QLT Inc. (NASDAQ:QLTI) (TSX:QLT) (“QLT” or the “Company”) reported
financial results today for the second quarter ended June 30, 2016.
Unless otherwise specified, all amounts are reported in U.S.
dollars and in accordance with U.S. GAAP.
2016 SECOND QUARTER FINANCIAL RESULTS
Operating Expenses/Income
During the second quarter of 2016, research and
development (“R&D”) expenditures were $2.9 million compared to
$3.4 million for the same period in 2015. The $0.5 million
(15%) decrease was primarily due to lower stock based
compensation, lower salary and overhead costs related to R&D
headcount attrition, the foreign exchange impact of the weak
Canadian dollar and downsizing of our lease space. Stock-based
compensation expense was significantly lower in the current period
relative to the prior period due to the impact of the June 2015
accelerated vesting of all outstanding stock options in connection
with the investment in and subsequent distribution of the Aralez
Shares (defined below) and execution of the InSite Merger Agreement
(defined below). The cost decreases described above were partially
offset by an increase in costs related to preparatory activities
for our planned Phase III pivotal trial for QLT091001.
During the second quarter of 2016, we incurred
$3.2 million of consulting and advisory fees related to our
exploration of strategic alternatives and pursuit of the merger
transaction with Aegerion Pharmaceuticals, Inc. (“Aegerion”)
described below. In comparison, we incurred $4.7 million of similar
costs in 2015 related to our pursuit of a merger transaction with
InSite Vision Incorporated (“InSite”) and the Aralez Distribution
(defined below). The agreement and plan of merger with InSite (the
“InSite Merger Agreement”) was terminated by InSite on September
15, 2015.
Excluding the strategic consulting and advisory
fees discussed above, during the second quarter of 2016, selling,
general and administrative (“SG&A”) expenditures were $1.3
million compared to $2.4 million for the same period in 2015. The
$1.1 million (46%) decrease was primarily related to lower
stock-based compensation expense during the period due to the
accelerated vesting described above, lower fees paid for director
compensation and lower general operating costs related to the
downsizing of our lease space. These costs savings were partially
offset by a lower amount of overhead being allocated to R&D
expense due to R&D headcount attrition.
Other Expenses/Income
On April 5, 2016, QLT effected a distribution of
4,799,619 common shares (the “Aralez Shares”) of Aralez
Pharmaceuticals Inc. (“Aralez”), which had a fair value of $19.3
million, and $15.0 million of cash to its shareholders of record as
of February 16, 2016 (the “Aralez Distribution”).
During the three and six months ended June 30,
2016, QLT recognized a $2.3 million fair value gain and $10.7
million fair value loss, respectively, related to the change in the
value of the Aralez Shares held by QLT from the February 5, 2016
acquisition date to the April 5, 2016 distribution date.
Operating Loss and Net Loss per Share
The operating loss for the second quarter of
2016 was $7.4 million, compared to $10.7 million for the same
period in 2015. As described above under “Operating
Expenses/Income”, the net $3.3 million change in our operating loss
was primarily due to lower strategic consulting and advisory fees,
significantly lower stock-based compensation expense and lower
overhead costs.
Net loss per common share was $0.10 in the
second quarter of 2016, compared to a net loss per common share of
$0.21 for the same quarter in 2015. The change in our loss per
common share was primarily due to the same factors described
above.
Cash and Cash Equivalents
As at June 30, 2016, the Company’s consolidated
cash and cash equivalents were $79.9 million compared to $141.8
million at December 31, 2015. The $61.9 million decrease was
primarily due to: (i) the $45.0 million investment in Aralez, which
was subsequently distributed to QLT’s shareholders via the Aralez
Distribution described above, (ii) $5.4 million of strategic
consulting and advisory fees related to the Aralez Distribution,
the proposed Merger (as defined below) with Aegerion, and
exploration of other strategic alternatives, (iii) $3.0 million
advanced to Aegerion pursuant to the terms of the Loan Agreement
(defined below) with Aegerion, and (iv) cash used in operating
activities during the period.
Passive Foreign Investment Company
The Company believes that it was classified as a
Passive Foreign Investment Company (“PFIC”) for 2008 through 2015,
and that it may be classified as a PFIC in 2016, which could have
adverse tax consequences for U.S. shareholders. Please refer to our
2015 Annual Report on Form 10-K (as amended by the Form 10-K/A
filed on April 29, 2016) for additional information.
