QLT Inc.

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QLT Inc.

887 Great Northern Way
Vancouver, British Columbia V5T 4T5
Canada
Telephone: (604) 707-7000
Toll Free: (800) 663-5486
Fax: (604) 707-7001
Web site: http://www.qltinc.com

Public Company
Incorporated: 1981 as Quadra Logic Technologies
Employees: 329
Sales: $186.1 million (2004)
Stock Exchanges: NASDAQ Toronto
Ticker Symbols: QLTI; QLT
NAIC: 325412 Pharmaceutical Preparation Manufacturing

QLT Inc. is a biotechnology company that develops and markets photodynamic therapeutic products—drugs that are activated by exposure to light. The company has a history of developing treatments for cancer, but its greatest commercial success is Visudyne, a light-activated treatment for age-related macular degeneration, the leading cause of blindness in people over age 50. Other pharmaceutical products in the company's development pipeline include treatments for prostate cancer, skin cancer, and male pattern baldness. The acquisition of Atrix Laboratories in 2004 gave QLT a second marketable pharmaceutical product named Eligard, which is a treatment for advanced prostate cancer.

Origins

Without question, the single most influential figure in QLT's history was Dr. Julia Levy, whose pioneering scientific work achieved commercial success when she was forced to trade her lab coat for the attire of a chief executive officer. Levy was born Julia Coppens in 1934, beginning her life in Singapore, where her father worked as an executive for a Dutch bank. Levy's father, Guillaume Coppens, sent his wife and two daughters to stay with relatives in British Columbia, Canada, on the eve of World War II, fearing for his family's safety. Guillaume Coppens's anxiety was justified; he was captured by the Japanese and interned in Indonesia, surviving the ordeal but devastated by the experience. He joined his family in British Columbia after the war, unable to work for the remainder of his life. "My recollection of my life was: 'Don't upset your father,'" Levy reflected in a July 23, 2003 interview with Contemporary Canadian Biographies.

Levy's mother, who served as the motivation for QLT's greatest commercial success, supported the family by working as a physiotherapist. After high school, Levy spent a year serving as a file clerk at BC Hydro to supplement the scholarships she had earned to attend the University of British Columbia, where she studied microbiology and immunology. After earning her undergraduate degree in 1955, Levy went overseas to obtain her doctorate, attending the University of London's National Institute for Medical Research. She earned her Ph.D. in experimental pathology in 1959 and returned to the University of British Columbia, where she began conducting research on cancer.

After her first marriage ended in divorce, Levy married a physicist at the University of British Columbia named Edwin Levy. The couple married in 1969 and several years later purchased a holiday property on Sonora Island in British Columbia, where they planned to build a cottage. It was the turning point in Levy's career. After a decade of conducting research, Levy had little to show for her efforts, at least in comparison to what she produced after she handed a machete to her son Ben and asked him to clear the weeds on the property. Ben, who was born during Levy's first marriage, was seven years old at the time, and he took to the task with zeal, slashing away at the underbrush with what amounted to a sword. Ben came across some cow parsley and hacked away at it with sufficient enthusiasm to cover his skin in fluid from the plant. "It was a hot day," Ben remembered in a July 6, 1996 interview with the Vancouver Sun, describing the fateful day on Sonora Island. "The sun came out, and all of a sudden, I just started blistering everywhere, especially on my arms."

When Levy returned to work, she asked her colleagues at the University of British Columbia about what might have caused her son's skin to blister. She learned that a substance in cow parsley's leaves can attack and destroy certain kinds of tissue, skin cells included, but only when activated by exposure to light. Levy was intrigued and began thinking about the potential of photo-activated drugs, embarking on research that would lead to her co-invention of photodynamic therapy (PDT). Levy's work focused on a two-step process that began with the intravenous injection of a drug. After the drug entered the patient's bloodstream, it collected where abnormal blood vessels were being formed. Once the drug was concentrated around the flawed blood vessels, it was activated by a dose of non-thermal laser light, triggering a process that destroyed abnormal cells.

