Overview
Strategic Restructuring
QLT is a
biotechnology company dedicated to the development and commercialization of innovative ocular products that address the unmet medical needs of patients and clinicians worldwide. On July 9, 2012, as a result of a comprehensive business and
portfolio review by our Board of Directors (the Board), we announced a new corporate strategy and plans to restructure our operations in order to concentrate our resources on our clinical development programs related to our synthetic
retinoid, QLT091001, for the treatment of certain inherited retinal diseases. In connection with the strategic restructuring of the Company, over the course of 2012 and 2013 we completed the sale of our Visudyne
®
business to Valeant Pharmaceuticals International, Inc. (Valeant) and the sale of our punctal plug drug delivery system to Mati Therapeutics Inc. (Mati), and, as a result,
significantly reduced our workforce by approximately 180 employees. Our remaining employees are focused on the development of QLT091001.
In connection with the restructuring, following the departure of Robert Butchofsky, the Companys former President and Chief Executive
Officer, on August 2, 2012, the Board formed an Executive Transition Committee currently composed of Directors Jeffrey Meckler and Dr. John Kozarich to perform the function of the Chief Executive Officer on an interim basis while the
Board determines the resources and management necessary to pursue the Companys new strategy. Jeffrey Meckler serves as Chairman of the Executive Transition Committee.
In 2013, the Company met with the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA),
including an end-of-phase II meeting with the FDA, with a goal to progress QLT091001 for the treatment of certain inherited retinal diseases into pivotal trials in 2014. We also initiated a Phase IIa trial of QLT091001 for the treatment of impaired
dark adaptation (IDA) to investigate the safety and efficacy of the drug in a larger patient population. In parallel with our continued development efforts on QLT091001, in November 2013 we announced that we commenced a review of strategic
alternatives for the Company and have engaged Credit Suisse to act as our financial advisor.
Sales of Assets and Discontinued Operations
Visudyne
®
Until September 2012, our product portfolio included Visudyne
®
, which is a
photosensitizer that we co-developed with Novartis for the treatment of wet age-related macular degeneration, the leading cause of blindness in people over the age of 50 in North America and Europe. On September 21, 2012, we entered into an
asset purchase agreement with Valeant pursuant to which we sold to Valeant all of the Companys assets relating to Visudyne, our Qcellus laser and certain other photodynamic therapy intellectual property, for an upfront payment of $112.5
million, contingent payments up to $20.0 million, and a royalty on net sales of new indications for Visudyne, if any should be approved. We are entitled to the contingent payments upon the achievement of certain milestones, including:
(i) $5.0 million if receipt of the registration required for commercial sale of the Qcellus laser in the United States (the Laser Registration) is obtained by December 31, 2013, $2.5 million if the Laser Registration
is obtained after December 31, 2013 but before January 1, 2015 and $0 if the Laser Registration is obtained thereafter (the Laser Earn-Out Payment), and (ii) up to $5.0 million in each calendar year commencing
January 1, 2013 (up to a maximum of $15.0 million in the aggregate) for annual net royalties exceeding $8.5 million received by Valeant under the PDT Product Development, Manufacturing and Distribution Agreement (PDT Agreement) with
Novartis, which we transferred to Valeant in connection with the sale, or from other third-party sales of Visudyne outside of the United States. For 2013, we did not receive any contingent consideration related to annual net royalties payable to
Valeant in respect of the sale of Visudyne outside of the United States.
4
On September 26, 2013, the FDA approved the premarket approval application (PMA)
supplement for the Qcellus laser and we have invoiced Valeant for the $5.0 million Laser Earn-Out Payment. Valeant has disputed payment on the basis that it believes the Laser Earn-Out Payment remains contingent upon receipt of additional
governmental authorizations with respect to the Qcellus laser. While we believe that the Laser Earn-Out Payment is currently due and payable by Valeant, the outcome of any dispute is uncertain and we may have difficulty collecting the Laser Earn-Out
Payment in full. While we expect to receive at least some portion of the contingent consideration in the next several years, our receipt of the contingent consideration is dependent on the favorable resolution of the dispute with Valeant regarding
receipt of the Laser Registration, sales of Visudyne by Novartis and other third parties outside the U.S., and the approval of new indications of Visudyne, each of which is dependent on a number of factors and subject to risk. See Item 1A.
Risk Factors
.
In connection with the sale of our Visudyne business, we entered into a transition services agreement with Valeant,
pursuant to which we provided transition services to Valeant concerning most of the aspects of the Visudyne and Qcellus laser business. In the third quarter of 2013, we completed all of our transition services under our transition services agreement
with Valeant related to Visudyne, the commercial sale of Visudyne, and obtaining FDA approval of the Qcellus laser through the PMA process.
Punctal
Plug Delivery Program
On April 3, 2013, we completed the sale of our punctal plug drug delivery system technology (the PPDS
Technology) to Mati. Mati is a development company founded by Robert Butchofsky, our former President and Chief Executive Officer, who left the Company on August 2, 2012 as part of the 2012 strategic restructuring described above. In
July 2012, we retained Goldman Sachs to explore the sale or spin-out of our PPDS Technology and after an assessment of these alternatives, on December 24, 2012 we granted Mati a 90-day exclusive option to acquire the PPDS Technology in exchange
for $0.5 million. On April 3, 2013, following Matis exercise of the option, we entered into an asset purchase agreement with Mati and completed the sale of the PPDS Technology to Mati. Under the terms of our asset purchase agreement
with Mati (the Mati Agreement), we received an additional payment of approximately $0.8 million at closing and are eligible to receive potential payments upon the satisfaction of certain product development and commercialization
milestones that could reach $19.5 million (or exceed that amount if more than two products are commercialized), a low single digit royalty on world-wide net sales of all products using or developed from the PPDS Technology and a fee on payments
received by Mati in respect of the PPDS Technology other than net sales. Under the terms of the Mati Agreement, we have not had any significant ongoing involvement in the operations or cash flows related to the PPDS Technology other than minor
transition services which we agreed to provide. The activities related to the transition services were complete as at September 30, 2013. See
Our Products in Development Punctal Plug Drug Delivery System
below.
Eligard
®
Our product portfolio also previously included the Eligard line of products approved for the palliative treatment of advanced prostate cancer.
Eligard incorporates a luteinizing hormone-releasing hormone agonist, known as leuprolide acetate, with the Atrigel
®
drug delivery system. On October 1, 2009, we divested the Eligard
®
line of products to TOLMAR Holding, Inc. (Tolmar) as part of the sale of all of the shares of our U.S. subsidiary, QLT USA, Inc. (QLT USA). Pursuant to the stock purchase
agreement, we are entitled to future consideration payable quarterly in amounts equal to 80% of the royalties paid under the license agreement with Sanofi Synthelabo Inc. (Sanofi) for the commercial marketing of Eligard in the U.S. and
Canada, and the license agreement with MediGene Aktiengesellschaft (MediGene), which, effective March 1, 2011, was assigned to Astellas Pharma Europe Ltd. (Astellas), for the commercial marketing of Eligard in Europe.
The estimated fair value of the expected future quarterly payments is reflected as Contingent Consideration on our Consolidated Balance Sheet. We are entitled to these quarterly payments until the earlier of our receipt of aggregate contingent
consideration of $200.0 million or October 1, 2024. As of December 31, 2013, we received an aggregate $162.0 million of contingent consideration. While we expect to receive the remaining $38.0 million of contingent consideration in 2014,
our continued receipt of contingent consideration under the terms of the stock purchase agreement is dependent upon the level of sales of Eligard by Sanofi and Astellas, which could vary significantly due to competition, manufacturing difficulties
and other factors. See Item 1A.
Risk Factors
.
5
Return of Capital
On June 27, 2013, we completed a special cash distribution to shareholders in the amount of $200.0 million, by way of a reduction of
the paid-up capital of the common shares, resulting in the return of approximately $3.92 per share (the Cash Distribution). The Cash Distribution was made to shareholders without Canadian withholding taxes of up to 25% being
payable, pursuant to an Advance Tax Ruling received from Canadian tax authorities. The Cash Distribution was approved by shareholders at our 2013 annual general and special meeting of shareholders on June 14, 2013 and was paid to shareholders
of record as of June 24, 2013.
Previously, from October 2012 through March 2013, we conducted a normal course issuer bid to
repurchase 3,438,683 of our common shares, being 10% of our public float as of September 26, 2012, the maximum amount permitted under the Toronto Stock Exchange normal course issuer bid rules, at an average price of $7.86 per share, for a total
cost of $27.0 million. The share repurchase program was implemented pursuant to an automatic share purchase plan, in accordance with applicable Canadian and U.S. securities legislation. All purchases were effected in the open market through the
facilities of the NASDAQ Stock Market, and in accordance with regulatory requirements. All common shares repurchased were cancelled.
Research and
Development
Our research and development efforts are currently focussed solely on QLT091001.
QLT091001 orphan drug program for the treatment of Leber Congenital Amaurosis and Retinitis Pigmentosa.
We are currently evaluating
QLT091001 for the treatment of Leber Congenital Amaurosis (LCA) and Retinitis Pigmentosa (RP). Results from our initial Phase Ib clinical proof-of-concept study in patients with LCA and RP were reported for the
14 subject cohort of LCA patients in 2011 and for the 18 subject cohort of early-onset RP patients in March 2012. Dosing in our Phase 1b retreatment study in these subjects is now completed and follow-up of subjects is ongoing. We reported
positive preliminary results from the retreatment study on February 27, 2014 and expect to report final clinical data in the third quarter of 2014. See
Our Products In Development - QLT091001 - Synthetic Retinoid Program
below.
Over the course of 2013, the Company met with the FDA and the EMA, including an end-of-Phase II meeting with the FDA, to discuss proposed
pivotal trial design, indication, protocol requirements and development plans. We continue to await final regulatory feedback on our pivotal trial protocol and will provide further guidance on development plans by the end of the first quarter of
2014.
QLT091001 has received orphan drug designations for the treatment of LCA (due to inherited mutations in lecithin:retinol
acyltransferase (
LRAT
) or retinal pigment epithelium protein 65 (
RPE65
) genes) and RP (all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA. The drug has also been granted
two Fast Track designations by the FDA for the treatment of LCA and RP due to inherited mutations in the
LRAT
and
RPE65
genes. Recently, we submitted orphan drug designation applications to the FDA and EMA for QLT091001 for the
treatment of inherited retinal disease caused by
LRAT
or
RPE65
mutations, which indication includes both LCA and RP patients. RP is the most common inherited retinal disease, and is generally the diagnosis given to patients who begin
to lose vision after the first decade of life, whereas the diagnosis of LCA is given to patients who have central vision loss soon after birth. There is no universally accepted diagnostic term for patients with characteristics in between; clinicians
have considered such cases as either LCA or severe RP. We expect to receive responses to our orphan drug designation applications from the FDA and EMA in the second quarter of 2014, which we expect will enable us to determine whether we pursue a
pivotal trial in inherited retinal disease caused by mutations in
LRAT
or
RPE65
(subsuming both LCA and RP patients at once), or in one of either LCA or RP, as a first stage in registration trials for QLT091001.
Given the ultra-orphan nature of our indications under investigation, we are in the process of establishing a central patient registry to
identify and characterize patient status and then follow disease progression to track the natural history of the disease. We plan to launch the patient registry in conjunction with the advancement of the orphan program into pivotal trials.
In addition, we have begun a compassionate use program for QLT091001 on a named-patient basis. Under the compassionate use program,
QLT091001 may be made available to patients who participated in our completed
6
Phase Ib clinical trial of QLT091001 for the treatment of LCA and RP. The program commenced in Ireland and participation for other patients will be determined on a case-by-case basis in
accordance with applicable regulatory laws. Compassionate use programs provide experimental therapeutics to patients with serious or life-threatening diseases that cannot be treated satisfactorily with authorized therapies prior to final FDA,
EMA or other applicable regulatory approval.
