Filed by: Atrix Laboratories, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Atrix Laboratories, Inc.
Commission File No. 0-18231
The following is a transcript of the conference call held on June 14, 2004 at
9:00 AM CT in connection with QLT's proposed acquisition of Atrix Laboratories,
Inc.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this transcript constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which involve known and unknown risks, uncertainties and other factors
that may cause actual results to be materially different from any future
results, performance or achievements expressed or implied by such statements.
These statements include statements relating to QLT's future financial and
operating results and its proposed acquisition of Atrix, including QLT's
expectation that the acquisition will be successfully completed, anticipated
revenue, dilution and/or accretion, approval of products, scope of research and
development commitments, expected synergies, timing of closing, and execution of
integration plans and management and organization structure resulting from the
proposed acquisition. Words such as "expects," "anticipates," "intends,"
"plans," "will," "believes," "seeks," "estimates," "should," "may," "could" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are based on management's current
expectations and beliefs and actual events or results may differ materially.
There are many factors that could cause such actual events or results expressed
or implied by such forward-looking statements to differ materially from any
future results expressed or implied by such statements, including, but not
limited to, the ability of the companies to obtain shareholder and regulatory
approvals for the transaction or the risk that the proposed acquisition fails to
close due to closing conditions not being satisfied, prevailing conditions in
the capital markets or for any other reason, the reaction of customers,
suppliers, marketing and collaboration partners and other third parties to the
proposed acquisition and the risk that the businesses of the two companies
suffer due to uncertainty, the potential inability of the two parties to
successfully execute their integration strategies or achieve planned synergies,
the diversion of management's time on acquisition-related issues, uncertainties
regarding the two companies' future operating results, the risk that future
sales of Visudyne(R) and Eligard may be less than expected, currency
fluctuations in QLT's primary markets, uncertainty and timing of pricing and
reimbursement relating to Visudyne(R), uncertainty regarding the outcome of the
pending litigation against QLT and Atrix, the timing, expense and uncertainty
associated with the regulatory approval process for products, the safety and
effectiveness of the two companies' products and technologies, the ability of
the companies' marketing partners to successfully market their respective
products,
Atrix's expectation of receiving royalties on sales of its products
and its plans to manufacture certain of its products at its facility in Fort
Collins, Colorado, the timing of new product launches by QLT, Atrix or their
competitors, general competitive conditions within the biotechnology and drug
delivery industry and general economic conditions, and other risks that are
described in QLT's Annual Report on Form 10-K filed with the SEC on March 12,
2004, and its filings with Canadian securities regulatory authorities, or
described in Atrix's Annual Report on Form 10-K filed with the SEC on March 3,
2004.
Forward-looking statements are based on current expectations and neither company
assumes any obligation to update such information to reflect later events or
developments, except as required by law.
ADDITIONAL INFORMATION
In connection with QLT' s proposed acquisition of Atrix, QLT intends to file
with the SEC a registration statement on Form S-4, containing a joint proxy
statement/prospectus and other relevant materials. INVESTORS AND SECURITY
HOLDERS OF QLT AND ATRIX ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS
AND THE OTHER RELEVANT MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT QLT, ATRIX AND THE ACQUISITION. The joint
proxy statement/prospectus and other relevant materials (when they become
available), and any other documents filed by QLT with the SEC, may be obtained
free of charge at the SEC's web site at www.sec.gov. In addition, investors and
security holders may obtain free copies of the documents (when they are
available) filed with the SEC by QLT by directing a request to: QLT Inc., 887
Great Northern Way, Vancouver, B.C., Canada, Attn: Investor Relations.
QLT, Atrix and their respective executive officers and directors may be deemed
to be participants in the solicitation of proxies from the stockholders of QLT
and Atrix in favor of the acquisition. Information about the executive officers
and directors of QLT and their ownership of QLT common shares is set forth in
the proxy statement for QLT's 2004 Annual Meeting of Shareholders, which was
filed with the SEC as Exhibit 99.1 to Form 10-K/A on April 28, 2004. Information
about the executive officers and directors of Atrix and their ownership of Atrix
common stock is set forth in the proxy statement for Atrix's 2004 Annual Meeting
of Stockholders, which was filed with the SEC on April 5, 2004. Investors and
security holders may obtain more detailed information regarding the direct and
indirect interests of QLT, Atrix and their respective executive officers and
directors in the acquisition by reading the joint proxy statement/prospectus
regarding the acquisition when it becomes available.
PRESENTATION
OPERATOR
Good day, ladies and gentlemen, and welcome to the QLT Inc. and Atrix
Laboratories Inc. Combine to Create Leading Profitable Biopharmaceutical Company
Conference Call. My name is Sheena and I'll be your coordinator for today.
[Operator Instructions].
At this time I'd like to turn the presentation over to your host for today's
call, Mr. Paul Hastings, President and CEO of QLT Inc. Please proceed sir.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Good morning everybody. Before I get started I just want to let you know that
the slides of the presentation that I'm about to give you are available on both
QLT and Atrix websites, as well as the webcast. And if you go to re-listen to
the conference you'll be able to follow those slides along with my talk. So
let's get started.
Good morning. We're very excited to be here with you today to share our great
news. QLT and Atrix, which are two very profitable and growing companies, are
combining to create a world class, leading, profitable biopharmaceutical
company. Speaking for QLT, we have been searching to find the right partnering
opportunities in ocular, oncology and dermatology for quite some time. And I
must say we found what we think is a perfect partner.
What you'll hear from us today is all about diversification and expansion of
each company's products, pipeline, platforms and people, and the creation of a
truly special new profitable company.