While Levy's scientific research found a pioneering and focused direction, her work with a team of researchers at the University of British Columbia centered on studying antibodies for treating various forms of cancer. Guiding a drug through development, the various stages of regulatory approval, and through numerous clinical trials represented one of the most arduous and time-consuming achievements in the business world, a monumental task that was even more challenging for the research team in Vancouver. In the beginning of the 1980s, the Canadian biotechnology industry did not exist. At the time, the only way to produce a drug was to sell the rights to a foreign pharmaceutical company. Levy and her colleagues turned to the University of British Columbia for support, but the university refused. With nowhere else to turn, and wishing to remain in control of their discoveries, the research team decided to start their own business. In 1981, Levy mortgaged her house to come up with $50,000, a sum matched by her cofounders, John Brown, Jim Miller, Anthony Phillips, and Ron MacKenzie. They named their company Quadra Logic Technologies, renting one room above a bakery to house their office and laboratory. Each of the founders continued to work at the university, unable to draw a salary from their fledgling venture, and conducted their research above the bakery during off hours.

In many respects, Quadra Logic, or QLT as the company eventually became known, served as Levy's vehicle to deliver her scientific findings to the commercial market. Starting out in 1981, however, Levy and her colleagues were many years away from enjoying any commercial success. The path describing a drug's progression from discovery through development, regulatory approval, and commercialization promised to be an unnerving journey—particularly for a group not versed in the intricacies of clearing regulatory and clinical hurdles. Because the market in the United States was integral to the company's success, approval needed to be obtained from the U.S. Food and Drug Administration (FDA), requiring a process that Levy later described as akin to playing "Russian Roulette," as quoted in the October 22, 2002 issue of Canadian Chemical News. "And that's really ugly because you're not the master of your fate," she added.

Photofrin in the Mid-1980s

The young QLT scored its first success with a drug that already had begun progressing along the path toward commercialization. Levy convinced her partners to acquire the rights to Photofrin, a light-activated drug in the midst of clinical trials as a cancer treatment. In 1986, QLT formed an alliance with a larger pharmaceutical company—something nearly every small biotechnology company like QLT needed to do to survive. The company reached an agreement with American Cyanamid to co-develop Photofrin, brokering a deal that gave it equity, which enabled it to fund the drug's development. The alliance was important for another reason because American Cyanamid, practiced in the vagaries of drug development and clinical trials, provided the QLT team with an invaluable tutorial in shepherding a drug through to commercialization. "That was a very fortunate experience for us," Levy reflected in an October 2002 interview with Canadian Chemical News. "Because with biotechnology companies they'll take the science forward to a certain level and then they'll license it out to a large pharma company, and the pharma company (will) say, 'Thank you very much, we'll see you later,' and does the development."

The partnership ended before Photofrin gained approval, but it ended on beneficial terms for QLT. American Cyanamid was acquired by another company in the early 1990s, which gave the rights to Photofrin back to QLT, which by that point had another drug in its development pipeline. The idea for the drug came from Levy, who drew her inspiration for developing photodynamic therapy from her son and her motivation for creating what would be her career's crowning achievement from her mother.

The Development of Visudyne in the 1990s

During the mid-1980s, Levy's mother began to lose her sight. She was diagnosed with age-related macular degeneration, an incurable deterioration of the central portion of the retina and the leading cause of blindness in people over the age of 50. Levy had spent her entire career studying cancer and she noticed a similarity between macular degeneration and her chosen field of study: both diseases manifested themselves by forming new, abnormal tissue.

Levy's mother suffered from "wet" macular degeneration, in which flawed blood vessels bleed under the retina, damaging the light-sensitive membrane at the back of the eye. Levy focused her work on developing a drug that targeted the abnormal blood vessels and destroyed them when activated by light, eventually creating QLT's defining pharmaceutical product, Visudyne.

Company Perspectives:

QLT has the capability to maximize all the exciting products in our development pipeline and leverage our unique drug delivery technologies. We are also actively seeking to expand our pipeline through both in-house development and external alliances. Combining the best in science and business, all of us at QLT are committed to helping enrich the lives of thousands of patients.

The development of Visudyne became a crusade of sorts for Levy, one whose success was jeopardized when QLT's partnership with American Cyanamid was terminated. Between 1992 and 1995, the company's survival was at stake as it sought to navigate on its own. Levy recalled the period in her October 2002 interview with Canadian Chemical News, remembering "really putting on blinkers and just concentrating on trying to get approval for Photofrin, and taking our preclinical work with [Visudyne] forward." She added: "We could have gone under then if we hadn't taken very major measures to pull ourselves together and focus, focus, focus."