In May 2011, the United States Patent and Trademark Office issued Patent No. 7,951,841,
a key patent related to this program, covering various methods of use of QLT091001 in the treatment of diseases associated with an endogenous 11-cis-retinal deficiency, expiring on July 27, 2027, including the period of patent term adjustment.
Outside of the US, counterpart patents and patent applications to US Patent No. 7,951,841 with varying scope of protection are pending or have been granted, including European Patent No. 1765322 which was granted on November 6, 2013.
All of the national patents in the European jurisdictions where European Patent No. 1765322 is validated will be set to expire in 2025.
QLT091001 for the treatment of Impaired Dark Adaptation (IDA).
In late 2013, we initiated a Phase IIa proof-of-concept randomized,
multi-center, parallel-group, placebo-controlled trial of QLT091001 in adult subjects with Impaired Dark Adaptation (IDA), a condition that results in decreased ability to recover visual sensitivity in the dark after exposure to bright lights. The
trial is designed to evaluate the safety profile and effects of QLT091001 on impaired dark adaptation time, glare recovery time and low luminance low contrast best corrected visual acuity (LLLC BCVA). See
Our Products in Development
QLT091001 Synthetic Retinoid Program
below.
Our Products in Development
We commit significant resources to research and development opportunities in the field of ophthalmology. The following table sets forth the
stage of development of our technology:
|
|
|
Product/Indication
|
|
Status/Development Stage
|
|
|
QLT091001
|
|
|
|
|
Leber Congenital Amaurosis (LCA) and Retinitis Pigmentosa (RP)
|
|
Phase Ib study completed in 2012. Phase Ib retreatment study ongoing.
|
|
|
Retinitis Pigmentosa (RP) with autosomal dominant mutation in RPE65
|
|
Phase Ib study ongoing.
|
|
|
Impaired Dark Adaptation (IDA)
|
|
Phase IIa study ongoing.
|
QLT091001 Synthetic Retinoid Program
We are developing QLT091001, a synthetic retinoid compound for the potential treatment of certain age-related and inherited retinal
degenerative diseases.
Under the terms of a co-development agreement we entered into with Retinagenix LLC (Retinagenix) in
April 2006, we obtained an exclusive, worldwide license and sub-license under certain intellectual property rights owned by Retinagenix or licensed to Retinagenix by the University of Washington, related to the synthetic retinoid compound under
development, and are responsible for using commercially reasonable and diligent efforts to develop and commercialize, in certain major markets and other markets as we reasonably determine, one or more products covered by the licensed rights or
developed using such licensed rights for use in diagnosing, treating or preventing certain human diseases and conditions. We are also responsible for committing certain annual funding to support research and development of such products.
Milestone and Royalty Obligations; Term
Pursuant to the co-development agreement, Retinagenix is eligible to receive, in the case of the first target indication for such products,
$1.0 million upon initiation of the first pivotal trial and up to a total of an additional $11.5 million upon the achievement of other specified development or regulatory milestones and, for each of up to two additional indications, up to a total of
$9.0 million upon achievement of specified development or
7
regulatory milestones. If we commercialize such products, we will also pay Retinagenix royalties of between 4% and 6% of net sales, subject to reduction under certain specified circumstances.
Retinagenix is also eligible to receive up to a total of $15.0 million upon achievement of specified cumulative sales milestones for such products. The term of our co-development agreement with Retinagenix expires on the later of the expiration of
10 years after first commercial sale of licensed products, or the expiration, lapse or abandonment of all licensed patents. Retinagenix can terminate the agreement earlier if we fail in any material respect to meet our diligence requirements, and we
may terminate the agreement for convenience. Each party may terminate the agreement for uncured material breach by the other party.
Initial Target
Indications (Orphan Program)
Leber Congenital Amaurosis and Retinitis Pigmentosa.
LCA and RP are inherited, progressive,
retinal degenerative diseases that arise from genetic mutations of enzymes or proteins required in the biochemistry of vision. LCA is characterized by abnormalities such as roving eye movements and sensitivity to light, and manifests in severe
vision loss from birth. Both rod and cone photoreceptors are affected in LCA. Eye examinations of infants with LCA reveal normal appearing retinas; however, low level of retinal activity, measured by electroretinography, indicates very little visual
function. RP is a set of hereditary retinal diseases demonstrating clinical features similar to LCA. RP is also characterized by degeneration of rod and cone photoreceptors, but it presents with a more variable loss of vision in late childhood to
adulthood. Deficits in dark adaptation and peripheral vision are particular hallmarks of RP. LCA and RP diseases result from genetic mutations, including retinal pigment epithelium protein 65 (
RPE65
) or lecithin:retinol acyltransferase
(
LRAT
), which result in an inadequate production of 11-
cis
-retinal, an essential component of the visual retinoid cycle. QLT091001 is a replacement therapy for 11-
cis
retinal.
QLT091001 has received orphan drug designations for the treatment of LCA (due to inherited mutations in the
LRAT
and
RPE65
genes)
and RP (all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA. These designations provide market exclusivity in the applicable jurisdiction after a product is approved for 10 years in the EU and seven years in the
U.S., respectively. Orphan drug designation in the EU can also provide an additional two years of market exclusivity for pediatric orphan drug designated drug products. We submitted orphan drug designation applications to the FDA and EMA for
QLT091001 for the treatment of inherited retinal disease caused by
LRAT
or
RPE65
mutations, which indication includes both LCA and RP patients. The clinical characteristics and progression of disease in LCA and RP overlap as do some of
their genetic causes. At least 7 of the known LCA disease genes, including
LRAT and RPE65
, have also been linked to the clinical appearance of RP. Despite disease heterogeneity and terminology, there is an overlap in the genetic mechanisms
underlying some forms of LCA and RP such as those caused by
LRAT and RPE65
mutations where 11-cis-retinal production is either severely or completely compromised. RP is the most common inherited retinal disease, and is generally the diagnosis
given to patients who begin to lose vision after the first decade of life, whereas the diagnosis of LCA is given to patients who have central vision loss soon after birth. There is no universally accepted diagnostic term for patients with
characteristics in between; clinicians have considered such cases as either LCA or severe RP.
QLT091001 has also been granted two
Fast Track designations by the FDA for the treatment of the
LRAT
and
RPE65
genetic mutations in both LCA and RP. The FDAs Fast Track is a process designed to facilitate the development and expedite the
review of drugs that are intended for the treatment of serious diseases and fill an unmet medical need. See
Government Regulation Orphan Drug Regulation
and
Government Regulation Fast Track
Designations
below.
Current Treatment.
There are no FDA or EMA approved therapeutic treatments for LCA or RP.
Potential Patient Populations.
Given the very low prevalence in these ultra-orphan drug indications, there is limited
epidemiological data available to determine definitively the potential patient population for treatment with QLT091001. According to epidemiological estimates, LCA affects approximately one in 81,000 newborns worldwide, of which approximately 10%
carry the inherited deficiencies of either
RPE65
or
LRAT
. Based on market research, we estimate the treatment-eligible LCA patient population for QLT091001 at 1,000 to 2,000
8
patients worldwide. RP is currently estimated to affect at least 300,000 individuals worldwide, of which approximately 20% 30% are autosomal recessive (arRP). It is currently estimated
that less than 3% of autosomal recessive RP patients carry the inherited deficiencies of either
RPE65
or
LRAT
. Thus, the potential RP patient population eligible for treatment with QLT091001 is currently estimated to be 2,000 to 3,000
patients worldwide.
LCA and RP Phase Ib Study.
We have completed a Phase Ib multi-center, open-label clinical proof-of-concept
trial to evaluate the safety profile and effects of a single seven-day course of treatment with QLT091001 on various parameters of retinal function and quality of life in patients with LCA and RP due to inherited deficiency of
RPE65
(autosomal recessive) or
LRAT
. In the study, LCA and RP subjects received daily oral doses of QLT091001 for seven days with post-treatment follow-up at regular intervals for as long as visual function or subjective improvements were
observed or until the patient was enrolled in our retreatment study (see below).
The study evaluated changes in several visual function
parameters, including best-corrected visual acuity (VA) and visual field (VF) over the duration of the treatment and post-treatment follow-up. Visual acuity measures the acuteness or clearness of an individuals central
vision, expressed in the study as number of letters or number of lines read on a visual acuity eye chart. Visual field measures an individuals entire scope or width of (central + peripheral) vision, expressed in the study as retinal areas.
Peripheral vision is important in day-to-day mobility, whereas central vision reflects the ability to read and do fine vision work. Various medical conditions such as LCA, RP and glaucoma are characterized by debilitating loss of visual field.
Positive results from our Phase Ib clinical proof-of-concept study were reported for the 14 subject cohort of LCA patients in May and October 2011 and for the 18 subject cohort of early-onset RP patients in March 2012.
LCA and RP Phase Ib Retreatment Study.
We are conducting a Phase Ib multi-center, open-label clinical trial of repeated treatments of
QLT091001 in patients with LCA and RP due to mutations in
LRAT
or
RPE65
. In this study, subjects that were treated with a single course of QLT091001 in our previously completed Phase Ib clinical trial received up to three 7-day courses
of QLT091001 to assess visual outcomes and safety following retreatment. Visual field (VF) was assessed using Goldmann Visual Field (GVF) and visual acuity (VA) was assessed using best-corrected visual acuity (BCVA) at baseline and days 7, 14, 30
and 60 after each treatment course, then bimonthly until the next treatment course. Subjects received treatment with QLT091001 at doses of 10, 40 or 60 mg/m
2
, with the majority of subjects
receiving 40 mg/m
2
. Retreatment was initially determined based on established retreatment criteria or at Investigator discretion. This was later amended to allow retreatment to occur as early as
30 days but no later than 60 days after a previous treatment course to maintain dosing within a fixed interval. For these reasons, the time between each treatment course in this trial varied between subjects for each course and also varied between
courses for each subject (1-13 months). There was also a wide range in time (7-32 months) per subject that elapsed between the single course treatment in the previously completed Phase Ib trial and treatment in this trial. Dosing in the study has
been completed and subject follow-up is ongoing.
Preliminary results of the Phase 1b retreatment study reported on February 27, 2014
showed clinically meaningful improvements in VF and VA. To date, 19 of 27 subjects (70%) had an increase in VF retinal area from baseline of
³
20% in at least 1 eye at 2 consecutive visits within
6 months from the start of any QLT091001 treatment course. In addition, 70% of subjects had an increase in VA from baseline of
³
5 letters in at least 1 eye at 2 consecutive visits within 6 months
from the start of any treatment course. The percentage of VF and VA responders identified by disease and mutation is summarized below.
Table: Preliminary Results for Visual Field and Visual Acuity Responders
|
|
|
|
|
|
|
|
|
N
|
|
Visual Field
Responders
a
Number (%) of Subjects
|
|
Visual Acuity
Responders
b
Number (%) of Subjects
|
All Subjects
|
|
27
|
|
19 (70%)
|
|
19 (70%)
|
|
|
|
|
All LCA
|
|
13
|
|
7 (54%)
|
|
10 (77%)
|
All RP
|
|
14
|
|
12 (86%)
|
|
9 (64%)
|
|
|
|
|
All
RPE65
|
|
15
|
|
11 (73%)
|
|
8 (53%)
|
All
LRAT
|
|
12
|
|
8 (67%)
|
|
11 (92%)
|
9
a:
³
20% change in retinal area from baseline at 2
consecutive visits in at least 1 eye within 6 months of any treatment course.
b:
³
5 letter
increase from baseline at 2 consecutive visits in at least 1 eye within 6 months of any treatment course.
All adverse events reported in
the trial were consistent with the retinoid class of medications and were transient and/or reversible. Only one serious adverse drug reaction (intracranial hypertension (ICH), a known class effect of retinoids), was reported in the study and it was
resolved. The final clinical data, including duration of response and other evaluations, are anticipated for release in the third quarter of 2014.
