QLT Goes on the Block

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Biotech investors can add QLT (Nasdaq: QLTI) to the ever-growing list of drugmakers publicly trying to find a buyer. QLT announced yesterday that it's in the preliminary stages of exploring a sale.

Since Genentech (NYSE: DNA) came onto the scene in 2005 competing against QLT's lead drug, QLT has watched its stock get beaten down. Heavy on- and off-label usage of Genentech's Lucentis and Avastin have since taken most of the market share away from QLT's Visudyne and OSI Pharmaceuticals' (Nasdaq: OSIP) Macugen in the market for age-related macular degeneration.  

To sustain some level of profitability, QLT has tried selling off non-core assets and reducing its cash burn by ending the legal battles over its hormone-therapy drug Eligard. But none of these steps has helped revive the sagging sales of Visudyne.  

In yesterday's press release, QLT announced that it's forming a board committee and hiring a financial advisor to explore "strategic alternatives." None of these steps guarantees that a sale of the company will actually happen -- just ask ImClone Systems (Nasdaq: IMCL) shareholders -- or that any sale terms will even be beneficial for QLT.

With Eligard partnered out to Sanofi-Aventis (NYSE: SNY) and Visudyne to Novartis (NYSE: NVS), it's hard to see any large pharmas besides those two getting excited about a sale. Even then, those two companies may be interested only in acquiring pieces of the two drugs.

QLT's other most visible asset is acne treatment Aczone, which the FDA approved in 2005. Aczone is unpartnered, and because of a very restrictive label, QLT doesn't even bother to promote the compound.

Getting this label improved would be the biggest near-term value driver for QLT. The FDA's PDUFA date for labeling revisions is March 23. But it's hard to imagine that any bidder would put much value on this drug until the uber-safety-conscious FDA makes its decision. If the new label is allowed, then QLT expects Aczone to reach peak annualized sales of $100 million.

Only a few years ago, QLT was doing the acquiring, when it paid $855 million in cash and stock to buy Atrix Laboratories and get access to Eligard. Now it looks as though another drugmaker may get the chance to scoop up most of the Atrix assets, plus get a call option on any possible resurgence with Visudyne, for a much cheaper price.