I'm here today with members of QLT's management team, and David Bethune, the CEO
of Atrix Pharmaceuticals, is with his management team and they'll introduce
themselves to you in just a few minutes. But the people that are here with me on
the call today to answer any questions you may have are Mohammed Azab, our
Executive Vice President of R&D and Chief Medical Officer, Mike Smith, our VP of
Corporate Development, Mike Doty, our Senior Vice President and Chief Financial
Officer, Therese Hayes, our VP of Corporate Communications and Investor
Relations. And we're here to answer any and all of your questions.
Now I'd like to introduce briefly David Bethune, Chairman and CEO of Atrix
Pharmaceuticals, to say a few opening remarks and to introduce some of his team
members to you as well. David.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Thanks Paul. First of all, I will introduce Greg Gould, our Chief Financial
Officer, is here with us this morning. Dr. Steve Warren, our Vice President of
Research and Development is here, and Mike Duncan, our Vice President and
General Manager of Atrix.
Well thanks a lot for this meeting this morning and before we begin this
transaction in more detail I would like to make a few remarks. Over the last
several years, Atrix has successfully ushered three new products through the FDA
process, with a fourth NDA currently pending at the FDA and another is expected
to be filed late this summer. That's our Atrisone.
We have developed a rich pipeline of products with a focus on neurology,
oncology, dermatology and recently, ocular disease, and moved these projects
quite well forward. Using our unique drug delivery technologies we have formed
strategic alliances with some of the world's largest and best known
pharmaceutical companies. And on the financial side, we have grown our top line,
achieved profitability and strengthened our balance sheet with a solid cash
position and no long-term debt.
Now, Atrix is at a key stage in its growth and development. The Board of
Directors and management believe QLT brings important resources that will
maximize the potential and advance the development of Atrix's rich pipeline. We
believe this transaction will significantly accelerate Atrix's growth and make
it an even more profitable enterprise.
Then with that I'll turn the program back over to Paul.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thank you so much David. I'll like to first draw your attention to a very
lengthy forward-looking statement slide and ask you please to take the time to
read all the forward-looking statement warnings in that slide.
So let me start with our first slide and you can see that this transaction is a
natural build on an already profitable and growing QLT. We benefit the only
approved therapy for wet AMD, with projected 2004 sales of $430m-$455m. We focus
on ocular, oncology, urology and dermatology, just like Atrix. Because of
Visudyne's success and the success of the products that David just outlined for
you, QLT has over $0.5b in cash, and the combined company at the closing will
have over $300m in cash, or close to $300m in cash.
We've been telling our shareholders all along that to build on our success we
were searching for late stage products in our fields of focus. Again - ocular,
oncology, urology and dermatology. We've also been looking for commercial
products with growth potential and a strengthened pipeline for QLT. We clearly
have been looking for partnerships with limited dilution and near-term
accretion.
So Atrix represents a uniquely attractive opportunity. Why? Because Atrix comes
packaged with all of these things. Everything that's important to them about us
is important to us about them. It brings to QLT and it brings to this new
combined company incredible pipeline opportunities with the added bonus of an
excellent drug delivery platform with topical and systematic application. And
including the potential, as David just mentioned to you, for a really
interesting sustained release ocular delivery system, which we are very excited
about and have been searching for for quite some time.
We're thrilled, of course, that their therapeutic focus - urology, oncology and
dermatology - matches ours. And they're profitable, and they have over $100m in
cash.
So when you combine our two companies, we both accelerate to a much more
diverse, profitable biotechnology company with expertise in four important core
areas. I'm going to say this over and over again. Ocular, oncology, dermatology
and urology.
Multiple near and long-term value drivers in the products Visudyne, Eligard and
Atrisone, all products that are on the market today. As well as a dermatology
business with Sandoz. A pipeline that's bursting with potential new products.
Products we can choose to market on our own as well as products to generate R&D
and future commercial revenue, and partnerships with many key pharmaceutical
companies. An excellent job that's already been done by Atrix and one that we
hope to continue together with many other potential companies.
Just think of the possibilities if one has a truly differentiated sustained
release drug delivery platform that has many systemic and topical applications,
as well as a potential ocular delivery system. We'll have close to $300m in
cash, free cash flow and again, a diverse source of revenue and pipeline with
this creation of a world class, fully integrated biopharmaceutical company, the
merger of QLT and Atrix.
So the way we're going to look at the rationale for the transactions are the
three P's - products, pipeline and platforms. We're going to fulfill our
strategic imperatives together with all three P's. Diverse products, pipeline
and platforms as well as people.
Taking a look at the products in the transaction rationale. For QLT, we add the
enormous success of Visudyne, or we add to that two revenue products - Eligard
for prostate cancer, in collaboration with Sanofi in the US and others, as well
as a dermatology collaboration with Sandoz, the powerhouse generics divisions of
Novartis Pharmaceuticals.
Now Visudyne and our alliance with Novartis will generate sales, as I mentioned,
of $430m-$455m in sales in '04. Coming off 2003 sales of $357m, with expected
growth of between 20% and 26%.
Now looking at the global AMD market, there are 500,000 new cases of wet AMD
diagnosed every year. Last year's global sales of $357m came from approximately
25% of the total global AMD market. So 125,000 patients of that 500,000
represents the patients who are eligible for Visudyne therapy last year in 2003.
So if we could generate $357m in sales from 25% of the total market, imagine
Visudyne's potential if we could capture value from these other segments.
Well, we did just that, with Europe, Australia, New Zealand and other countries
granting approval for that occult form of AMD, or about 80,000 or more potential
people with AMD, in late 2002. And we're just beginning to see reimbursement in
these countries kick in. Huge potential growth still to be realized. Huge
potential growth to fuel the pipeline in combination with Atrix.
On top of that, we recently received reimbursement approval from the US Centers
for Medicare Services, from certain patients with both occult and minimally
classic of this disease. Another large potential expansion of eligible patients
to fuel the pipeline of this new combined company.
And late last year and early this year, we got approval and reimbursement for
all three forms of wet AMD in Japan. So the growth we'll see collectively from
Visudyne will be a major contributor to our products, pipeline and platform and
also - another P - our profits.