Study in RP subjects with autosomal dominant RPE65 mutation
. RP is genetically heterogeneous and can be inherited in an autosomal
recessive (AR), autosomal dominant (AD), or X-linked manner, with rare digenic and mitochondrial forms. Previously, all reported mutations in RPE65 were associated with recessive RP or LCA. Recently, however, a dominant-acting mutation in RPE65
was reported. In order to investigate the safety, tolerability and efficacy of oral QLT091001 as a novel treatment for RP subjects with an autosomal dominant mutation in RPE65, an open-label, Phase 1b, proof-of-concept study was initiated. This
study will evaluate the safety and treatment effects of a single course (once-daily for seven days) of oral 40 mg/m
2
QLT091001 in approximately five to six RP subjects with an autosomal dominant
mutation in
RPE65
.
Orphan Program Development Status.
Studies are ongoing to further evaluate the safety and tolerability of
QLT091001 for the treatment of inherited retinal disease caused by mutations in
LRAT
or
RPE65
genes in subjects with LCA and RP. Our clinical team, led by Dr. Sushanta Mallick, continues to further evaluate current study designs,
dose ranging and safety of the drug, and met with FDA and EMA over the course of 2013, including an end-of-Phase II meeting with the FDA, to discuss proposed pivotal trial design, indication, protocol requirements and development plans. We continue
to await final regulatory feedback on our pivotal trial protocol and will provide further guidance on development plans by the end of the first quarter of 2014.
Additional Target Indication
Impaired
Dark Adaptation.
Impaired Dark Adaptation (IDA) is a condition that results in decreased ability of the eye to recover visual sensitivity in the dark following exposure to bright lights (photobleaching) that gets worse with age. Profoundly
impaired dark adaptation is commonly associated with inherited retinal degenerations. More recently, mild to moderate impaired dark adaptation has been associated with AMD and is proportionate to the severity of the disease. IDA (and/or impaired low
luminance vision) may occur due to age-related inefficiencies in the retinoid cycle which results in slower regeneration of the light sensing pigment 11-
cis
-retinal in the eye and increased levels of free unbound opsin that lead to delayed
dark adaptation and reduced retinal sensitivity. Ultimately, these factors impair vision in low light or dark environments. The kinetics of the rod function have also been reported to be age-related, with the rod-mediated portion of the dark
adaptation function significantly slower in older patients with normal retinal function than in younger adults. This rod-mediated dark adaptation time is further slowed down in patients with early signs of AMD but with good visual acuity.
IDA in this population causes symptomatic difficulties for functioning in dim light, especially after exposure to bright ambient light, and can
hamper daily living activities such as driving, mobility, and workplace tasks. Impaired mobility, in the form of falling, is one of the most common problems of old age. IDA is not a disease but a condition that can arise as a result of a number of
pathologic or physiologic factors. Improving this condition has the potential to not only improve a subjects quality of life but also delay the development of degenerative retinal conditions with more severe visual outcomes.
Current Treatment.
There are currently no approved treatments for improving impaired dark adaptation.
IDA Phase IIa Proof-of-Concept Study.
In late 2013, we initiated a Phase IIa proof-of-concept randomized, multi-center, parallel-group,
placebo-controlled study of QLT091001 in adult (age 60 or older) subjects with IDA or impaired low luminance low contrast best corrected visual acuity (LLLC BCVA) in at least one eye and having no known ophthalmic pathologies to explain
their condition other than early age-related macular
10
degeneration (AMD). These subjects will be enrolled at sites in the U.S. Subjects will be randomized to receive placebo or one of two different doses (10 or 40 mg/m
2
) of QLT091001 once per week for three consecutive weeks with one additional dose the day after the third dose. The trial is designed to evaluate the safety profile and effects of QLT091001 on
impaired dark adaptation time, glare recovery time and LLLC BCVA.
Manufacturing
As a result of the sale of Visudyne, our only commercial product, to Valeant in September 2012, we no longer contract with third parties to
manufacture and supply any commercial products. Pursuant to the transition services agreement we entered into with Valeant, we manufactured a small number of prototype Qcellus lasers for use in connection with obtaining regulatory approval of such
laser during 2013. We have since completed all of our obligations under the transition services agreement.
In connection with our
development of QLT091001, we utilize a small number of third party contractors to manufacture and supply certain materials, API and drug product and expect to continue to do so for our commercial needs.
We and our contract manufacturers are subject to the FDAs current Good Manufacturing Practices (cGMP) regulations and other
rules and regulations prescribed by regulatory authorities outside the U.S.
Product Sales, Marketing and Distribution
Prior to the sale of Visudyne in September 2012, we operated a small U.S.-based marketing, sales and distribution organization through our
wholly-owned U.S. subsidiary, QLT Ophthalmics, Inc. (QOI). With the completion of our transition services related to the commercial sale of Visudyne in January 2013, we no longer employ sales or marketing personnel.
Financial Information about Segments and Geographic Areas
We operate in one segment and the geographic information required herein is contained in Note 16
Segment Information
in Notes to
the Consolidated Financial Statements and is incorporated by reference herein.
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 products 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.
QLT091001 Synthetic Retinoid
Pursuant to our co-development agreement with Retinagenix, we have an exclusive, worldwide sub-license to patents and patent applications
relating to various synthetic retinoids and uses thereof, including in the treatment of LCA and RP. These patents and patent applications are owned by the University of Washington, which has licensed the patents and patent applications to
Retinagenix, and are sub-licensed to us by Retinagenix. On May 31, 2011, the United States Patent and Trademark Office issued Patent No. 7,951,841, a key patent related to this program, covering various methods of use of QLT091001 in the
treatment of diseases associated with an endogenous 11-
cis
-retinal deficiency, expiring on July 7, 2027, including the period of patent term adjustment. This patent is owned by the University of Washington and is exclusively sub-licensed
to us through our co-development agreement with Retinagenix. Outside of the US, counterpart foreign patents and patent applications to US Patent No. 7,951,841, with varying scope of protection, are pending or have been granted, including
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European Patent No. 1765322 which was granted on November 6, 2013. All of the national patents in the European jurisdictions where European Patent No. 1765322 is validated will be
set to expire in 2025.
Additional patents and patent applications exclusively sub-licensed to us through our co-development agreement with
Retinagenix will expire between 2024 and 2029, not including any possible patent term extensions or adjustments that may be available. These patents and patent applications include additional methods of use patents and patent applications, directed
to uses of synthetic retinoids, including QLT091001.
The molecule in QLT091001 is not eligible for composition of matter protection per
se, as it was previously known in the scientific community. To further expand and strengthen our intellectual property portfolio, we have filed and continue to file additional patent applications on synthetic retinoids, pharmaceutical formulations
thereof, methods of using and dosing synthetic retinoids, including QLT091001, in those jurisdictions where we consider it beneficial, depending on the subject matter and our commercialization strategy. Those patent applications, if issued, will
expire between 2029 and 2034, not including any possible patent term extensions or adjustments that may be available. If QLT091001 is approved by the FDA and the EMA for marketing in the U.S. and EU, we plan to apply for any patent term extensions
and regulatory exclusivities that are available to us under applicable law. See
Government Regulation Market Exclusivity
and
Government Regulation Additional Regulatory Issues
below.
In addition to any protection our patent portfolio may offer, QLT091001 has received orphan drug designations for the treatment of LCA (due to
inherited mutations in the LRAT or RPE65 genes) and RP (all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA. If a drug is ultimately approved as an orphan drug, it receives an extended period of market
exclusivity, subject to certain limitations based on the jurisdiction. See
Government Regulation Orphan Drug Regulation
below.
Other
Patents
,
Trademarks and Proprietary Rights
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 potential business collaborators, investigators, employees and consultants who might have access to or be provided with proprietary information to sign confidentiality agreements.
We have included information about risks and uncertainties relating to protection of our proprietary information under Item 1A.
Risk
Factors
.
We own registered trademarks in the U.S. and Canada and in other jurisdictions.
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 have 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. For example, we are aware of a retinal implant developed by Second Sight Medical Products
Inc. to treat late stage RP, which received FDA approval under a Humanitarian Device Exemption in February 2013. In addition, we are aware of a gene therapy product in Phase III in the U.S. for treatment of inherited retinal dystrophies caused by
mutations in the RPE65 gene.
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Government Regulation
The research and development, preclinical studies and clinical trials, and ultimately, the manufacturing, marketing and labelling 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, labelling, packaging, storage, record keeping, approval, clearance, distribution, export and import, advertising and promotion of our products. Preclinical studies, clinical trials and the regulatory approval process can take years and may
require the expenditure of substantial resources. Regulatory approval of a product may occur much later than expected, at much greater cost than expected, or never. If granted, the approval may include significant limitations on the indications,
dosing, distribution, packaging, labeling and sale of the product, including black box warnings and Risk Evaluation and Mitigation Strategy (REMS) requirements.
FDA Regulation Approval of Drug Products
Under U.S. law, our QLT091001 product in development will be regulated as a drug. The steps ordinarily required before a drug may be marketed
in the U.S. include:
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submission of an Investigation New Drug application (IND) to the FDA, which must become effective before human clinical trials may
commence;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for its proposed intended use;
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validation and approval of the manufacturing facilities and process;
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submission of a new drug application (NDA) or abbreviated new drug application (ANDA) to the FDA; and
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FDA approval of the application, including approval of all labelling.
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The testing and approval process requires substantial time, effort and financial resources and we cannot be certain that any approvals of our
product candidates will be granted on a timely basis, if at all.
Preclinical tests include evaluation of product chemistry and formulation
as well as in vitro and animal studies to assess the potential safety and efficacy of the product. 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 new 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 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, drug interaction, bioavailability and bioequivalence,
pharmacodynamics and safety, including side effects associated with increasing doses. Phase II usually involves studies in a limited patient population to:
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assess the efficacy of the drug in specific, targeted indications;
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assess dosage tolerance and optimal dosage; and
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identify possible adverse effects and safety risks.
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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.
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After successful completion of the required clinical testing, the results of preclinical studies
and clinical studies, along with descriptions of the manufacturing process, proposed labelling and other relevant information, are submitted to the FDA as part of an NDA. Under the Prescription Drug User Fee Act, the FDA aims to review the NDA
within 10 months if it is a standard application, or within six months if it is a priority review application. If the FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or a
complete response letter that identifies the deficiencies in the NDA that must be corrected in order to secure final FDA approval of the NDA. When, and if, those deficiencies have been addressed to the FDAs satisfaction, the FDA
will issue an approval letter. Approval may be conditioned on the sponsors agreement to undertake Phase IV post-approval studies to further assess the drugs safety and effectiveness, or on the development of a REMS that limits the
labelling, distribution or promotion of a drug product.
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-manufacturing establishment must be registered with the FDA. U.S. manufacturing establishments are subject to biennial inspections by the FDA and must comply with the
FDAs current good manufacturing practices (cGMPs). In complying with cGMPs, 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 labelling and promotional activities. Further, we must report
adverse events involving our drugs to the FDA under regulations issued by the FDA. Failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, warning letters, holds on clinical
studies, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions, or civil or criminal
penalties.
Any of these actions could result in, among other things, substantial modifications to our business operations; a total or
partial shutdown of production while the alleged violation is remedied; repayments, recoupments or refunds; and withdrawals or suspensions of current products from the market. Any of these events, in combination or alone, could disrupt our business
and have a material adverse effect on our business, financial condition and results of operations.
EU Regulation Approval of Medicinal
Products
Our products in development will be regulated as medicinal products in the EU. In the European Economic Area
(EEA) (which comprises the 27 Member States of the EU plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a marketing authorization (or MA). There are two types of marketing
authorizations:
The
Community MA
, which is issued by the European Commission through the Centralised Procedure, based on the
opinion of the Committee for Medicinal Products for Human Use (CHMP) of the EMA, and which is valid throughout the entire territory of the EEA. The Centralised Procedure is compulsory for medicinal products that contain a new active
substance and are indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and other immune dysfunctions, and viral diseases, as well as for orphan medicinal products and products developed through certain
biotechnological processes. The Centralised Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation, or whose
approval is in the interest of public health in the EU. In the Centralised Procedure applications are submitted directly to the EMA. The EMAs CHMP then has 210 days (not including stop-clocks) to adopt an opinion on whether the medicine should
be marketed or not. The CHMPs opinion is then transmitted to the European Commission, which has the ultimate authority for granting the Community MA.
