QLT Inc. (Nasdaq:QLTI) (TSX:QLT) ("QLT" or the "Company") today reported financial results for the fourth quarter ended December 31, 2010 and full year 2010 as well as issued its guidance for 2011. Unless specified otherwise, all amounts are in U.S. dollars and in accordance with U.S. GAAP.
"We were very pleased in the fourth quarter to have reported positive adjusted EBITDA even while we ramped up R&D activity related to our synthetic retinoid program and our punctal plug drug delivery system," said Bob Butchofsky, President and Chief Executive Officer of QLT. "We were also pleased to see the improvement in worldwide Visudyne® sales in the fourth quarter, particularly in the U.S. where end user demand increased 13% from an average of 65 vials per day in the third quarter to 73 vials per day in the fourth quarter, marking the first sequential increase since 2008."
2010 FINANCIAL RESULTS
Worldwide Visudyne® Product Sales
Visudyne sales for the fourth quarter of 2010 were $24.5 million, a decrease of 3.7% from the fourth quarter of 2009. Sales in the U.S. were $5.9 million, down 19.1% from the prior-year fourth quarter, while sales outside the U.S. were $18.6 million, up 2.6% from the prior year. For the full year 2010, worldwide Visudyne sales were $90.6 million, 14.2% lower than in 2009, as U.S. sales declined 26.7% and non-U.S. sales declined 9.1%.
For the fourth quarter, total revenue of $10.0 million was down 7.3% from the fourth quarter of 2009. This decrease exceeded the percentage decline in Visudyne product sales primarily because the fourth quarter of 2009 included $1.3 million for recognition of revenue related to Novartis' write-off of finished product in that period. For the full year 2010, total revenue of $44.7 million was up 6.2% over 2009, in part because under the amended Visudyne agreement with Novartis, QLT books higher revenue per dollar of product sales than under the previous arrangement. Additionally, following the amendment of our Visudyne PDT Product Development, Manufacturing and Distribution Agreement ("Amended PDT Agreement") with Novartis, revenue in 2010 benefited from the recognition of approximately $5.0 million of deferred revenue in the first quarter for inventory shipped to, and paid for by, Novartis in prior years.
QLT Expenses / Other Income
For the fourth quarter, Cost of Sales was $3.4 million, down from $7.5 million in the prior year, primarily due to obsolescence charges taken by QLT and Novartis in the fourth quarter of 2009 totaling approximately $4.8 million. For the full year 2010, Cost of Sales expense was $15.2 million, compared to $20.2 million in 2009. The decrease was primarily due to inventory obsolescence charges in 2009 of approximately $9.5 million, partially offset by $4.0 million of expense in 2010 associated with the recognition of deferred revenue described above.
For the fourth quarter of 2010, Research and Development (R&D) expense was $10.7 million, up 32.1% from $8.1 million in the same period of 2009. The increase occurred primarily because higher spending on QLT091001 and punctal plugs was only partially offset by reduced spending on Visudyne. For the full year, expenditures for R&D were $33.5 million in 2010, up 17.1% from $28.6 million in 2009, as increased spending on QLT091001 and QLT091568 (before that program was stopped in the fourth quarter) was partially offset by reduced spending on Visudyne and punctal plugs.
For the fourth quarter of 2010, Selling, General and Administrative (SG&A) expense was $5.6 million, down from $5.9 million in 2009. The decrease occurred despite increased year-over-year spending related to U.S. Visudyne sales and marketing, as the 2009 fourth quarter included significant legal and other expenses related to the settlement with the General Hospital Corporation, doing business as Massachusetts General Hospital ("MGH"), the Amended PDT Agreement with Novartis, and the divestment of QLT USA, Inc. ("QLT USA"), all of which occurred in that quarter. For the full year, SG&A expenditures of $20.8 million were up from the $18.3 million reported in 2009 primarily due to infrastructure and promotional spending associated with U.S. Visudyne sales and a negative foreign exchange impact caused by the stronger Canadian dollar in 2010 compared to 2009.