So Visudyne has a long life ahead of it, both as monotherapy today and
combination therapy as other products reach this market that we helped create.
Now let's move on to Eligard and the folks at Atrix will be able to answer your
questions much more eloquently than I'll be able to present this to you. But let
me just share with you what we think of these opportunites.
Atrix brings to this combined company what we consider a blockbuster potential
product in Eligard. It's actually not one product, it's a family of products.
One, three, four and soon six month depot formulations of leuprolide, for the
treatment of advanced prostate cancer. This product has recently launched in the
United States and will compete with one other product, Lupron, which has global
sales of $1.5b. And Eligard has some market advantages.
First, it's a subcu injectable product with a lower volume injection and smaller
needle than the competitor. This ease of administration and the ability to
develop a six-month formulation is due to the unique polymer delivery system,
which compares favorably to traditional microsphere delivery systems that are
used in products like the competition.
Now the good news here is this product is partnered with Sanofi in the US,
Yamanouchi in Europe and Sosei in Japan. And like us, Atrix gets attractive
percentages of sales while retaining worldwide manufacturing rights. While the
product is in its first year of sales in the US with very good success, it's now
being launched in the European Union and in other parts of the world, including
Japan. Enormous growth potential.
Now this generic dermatology business in collaboration with Sandoz is the first
revenue-producing opportunity of the Atrix Labs dermatology capabilities. It's a
50/50 joint venture with Sandoz, a division of Novartis. Sound familiar? And
it's already produced six approved ANDA's this year, with four additional ANDA's
under review with many first-to-market topical generic derm products, and it
provides a platform to produce proprietary dermatology products.
And Atrix has done a fantastic job of being a market leader, not only in the
development of this generic joint venture with Sandoz, but also in looking at
other opportunities to build proprietary business in the area of dermatology.
And that begins with Atrisone, that's in the clinic today, or has actually
finished Phase III and has filed for an NDA.
So much a leader, in fact, is Atrix, that by 2008 this generic dermatology
business will produce net revenues of $20m-$30m. And just so you know, that's
about the operating expenses of keeping the QLT facility with 320 employees in
place every year. So this is a major potential revenue driver, and it's just
this generic version of the business. And there's more that could be coming from
this business as the future arises here.
One of this new company's goals will be to accelerate the whole derm business,
including introducing Atrisone, QLT0074 in dermatology indications, if it makes
it through the clinic. And to use this drug delivery platform alone and with
others, to create new proprietary products in dermatology.
So looking at the multiple revenue drivers that this new combined company will
have. Just think of how Atrix accelerates QLT's revenues with additional
marketed and growing products. Our combined infrastructure will become a
formidable and flexible partner, and we've already shown that with our Visudyne
partnership with Novartis, our Eligard partnerships with Sanofi, Yamanouchi and
Sosei, and the derm partnership with Sandoz collectively.
So now that you've heard of our acceleration from a one revenue producing
product company to a multiple revenue product producing company, let's focus on
the next revenue producers in the pipeline. A pipeline focused in ocular,
dermatology, urology and oncology.
A new six-month formulation of Eligard is expected to have a six to nine month
lead over the competitive product in reaching the market. The NDA is filed and
approval is expected some time in Q1 '05.
There's substantial benefits to this polymer delivery system containing Eligard,
releasing a slow steady six-month supply of drug to people with advanced
prostate cancer. And we expect the six-month formulation to be the mostly widely
used formulation of the Eligard product family by 2008. Again entering a market
which in 2004 will generate $1.5b in sales and growing.
The next near-term product is Atrix's Atrisone, a topical gel formulation of
dapsone. It has completed Phase III trials in over 1,000 patients for the
topical treatment of mild to moderate acne. Its new drug application will be
filed hopefully in Q3 of this year 2004, in collaboration with Fujisawa in the
United States, with Europe still under consideration for potential partnerships.
Atrix is excited about this potential new entrant to this 300m plus topical acne
market, and they are developing Atrisone further in acne rosacea, a large unmet
medical need. This will be a key growth driver for this combined company. We're
really looking forward to seeing the success of Atrisone.
Now at QLT's 0074 programs, this is QLT0074, otherwise known as lemuteporphin.
It's in a Phase I/II trial in benign prostatic hyperplasia, with results by
year-end of this year. This can be a proprietary product for our new company,
and as I said, we'll know by year-end if this program will progress to advanced
clinical trials.
We can deliver drug and light to the male prostate with this product, which will
be designed to treat these patients refractory to traditional drug therapy. So
this is a treatment not for people on pharmaceuticals, but for people who are
refractory to pharmaceutical therapy.
We will also have results year-end '04 for QLT0074 in a Phase II trial in the
dermatology indication - androgenetic alopecia, or male pattern baldness. Now we
saw very encouraging results in our Phase I/II proof of concept trial, and we
look forward to tabulating the results of this 96-patient trial in Phase II at
the end of this year.
Now, when we were doing our alopecia program, we discovered that QLT0074 appears
to dry up sebaceous glands. This makes for an extremely attractive therapy for
the potential treatment of moderate to severe systic acne, and we've been
encouraged by a panel of dermatologists to put 0074 in the clinic in Phase I
studies for this indication this year.
Now moving on to another Atrix product - Atrigel Octreotide. It's another
exciting pipeline product. It's an extended release proprietary octreotide
product for the potential treatment of carcinoid tumor, presently in Phase I,
and a potential treatment for diabetic retinopathy.
This proprietary product has as its active ingredient the same active ingredient
in Novartis's Sandostatin. Sandostatin produced $450m in sales in '03. It may
have market advantages in that it is highly bioavailable, it's a small volume
injectable, and has a three-month formulation in development.
So now combining the products as well as the multiple growth drivers in the
pipeline, as you can see, products and pipeline in ocular, oncology, urology and
dermatology, they're diverse, they have high probability of successes for our
near-term and long-term growth acceleration.