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National MAs
, which are issued by the competent authorities of the Member States of the
EEA and only cover their respective territory, are available for products not falling within the mandatory scope of the Centralised Procedure. Where a product has already been authorized for marketing in a Member State of the EEA (the so-called
Reference Member State), this National MA can be recognized in other Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved
simultaneously in various Member States through the Decentralised Procedure.
Under the
Mutual Recognition Procedure
, within 90 days
of receipt of a valid application, the Reference Member State provides an updated assessment report together with the approved summary of product characteristics (SPC), labelling and package leaflet to the Member States where the
applicant seeks recognition of its original MA (the Concerned Member States). After receipt of these documents, the Concerned Member States have another 90 days to recognise the decision of the Reference Member State and the approved SPC, package
leaflet and labelling and grant a harmonised National MA. The Concerned Member States may, however, refuse to recognize the Reference Member States MA on grounds of a potential serious risk to public health, in which case the points of disagreement
are referred to the Coordination Group for Mutual Recognition and Decentralised Procedures Human (the CMDh). The CMDh will try to reach a consensus between the Reference Member State and the objecting Concerned Member States
within 60 days, and if an agreement is not reached the matter will be referred to the EMAs CHMP for arbitration.
Under the
Decentralised Procedure
, an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State. The competent authority
of the Reference Member State has 120 days to prepare a draft assessment report, a draft SPC, and a draft of the labelling and package leaflet, which are sent to the other Member States (i.e., the Concerned Member States) for their approval. If the
Concerned Member States raise no objections, based on a potential serious risk to public health, to the assessment, SPC, labelling or packaging proposed by the Reference Member State, the product is subsequently granted a National MA in all the
Member States (i.e., in the Reference Member State and the Concerned Member States). In case of disagreement, a procedure before the CMDh and/or the CHMP similar to the one described above must be followed.
Under all the above described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an
assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Further, under EU Regulation No. 1901/2006 on medicinal products for pediatric use, as amended, companies that wish to market their
products in the EEA are required to submit the results of pediatric studies with their marketing authorization application. These studies must be undertaken in compliance with a pediatric investigation plan (PIP) that must be approved in
advance by the EMAs Pediatric Committee (PDCO). The obligation to provide the results of pediatric studies with the marketing authorization application can be waived for certain products or product classes if: (i) they are
likely to be ineffective or unsafe in part or all of the pediatric population; (ii) the disease or condition for which they are intended occurs only in adult populations; or (iii) the specific product does not represent a significant
therapeutic benefit over existing treatments for pediatric patients. If justified, applicants can obtain a deferral of the obligation to conduct pediatric studies until a time after the submission of the marketing authorization application, for
instance, because it is appropriate to conduct studies in adults prior to initiating studies in children or when studies in children will take longer to conduct than studies in adults. A marketing authorization holder whose application incorporated
the results of pediatric studies conducted in compliance with an approved PIP can be eligible for a six-month extension to the patent protection afforded to its product. This extended patent protection period does not apply to orphan medicinal
products, which can benefit instead from a twelve-year period of marketing exclusivity.
Market Exclusivity
In the U.S., the Drug Price Competition and Patent Term Restoration Act of 1984 (also known as the Hatch-Waxman Act) established abbreviated
FDA approval procedures for drugs that are shown to be equivalent to proprietary drugs previously approved by the FDA through its NDA process. Approval to market and distribute
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generic drugs is obtained by filing an abbreviated new drug application, or ANDA, with the FDA, which must demonstrate that the product is bioequivalent to the innovator drug, rather than
independently demonstrating the safety and effectiveness of the product through the submission of preclinical and clinical data. Innovator drugs are protected from generic competition through patent exclusivity, and the holder of an NDA for an
innovator drug may also be entitled to a period of non-patent market exclusivity, during which the FDA cannot approve an ANDA or application filed under the Food, Drug and Cosmetic Act §505(b)(2) (505(b)(2) Application). If the
innovator drug is a New Chemical Entity, the FDA may not accept an ANDA or 505(b)(2) Application for a drug that contains the same active moiety as in the New Chemical Entity for five years following approval of the NDA for the New Chemical Entity,
except that an ANDA or 505(b)(2) application may be submitted after 4 years if it contains a Paragraph IV certification. The FDA may, however, approve a full NDA submitted by another company for the same drug product during this period. A drug can
be classified as a New Chemical Entity if the FDA has not previously approved any other drug containing the same active moiety. If the innovator drug is not a New Chemical Entity but the holder of the NDA conducted clinical trials essential to
approval of the NDA or a supplement thereto, the FDA may not approve an ANDA or 505(b)(2) Application for a bioequivalent product before expiration of three years. Additionally, a six-month period of market exclusivity may be added to existing
patent and market exclusivity periods if the innovator drug is studied for pediatric indications.
In the EEA, Regulation (EC)
No. 726/2004/EC and Directive 2001/83/EC (each as amended) have established a harmonized approach to data and marketing exclusivity (known as the 8 + 2 + 1 formula). The approach permits eight years of data exclusivity and 10 years of marketing
exclusivity. An additional non-cumulative one-year period of marketing exclusivity is possible if during the data exclusivity period (the first eight years of the 10-year marketing exclusivity period), the MA holder obtains an authorization for one
or more new therapeutic indications that are deemed to bring a significant clinical benefit compared to existing therapies.
The data
exclusivity period begins on the date of the products first MA in the EU and prevents generics from relying on the marketing authorization holders pharmacological, toxicological, and clinical data for a period of eight years. After eight
years, a generic product application may be submitted and generic companies may rely on the marketing authorization holders data. However, a generic cannot launch until two years later (or a total of 10 years after the first marketing
authorization in the EU of the innovator product), or three years later (or a total of 11 years after the first MA in the EU of the innovator product) if the MA holder obtains marketing authorization for a new indication with significant clinical
benefit within the eight-year data exclusivity period.
The 8 + 2 + 1 exclusivity scheme applies to products that have been authorized in
the EU by either the EMA through the Centralized Procedure or the competent authorities of the Member States of the EEA (under the Decentralised, or Mutual Recognition procedures).
Upon FDA approval, we believe that the active pharmaceutical ingredient in QLT091001 may qualify as a New Chemical Entity, which provides for
five years of exclusivity following approval. We intend to seek New Chemical Entity exclusivity; however, there is no assurance that QLT091001 will qualify and gain the additional five-year exclusivity period, even if QLT091001 is approved. We also
plan to seek regulatory exclusivity for QLT091001 in the EU; however, there can be no assurance that we will be successful in securing approval or regulatory exclusivity in the EU.
Orphan Drug Regulation
Since the
extent and scope of our patent protection for QLT091001 is limited, orphan drug designation is especially important for this product candidate. QLT091001 has received orphan drug designations for the treatment of LCA (due to inherited mutations in
the LRAT and RPE65 genes) and RP (all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA.
In the U.S.,
the Orphan Drug Act provides financial incentives to drug manufacturers to develop and manufacture drugs for the treatment of rare diseases, currently defined as a disease or condition that affects fewer than 200,000 individuals in the U.S. If a
product that has an orphan drug designation subsequently receives the first FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity,
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i.e., the FDA may not approve any other applications to market the same drug for the same indication for a period of seven years following marketing approval, except in certain very limited
circumstances, such as if the later product is shown to be clinically superior to the orphan product or a market shortage occurs. The market exclusivity granted by the FDA would not, however, prevent other drug manufacturers from obtaining approval
of the same compound for other indications, including another orphan indication, or the use of other types of drugs for the same orphan indication. The Orphan Drug Act also allows for other financial incentives to promote the development of these
orphan designated drugs, including regulatory guidance, FDA fee reductions and tax credits related to the development expenses. Orphan drug designation generally does not confer any special or preferential treatment in the regulatory review process.
Moreover, if a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Further, although obtaining orphan drug designation can be
advantageous, there is no assurance that we will successfully develop or receive regulatory approval to market the product, nor can there be any assurance that we will be granted orphan drug designation for additional diseases or that orphan drug
exclusivity will provide us with a material commercial advantage.
Legislation similar to the Orphan Drug Act has been enacted in other
countries outside of the U.S., including the EU. The orphan legislation in the EU is available for products that are (i) intended for the diagnosis, prevention or treatment of chronic debilitating or life-threatening conditions that affect five
or fewer out of 10,000 persons in the EU, or (ii) that are intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the EU, and without incentives it is unlikely that
their commercialization in the EU would generate sufficient return, provided that (iii) there is no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU, or if such a method
exists, the medicinal product will be of significant benefit to those affected by the condition. The EU market exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence
establishes that the requirements for orphan drug designation are no longer fulfilled, e.g., because the product is sufficiently profitable not to justify maintenance of market exclusivity. The market exclusivity may be extended to 12 years if
sponsors complete a pediatric investigation plan agreed upon with the EMAs PDCO. Marketing authorization applicants for orphan designated drugs can benefit from protocol assistance and significant fee reductions in the EMA authorization
procedure.
Fast Track Designation
QLT091001 has also been granted two Fast Track designations by the FDA for the treatment of LCA and RP due to inherited mutations in the
LRAT
and
RPE65
genes. The FDAs Fast Track program is intended to facilitate the development and review of drugs that are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet
medical needs for the condition. Under the program, the sponsor of a new drug may request that the FDA designate the drug for a specific indication as a Fast Track product concurrent with or after the IND is filed for the product candidate. A drug
that receives Fast Track designation may be eligible for more frequent meetings with the FDA to discuss the drugs development; more frequent written correspondence from the FDA about the design of the proposed clinical trials; eligibility for
accelerated approval, i.e., approval of an effect on a surrogate or substitute endpoint; and rolling review, meaning the sponsor may submit its NDA in sections rather than wait until the entire NDA is complete. Most drugs with Fast Track designation
are likely to become eligible for a Priority Review, which provides for FDA review of an NDA within a six-month time frame from the time the complete NDA is accepted for filing, as opposed to the ten-month time frame for a Standard Review. The FDA
grants Priority Review for products that offer major advances in treatment, or provide a treatment where no adequate therapy exists.
Additional
Regulatory Issues
We remain subject to various U.S. federal and state laws pertaining to health care fraud and abuse,
including anti-kickback laws and false claims laws with respect to prior sales of and marketing activities for Visudyne in the U.S. and, if any of our product candidates are approved for commercial sale, will be subject to such laws with respect to
any sales of those product candidates. For example, anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce,
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the referral of business, including the purchase or prescription of a particular drug. Additionally, false claims laws prohibit anyone from knowingly and willingly presenting, or causing to be
presented for payment to third party payors (including Medicare and Medicaid), claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or
services. The healthcare fraud statute prohibits knowingly and wilfully executing a scheme to defraud any healthcare benefit program, including private payors. The false statements statute prohibits knowingly and wilfully falsifying, concealing or
covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Violations of fraud and abuse laws may be punishable by criminal
and/or civil sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from federal and state health care programs (including Medicare and Medicaid).
Recent health reform legislation has also enhanced the governments ability to pursue actions against potential violators, by expanding
the governments investigative authority, expanding criminal and administrative penalties, and providing the government with expanded opportunities to pursue actions under the federal Anti-Kickback Statute, the False Claims Act, and the Stark
Law. For example, the U.S. Patient Protection and Affordable Care Act (ACA) narrowed the public disclosure bar under the False Claims Act, allowing increased opportunities for whistleblower litigation. In addition, the legislation
modified the intent standard under the federal Anti-Kickback Statute, making it easier for prosecutors to prove that alleged violators had met the requisite knowledge requirement. The ACA also requires providers and suppliers to report any Medicare
or Medicaid overpayment and return the overpayment on the later of 60 days of identification of the overpayment or the date the cost report is due (if applicable), or all claims associated with the overpayment will become false claims. The ACA
also provides that any claim submitted from an arrangement that violates the Anti-Kickback Statute is a false claim.