Investment and Other Income of $7.1 million in the fourth quarter of 2010 included a $6.3 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 fourth 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. For the full year 2010, Investment and Other Income totaled $19.4 million, including $16.5 million in gains related to the Fair Value Change in Contingent Consideration.
The operating loss for the fourth quarter was $9.9 million, compared to a loss of $38.4 million in the prior-year fourth quarter, while the full year operating loss for 2010 was $26.0 million, compared to an operating loss in 2009 of $54.3 million. In both cases, the 2009 operating loss was negatively impacted by the $20.0 million Litigation charge related to the MGH settlement, the $7.5 million charge for the Purchase of In-Process Research and Development related to the acquisition of QLT091568, and charges for Visudyne inventory obsolescence within Cost of Sales.
Provision for Income Taxes
The provision for income taxes in the fourth quarter of 2010 was $16.4 million, compared to a recovery of $5.8 million in the prior-year fourth quarter. For the full year, we reported a provision of $10.9 million compared to a $5.3 million recovery in 2009. The provision reported in 2010 was primarily due to the application of a valuation allowance on certain of our deferred income tax assets, which negatively impacted the provision in the fourth quarter and for the full year. In the fourth quarter of 2010, the Company completed an intra-entity transaction in which the punctal plug intellectual property was transferred from the U.S. to Canada, with the result that ongoing R&D expense for the punctal plug program is now recorded by the Canadian parent company. A valuation allowance must be provided when it is more-likely-than-not that a deferred tax asset will not be realized. In determining the necessity for a valuation allowance, we considered the likelihood that ongoing expenditures will result in our Canadian entity incurring annual operating losses in the future. For the full year 2010, the provision of $10.9 million was partially offset by a non-cash income tax recovery in the first quarter related to the Amended PDT Agreement. This income tax recovery as well as the application of the valuation allowance were both removed in the determination of non-GAAP earnings as they were non-cash items.
Earnings Per Share (EPS) / Loss Per Share, Adjusted EBITDA
The GAAP loss per share was $0.38 in the fourth quarter compared to GAAP EPS of $1.49 in the prior-year quarter. The decline occurred primarily because the 2009 fourth quarter results included $116.7 million of Income from Discontinued Operations, representing the accounting gain on the sale of QLT USA on October 1, 2009, while the current year fourth quarter had no Income from Discontinued Operations. For the full year, GAAP loss per share of $0.33 in 2010 was down from $1.77 of earnings per share in 2009, as the 2009 earnings were driven by the gain on the sale of QLT USA.
In the fourth quarter, non-GAAP EPS was $0.06. The items that were excluded in the determination of non-GAAP EPS were: (i) stock compensation expense, (ii) the Fair Value Change in Contingent Consideration, (iii) Other Income related to a tax grant received under the U.S. Therapeutic Discovery Project Program, and (iv) the non-cash tax provision related to the valuation allowance recorded against certain tax assets. We also added back (within Income from Discontinued Operations) $11.2 million of Contingent Consideration earned based on Eligard sales during the fourth quarter. For the full year 2010, non-GAAP EPS was $0.35. In addition to the adjustments previously listed, the full-year non-GAAP EPS figure also excluded: (i) interest income related to the Note Receivable from the QLT USA divestment, (ii) other income recorded in the second quarter related to the divestment of non-core assets, and (iii) the income tax recovery recorded in the first quarter that arose from the Amended PDT Agreement with Novartis.
Adjusted EBITDA plus Contingent Consideration earned was $2.1 million for the fourth quarter and $15.6 million for the full year 2010, as follows:
The full reconciliations of GAAP to non-GAAP financial measures for the fourth quarter and year ended December 31, 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 December 31, 2010 was $209.5 million, up from the consolidated balance at the end of 2009 of $188.1 million. The year-over-year increase primarily occurred due to positive Adjusted EBITDA plus Contingent Consideration, collection of the $10.0 million Note Receivable from TOLMAR Holding, Inc. related to the sale of QLT USA and its Eligard product line in the fourth quarter of 2009, collection of income taxes receivable, and collection of a portion of our Mortgage Receivable. These increases were partially offset by $17.1 million used by the Company to repurchase shares during the year under its share repurchase programs.
