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The QT on QLT: Despite Apparent Problems Insiders Love This Biopharmaceutical Company
By Michael Brush
Exclusively for InvestorIdeas.com
November 01, 2007
The tiny Vancouver-based biopharmaceutical company QLT (QLTI) appears to be spinning out of control.
- Sales of its lead product – a macular degeneration treatment – were off 35% in the third quarter due to competition from a new therapy.
- Thanks in part to this problem the stock is down 50% since the middle of last February knocking the company’s market cap below $350 million, compared to a 6.5% gain for the S&P 500.
Ouch. Not an encouraging trend.
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So what are insiders up to, purchasing nearly $600,000 worth of stock in an impressive cluster-buy in the past week?
“The markets are expected to be the best determinants of fair value over time, but in the case of QLT, I think there is a disconnect,” QLT chief executive Robert Butchofsky told investors in a recent conference call. “I don’t believe that at a sub-$350 million market cap, things are adding up.”
Butchofsky puts his money where his mouth is. He was a buyer in the past week. Buyers also included the finance chief and the investor relations rep plus seven directors, according to InsiderScore.com.
What do these insiders see that might turn the stock around? Let’s take a quick look.
Visudyne revival
First off, sales of Visudyne – the macular degeneration treatment -- are getting hit by the rollout of a competing therapy from Genentech (DNA) called Lucentis. But this new rival may actually help QLT sooner or later.
That’s because Novartis (NVS), the company that sells both treatments, may at some point market the two for use together, if studies show the combination is more effective. Study results are due out in 2008 and 2009.
QLT currently thinks Visudyne sales will hit $210 million to $216 million this year, but could make it up to $250 million a year, if the combo works out.
Prostate cancer treatment
Next, the company has a prostate cancer treatment called Eligard. Sales are so brisk, QLT has bumped up guidance on the drug twice this year. Eligard works by lowering testosterone levels, which may reduce symptoms from prostate cancer and suppress tumor growth.
Eligard worldwide sales were up 36% last quarter to $46.3 million. The company recently increased 2007 guidance to $175 million-$185 million, from $160 million-$180 million.
Acne treatment in the wings
QLT is awaiting a decision by the Food and Drug Administration (FDA) to remove requirements for a blood test before a patient can use an acne treatment it has, called Aczone.
QLT expects an FDA decision by the end of March. If it gets the green light, a a marketing launch would follow in the summer. The company thinks it could see annual sales of $100 million. Aczone is approved in the U.S. and Canada, but it is not yet marketed.
More tears, fewer drops
QLT recently agreed to purchase a company called ForSight Newco II, which has a technology with the somewhat foreboding name “ocular punctal plug drug delivery system.”
It works by blocking the drainage system of the eye, acting like a dam, so that there’s more tear film on the surface of the eye. ForSight’s technology also allows QLT to load drugs into the plugs, so that the plugs act as a drug delivery system. “This is a technology that could someday, we believe, replace the need for eye drops,” says Butchofsky.
It may also increase the size of the market for treatments of diseases like glaucoma. In part because those treatments are administered through the use of eye drops which can sting the eyes and make them change color, half the patients do not refill their glaucoma treatment prescriptions after six months.
Presumably, they would stick with their treatment if they used the plugs, though this approach does require visits to the doctor’s office to have them put in and monitored.
The plug system could also be used to administer drugs that treat problems like allergies and dry eye, and help patients recover from eye surgery.
Cost cutting
QLT is looking to reduce expenses by 20% a year starting in 2008, by restructuring its research and development efforts. It will offer more details on this at an analyst day meeting in New York on November 8.
Cash position
I always like to look at cash levels at companies whose stocks have been beaten up – to provide a measure of security. But you have to be careful if you do this with QLT.
The company has over $2 in cash, but it’s already spoken for. QLT has to pay off some convertible debt next September, which will wipe out the current cash balance.
To raise funds it plans to sell real estate near its Vancouver headquarters. It may also raise cash by mortgaging its office property and drawing credit against receivables. QLT says these efforts mean it won’t have to do a dilutive capital raise.
The bottom line : QLT insiders are buying with gusto and there are enough convincing potential catalysts that I believe it makes sense to follow them. As always, however, you need to have a medium-term time horizon, just like the insiders. If you want to trade this stock, you’re on your own.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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