The U.S. Foreign
Corrupt Practices Act (FCPA) and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to public officials for the purpose of obtaining or retaining business. Our
internal policies mandate compliance with these anti-corruption laws and we rely on our management structure, regulatory and legal resources and effective operation of our compliance program to direct, manage and monitor the activities of our
employees. Despite our training, oversight and compliance programs, we cannot ensure that our internal control policies and procedures always will protect us from deliberate, reckless or inadvertent acts of our employees or agents that contravene
our compliance policies or violate applicable laws. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, under certain conditions, a patent that claims a product, use or
method of manufacture covering drugs and certain other products may be eligible for limited patent term extension for a period of up to five years as a compensation for patent term lost during drug development and the FDA regulatory review process.
However, this extension cannot be extended beyond 14 years from the drugs approval date. The scope of rights during this period of extension is generally limited to the product that was subject to regulatory delay. The United States Patent and
Trademark Office, in consultation with the FDA, reviews and approves applications for patent term extensions. We intend to seek the benefits of this statute, but there can be no assurance that we will be able to obtain any such benefits. Analogous
protection in the majority of EU countries may also be available to us to provide periods of patent term extensions in various EU countries.
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.
Third-Party Coverage and Reimbursement
U.S. governmental and private insurance programs, such as Medicare, Medicaid, health maintenance organizations and private insurers, known
collectively as third-party payors, fund the cost of a significant portion of medical care in the U.S. Under certain U.S. governmental insurance programs, a healthcare provider is reimbursed a fixed sum for services and products, including drugs
used during the course of rendering healthcare services to patients, and governmental imposed limits on reimbursement to hospitals, physicians and other health
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care providers have significantly impacted spending budgets and purchasing patterns. Private third-party reimbursement plans are also developing increasingly sophisticated methods of controlling
health care costs through re-design of benefits and exploration of more cost-effective methods of delivering health care. In general, these governmental and private measures have caused health care providers to be more selective in the purchase of
medical products.
Both within and outside the U.S., significant uncertainty exists as to the reimbursement status of newly approved health
care products, and we cannot provide assurance that adequate third-party reimbursement will be available. There have been, and we expect will continue to be, proposed and adopted healthcare reform measures that impacted or may impact our business.
For example, the ACA provides for significant changes in the way healthcare is financed by both governmental and private insurers. Key provisions of the ACA specific to the pharmaceutical industry, among others, include the following:
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An annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents into the U.S.,
apportioned among these entities according to their market share in certain federal government healthcare programs (excluding sales of any drug or biologic product marketed for an orphan indication), that began in 2011;
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An increase, from 15.1% to 23.1%, in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1,
2010;
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Extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations, effective March 23, 2010; and
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Expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program, effective January 2010.
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The ACA also contains the Physician Payment Sunshine Act (section 6002) (PPSA). On February 8,
2013, CMS issued final regulations under the PPSA that require applicable pharmaceutical, medical device, biological, and medical supply manufacturers to report annually to the Secretary of Health and Human Services (HHS) certain payments or
other transfers of value to physicians and teaching hospitals. The PPSA also requires applicable manufacturers to report certain information regarding the ownership or investment interests held by physicians or the immediate family members of
physicians in such entities. The first reports will be due March 31, 2014 for the initial reporting period (August December 2013), and thereafter for each calendar year. The report must include, among other things, information about the
amount of the payment, the date on which the payment was made, the form of payment, and the nature of the payment (e.g., consulting fees, compensation for services, gifts, entertainment or research). CMS and the Department of Health and Human
Services have not yet finalized all of the rules and regulations implementing the provisions of the ACA. As a result, further regulations may be promulgated in the future that could substantially change the Medicare and Medicaid reimbursement
system, or that impose additional eligibility requirements for participation in the federal and state healthcare programs. Such regulations could alter the current responsibilities of third-party insurance payors (including employer-sponsored health
insurance plans, commercial insurance carriers and the Medicaid program) including, without limitation, with respect to cost-sharing obligations. Such new regulations could have materially adverse effects on our business and results.
Although we cannot predict their full impact, we anticipate that the ACA, as it is implemented, as well as other healthcare reform measures
that may be adopted in the future, may result in more rigorous coverage and reimbursement criteria that may negatively impact product price potential and could adversely affect our profits and our business generally.
Research and Development Costs
A significant portion of our operating expenses are related to research and development. During the years ended December 31, 2013, 2012
and 2011, our total company-sponsored research and development expenses were $18.5 million, $24.6 million, and $23.0 million respectively. See
Our Products in Development
above and Item 7.
Management, Discussion and Analysis of
Financial Condition and Results of Operations
below.
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Human Resources
As of February 28, 2014, we had approximately 37 employees, 23 of whom were engaged in research, development, clinical and regulatory
affairs, quality control and assurance, and 14 of whom were engaged in business development, finance, information technology, human resources, intellectual property and legal. None of our employees belong to a labour union.
Corporate Information
QLT was formed in 1981 under the laws of the Province of British Columbia. Our principal executive office is located at 887 Great Northern
Way, Suite 250, Vancouver, British Columbia, Canada, and our telephone number is 604-707-7000.
We make available free of charge on or
through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after they are electronically filed with, or furnished
to, the SEC. Our internet address is www.qltinc.com. This website address is intended to be an inactive, textual reference only; none of the material on this website is part of this Report. Copies of our annual reports on Form 10-K will be furnished
without charge to any person who submits a written request directed to the attention of our Secretary, at our offices located at 887 Great Northern Way, Suite 250, Vancouver, B.C., Canada V5T 4T5. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
In addition to the other information included in this Report, you should
consider carefully the following factors, which describe the risks, uncertainties and other factors that may materially and adversely affect our business, products, financial condition and operating results. There are many factors that affect our
business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations in future periods to differ materially from those currently expected or
discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect
events or circumstances after the date on which it is made.
We are exploring and evaluating strategic alternatives for the Company
and there can be no assurance that we will be successful in identifying a strategic alternative, that such strategic alternative will yield additional value for stockholders or that the process will not have an adverse impact on our business.
In November 2013, we announced the initiation of a review of strategic alternatives, including the engagement of Credit Suisse to
act as our financial advisor, which could result in, among other things, a sale of the Company, a merger, consolidation, business combination or a disposition of all or a substantial portion of our assets in one or more transactions. However, there
can be no assurance that the exploration of strategic alternatives will result in the identification or consummation of any transaction. In addition, we expect to incur substantial expenses associated with identifying and evaluating potential
strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations and if we are unable to effectively manage the process, our business, financial condition and results of
operations could be adversely affected.
No decision has been made with respect to any transaction and we cannot assure you that we will be
able to identify and undertake a transaction that allows our shareholders to realize an increase in the value of their stock or provide any guidance on the timing of such action, if any. We also cannot assure you that any potential transaction or
other strategic alternative, if identified, evaluated and consummated, will provide greater value to our shareholders than that reflected in the current stock price. Any potential transaction would be dependent upon a number of factors that may be
beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.
20
We may be unable to realize all of the potential benefits, and may be subject to potential
liabilities, in connection with our strategic restructuring.
In September 2012, we sold all of our assets related to Visudyne to
Valeant and in April 2013, we sold all of our assets related to our PPDS Technology to Mati. In each case, a portion of the consideration payable to us is contingent upon the achievement of certain milestones and upon sales of Visudyne and products
using or developed from the punctal plug delivery system technology, respectively. We may not receive all or any of the contingent consideration under the Visudyne asset purchase agreement if we cannot favourably resolve the dispute with Valeant
regarding payment for the receipt of required regulatory approval of the Qcellus laser or if net royalties on sales of Visudyne outside of the U.S. are lower than expected. Likewise, we may not receive all or any of the contingent consideration
under the Mati asset purchase agreement if the product development and commercialization milestones are not met or if no products use or are developed from the punctal plug delivery system technology, or if sales of such products are lower than
expected.
Our strategic restructuring may not result in anticipated savings, could result in total costs and expenses that are
greater than expected, could make it more difficult to attract and retain qualified personnel and may disrupt our operations, each of which could have a material adverse effect on our business.
In connection with the Companys strategic restructuring, in July 2012 we implemented a significant reduction in our work force, followed
by an additional reduction in force in December 2012. Through December 31, 2013, we recorded restructuring charges of $18.9 million (of which $3.0 million is included in discontinued operations) and we expect to record an additional
restructuring charge of approximately $1.1 million. We may not realize in full the anticipated benefits, savings and improvements in our cost structure from our restructuring efforts due to unforeseen difficulties, delays or unexpected costs. If we
are unable to achieve the anticipated benefits, savings or improvements in our cost structure in the expected time frame or other unforeseen events occur, our business and results of operations may be adversely affected.
The Companys strategic restructuring also may be disruptive to our operations, in particular due to the departure of several members of
senior management in 2012. For example, cost saving measures may distract remaining and new management from our remaining businesses, harm our reputation, or yield unanticipated consequences, such as attrition beyond planned reductions in workforce,
increased difficulties in our day-to-day operations, deficiencies in our internal controls, reduced employee productivity and a deterioration of employee morale. Our workforce reductions could also harm our ability to attract and retain qualified
management, and scientific and other personnel who are critical to our business. Any failure to attract or retain key personnel, including a permanent CEO, could result in unexpected delays in the development of the Companys synthetic oral
retinoid program, QLT091001, or could otherwise negatively impact our business.
Moreover, although we believe it is necessary to reduce
the cost of our operations to improve our performance, these initiatives may preclude us from taking actions or making investments that could improve our competitiveness over the longer term. We cannot guarantee that the cost reduction measures, or
other measures we may take in the future, will result in the expected cost savings, or that any cost savings will be unaccompanied by these or other unintended consequences.
We no longer generate revenues from continuing operations and continue to incur operating expenses. In order to fund our operations, we
may need additional capital in the future, and our prospects for obtaining it are uncertain.
Although our divestment of non-core
assets in 2008 and 2009 and our sale of the assets related to Visudyne in September 2012 and our assets related to our PPDS Technology in April 2013 generated significant cash, we no longer generate revenues from the sale of products and we will not
generate any revenues from our products in development until such time, if ever, that they are approved for sale. In June 2013, we completed a special cash distribution to our shareholders in the amount of $200.0 million, by way of a reduction of
paid-up capital of the Companys common shares, which has significantly reduced our cash resources. Going forward we will continue to incur operating expenses and, as a result, may not be able fund our operations or any anticipated growth
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beyond the near term. Insufficient funds may require us to delay, scale back, or eliminate some or all of our activities or to relinquish greater or all rights to product candidates at an earlier
stage of development or on less favorable terms than we would otherwise choose, and, if we are unable to obtain additional funding, may adversely affect our ability to operate as a going concern. The amount required to fund our operating expenses
will depend on many factors, including the success of our research and development programs, the extent and success of any collaborative research arrangements, and the results of product, technology or other acquisitions or business combinations. We
could seek additional funds in the future from a combination of sources, including out-licensing, joint development, sale of assets and other financing arrangements. In addition, we may issue debt or equity securities if we determine that additional
cash resources could be obtained under favorable conditions or if future development funding requirements cannot be satisfied with available cash resources. The availability of financing will depend on a variety of factors such as market conditions,
the general availability of credit and the availability of credit to our industry, the volume of trading activities, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of
our long-term or short-term financial prospects if we incur large investment losses or if the level of our business activity decreases due to a market downturn. Disruptions, uncertainty or volatility in the capital and credit markets may also limit
our access to capital required to operate our business. As a result of any or all of these factors, we may not be able to successfully obtain additional financing on favourable terms, or at all.