Finally we should talk about this very sexy drug delivery platform. Now we've
been searching for an ocular drug delivery platform for quite some time, and we
think that this platform amongst other things, they have a very unique sustained
delivery ocular delivery system, as well as the advantages that are already been
seen in systemic delivery as well as topical delivery.
And the best news is that Atrix is already successfully using this for systemic
and topical drug delivery, and it can be applied to small molecules, and
potentially peptides and proteins.
So the Atrigel system for peptides and small molecules is injected, usually
subcutaneously, as a liquid. The liquid forms a gel and the gel provides a
system of drug delivery for weeks to months. The system is completely
bioerodable and has very attractive cost of goods. This is not a microsphere,
and it's patented until 2016.
Now the Atrigel system is partnered with Pfizer, Aventis and multiple other
pharmaceutical and biotechnology companies.
Let's talk a little bit about the Pfizer collaboration. The Pfizer collaboration
has completed Phase I and is a first-in-class product for Pfizer in the area of
bone density, mineralization, and is directly applied in Atrigel to fractures.
This is an EP2 receptor selective prostaglandin E2 agonist, formulated in
Atrigel for localized and sustained delivery.
Now besides partner programs for Atrigel, the Atrix folks have many internal
programs that were very attractive to us, using this polymer delivery
technology.
PYY for obesity. Risperidone, an antipsychotic, with potentially improved
pharmacokinetics from the competition. Growth hormone releasing peptide, and a
system using IUDR for local advancing tumors, delivered in Atrigel. We were
enormously impressed with the creativity of the Atrix people, and we continue to
be, in their applications of this incredible drug delivery system.
So imagine collectively that we can use this system, deliver small molecules,
perhaps proteins and peptides, build off the rapid development success of
Eligard, accelerate the possibilities with a combined business development
effort. Imagine out-licensing and partnering the technology. It can be easily
applied in our core areas as well as leveraged with others outside our core
areas, and we're very excited about accelerating the potential for a safe and
sustained release potential ocular delivery system as well.
So finally, products, pipeline, drug delivery platform, all accelerate this new
combined company to a diverse revenue producer, a diverse pipeline growth
opportunity, and is almost guaranteed to have a prolific pipeline thanks to the
very special polymer based delivery system created by our colleagues at Atrix.
So the three P's bring multiple revenue streams, broaden our pipeline, reduces
our risk of being a single product company. Both companies bring very
complementary operating skill sets. QLT is a 120-person development
organization. Atrix is a 100-person manufacturing and formulations organization.
Together we're truly a fully integrated biopharmaceutical company and we're
profitable.
Let's take a quick peek at Atrix manufacturing operations. A 60,000 square feet
facility makes Eligard and Atrigel products. It has plenty of capacity and
they've never had a 483. That's a sign of excellent manufacturing practices.
It has an excellent formulations, manufacturing and QA/QC infrastructure, and we
will definitely consider this facility as the next step from our pilot
manufacturing facility and intend to use the facility in that way for our
products, as well as the combined company.
So on top of products, pipeline, platforms, and hand-in-glove operations,
financially this modest dilution in '05. It's about 10%, and the transaction is
expected to be accretive in 2006 and thereafter.
So in summary, QLT swaps one QLT share for each Atrix share. We add $14.61 in
cash for a deal offer of $855m. Atrix adds over $100m to cash, therefore the
transaction value is $751m.
This is a 60/40 stock/cash deal. Atrix shareholders will own 23% of this new
combined company, QLT shareholders 77%. David Bethune will join our Board as
non-executive Vice Chairman for at least three months, and Atrix will nominate
an additional Board member to join our Board.
On top of that we accelerate our independence from the combined company having
multiple marketed products. The nearest term, thanks to our colleagues at Atrix.
And we will accelerate the potential of the Atrigel platform and we will market
our own products and have the ability to choose those products that we want to
market on our own, and those products we want to partner out.
And we will create a company with continued earnings. We've enhanced our ability
to always make money. We'll target accretion in 2006 and we'll strive for a
going forward target of 20-25% compound annual earnings growth. We will be able
to spend $75m-$85m in gross R&D expense in '06, and $60m-$70m net because we can
get partner funding for our programs. And we'll have a healthy cash position of
approximately $300m at closing.
All of us from Atrix and QLT hope you agree with us. This transaction
accelerates both companies, giving them abilities to grow through multiple
marketed products, a rich and diverse pipeline, a terrific flexible drug
delivery platform and we'll do it from a position of financial strength.
So now I would like to welcome, together with my colleagues, all of your
questions.
QUESTION AND ANSWER
OPERATOR
Thank you sir. [Operator Instructions].
And your first question comes from the line of Hari Sambasivam of Merrill Lynch.
Please proceed.
HARI SAMBASIVAM - MERRILL LYNCH - ANALYST
Hi, yes, Hari here. Quick question on the Eligard intellectual property. Could
you just point out as to what the intellectual property status here is, how long
a manufacturing exclusivity you have on this family of products? And also maybe
the, just take it from a basic perspective on the composition of matter as well
as maybe the delivery systems here.
PAUL HASTINGS - QLT - PRESIDENT, CEO
David?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well, we're very fortunate to have a wonderful patent situation with the Eligard
products. We're out past 2016 for the formulation patent on Eligard products. So
we're in excellent shape. All of the products are covered. The one month, three
month, four month and the upcoming six month product. So that keeps the
potential for generic erosion from occurring for quite a number of years.
HARI SAMBASIVAM - MERRILL LYNCH - ANALYST
What about the manufacturing exclusivity that you get on the individual
products? When do those actually expire?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
All of the products that we have licensed give us the opportunity and control of
our own destiny in regards to manufacturing. Even those products we ship through
a long way to Australia, we manufacture them at Fort Collins, Colorado.
