S. were $15.2 million, down 12.0% from the prior year.
For the third quarter, total revenue of $8.6 million was down 2.3% from the third quarter of 2009 primarily due to the 12.9% drop in Visudyne product sales. However, the percentage decline in revenue was less than the percentage decline in Visudyne product sales due to the amendment of our Visudyne agreement with Novartis, which results in QLT booking higher revenue per dollar of product sales than under the previous arrangement.
QLT Expenses / Other Income
For the third quarter of 2010, Research and Development (R&D) expense was $8.1 million, up 9.8% from $7.4 million in the same period of 2009. The change occurred primarily because increased spending on QLT091001 was only partially offset by reduced spending on punctal plugs and Visudyne.
For the third quarter of 2010, Selling, General and Administrative (SG&A) expense was $5.4 million, up from $4.5 million last year primarily due to infrastructure and promotional spending associated with U.S. Visudyne sales.
Investment and Other Income of $6.2 million included a $5.2 million gain for the Fair Value Change in Contingent Consideration. This gain occurred primarily because the Contingent Consideration asset is recorded as the present value of expected future payments, and therefore as each quarter elapses, even if no changes are made to the underlying Eligard® forecast, we will book a gain related to the time value of money as we move one quarter closer to realizing the full face value of the asset. Also in the third quarter there was additional gain in the Fair Value Change in Contingent Consideration due to a reduction in the discount rate used to estimate the present value of the expected future payments and an improvement in the underlying Eligard sales forecast.
The operating loss for the third quarter was $7.0 million, compared to a loss of $6.0 million in the prior-year third quarter. The loss was greater primarily because of the increase in R&D and SG&A expense compared to the prior-year quarter.
Earnings Per Share (EPS) / Loss Per Share, Adjusted EBITDA
GAAP loss per share of $0.01 in the third quarter compared to GAAP EPS of $0.16 in the prior-year quarter. The decline occurred primarily because the 2009 third quarter results included $6.7 million of Income from Discontinued Operations related to QLT USA, Inc. and its Eligard product line, while the current year third quarter had no Income from Discontinued Operations (QLT USA and Eligard were divested on October 1, 2009). Also, the 2009 third quarter benefited from $7.5 million of foreign exchange gains, primarily related to intercompany debt, compared to just $0.4 million of foreign exchange gains in the 2010 third quarter.
In the third quarter, non-GAAP EPS was $0.09. The items that were excluded in the determination of non-GAAP EPS were (i) stock compensation expense, (ii) interest income related to the Note Receivable from the QLT USA divestment, and (iii) the Fair Value Change in Contingent Consideration. We also added back (within Income from Discontinued Operations) $9.2 million of Contingent Consideration earned based on Eligard sales during the third quarter.
Adjusted EBITDA plus Contingent Consideration earned for the third quarter was $3.1 million, as follows:
The full reconciliations of GAAP to non-GAAP financial measures for the third quarter and nine months ended September 30, 2010 are provided as Exhibits 1 and 2. The adjusted non-GAAP financial measures have no standardized meaning under GAAP and therefore may not be comparable to similar measures presented by other companies. We believe that the adjusted non-GAAP financial measures may be useful to investors to analyze the results of our business. We use these non-GAAP measures internally to evaluate our financial results and to establish operational goals. Certain items are excluded from non-GAAP financial measures because we consider such items to be outside of our core operating results or because they represent non-cash expenses or gains.
Cash and Short-Term Investments
The Company's consolidated cash balance at September 30, 2010 was $198.6 million, up from the consolidated balance at June 30, 2010 of $186.3 million. The increase occurred due to collection of income taxes receivable, collection of a portion of our mortgage receivable, reduction of accounts receivable, and positive Adjusted EBITDA plus Contingent Consideration. These increases were partially offset by shares repurchased by the Company during the third quarter under its share repurchase program. The cash balance at September 30, 2010 did not include the $10.0 million Note Receivable collected from TOLMAR Holding, Inc. on October 1, 2010 related to the sale of QLT USA and its Eligard product line in the fourth quarter last year.