Share Repurchase Program Update
During the fourth quarter, the Company announced that its board of directors authorized the repurchase of up to approximately 3.6 million of its issued and outstanding common shares, being 10% of its public float, over a 12-month period on the NASDAQ Stock Market and/or the Toronto Stock Exchange ("TSX"). The TSX accepted the notice of QLT's intention to make a normal course issuer bid in the open market commencing December 16, 2010 and ending December 15, 2011. During the fourth quarter of 2010, the Company repurchased 22,000 shares for approximately $0.2 million, at an average price of $6.78 per share. Throughout 2010, including the prior normal course issuer bid program that expired on November 2, 2010, the Company repurchased approximately 2.9 million shares at an average price of $5.90 per share, for a total cost of $17.1 million. Since the Company began repurchasing shares in 2005, it has repurchased 43.8 million shares for a total cost of $232.0 million.
The scope of the Company's R&D efforts in 2011 will depend, in large part, on data that it expects to generate in the second and third quarter of 2011 from certain studies of its proprietary punctal plug technology and QLT091001 synthetic retinoid programs. These near-term data points may result in a highly variable level of R&D spend and, as such, the Company is not issuing full year guidance at this time for 2011 R&D expense or Adjusted EBITDA. However, we do expect that R&D spend will be in the range of $10 million to $12 million in each of the first and second quarters of 2011, in line with R&D expense in the fourth quarter of 2010.
- QLT is projecting that Visudyne sales will range from $85 million to $90 million in 2011, with approximately $23 million to $26 million occurring in the United States.
- Product revenue for product shipped to Novartis is expected to be approximately $2 million to $4 million for the year.
- Total revenue is projected to be approximately $40 million to $44 million.
- Cost of Sales is expected to be approximately $8 million to $10 million.
- SG&A expense is expected to be $24 million to $27 million.
- The provision for income tax for 2011 is projected to be $2 million to $4 million, although we do not expect to have any material net cash tax payments.
- Payments to be earned during the year for the sale of QLT USA, representing 80% of the royalties earned by QLT USA (now Tolmar Therapeutics, Inc.) on Eligard sales occurring in 2011, are projected to be approximately $36 million to $39 million.
- Each period we will assess the fair value of the contingent consideration and any changes will flow through the Statements of Operations within Other Income and Expense.
QLT is conducting a masked, randomized, active-controlled Phase II clinical trial examining the safety and efficacy of the latanoprost punctal plug drug delivery system (L-PPDS) 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 go/no-go decision with respect to ongoing development of this molecule in our punctal plug drug delivery system. While a positive outcome of this study could suggest a degree of L-PPDS safety and efficacy, it is not expected to support movement into a later stage trial without further clinical evaluation. The trial is ongoing; however, progression of enrollment to date has been slower than anticipated. Analysis and results from the trial are now expected in the second or third quarter of 2011.
The Company recently announced the results of its masked, randomized, active-controlled Phase II proof-of-principle study examining the safety and efficacy of the olopatadine punctal plug drug delivery system (O-PPDS) in patients suffering from allergic conjunctivitis. Data from the study demonstrated that there were no significant differences noted between the O-PPDS and placebo-PPDS subjects with respect to reduction in the signs and symptoms of allergic conjunctivitis, with both cohorts showing similar improvements. Internal study controls of the olopatadine (Patanol®) versus placebo eye drop comparison also failed to show a difference. The O-PPDS was generally safe and well-tolerated. The incidence of adverse events considered associated with treatment was 35.0% during O-PPDS exposure (originally reported as 33.3%) and 41.7% during placebo-PPDS exposure (originally reported as 38.3%). We plan to continue to evaluate study designs for the O-PPDS, however, further clinical trials of the O-PPDS are pending the outcome of the ongoing L-PPDS study described above.
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") and Retinitis Pigmentosa ("RP"). The study is ongoing and continues to enroll patients. Results from patients in the LCA cohort are expected in the second quarter of 2011.
Source: QLT Inc