Strategic Transactions
On June 14, 2016, QLT and Aegerion entered into
an agreement and plan of merger (the “Merger Agreement”) pursuant
to which a wholly owned indirect subsidiary of QLT will be merged
with and into Aegerion, with Aegerion surviving as a wholly owned
indirect subsidiary of QLT (the “Merger”). On the closing of the
Merger, each outstanding share of Aegerion common stock will be
exchanged for 1.0256 (the “Exchange Ratio”) QLT common shares,
subject to potential downward adjustment in the event either the
DOJ/SEC Investigations (as defined below) or the Class Action
Lawsuit (as defined below) are settled for amounts in excess of the
Negotiated Thresholds (as defined below) prior to the closing of
the Merger. The Merger is currently expected to close before the
end of 2016 and is subject to various closing conditions, including
receipt of the approvals of the QLT and Aegerion shareholders.
If Aegerion does not settle either its
Department of Justice or Securities and Exchange Commission
investigations (the “DOJ/SEC Investigations”) or its pending
shareholder class action lawsuit (the “Class Action Lawsuit”) prior
to the closing of the Merger, QLT shareholders will receive
warrants (the “Warrants”), which will become exercisable to
purchase a certain number of QLT common shares for a purchase price
of $0.01 in the event that (i) the DOJ/SEC Investigations are
resolved for amounts in excess of $40 million, or (ii) the Class
Action Lawsuit is settled for an amount that exceeds the amount, if
any, available under Aegerion’s insurance coverage (the $40 million
in respect of the DOJ/SEC Investigations and the available
insurance coverage in respect of the Class Action Lawsuit being the
“Negotiated Thresholds”).
QLT plans to change its name upon closing of the
Merger to Novelion Therapeutics Inc. (“Novelion”) and its common
shares will continue to trade on the NASDAQ Global Select Market
and the Toronto Stock Exchange. Assuming no adjustment to the
Exchange Ratio, QLT shareholders, including the Investors in the
Private Placement (as defined and described below), are expected to
own approximately 67% of the outstanding Novelion common shares
following the Merger.
Concurrent with signing the Merger Agreement,
QLT and Aegerion entered into a loan and security agreement (the
“Loan Agreement”) under which QLT has agreed to provide Aegerion
with a term loan facility to support working capital needs for an
aggregate principal amount not to exceed $15 million, subject to
various terms and conditions. As at August 8,
2016, $3.0 million is outstanding under the Loan Agreement.
On June 14, 2016, QLT entered into a unit
subscription agreement (the “Unit Subscription Agreement’) with
certain investors party thereto (the “Investors”) pursuant to which
QLT will issue units to such investors for an aggregate
subscription price of $21.8 million (the “Private
Placement”). Each unit consists of one QLT common share and
one Warrant, as described above. The Private Placement, which
is contemplated to occur immediately prior to, and is conditional
on the closing of, the Merger, is intended to provide QLT with
additional capital to support future operations and business
development initiatives. The completion of at least $17.5 million
of the Private Placement is a condition to the closing of the
Merger.