HARI SAMBASIVAM - MERRILL LYNCH - ANALYST
My question was perhaps somewhat different. Presumably these products, the
composition of matter is gone. So when you file the new products with the FDA,
what I was curious was the manufacturing exclusivity that you get, whether it's
clear exclusivity or whatever, I'm just wondering when those expire on the
individual depot formulations.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well I don't think, these composition of matter patents are not connected to our
patents. The composition of matter patenting will expire in 2004. That's the
leuprolide product patent on that. So we're not-- In fact I believe most of
those patents have expired already. So we're not involved in the composition of
matter or periods of exclusivity in that regard. If I have additional
information on that I'll have to get back to you.
HARI SAMBASIVAM - MERRILL LYNCH - ANALYST
That's great, thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Hari, as these things go up to 2016, and that's what they're protected up to.
OPERATOR
And your next question comes from the line of Matt Geller of CIBC. Please
proceed.
MATT GELLER - CIBC - ANALYST
Hi. I think the Atrix story is clear and why you're [acquiring them]. The one
concern out there that I sense is, is this a commentary at all on your optimism
about the growth of Visudyne going forward?
And can you talk a little bit about how you see things going this year? I think
there is a lot of enthusiasm that potentially with the expansion of
reimbursement, that those sales could be very strong this year and for the next
few years. Are you concerned about a pocket developing within the next couple of
years for Visudyne sales? What are your thoughts right now about the competition
going forward?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Matt, our thoughts haven't changed on that at all. We believe that Visudyne has
a very long growth curve ahead of it, either as monotherapy in the disease or as
combination therapy. And it has been witnessed already by the combination with
Visudyne and triamcinolone, which has not at all slowed down the growth but
actually has sped it up. We do not believe that people will leave a very safe
and well established product in over 350,000 patients treated today and go to
nine intravitreal injections per year as a replacement for Visudyne.
So we're not worried that the growth of Visudyne is what is creating the need to
do a transaction like this. We have always said, and we will continue to say,
that you can never have a pipeline that's full enough. And to be able to find an
opportunity to have a pipeline in ocular, oncology, urology and dermatology, to
give us a platform technology that we could partner out with other people and
develop our own products. This was just an incredible opportunity for us. It has
nothing to do with how we feel about Visudyne.
Now the sales of Visudyne, as you know, the guidance we've given is $430m-$455m.
And, as you know, the reimbursement for the accelerated indications or new usage
for Visudyne, in minimally classic as well as occult, occurred in April. So on
April 1. In the beginning there was a little bit of a stick our toe in the water
kind of attitude from the retinal specialists because, as you know, a couple of
years ago when they got approval for occult, that approval was reversed a couple
of weeks later. And many of them felt burned by that experience. So they got
through the month of April and they were able to see that they got rapid
reimbursement for occult and minimally classic, and the month of May went very,
very well indeed, and the month of June we're hoping to have excellent results
as well.
And as I mention to people over and over again, as I see a month or two of
steady acceleration of Visudyne growth, I'll keep looking at the guidance we've
given. But we're not seeing any slowdown in our growth, in fact we're seeing
acceleration of our growth, and we're not expecting a major slowdown of our
growth with the introduction of another product potentially in 2005. Again, we
see that as a synergistic product.
So nothing has changed in our forecast on Visudyne, and many of the numbers that
you all have for Visudyne as well going on into the outer years, expect that
there will be some other therapies on the market which will either be used in
combination with Visudyne or as monotherapies as well as Visudyne being used as
a monotherapy.
MATT GELLER - CIBC - ANALYST
Great, thanks a lot.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thanks Matt.
OPERATOR
And the next question comes from the line of Dimi Ntantoulis of UBS. Please
proceed.
DIMI NTANTOULIS - UBS - ANALYST
Good morning. I have a few questions. If you could provide us perhaps with some
additional information on the transaction or financial details with Eligard and
with the acne product from Fujisawa, is the first question.
Secondly, is there any overlap with R&D function between the Vancouver and
Colorado addresses?
And then finally, on a GAAP basis, when do you expect the transaction to be
accretive to EPS?
Thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
So we've given guidance on a cash EPS basis, Dimi, and that's what we're going
to stick to. And it's 2006.
DIMI NTANTOULIS - UBS - ANALYST
Okay. How much intangibles would you expect to have?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Mike?
MIKE DOTY - ATRIX - SENIOR VP, CFO
It's too early to tell that. We have to retain appraisers and go through a
thorough appraisal of all the assets that we're acquiring before we advance that
way.
DIMI NTANTOULIS - UBS - ANALYST
Okay. And I take it you wouldn't have an expectation of how long those would be
amortized over, Mike?
MIKE DOTY - ATRIX - SENIOR VP, CFO
No, not until we complete the appraisal process.
DIMI NTANTOULIS - UBS - ANALYST
Okay.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Now Dimi, in terms of additional information on the royalties for Atrisone and
Eligard, Atrix has classically not given out that information and they don't
give guidance on those products. And David, if you'd like to speak to that,
please feel free to.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Yes. We've always said we have a royalty on both Atrisone and Eligard, and since
we manufacture both of those products we'll have a manufacturing margin, which
will add to return revenue on both products.
DIMI NTANTOULIS - UBS - ANALYST
Okay. David, would you characterize the royalty as double-digit, single-digit?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Yes. Double.
DIMI NTANTOULIS - UBS - ANALYST
Double-digit? Okay.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Dimi, I'm sorry. As we go forward, what we're going to do collectively and David
and I have discussed this, is we will give guidance on total revenue, and we'll
break out Visudyne. And hopefully in the future we'll be able to give guidance
on revenue of all of our products, and we'll strive for that. But in the
meantime we have to live by the partnerships and the contracts of those
partnerships, but we think we're going to be able to be very visible in terms of
where these products are going and how they're contributing to the profitability
of the combined company.