Our primary source of cash inflows is contingent consideration related to the sale of QLT USA, including the Eligard product line, our
Visudyne business and PPDS Technology. We may not receive all or a material portion of these funds. Furthermore, an unfavorable change in the fair value of our contingent consideration as a result of changes in estimates related to amount and timing
of future cash flows, and the applicable discount rate may adversely impact our financial results.
For the foreseeable future, our
only material source of cash inflows is contingent consideration from the strategic transactions we have completed or may complete.
Under
the stock purchase agreement with Tolmar for the sale of QLT USA, including its Eligard product line, we are entitled to receive future consideration payable on a quarterly basis in amounts equal to 80% of the royalties paid under the license
agreement with Sanofi for the commercial marketing of Eligard in the U.S. and Canada, and the license agreement with Astellas (formerly with MediGene) for the commercial marketing of Eligard in Europe until the earlier of receiving the full $200.0
million or October 1, 2024.
Under our asset purchase agreement with Valeant pursuant to which we sold our Visudyne business to
Valeant, we are entitled to receive up to $5.0 million in each calendar year commencing January 1, 2013 (up to a maximum of $15.0 million in the aggregate) for annual net royalties exceeding $8.5 million for sales of Visudyne outside of the
United States by Novartis and a royalty on net sales attributable to new indications for Visudyne, if any should be approved by the FDA. Additionally, we are entitled to receive up to $5.0 million upon receipt of the registration required for the
commercial sale of the Qcellus laser in the U.S. (the Laser Earn-Out Payment). On September 26, 2013, the FDA approved the premarket approval application (PMA) supplement for the Qcellus laser and we have invoiced
Valeant for the $5.0 million Laser Earn-Out Payment. Valeant has disputed payment on the basis that it believes the Laser Earn-Out Payment remains contingent upon receipt of additional governmental authorizations with respect to the Qcellus
laser. While we believe that the Laser Earn-Out Payment is currently due and payable by Valeant, the outcome of any dispute is uncertain and we may have difficulty collecting the Laser Earn-Out Payment in full.
Under our asset purchase agreement with Mati, we are eligible to receive potential payments upon the satisfaction of certain product
development and commercialization milestones that could reach $19.5 million (or exceed that amount if more than two products are commercialized), a low single digit royalty on world-wide net sales of all products using or developed from the PPDS
Technology and a fee on payments received by Mati in respect of the PPDS Technology other than net sales.
With respect to Visudyne and
Eligard, as well as any future products resulting from the PPDS Technology, our success depends on the success of third parties to market these products. For example, under the Visudyne asset purchase agreement, the contingent consideration depends
on the sales of Visudyne outside of the United States,
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which is the responsibility of Novartis. Consequently, a portion of our income depends on the efforts of Novartis to market and sell Visudyne outside the U.S. and on the efforts of Valeant to
collect royalties due to it from Novartis. To the extent such third parties do not perform adequately, or do not comply with applicable laws or regulations in performing their obligations, our income may be adversely affected.
Our receipt of contingent consideration may also be adversely affected by, among other things:
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lower than expected Visudyne or Eligard sales;
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product manufacturing or supply interruptions or recalls;
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the development of competitive products, including generics, by other companies that compete with Visudyne or Eligard;
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marketing or pricing actions by competitors or regulatory authorities;
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changes in foreign exchange rates;
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changes in the reimbursement or substitution policies of third-party payors;
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changes in or withdrawal of regulatory approvals;
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disputes relating to patents or other intellectual property rights;
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the commercial efforts of Visudyne or Eligard marketing licensees;
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changes in laws or regulations that adversely affect the ability to market Visudyne or Eligard;
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decline in the commercial supply and technical support for laser light devices necessary to administer Visudyne therapy;
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failure to receive the full Laser Earn-Out Payment related to the Qcellus laser, which is currently subject to a dispute with Valeant;
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failure to develop and commercialize any new indications for Visudyne; and
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failure or delay by Mati in obtaining regulatory approval and commercializing the products related to the PPDS Technology.
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Furthermore, the fair value of our contingent consideration reflected on our consolidated balance sheet is based on future Visudyne and Eligard
sales estimated by us utilizing external market research to estimate market size, to which we apply market share and pricing assumptions based on historical sales data and expected future competition. If we do not ultimately receive all or a
material portion of the consideration provided for under the stock purchase agreement or asset purchase agreement due to the risks noted above or for any other reason, our cash position will suffer.
We believe that we may be deemed a passive foreign investment company for the taxable year ended December 31, 2013, which could
result in adverse United States federal income tax consequences to U.S. Holders and may deter certain U.S. investors from purchasing our stock, which could have an adverse impact on our stock price.
Based on the price of our common shares and the composition of our assets, we believe that we may be deemed a passive foreign investment
company (PFIC) for United States federal income tax purposes for the taxable year ended December 31, 2013. We believe that we may be deemed a PFIC for the taxable years ended December 31, 2008 through 2012, and we may be
a PFIC in future years. A non-U.S. corporation generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of
subsidiaries, either 75% or more of its gross income is passive income or 50% or more of the average value of its assets consists of assets that produce, or are held for the production of, passive income. If we were a PFIC for any
taxable year during a U.S. Holders holding period for our common shares, certain adverse United States federal income tax consequences could apply to
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such U.S. Holder, as that term is defined in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations Certain Canadian and U.S. Federal
Income Tax Information for U.S. Residents U.S. Federal Income Tax Information U.S. Holders in this Report, including on a return of capital to such U.S. Holders. In addition, our PFIC status may deter certain U.S. investors from
purchasing our stock, which could have an adverse impact on our stock price.
Our success is dependent upon obtaining regulatory
approval for our product candidates for QLT091001. The regulatory approval process is costly and lengthy and we may not be able to successfully obtain all required regulatory approvals. If we fail to obtain all required regulatory approvals, our
business may suffer.
As part of the regulatory approval process, we must conduct, at our own expense, preclinical studies and
clinical trials on humans for each product candidate. Generally, in order to gain approval for a product, we must provide the FDA and other applicable regulatory authorities with clinical data that adequately demonstrate the safety and efficacy of
that product for the intended disease or condition applied for in the NDA or respective regulatory file. We expect the number and size of clinical trials that the regulatory authorities will require will vary depending on the product candidate, the
disease or condition the product is being developed to address, the expected size of the patient population and regulations applicable to the particular product. The length of time necessary to complete clinical trials and to submit an application
for marketing approval varies significantly and may be difficult to predict. Further, the approval procedure varies among countries and can involve different testing or data review. Drug development is a long, expensive and uncertain process, and
delay or failure can occur at any stage in our clinical trials. Product candidates that appear promising in research or development may be delayed or fail to reach later stages of development or the market for several reasons, including:
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preclinical studies may show the product to be toxic or lack efficacy in animal models;
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the interim or final results of clinical trials are inconclusive, negative, or not as favorable as results of previous trials, or show the product
candidate to be less safe or effective than desired;
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patients die or experience adverse side effects or events for a variety of reasons, including those related to our product candidates or due to the
patients advanced stage of disease or medical problems, which may or may not be related to our product candidates;
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the FDA, EMA or other regulatory authorities do not permit us to proceed with a clinical trial protocol or a clinical trial, or place a clinical
trial on hold;
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the data and safety monitoring committee of a clinical trial recommends that a trial be placed on hold or suspended;
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our trial design, although approved, is inadequate for demonstration of safety and/or efficacy;
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the FDA, EMA or other regulatory authorities determine that any study endpoints used in clinical trials are not sufficient for movement into a next
stage clinical trial or for product approval;
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delay in or failure to enroll or retain a sufficient number of patients, or difficulty diagnosing, identifying and recruiting suitable patients,
including, for example, due to the rarity of the disease being studied;
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inability to attract or retain personnel with appropriate expertise;
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third party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol or
other third-party organizations do not perform data collection and analysis in a timely or accurate manner;
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difficulties formulating the product;
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inability to manufacture sufficient quantities of the product candidate which conform to design and performance specifications;
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our clinical trial expenditures are constrained by our budgetary considerations;
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changes in governmental regulations, policies or administrative actions; or
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regulatory inspections of our clinical trials or manufacturing facilities, which may, among other things, require us to undertake corrective action
or suspend or terminate our clinical trials if investigators find us not to be in compliance with regulatory requirements.
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For example, a significant challenge for our clinical trials of QLT091001 for the treatment of
LCA and RP has been and will likely continue to be patient recruitment due to the small population of patients with these conditions, and in particular with the specific genetic mutations causing LCA and RP we are currently investigating. The
challenge in recruiting subjects from this small population is further exacerbated by the lack of public awareness of such conditions and resulting delay in (or lack of) available genetic testing and diagnosis. Further, patients may be discouraged
from enrolling in our clinical trials if the trial protocol requires them to undergo extensive procedures to assess the safety and effectiveness of our products, or they may be persuaded to participate in contemporaneous trials of competitive
products. Delay in, or failure of, enrolment of sufficient patients or failure of patients to continue to participate in a study may cause an increase in costs and delays or result in the failure of the trial. Our clinical trial costs will also
increase if we have material delays in our clinical trials for other reasons or if we need to perform more or larger clinical trials than anticipated.
From time to time, we engage in discussions with the FDA, EMA and other regulatory authorities to determine the regulatory requirements for our
development programs. These discussions may include deliberations on number and size of clinical trials, definition of patient population, study end points and safety. The final determination on these matters by the applicable regulatory authority
may be difficult to predict, in particular where there are no approved precedents to establish drug development norms in a particular class of drug disease area, such as orphan drug development, and may be different, including more onerous, than we
anticipated, which may delay, limit or prevent approval of our product candidates.
In addition, the FDA, EMA and other regulatory
authorities have substantial discretion in deciding whether any of our product candidates should be granted approval for the treatment of the particular disease or condition. Even if we believe that a clinical trial or trials has demonstrated the
safety and efficacy of any of our product candidates, the results may not be satisfactory to the regulator. Preclinical and clinical data can be interpreted by regulators in different ways, which could delay, limit or prevent regulatory approval of
our product candidates.
Even if regulatory authorities approve our product candidates for the treatment of the diseases or
conditions we are targeting, our product candidates may not be marketed or commercially successful. If our product candidates are not marketed or commercially successful, it would seriously harm our ability to generate revenue.
The successful commercialization of our technology, and in particular our synthetic retinoid, QLT091001, is crucial for our success. Successful
product commercialization in the pharmaceutical industry is highly uncertain and very few product commercialization initiatives or research and development projects progress through all phases of development and/or produce a successful commercial
product. Even if our products or product candidates are successfully developed, receive all necessary regulatory approvals and are commercially produced, there are number of risks and uncertainties involved in commercializing a product in this
industry including the following:
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negative safety or efficacy data from post-approval marketing experience or production-quality problems could cause sales of our products to
decrease or a product to be recalled;
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negative safety or efficacy data from clinical studies conducted by any party could cause sales of our products to decrease or a product to be
recalled;
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we may face significant or unforeseen difficulties or expenses in manufacturing our products, which may only become apparent when scaling-up the
manufacturing to commercial scale;
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we may need to obtain licenses under third-party patents which can be costly, or may not be available at all;
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our intellectual property rights could be challenged by third parties or we could be found to be infringing on intellectual property rights of
third parties;
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small patient populations may impact distribution and marketing strategy, which may increase our distribution, marketing and per-patient or
per-treatment costs;
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we may be unable to obtain or maintain sufficient market share at a price high enough to justify commercialization of the product; and
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effectiveness of our distribution and marketing strategy, including establishing and maintaining key relationships with distributors and suppliers.