QLT Inc. - Financial Highlights |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS |
(Unaudited) |
(In thousands of U.S. dollars except share and per
share information) |
|
Three months ended |
Six months ended |
June 30, |
June 30, |
|
|
2016 |
|
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Research and development |
$ |
2,929 |
|
|
$ |
3,404 |
|
$ |
5,919 |
|
$ |
5,612 |
|
Selling, general and
administrative |
|
4,451 |
|
|
|
7,154 |
|
|
10,349 |
|
|
10,773 |
|
Depreciation |
|
23 |
|
|
|
179 |
|
|
61 |
|
|
367 |
|
|
|
7,403 |
|
|
|
10,737 |
|
|
16,329 |
|
|
16,752 |
|
Operating
loss |
|
(7,403 |
) |
|
|
(10,737 |
) |
|
(16,329 |
) |
|
(16,752 |
) |
Other (expense)
income |
|
|
|
|
Net foreign exchange (losses)
gains |
|
(31 |
) |
|
|
(60 |
) |
|
(108 |
) |
|
38 |
|
Interest income |
|
54 |
|
|
|
51 |
|
|
129 |
|
|
83 |
|
Fair value gain (loss) on
investment |
|
2,256 |
|
|
|
- |
|
|
(10,704 |
) |
|
- |
|
Other |
|
9 |
|
|
|
- |
|
|
9 |
|
|
(2 |
) |
|
|
2,288 |
|
|
|
(9 |
) |
|
(10,674 |
) |
|
119 |
|
Loss before
income taxes |
|
(5,115 |
) |
|
|
(10,746 |
) |
|
(27,003 |
) |
|
(16,633 |
) |
Provision for income
taxes |
|
(5 |
) |
|
|
(5 |
) |
|
(11 |
) |
|
(14 |
) |
Net loss and comprehensive loss |
$ |
(5,120 |
) |
|
$ |
(10,751 |
) |
$ |
(27,014 |
) |
$ |
(16,647 |
) |
|
|
|
|
|
Basic and diluted net
loss per common share |
|
|
|
|
Net loss per common
share |
$ |
(0.10 |
) |
|
$ |
(0.21 |
) |
$ |
(0.51 |
) |
$ |
(0.32 |
) |
|
|
|
|
|
Weighted
average number of common shares outstanding
(thousands) |
|
|
|
|
Basic and diluted |
|
52,829 |
|
|
|
51,779 |
|
|
52,829 |
|
|
51,508 |
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
(In
thousands of U.S. dollars) |
|
June 30, 2016 |
December 31, 2015 |
ASSETS |
|
|
|
Current
assets |
|
|
|
Cash and cash equivalents |
|
$ |
79,943 |
|
$ |
141,824 |
|
Accounts receivable, net of
allowances for doubtful accounts |
|
|
359 |
|
|
287 |
|
Loan receivable |
|
|
3,011 |
|
|
- |
|
Income taxes receivable |
|
|
14 |
|
|
14 |
|
Prepaid and other assets |
|
|
668 |
|
|
611 |
|
Total current
assets |
|
|
83,995 |
|
|
142,736 |
|
Accounts
receivable |
|
|
2,000 |
|
|
2,000 |
|
Property,
plant and equipment |
|
|
467 |
|
|
430 |
|
Total assets |
|
$ |
86,462 |
|
$ |
145,166 |
|
LIABILITIES |
|
|
|
Current
liabilities |
|
|
|
Accounts payable |
|
$ |
5,219 |
|
$ |
1,656 |
|
Accrued liabilities |
|
|
800 |
|
|
1,827 |
|
Total current
liabilities |
|
|
6,019 |
|
|
3,483 |
|
Uncertain tax position
liabilities |
|
|
376 |
|
|
342 |
|
Total liabilities |
|
|
6,395 |
|
|
3,825 |
|
SHAREHOLDERS'
EQUITY |
|
|
|
Share
capital |
|
|
|
Authorized |
|
|
|
500,000,000 common shares without
par value |
|
|
|
5,000,000 first preference shares
without par value, issuable in series |
|
|
|
Issued and outstanding common
shares |
|
$ |
475,333 |
|
$ |
475,333 |
|
June 30, 2016 – 52,829,398
shares |
|
|
|
December 31, 2015 – 52,829,398
shares |
|
|
|
Additional paid-in
capital |
|
|
63,117 |
|
|
97,377 |
|
Accumulated
deficit |
|
|
(561,352 |
) |
|
(534,338 |
) |
Accumulated other
comprehensive income |
|
|
102,969 |
|
|
102,969 |
|
Total shareholders'
equity |
|
|
80,067 |
|
|
141,341 |
|
Total shareholders' equity and liabilities |
|
$ |
86,462 |
|
$ |
145,166 |
|
|
About QLT
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. We are focused on developing our synthetic retinoid
program for the treatment of certain inherited retinal
diseases.
QLT’s head office is based in Vancouver, Canada
and the Company is publicly traded on NASDAQ Stock Market (symbol:
QLTI) and the Toronto Stock Exchange (symbol: QLT). For more
information about the Company’s products and developments, please
visit our web site at www.qltinc.com.
