QLT Pays Up

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A biotech doesn't have much value without a strong patent estate. On Friday, drugmaker QLT (Nasdaq: QLTI) took the right step to shore up its intellectual property after it agreed to settle a lawsuit going all the way back to 2003.

QLT agreed to pay $113 million to settle a patent infringement lawsuit filed by TAP Pharmaceuticals and other plaintiffs over QLT's sales of its prostate cancer treatment Eligard. This settlement clears the way for QLT and marketing partner Sanofi-Aventis (NYSE: SNY) to continue selling Eligard in the U.S. and Canada without having to pay any royalties on sales, although there is still some unresolved litigation in Germany over QLT's sales of the drug.

Some investors had high hopes for Eligard when QLT brought in the drug with its acquisition of Atrix Laboratories in 2004. It has one of the most convenient dosing schedules of any of the prostate cancer hormonal treatments, with the option for a six-month dose versus the one-month treatment that many of the other drugs require. Sales of the drug finally started to pick up in 2006, growing 31% to $84 million for the first nine months of the year.

At the moment cash is not a problem for QLT, as it brought in $12 million from operating activities in the third quarter last year alone. After paying out for the settlement, QLT will still have $265 million in cash and equivalents on its balance sheet as of the end of 2006.

QLT is not my favorite drug stock, and with Genentech's (NYSE: DNA) Lucentis gobbling up much of QLT's Visudyne market share as a treatment for blindness-causing macular degeneration, QLT really needs that cash to help shore up its pipeline. It was smart of QLT to settle with TAP and the other plaintiffs to help reduce its litigation costs and mitigate its liabilities, but the company could have avoided this whole situation had it not overpaid for Atrix Laboratories and Eligard when it acquired them for $855 million.

QLT is a Motley Fool Hidden Gems selection. You can view the entire Hidden Gems scorecard with your free trial.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.