During the third quarter, the Company renegotiated the CAD $12 million second mortgage related to the sale of our land and building in August 2008. As a result, QLT received CAD $4 million during the quarter and extended CAD $8 million of the mortgage at an interest rate of 7.5%. Of the CAD $8 million extended, CAD $2 million is due on or before May 1, 2011, and CAD $6 million is due on August 29, 2012.
Share Repurchase Program Update
During the third quarter, the Company repurchased approximately 1.5 million shares under its normal course issuer bid program at an average cost of $5.87 per share for a total cost of approximately $8.6 million. In total, since this program commenced on November 3, 2009, the Company repurchased approximately 3.7 million shares at an average cost of $5.59 per share for a total cost of $20.9 million. The normal course issuer bid expired on November 2, 2010. Since the Company began repurchasing shares in 2005, we have repurchased 43.8 million shares for a total cost of $231.9 million.
The Company is updating guidance for five items for which guidance was originally provided in March 2010:
- U.S. Visudyne product sales guidance is being updated to $21 million to $23 million, down from original guidance of $27 million to $31 million.
- Worldwide Visudyne product sales guidance is being reduced to $85 million to $90 million from original guidance of $90 million to $100 million.
- Total revenue guidance is now $43 million to $45 million, down from original guidance of $47 million to $53 million.
- Cost of sales expense guidance is being reduced to $14 million to $15 million from original guidance of $15 million to $17 million.
- Guidance for Contingent Consideration earned in 2010 from the sale of QLT USA is being increased to $35 million to $37 million from original guidance of $32 million to $35 million.
The key guidance provided for the full year 2010 is now as follows:
The Company has recently initiated a masked, randomized, active-controlled Phase II clinical trial examining the safety and efficacy of the latanoprost punctal plug drug delivery system in glaucoma patients. This trial features simultaneous placement of punctal plugs in both the upper and lower puncta in order to deliver an approximate bioavailable daily drug load approaching that of daily administered Xalatan® eye drops. The objective of the study is to enable a clear go/no-go decision with respect to ongoing development of this molecule in our punctal plug drug delivery system. Data from this trial is expected in the first half of 2011. In addition, the Company recently initiated a masked, randomized active-controlled Phase II proof-of-concept study examining the safety and efficacy of the olopatadine punctal plug drug delivery system in patients suffering from allergic conjunctivitis. Data from this trial is also expected in the first half of 2011.
The Company continues its Phase 1b clinical proof-of-concept study of QLT091001, an orally administered synthetic retinoid replacement therapy for 11-cis-retinal, which is a key biochemical component of the visual retinoid cycle, in patients with Leber Congenital Amaurosis ("LCA"). On October 28, 2010, the Company announced the expansion of the Phase 1b proof-of-concept study to include patients with Retinitis Pigmentosa ("RP"), a set of hereditary retinal diseases demonstrating clinical features similar to LCA. Up to a total of 24 patients diagnosed with LCA (6 LRAT mutations, 6 REP65 mutations) or RP (6 LRAT mutations, 6 REP65 mutations) will be enrolled.
The Company has discontinued development of QLT091568, a prodrug of a beta adrenergic antagonist (a novel beta blocker), that was under investigation for its potential ability to lower intra-ocular pressure in glaucoma and ocular hypertension patients.
RECENT COMPANY HIGHLIGHTS
- Announced the expansion of the Phase 1b clinical proof-of-concept study of QLT091001 in the treatment of Leber Congenital Amaurosis (LCA) to include patients with Retinitis Pigmentosa (RP), a set of hereditary retinal diseases demonstrating clinical features similar to LCA. Both diseases result from genetic mutations of either retinal pigment epithelium protein 65 (RPE65) or lecithin:retinol acyltransferase (LRAT) which are amenable to intervention with QLT091001. QLT091001 is an orally administered synthetic retinoid replacement for 11-cis-retinal, which is a key biochemical component of visual function.