About QLT091001
QLT091001 is an orally administered synthetic
retinoid replacement for 11-cis-retinal, which is a key biochemical
component of the visual retinoid cycle. We are currently developing
QLT091001 for the treatment of Inherited Retinal Disease caused by
retinal pigment epithelium protein 65 and lecithin:retinol
acyltransferase gene mutations, which indication comprises Leber
Congenital Amaurosis and Retinitis Pigmentosa.
Certain statements in this press release
constitute “forward-looking statements” of QLT within the meaning
of the Private Securities Litigation Reform Act of 1995 and
constitute “forward-looking information” within the meaning of
applicable Canadian securities laws. Forward-looking statements
include, but are not limited to, statements concerning the proposed
Merger with Aegerion and the proposed Private Placement, and the
timing and financial and strategic benefits thereof; our future
strategies, plans and expectations for the Company and QLT091001;
our anticipated development plans and potential approvals for, and
the commercial potential of, QLT091001; statements concerning our
PFIC status; and statements which contain language such as:
“assuming,” “prospects,” “goal,” “future,” “projects,” “potential,”
“believes,” “expects,” “hopes,” and “outlook.” Forward-looking
statements are predictions only which involve known and unknown
risks, uncertainties and other factors that may cause actual
results to be materially different from those expressed in such
statements. Many such risks, uncertainties and other factors are
taken into account as part of our assumptions underlying these
forward-looking statements and include, among others, the
following: the Company’s future operating results are uncertain and
likely to fluctuate; currency fluctuations; the risk that we will
be treated as a PFIC in 2016 and future years; the failure to
receive, on a timely basis or otherwise, the required approvals by
Aegerion and QLT shareholders; the risk that a condition to closing
of the Merger may not be satisfied; the possibility that the
anticipated benefits and synergies from the proposed Merger cannot
be fully realized or may take longer to realize than expected; the
possibility that costs or difficulties related to the integration
of Aegerion and QLT operations will be greater than expected; the
ability of the companies to retain and hire key personnel and
maintain relationships with customers, suppliers or other business
partners; the impact of legislative, regulatory, competitive and
technological changes, including changes in tax laws or
interpretations, and the impact of the integration process, any of
which could increase the consolidated tax liabilities of the
companies following the proposed Merger; the risk that the Company
will determine it is not feasible to submit a Marketing
Authorization Application for conditional approval with the
European Medicines Agency in a timely manner or at all, due to lack
of placebo controlled data or other reasons deemed relevant by the
Company or regulatory agencies; uncertainties related to the timing
of and our ability to commence a pivotal trial for QLT091001
in accordance with the current development plans which we evaluate
on an ongoing basis; risks and uncertainties concerning the impact
that QLT’s success or failure in pursuing various future strategic
initiatives will have on the market price of our securities;
uncertainties relating to our development plans, timing and results
of the clinical development and commercialization of our products
and technologies, including pivotal clinical trials; assumptions
related to enrollment trends, efforts and success, and the
associated costs of our current and future programs; outcomes for
our clinical trials may not be favorable or may be less favorable
than interim/preliminary results and/or previous trials; there may
be varying interpretations of data produced by one or more of our
clinical trials; risks and uncertainties associated with the safety
and effectiveness of our technology; the timing, expense and
uncertainty associated with the regulatory approval process for
products to advance through development stages; risks and
uncertainties related to the scope, validity, and enforceability of
our intellectual property rights and the impact of patents and
other intellectual property of third parties; and general economic
conditions and other factors described in detail in QLT’s Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q and other
filings with the U.S. Securities and Exchange Commission and
Canadian securities regulatory authorities. Forward-looking
statements are based on the current expectations of QLT and QLT
does not assume any obligation to update such information to
reflect later events or developments except as required by law.
This press release also contains “forward
looking information” that constitutes “financial outlooks” within
the meaning of applicable Canadian securities laws. This
information is provided to give investors general guidance on
management’s current expectations of certain factors affecting our
business, including our financial results. Given the uncertainties,
assumptions and risk factors associated with this type of
information, including those described above, investors are
cautioned that the information may not be appropriate for other
purposes.
QLT Inc. Contacts:
Investor & Media Relations
Andrea Rabney or David Pitts
Argot Partners
212-600-1902
andrea@argotpartners.com
david@argotpartners.com
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