DIMI NTANTOULIS - UBS - ANALYST
Okay. Can you disclose what Eligard sales were in the first quarter, like from
your partner's point of view, if they've disclosed it?
PAUL HASTINGS - QLT - PRESIDENT, CEO
David?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
I'll ask Greg Gould, our CFO, to comment.
GREG GOULD - ATRIX - CFO
Yes. In the first quarter we were at $15m in Eligard sales.
DIMI NTANTOULIS - UBS - ANALYST
Eligard sold $15m net to consumers, or to end users?
GREG GOULD - ATRIX - CFO
Yes. End users.
DIMI NTANTOULIS - UBS - ANALYST
Okay. Super.
PAUL HASTINGS - QLT - PRESIDENT, CEO
And Greg, what quarter was that in terms of its sales?
GREG GOULD - ATRIX - CFO
It was Q1, March 31.
DIMI NTANTOULIS - UBS - ANALYST
How many quarters has it been launched for?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
A multiple number of quarters. We started off with the 30-day earlier and the
market has shifted drastically to the 120-day, and we introduced the 120-day in
2003, I think, early, mid 2003.
DIMI NTANTOULIS - UBS - ANALYST
Okay. And then finally, Paul, just any overlap on R&D function between Colorado
and Vancouver.
PAUL HASTINGS - QLT - PRESIDENT, CEO
So one of the things that attracted us to this opportunity, Dimi, is that both
organizations are lean organizations working very diligently to getting products
on the market. And we're going to go through an integration process, but we
didn't do the transaction, nor have we calculated the accretion dilution
analysis based on headcount synergies. We want to keep all the great people of
both companies around to rapidly accelerate the pipeline. But we'll be going
through an integration process and it's way too early to be able to say what the
outcome of that will be, but we don't expect there to be synergies on the
headcount side.
DIMI NTANTOULIS - UBS - ANALYST
Okay. Thank you.
OPERATOR
And the next question comes from the line of Mara Goldstein of CIBC. Please
proceed.
MARA GOLDSTEIN - CIBC - ANALYST
Yes, thank you very much. Two questions. I'm curious as to how you came about
the transaction value for Atrix, and the split between cash and stock.
And then secondarily, there was a comment about an NDA filing for Atrisone late
third quarter, and I was under the impression that was supposed to be an earlier
third quarter event. So if you can just provide an update on that, that would be
great.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well, Mara, thank you for the question. We have always said the third quarter,
and as we move along - and it's a day-to-day affair - we have very complex
toxicology work to complete and a lot (as you know) of a very, very
comprehensive number of acne patients were in this study. Probably one of the
largest ever. So the comprehensive nature of the thing is just a day-to-day
thing. I would love to be able to say to Steve Warren, our Head of R&D, let's
get this thing out July 1, but we're hoping to make every effort to get it out
as soon as possible. I think all of our shareholders want us to have the kind of
quality NDA filings that we've demonstrated over the last several years with our
Eligard product line.
MARA GOLDSTEIN - CIBC - ANALYST
Okay. Thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Mike, do you want to speak to the transaction value and the percentage
cash/stock?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Certainly, yes. As you know, the transaction value looks like $855m, and we're
coming in with a 60% stock, 40% cash split. And I guess the best way to answer
your questions is simply just a matter of why both parties have negotiated that
to be the fairest price. The split had a lot to do with how much cash the
combined entity is starting out with. We're looking at in excess of $600m to use
here. We think that at closing we'll still have roughly $300m left. The cash
position was derived in that manner.
MARA GOLDSTEIN - CIBC - ANALYST
And just what is the stock price that you're using for the QLT portion? And is
there a break up provision in the deal?
PAUL HASTINGS - QLT - PRESIDENT, CEO
The stock price we're using for QLT is the stock price on our last trading day,
which was Friday, on the Toronto stock exchange. Stock price we're using for
Atrix was on their last trading day, which was Thursday in the US because Friday
was closed.
MARA GOLDSTEIN - CIBC - ANALYST
Okay.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Mike, do you want to add some things?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Yes, just saying that that would be [$21 and 10, 28c] was the number for QLT
stock. And to that we add $14.61 from cash.
OPERATOR
The next question comes from the line of Campbell Parry of Scotia Capital.
Please proceed.
CAMPBELL PARRY - SCOTIA CAPITAL - ANALYST
Thanks very much, good morning everybody. Firstly, given that you arguably are a
more powerful unit now, is there any scope to renegotiate some of these
partnerships that you have in place at the moment? That's the first question.
Secondly, I think I'm right in believing that you still have a dental products
division, I wonder whether that could be used as a source of funds going
forward, or whether it's central to your strategy as outline before.
And then lastly, just a more housekeeping thing. Are there any tax loss carry
forwards that you can utilize prior to 2006 that may actually improve the
accretion before then?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Mike, why don't you deal with the NOL's?
MIKE DOTY - ATRIX - SENIOR VP, CFO
So NOL's, yes, there are NOL's that we believe that we will be able to access.
However, we look at those as one-offs and really do not use those in
determining, getting to accretion.