After a decade of work, QLT received the nod of approval it had labored to obtain in 1995, when Photofrin was accepted by the FDA as a marketable drug. QLT became the only company with approval to market a light-activated pharmaceutical product in the field of photodynamic therapy. Winning approval for her first drug was a celebratory moment for Levy, but she barely had time to mark the occasion before her responsibilities broadened. All of QLT's other founders departed in 1995, leaving Levy, who had served variously as the company's chief scientific officer and vice-president, as the only one to lead the company. Before the year was through, Levy accepted the titles of president and chief executive officer, becoming the company's corporate and scientific leader as it endeavored to win approval for its second drug, Visudyne.

Commercial Success in the 2000s

Under Levy's leadership, QLT recorded the greatest financial growth in its history. Photofrin gave the company the steady stream of revenue it had worked for years to secure, but the lifeblood of its operations, Visudyne, would deliver QLT's most strident financial growth. Visudyne won approval from the FDA in 2000, the same year Levy sold Photofrin to Quebec-based Axcan Pharma Inc. QLT won approval for Visudyne, which it marketed in partnership with Novartis Ophthalmics, in April, recording its first sales from the drug in the second fiscal quarter of 2000, when the company collected $25 million. During the second quarter of 2001, the company generated $56 million from the sale of Visudyne, as its use spread throughout more than 50 countries. The U.S. market represented the company's single biggest market, accounting for two-thirds of Visudyne sales and enabling it to join an elite group of biotechnology companies. "Of the 490 publicly traded biotechnology companies around the world," Levy declared in the Winter 2001 issue of Buyside, "only 14 are profitable, and QLT is one of them. Visudyne is an important reason for our growth," she added. "It was the largest ophthalmic product launch on record, with sales of $150 million in the first 12 months."

After years of working to bring Visudyne to market and watching its sales mushroom with each passing fiscal quarter, Levy decided to give up her management responsibilities at QLT. She departed in 2002, after 21 years at the company, passing the titles of president and chief executive officer to Paul Hastings. Hastings started his career in the pharmaceutical industry in 1984 with Hoffman La Roche, the first of several companies he worked for in the industry. Before joining QLT, Hastings served as president and CEO of Axys Pharmaceuticals.

Hastings's task at QLT was one Levy presumably would not have relished. Sales of Visudyne continued to rise as the reins of leadership passed from Levy to Hastings, but analysts demanded more. QLT was dependent almost entirely on the sale of Visudyne, a dependence that some industry observers described as a weakness. One analyst, in the January 24, 2003 issue of The America's Intelligence Wire, typified the assessment of QLT by the financial community, saying, "The big issue for them is what are you going to do next." Although Visudyne was the only treatment for macular degeneration on the market, QLT was expected to contend with its first competition as early as 2005, when Eyetech, a biotechnology company working in collaboration with Pfizer, Inc., was expected to win approval for its macular degeneration drug Macugen.

Hastings's challenge was to build QLT's business beyond Visudyne. The company had two other products under development, Tariquidar, a cancer treatment, and QLT0074, a male baldness treatment, but Hastings realized he needed to take a more aggressive approach to augmenting the company's business. In early 2004, he earmarked $500 million in cash to develop the company's product pipeline and quell analysts' cries for a more diversified product offering. "We are looking to continue to build the pipeline by bringing in-house new technologies, licensing things in, and making acquisitions of products or companies," Hastings announced in the February 2, 2004 issue of Investor's Business Daily. Toward this end, Hastings completed a deal that promised a more a balanced QLT in the years ahead. In November 2004, QLT completed a merger with Atrix Laboratories, Inc., a specialty pharmaceutical company with a pipeline of products and drug delivery platforms. Among the immediate gains of the merger was QLT's ability to market one of Atrix's products, Eligard, a treatment for prostate cancer. As Hastings prepared for the future, further deals were expected, as he sought to build on Levy's legacy and create a leading, diversified biotechnology company.

Principal Subsidiaries

QLT USA, Inc.

Principal Competitors

Bausch & Lomb Inc.; DUSA Pharmaceuticals, Inc.; Miravent Medical Technologies.

Key Dates:

1981:: A group of scientists at the University of British Columbia founds Quadra Logic Technologies, the company that becomes QLT.
1986:: QLT forms an alliance with American Cyanamid to develop and market Photofrin.
1995:: QLT wins approval to market Photofrin.
2000:: The rights to Photofrin are sold and QLT gains clearance to market Visudyne.
2004:: QLT merges with Atrix Laboratories, Inc.