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Numerous other factors may impact market acceptance and demand for our products, including but not limited to:
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size of the target populations for a product and ability to identify and reach such target populations with the product;
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our pricing decisions, including a decision to increase or decrease the price of a product, and the pricing decisions of our competitors;
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formulation of products in a manner in which they are marketable or subject to appropriate third-party coverage or reimbursement, or the inability
to obtain appropriate third-party coverage or reimbursement for any other reason;
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availability and rate of market penetration by competing products;
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relative convenience and ease of administration;
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perceived safety or efficacy relative to other available therapies, including efficacy data from clinical studies conducted by a party showing
similar or improved treatment benefit at a lower dose or shorter duration of therapy; and
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acceptance in the medical community and target patient populations to new products, treatment paradigms or standards of care.
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If we are unsuccessful in dealing with any of these risks, or if we are unable to successfully commercialize our product
candidates for some other reason, it would seriously harm our ability to generate revenue.
If we fail to comply with ongoing regulatory
requirements, it will materially harm our business.
The regulatory clearance process is lengthy, expensive and uncertain. We may
not be able to obtain, continue to obtain, or maintain necessary regulatory clearances or approvals on a timely basis, or at all, for our product candidates in development, and delays in receipt or failure to receive such clearances or approvals,
the loss of previously received clearances or approvals, or failure to comply with existing or future regulatory requirements could have a material adverse effect on our business and our financial condition.
Our product candidates are subject to extensive and rigorous regulation for safety, efficacy and quality by the U.S. federal government,
principally the FDA, and by state and local governments and by foreign regulatory authorities in jurisdictions in which our product candidates may be sold or used in clinical development. Product labeling, manufacturing, adverse event reporting,
pricing rules and restrictions, storage, distribution, advertising and promotion, and record keeping are some of the ongoing regulatory requirements to which products are subject. For example, we are subject to U.S. federal and state laws pertaining
to healthcare fraud and abuse, including anti-kickback and false claims laws, for any actions taken prior to January 31, 2013 with respect to the marketing, sale and pricing of Visudyne, and will be subject to these laws with
respect to the marketing, sale and pricing of any of our product candidates that are approved for commercial sale. Our failure or the failure of any third parties on whom we rely to comply with applicable requirements may be punishable by criminal
and/or civil sanctions against the Company and/or our senior officers, including fines and civil monetary penalties, as well as the possibility of exclusion from federal health care programs, including Medicare and Medicaid, and could result in
among other things, product recalls or seizures, injunctions, price rebates, total or partial suspension of production and/or distribution, refusals to permit products to be imported into or exported out of the U.S. or elsewhere, FDA or other
regulatory agency refusal to grant approval of drugs or to allow us to enter into governmental supply contracts, and withdrawals of previously approved marketing applications. Regulators can also withdraw a products approval under some
circumstances, such as the failure to comply with regulatory requirements or unexpected safety issues.
The FDA often requires
post-marketing testing and surveillance to monitor the effects of approved products. The FDA, EMA or other regulatory authorities may condition approval of our product candidates on the completion
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of such post-marketing clinical studies. These post-marketing studies may suggest that a product causes undesirable side effects or may present a risk to the patient. If data produced from
post-marketing studies suggest that one of our approved products may present a risk to safety, the government authorities could withdraw our product approval, suspend production or place other marketing restrictions on our products. If we are unable
to sell our products because we have failed to maintain regulatory approval or have to expend significant resources having to address compliance issues, our revenue, financial conditions or results of operations may be materially adversely affected.
We are also subject to numerous federal, provincial/state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. In addition, advertising and promotional materials relating to medical devices and drugs are, in certain instances,
subject to regulation by the FDA, the Federal Trade Commission and other regulatory agencies in other jurisdictions. We may be required to incur significant costs to comply with such laws and regulations in the future, and such laws or regulations
may materially harm our business. Unanticipated changes in existing regulatory requirements, our failure to comply with such requirements or the adoption of new requirements could materially harm our business.
Product development is a long, expensive and uncertain process, and we may terminate one or more of our development programs. If we
terminate a development program or product candidate, or if we decide to modify or continue a development program that does not succeed, our prospects may suffer and we may incur significant expenses that could adversely affect our financial
condition or results of operations.
We may determine that certain programs or product candidates do not have sufficient potential
to warrant the continued allocation of resources to them. Accordingly, we may elect to terminate or modify one or more of our programs, which could include changing our clinical or business model for further development, including by attempting to
extract or monetize value from the program by either selling, out-licensing or potentially partnering part or all of the program. If we terminate and seek to monetize part or all of a program in which we have invested significant resources, or we
modify a program and expend further resources on it, and subsequently fail to achieve our intended goals, our prospects may suffer, as we will have expended resources on a program that may not provide a suitable return, if any, on our investment and
we may have missed the opportunity to allocate those resources to potentially more productive uses. In addition, in the event of a termination of a product candidate or program, we may incur significant expenses and costs associated with the
termination of the program, which could adversely affect our financial condition or results of operations.
If we do not achieve our
projected development goals in the timeframes we expect and announce, marketing approval and commercialization of our product candidates may be delayed and our credibility may be adversely affected and, as a result, our stock price may decline.
For strategic and operational planning purposes, we estimate the timing of the accomplishment of various scientific, clinical,
regulatory and other product development goals. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected
timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet
these milestones as publicly announced, the market approval and commercialization of our product candidates may be delayed and our credibility may be adversely affected and, as a result, our stock price may decline.
We face intense competition, which may limit our commercial opportunities and our ability to generate revenues.
The biopharmaceutical industry is highly competitive and is characterized by rapidly evolving technology. Competition in our industry occurs on
many fronts, including developing and bringing new products to market before others, developing new technologies to improve existing products, developing new products to provide the same benefits as existing products at less cost, developing new
products to provide benefits superior to those of existing products, and acquiring or licensing complementary or novel technologies from other pharmaceutical companies or individuals.
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Our competitors include major pharmaceutical and biopharmaceutical companies, many of which are
large, well-established companies with access to financial, technical and marketing resources significantly greater than ours and substantially greater experience in developing and manufacturing products, conducting preclinical and clinical testing
and obtaining regulatory approvals. Our competitors may develop or obtain patent protection for products in clinical development earlier than us, design around patented technology developed by us, obtain regulatory approval for such products before
us, or develop more effective or less expensive products than us. Our commercial opportunities will be reduced or eliminated if our competitors develop or acquire and market products that are more effective, have fewer or less severe adverse side
effects, or are less expensive than our future products. Competitors also may develop or acquire products that make our future products obsolete. Any of these competitive products or events could have a significant negative impact on our business
and financial results, including reductions in our market share, revenues and gross margins.
Our commercial success depends in part
on our ability and the ability of our licensors to obtain and maintain patent protection on our product candidates and technologies, to preserve trade secrets, and to operate without infringing the proprietary rights of others.
We have applied for and continue to apply for patents for certain aspects of our product candidates and technology. We may not be able to
obtain patent protection on aspects of our product candidates and technology. For example, while U.S. Patent No. 7,951,841 was issued on May 31, 2011 covering various methods of use of QLT091001 in the treatment of diseases associated
with an endogenous 11-
cis
-retinal deficiency until 2027, the molecule in QLT091001 is not eligible for composition of matter protection in the U.S. or elsewhere because it was previously known in the scientific community. Therefore, we
may not be able to prevent competitors from commercializing the molecule in QLT091001 for the treatment of diseases that fall outside of the scope of our patents protecting these methods.
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. In the United States, issued patent claims may be broadened, narrowed, otherwise amended, or even cancelled as a
result of various post-issuance proceedings instituted by us or third parties at the United States Patent and Trademark Office. These proceedings include post-grant reviews,
inter partes
reviews,
ex parte
reexaminations, supplemental
examinations, reissue applications, and challenges under the transitional program for covered business method patents. Further, at least some foreign jurisdictions in which we and our licensors have filed patent applications also have procedures
that allow for post-issuance challenges at the respective intellectual property or patent office of that jurisdiction. Such challenges may result in the broadening, narrowing, otherwise amending, or even cancellation of issued patent claims in those
jurisdictions. Post-issuance challenges at patent offices in the United States or in foreign jurisdictions can be an alternative to, or in addition to, challenges made by third parties using the appropriate jurisdictions judicial system. Our
issued patents are subject to challenges through the judicial system of the appropriate jurisdiction.
With respect to pending patent
applications we own or license, we do not know whether or not patent applications will result in issued patents. Securing patent protection for a product is a complex process involving many legal and factual questions. The patent applications that
we and our licensors have filed in the United States and elsewhere are at varying stages of examination, the timing of which is outside of our control. Certain of these applications have not yet commenced examination in the United States Patent
Office and other international patent offices, and we cannot predict the timing or results of such examinations. Further, because each country has its own requirements for determining patentable subject matter, the patent protection conferred by
patent applications owned and licensed by us may result in varying scopes of protection, including but not limited to receiving no patent protection in some jurisdictions.
Likewise, to the extent a preferred position is conferred by patents we own or license, upon expiry of such patents, or if such patents are
successfully challenged, invalidated or circumvented, our preferred position may be lost.
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Patents issued or licensed to us may be infringed by the products or processes of other parties.
The cost of enforcing our patent rights against infringers, if such enforcement is required, could be significant, and the time demands could interfere with our normal operations.
It is also possible that a court may find us to be infringing validly issued patents of third parties. In that event, in addition to the cost
of defending the underlying suit for infringement, we may have to pay license fees and/or damages and may be enjoined from conducting certain activities. Obtaining licenses under third-party patents can be costly, and such licenses may not be
available at all. Under such circumstances, we may need to materially alter our processes, may be unable to launch a product or may lose the right to manufacture and sell a product entirely or for a period of time.
Unpatented trade secrets, improvements, confidential know-how and continuing technological innovation are important to our scientific and
commercial success. Although we attempt to, and will continue to attempt to, protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements with our collaborators, contract manufacturers,
licensees, clinical investigators, employees and consultants and other appropriate means, these measures may not effectively prevent disclosure of or access to our proprietary information, and, in any event, others may develop independently, or
obtain access to, the same or similar information.
If we fail to obtain or maintain orphan drug designation or other market
exclusivity for QLT091001, our competitive position may be harmed.
Since the extent and scope of our patent protection for
QLT091001 is limited, orphan drug designation is especially important for this product candidate. QLT091001 has received orphan drug designations for the treatment of LCA (due to inherited mutations in the
LRAT
or
RPE65
genes) and RP
(all mutations) by the FDA, and for the treatment of LCA and RP (all mutations) by the EMA. These designations provide market exclusivity in the applicable jurisdiction for seven years and 10 years, respectively, if a product is approved. This
market exclusivity does not, however, pertain to indications other than those for which the drug was specifically designated in the approval, nor does it prevent other types of drugs from receiving orphan designations or approvals in these same
indications. Further, even after an orphan drug is approved, the FDA can subsequently approve a drug with the same active moiety for the same condition if the FDA concludes that the new drug is clinically superior to the orphan product or a market
shortage occurs.
We may seek orphan drug designations for QLT091001 for the treatment of other indications when we believe that such
orphan drug designations could provide us with a commercial advantage. For example, we are currently seeking orphan drug designations from the FDA and EMA for the indication, inherited retinal disease caused by
LRAT
or
RPE65
mutations,
which indication includes both LCA and RP patients. We expect to receive responses to our applications from the FDA and EMA in the second quarter of 2014, which we expect will enable us to determine whether we pursue a pivotal trial in inherited
retinal disease caused by mutations in
LRAT
or
RPE65
mutations (subsuming both LCA and RP patients at once), or in one of either LCA or RP, as a first stage in registration trials for QLT091001. There is no assurance that we will
receive such orphan drug designations or, even if we do, that such orphan drug designations will provide us with a commercial advantage. If we do not receive these orphan drug designations from one or both of the FDA or EMA in a timely manner or at
all, our development plans and timelines to initiate pivotal trials for QLT091001 in LCA or RP (or both) may be negatively impacted.