PAUL HASTINGS - QLT - PRESIDENT, CEO
David, do you want to comment as to your primary shifts and I'll comment as to
ours, in terms of we want to renegotiate our partnerships and try to retain
marketing rights. And what marketing rights might we have left, by the way, in
our products.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well sure. First of all, the question regarding the dental business, the
Atridox, we've always and have over the last number of years looked at Atridox
as just a cash generating cash flow operation for ourselves. We've not invested
a great deal in Atridox, given the early on efforts and the degree of the market
place and so forth. So it's not like-- CollaGenex is our marketing partner here
in the US for Atridox, and we have approvals of course for Atridox throughout
the European Union, and have individual distributors selling Atridox throughout
Germany, France, Italy and so forth, and it does generate revenue. But our
dental business has not been invested in over the last several years because
we've refocused the company toward drug delivery and the oncology, dermatology,
urology business.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Partnerships.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Partnerships, I think we've got excellent partners with Sanofi, Aventis,
Sanofi-Synthelabo now, of course, with Eligard in the US. And a wonderful
partner as well in all of Europe with Yamanouchi recently taking over the
marketing. They're a very powerful company in Europe and one of the tops in
urology, and have just recently launched Eligard in the largest market in
Europe, i.e. Germany. So we're quite pleased with them. We do not currently have
co-promotion opportunities with them, but we have opportunities to look at how
the market may change, and therefore this could happen if we renegotiated. But
within the US we have an opportunity quite a ways out to be marketers of
Eligard, but currently we are always talking about opportunities for integration
and Eligard, while it's exclusively the rights to the marketing of
Sanofi-Synthelabo, we would always be very pleased and happy to discuss with
them any possible co-marketing opportunities.
CAMPBELL PARRY - SCOTIA CAPITAL - ANALYST
Okay. Thanks very much.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Campbell, from our point of view, if you can't market your own products because
of financial constraints when niche products were early in their development
cycle, then the next best thing to be is the best possible partner. And that's
how we approach our collaboration with Novartis and I'm sure that's how Atrix
approaches their collaborations. There are potential opportunities going forward
to look at our proprietary products and market them on our own, and that would
be our next goal.
CAMPBELL PARRY - SCOTIA CAPITAL - ANALYST
All right. Thanks Paul.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thank you.
OPERATOR
Thank you, and our next question comes from the line of Christine Charette of
Nesbitt Burns. Please proceed.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
Hi. I have some technical questions and some more strategic questions on, first,
what is the timing for the closing of the transaction? And do you have any break
up fees in the transaction?
PAUL HASTINGS - QLT - PRESIDENT, CEO
So Mike, why don't you deal with the timing of the closing?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Yes. It'll take as long as it takes to get the shareholder votes, and we think
that'll be in the two to three month timeframe. And there is a break up fee.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
But what is the break up fee?
MIKE DOTY - ATRIX - SENIOR VP, CFO
We're not going to-- We don't disclose that number at the moment.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
Okay. Second question is, when you're talking about 10% dilution for next year
and accretive on a cash basis in 2006, are you assuming that Atrix will be
paying taxes on their income? And what tax rate are you assuming?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Yes, we are assuming that going forward earnings are taxable in all of our
modeling and in our accretion assumptions. The tax rate that we're using is
basically the US statutory rate adjusted to include Colorado taxes, so it's in
the 34% range.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
Okay. And if I look at your little cartoon in your slide presentation, it looks
like you expect about 40% of revenues to come from Atrix products by 2008. Now,
if I take that at face value I don't know if you meant anything by those pie
charts. Now Atrix products are mainly what people would consider as specialty
pharma products, as opposed to biotech products. And specialty pharma companies
do tend to trade at a lower P multiple than biotech companies, probably because
of their patent protection, although the formulation protection it's typically
easy to get around that, so the P multiple tends to be lower. Paul, on a
strategic basis, how do you justify buying a company that's production decreases
your P multiple, given that QLT could be seen as a specialty pharma company
going forward?
And number two is, are you guys planning on building a sales force? And how does
this acquisition sit within your eventual strategic intent of building a sales
force?
PAUL HASTINGS - QLT - PRESIDENT, CEO
So let me deal with the P, the multiple, right now. We see Atrix as a
biopharmaceutical company just like QLT is. We're into drug delivery and we're
into innovative therapies and so are they. We compare Atrix to other what you
might call specialty pharmaceutical companies that have their own platform
technologies. We don't compare it to specialty pharma companies that in-license
platform technologies. So when you look at owning a platform technology and
being able to use that across a wide range of therapeutic areas for both
proprietary products that may be in our pipelines, as well as those that we can
in-license. Remember that we've got an early stage program here as well as
development programs here. They have them there as well.
So we don't see this as a specialty pharma company going forward, like specialty
pharma companies that have in-licensed their platform technologies. We see this
as a leading biopharmaceutical company with applications in all of healthcare in
all these different therapeutic areas, and has a support and a platform for all
of those areas. So we don't think that justifies a multiple that is consistent
with other companies that have, as I mentioned before, niche products where
they've licensed in the platform technology.
Now in terms of the 40%, what we expect from the Atrix products in 2008, that's
just a simple calculation that we use looking at the growth of Visudyne and the
growth of what could happen with the present Atrix pipeline given their forecast
going on into those years. So the point we're trying to make with that slide, by
the way, is that we're diversifying our risk, we're adding multiple products to
our pipeline and we're therefore adding to our high probability of success of
maintaining our profitability and that growth in profitability for many years to
come.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
But what about sales force eventually? And actually, the final question is how
did QLT come up with the price justification for what they are paying for Atrix,
given that the P multiple is much higher than what QLT's trading at?
PAUL HASTINGS - QLT - PRESIDENT, CEO
So, we went through a number of calculations to determine the value and a number
of different ways of doing it. And every way we came up with it, we came up with
the value that we paid.
Are we going to build a sales force? Absolutely. Will we do it today or
tomorrow? You've got to walk before you run. And had we gone out and bought a
sales force with a product, maybe even one product with a sales force of 40
people, the things that were out there and potentially available are massively
dilutive. That would not have made anybody happy.
So what we did was we said we've got to go to the next step of becoming a fully
integrated biopharmaceutical company. Atrix agreed with us, that they wanted to
go to the next step and they saw a lot of synergies between our two companies.
And together we agreed that we could be a much more powerful company going
forward than either one of these two companies alone, and be able to meet on a
competitive basis all the other companies in the mid tier biotechnology space,
and hopefully even surpass them as time goes on with this kind of rich pipeline.