Additionally, upon FDA approval, we believe that the active pharmaceutical ingredient in QLT091001 may qualify as a new chemical entity, or
NCE, which provides for five years of exclusivity following approval. We intend to seek New Chemical Entity exclusivity; however, there is no assurance that QLT091001 will qualify and gain the additional five-year exclusivity period, even if
QLT091001 is approved. We also plan to seek regulatory exclusivity for QLT091001 in the EU; however, there can be no assurance that we will be successful in securing approval or regulatory exclusivity in the EU.
The commercialization of our product candidates may be dependent on our ability to establish and maintain effective sales and marketing
capabilities or to enter into collaborations with partners to perform these services. If we are unable to establish and maintain effective sales and marketing capabilities, or fail to enter into agreements with third parties to sell and market
our products, our ability to generate revenues from the sale of future products may be harmed.
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In order to commercialize any of our product candidates that may be approved for commercial sale,
we may need to establish and maintain an effective sales and marketing infrastructure or enter into collaborations with partners able to perform these services for us. Following completion of our work under the Visudyne transition services
agreement with Valeant, we do not maintain an in-house sales and marketing organization. We cannot guarantee that we will be able to enter into and maintain marketing or distribution agreements with third-party providers on acceptable terms, if at
all. In addition, we currently have no sales and marketing capabilities in territories outside the U.S. If we are unable to successfully establish capabilities to sell and market our products outside the U.S. either through our own
capabilities or by entering into collaborations with partners, we will have difficulty globally commercializing our products. In any of these events, our ability to generate revenues may be harmed.
The future growth of our business may depend in part on our ability to successfully identify, acquire on favorable terms, and assimilate
technologies, products or businesses.
From time to time, we may engage in negotiations to expand our operations and market
presence by future product, technology or other acquisitions, in-licensing and business combinations, joint ventures or other strategic alliances with other companies. We may not be successful in identifying, initiating or completing such
negotiations. Competition for attractive product acquisition or alliance targets can be intense, and we may not succeed in completing such transactions on terms that are acceptable to us. Even if we are successful in these negotiations, these
transactions create risks, including:
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difficulties in and costs associated with assimilating the operations, technologies, personnel and products of an acquired business;
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assumption of known or unknown liabilities or other unanticipated events or circumstances;
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acquired / in-licensed technology may not be successfully developed and commercialized;
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the potential disruption to our ongoing business; and
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the potential negative impact on our earnings and cash position.
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Any of these risks could harm our ability to achieve anticipated levels of profitability for acquired businesses or technology or to realize
other anticipated benefits of the transaction.
We expect to rely on third-party manufacturers and distributors for the manufacture
and distribution of our future commercial products. Any difficulties with such third parties could delay future revenues from sales of our future commercial products.
We expect to rely on third parties to manufacture our product candidates for use in later stage clinical trials and, if commercialized, to
manufacture and distribute our products in commercial quantities. If we are unable to obtain and maintain agreements on favorable terms with contract manufacturers or distributors, or these parties fail to supply required materials or comply with
regulatory requirements, or if we fail to timely locate and obtain regulatory approval for additional or replacement manufacturers or distributors as needed, it could impair or prevent our ability to deliver our future commercial products on a
timely basis, or at all, which in turn would materially and adversely harm our business and financial results.
Healthcare reform and
restrictions on reimbursements may limit our financial returns.
Our ability to commercialize our product candidates successfully
will depend, in part, on the timeliness of, and the extent to which adequate coverage and reimbursement for the cost of such products and related treatments is, obtained from government health administration authorities, private health insurers and
other organizations in the U.S. and foreign markets. These third parties are increasingly challenging both the need for and the price of new drug products. Significant uncertainty exists as to the reimbursement status of newly approved therapeutics.
Applications or re-applications for coverage and reimbursement for any of our products may not result in approvals. Adequate third-party reimbursement may not be available for our product candidates to enable us to maintain price levels sufficient
to realize an appropriate return on our investments in research and product development.
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We may become involved in legal proceedings from time to time and if there is an adverse
outcome in our litigation or other legal actions, our business may be harmed.
We may become involved in legal actions in the
ordinary course of our business. Litigation may result in verdicts against us, including excessive verdicts, which may include a judgment with a significant monetary award, as occurred in 2008 in the litigation with Massachusetts Eye and Ear
Infirmary, including the possibility of punitive damages, a judgment that certain of our patent or other intellectual property rights are invalid or unenforceable and, as occurred in 2006 in the litigation with TAP Pharmaceuticals in the U.S., the
risk that an injunction could be issued preventing the manufacture, marketing and sale of our products that are the subject of the litigation.
In addition, we may become involved in disputes or legal actions as a result of our past strategic corporate restructurings. Under the
strategic restructuring undertaken in 2008 and 2009, we divested Eligard (as part of the sale of QLT USA), Aczone
®
and Atrigel and sold the land and building comprising our Canadian
headquarters. Additionally, we sold all of our assets related to Visudyne to Valeant pursuant to the terms of an asset purchase agreement, and we agreed to perform certain transition services for Valeant. Most recently, we entered into an asset
purchase agreement in April 2013 with Mati pursuant to which we sold our PPDS Technology to Mati. Transactions such as these may result in disputes regarding representations and warranties, indemnities, future payments or other matters, and we may
not realize some or all of the anticipated benefits of these transactions. For example, we are currently in a disagreement with Valeant over whether we are entitled to the $5 million Laser Earn-Out Payment as a result of the FDAs approval of
the premarket application supplement for the Qcellus laser. If we cannot favourably resolve this dispute, we may not receive all of the contingent consideration pertaining to regulatory approval of the Qcellus laser.
If disputes are resolved unfavorably, our financial condition and results of operations may be adversely affected. Additionally, any
litigation, whether or not successful, may damage our reputation. Furthermore, we will have to incur substantial expense in defending these lawsuits and the time demands of such lawsuits could divert managements attention from ongoing business
concerns and interfere with our normal operations.
In addition, the testing, manufacturing, marketing and sale of human pharmaceutical
products entail significant inherent risks of allegations of product liability. Our use of such products and medical devices in clinical trials exposes us to liability claims allegedly resulting from the use of these products or devices. These risks
exist even with respect to those products or devices that are approved for commercial sale by the FDA or applicable foreign regulatory authorities and manufactured in facilities licensed and regulated by those regulatory authorities.
Our current insurance may not provide coverage or adequate coverage against potential claims, losses or damages resulting from such litigation.
We also cannot be certain that our current coverage will continue to be available in the future on reasonable terms, if at all. If we were found liable for any claims in excess of our coverage or outside of our coverage, the cost and expense of such
liability could materially harm our business and financial condition.
Our use of hazardous materials exposes us to the risk of
environmental liabilities, and we may incur substantial additional costs to comply with environmental laws.
Our research,
development and manufacturing activities involve the controlled use of hazardous chemicals, primarily flammable solvents, corrosives, and toxins. The biologic materials include microbiological cultures, animal tissue and serum samples. Some
experimental and clinical materials include human source tissue or fluid samples. We are subject to federal, state/provincial and local government regulation in the use, storage, handling and disposal of hazardous and radioactive materials. If any
of these materials resulted in contamination or injury, or if we fail to comply with these regulations, we could be subject to fines and other liabilities, and any such liabilities could exceed our resources. Our insurance may not provide adequate
coverage against potential claims or losses related to our use of any such materials, and we cannot be certain that our current insurance coverage will continue to be available on reasonable terms, if at all. In addition, any new regulation or
change to an existing regulation could require us to implement costly capital or operating improvements for which we have not budgeted.
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Our provision for income taxes and effective income tax rate may vary significantly and may
adversely affect our results of operations and cash resources.
Significant judgment is required in determining our provision for
income taxes. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes, income taxes receivable, and our effective income tax rate. These factors include, but are not limited to,
changes in tax laws, regulations and/or rates, results of audits by tax authorities, changing interpretations of existing tax laws or regulations, changes in estimates of prior years items, the impact of transactions we complete, future levels
of research and development spending, changes in the overall mix of income among the different jurisdictions in which we operate, and changes in overall levels of income before taxes. Furthermore, new accounting pronouncements or new interpretations
of existing accounting pronouncements (such as those described in Note 3
Significant Accounting Policies
in Notes to the Consolidated Financial Statements) can have a material impact on our effective income tax rate.
We file income tax returns and pay income taxes in jurisdictions where we believe we are subject to tax. In jurisdictions in which we do not
believe we are subject to tax and therefore do not file income tax returns, we can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since our inception) to examination. Tax examinations are
often complex as tax authorities may disagree with the treatment of items reported by us, the result of which could have a material adverse effect on our financial condition and results of operations.
We have incurred losses from continuing operations for the last five years and expect to continue to incur losses for the foreseeable
future.
We generated significant net losses for the fiscal years ended December 31, 2013, 2011 and 2010. Although we earned
net income for the fiscal years ended December 31, 2012, 2009 and 2008, we incurred a loss from continuing operations in each of those years. Our accumulated deficit at December 31, 2013 was approximately $507.3 million. Even though our
research and development expenses have decreased due to the sale of our Visudyne business and punctal plug drug delivery system, we expect to continue to incur net losses from continuing operations for the foreseeable future due to clinical
development costs related to our synthetic retinoid product and no revenue generating activities. We are uncertain when or if we will be able to achieve or sustain profitability. If we are unable to achieve or sustain profitability in the future,
our stock price may decline.
Our operating expenses may fluctuate, which may cause our financial results to be below expectations
and the market price of our securities to decline.
Our operating expenses may fluctuate from period to period for a number of
reasons, some of which are beyond our control. An increase in operating expenses could arise from any number of factors, such as:
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increased costs associated with the research and development of our product candidates;
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fluctuations in currency exchange rates; and
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product, technology or other acquisitions or business combinations.
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The market price of our common shares is volatile and the value of an investment in our common shares could decline.
The market prices for securities of biotechnology companies, including QLT, have been and are likely to continue to be volatile. As a result,
investors in companies such as ours often buy at high prices only to see the price drop substantially a short time later, resulting in an extreme drop in value in the holdings of these investors. Trading prices of the securities of many
biotechnology companies, including us, have experienced extreme price and volume fluctuations which have, at times, been unrelated to the operating performance of the companies whose securities were affected. Some of the factors that may cause
volatility in the price of our securities include:
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announcements related to our strategic alternatives process;
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results of our research and development programs;
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issues with the safety or effectiveness of our product candidates;
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announcements of technological innovations or new products by us or our competitors;
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litigation commenced against us;
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regulatory developments or delays concerning our products;
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quarterly variations in our financial results; and
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the timing and amounts of contingent consideration paid to us by third parties.
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The price of our common shares may also be adversely affected by the estimates and projections of the investment community, general economic
and market conditions, and the cost of operations in our product markets. Due to general economic conditions and the recent worldwide economic downturn, extreme price and volume fluctuations occur in the stock market from time to time that can
particularly affect the prices of biotechnology companies. These extreme fluctuations are sometimes unrelated or disproportionate to the actual performance of the affected companies.
If we fail to manage our exposure to global financial, securities market and foreign exchange risk successfully, our operating results
and financial statements could be materially impacted.
The primary objective of our investment activities is to preserve principal
while at the same time maintaining liquidity and maximizing yields without significantly increasing risk. To achieve this objective, our cash equivalents are high credit quality, liquid, money market instruments. If the carrying value of our
investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations and financial condition.
Moreover, the performance of certain securities in our investment portfolio may correlate with the credit condition of governments, government agencies, financial institutions and corporate issuers. If the credit environment were to become unstable,
as it did in the second half of 2008 and throughout much of 2009, we might incur significant realized, unrealized or impairment losses associated with these investments.
The functional currency of the Company is the U.S. dollar. As a result, to the extent that foreign currency-denominated (i.e., non-USD)
monetary assets do not equal the amount of our foreign currency-denominated monetary liabilities, foreign currency gains or losses could arise and materially impact our financial statements.
Any of these events could have a significant negative impact on our business and financial results.