So to be able to do that plus have a platform technology that you could
in-license or even out-license technologies to other people, to us is a much
better deal and worth a much higher multiple than going after the eighth
antiVEGF inhibitor or something of this nature.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
What is the first product that the companies could market themselves, and what's
the timeline for it to reach market?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Probably, I don't want to talk too much about timelines because we're still very
early in the process, but probably the nearest term products would include the
Octreotide, which is just completing the Phase I. And David, do you want to add
some, the other products, or maybe Steve, what are in the pipeline that maybe
following up with Octreotide? And then I'll talk a little bit about 0074.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Yes. Octreotide, of course, is moving on very nicely. We already an INDA open
for a type of formulation for this product, and we're working on a second INDA
that we'll be filing very shortly, latter part of this year. So I'll ask Steve
Warren, our Head of R&D, to comment about the Octreotide and the other products
that are moving along rather nicely.
DR. STEVE WARREN - ATRIX - VP R&D
Yes. The Octreotide product is farthest along in development and we are very
happy about the formulations and how they perform in comparison to the marketed
products. We have higher bioavailability, a very low volume of injection. We
have almost one-tenth the volume of injection of the currently marketed
products. And because it has a low volume of injection, we don't have to inject
it into the muscle. So it's better tolerated. And we think that's very exciting
for the indications that it's already approved for, but we also think that that
really makes it an attractive product for diabetic retinopathy, because you need
higher levels of the drug continuously. And it can't really-- The other feature
of the subcutaneous injection is very appealing there.
And finally we have a long duration product. Three months. Longer than any other
product out there. So we're really happy about that.
The other products that we are, at least at Atrix, that we've been working on
that are earlier stage projects that we're really excited about, are a topical
anti-psoriatic product. And that is based upon our findings that certain drugs
that we have identified can induce programmed cell death. They can kill the
immunocytes that we know cause the disease, and we are making formulations to
get enough of the drug into the plaque lesions of the psoriatic patient to have
durable responses. And that would be what would differentiate it from other
products. Of course it's early stage, it's still in the pre-clinical stage.
The other one is PYY 3-36, a naturally occurring gut peptide that is released
after a meal and when people eat, and it turns that obese individuals tend to
have lower levels of it. And so we believe that if we put it into Atrigel and
give a depot formulation, for example, a 30-day formulation, that we may raise
their basal levels and that may reduce their appetite and help them lose weight.
Those are a few examples. We have some more as well, but just to give you a
flavor for it.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Steve, thanks a bunch. And Christine, I think equally important to that -
because of course we all want to market our own products - is that the six-month
formulation for Eligard is coming soon, and the Atrisone product is coming soon.
And although we're not marketing those on our own,
I'm sure you will agree that what shareholders are most interested in is
sustainable profits. And so what we want to do is have a nice base of
sustainable profitability to be able to build our own sales force and walk
before we run.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
Okay. And when are you guys going to make the break up fee public?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Probably when we feel like it, but right now I don't think we're going to be
making it public. Probably at closing.
CHRISTINE CHARETTE - BMO NESBITT BURNS - ANALYST
Thank you.
OPERATOR
And your next question comes from the line of [Andre Udine] of National Bank.
Please proceed.
ANDRE UDINE - NATIONAL BANK - ANALYST
Sure, thanks. Just actually had two, actually it's just one question now. I
guess they've all been answered. In terms of the amortization period for the
Atrix goodwill, how long would that period be?
MIKE DOTY - ATRIX - SENIOR VP, CFO
We won't be amortizing goodwill.
ANDRE UDINE - NATIONAL BANK - ANALYST
You won't be. Okay.
OPERATOR
Your next question comes from the line of Aaron Bennett of Orion Securities.
Please proceed.
AARON BENNETT - ORION SECURITIES - ANALYST
Thanks. Just a quick question on the Pfizer product. When's the next milestone
for that? When are we going to start to see some more data on that one?
PAUL HASTINGS - QLT - PRESIDENT, CEO
David?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Yes. Well, you're speaking of the bone growth product.
AARON BENNETT - ORION SECURITIES - ANALYST
Yes.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
The project's moving quite well. It made a tremendous number of clinical supply
materials here just recently for Pfizer, and it's moving right along. As you
might suspect, Pfizer is not very interested in us disclosing a whole lot of
information about this project. I can tell you we're excited by it and so are
they, but as far as their movement, until it gets into Phase III I think we
don't really want to disclose too much about their program. They of course are
in charge of the clinical program.
AARON BENNETT - ORION SECURITIES - ANALYST
Okay. Thanks very much.
OPERATOR
And your next question comes from the line of Mike Bailey from Raymond James.
Please proceed.
MIKE BAILEY - RAYMOND JAMES - ANALYST
Good morning. Just a quick question on valuation. I know you guys have touched
on it a little bit earlier, as far as the price here for Atrix. I just wanted to
get your thoughts on the price, in reference to the recent 52-week high of
Atrix, in the $32-$33 range. I'd just like to get your comments on that. Thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
We did our valuation based on a number of different models and every way we
looked at it we came up with the valuation we came up with.
MIKE BAILEY - RAYMOND JAMES - ANALYST
Thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
How that relates to the high that you quoted, which I don't think, by the way,
is the correct high. That really wasn't part of our equation here. It was, how
we did the valuation for this business based on a number of different analyses.
MIKE BAILEY - RAYMOND JAMES - ANALYST
Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
You're welcome.
OPERATOR
And our next question comes from the line of Dennis Marsh of Beutel Goodman.
Please proceed.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
Hi. You'll be dealing with prostate cancer. Are you dealing with metastasis? And
if so, how far does that go to bone involvement?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Steve, do you want to speak to that?
DR. STEVE WARREN - ATRIX - VP R&D
Sure. The patients that are treated with hormonal therapy, in practice it's
usually, like in the label, it's labeled as a treatment for advanced prostate
cancer, which means patients that have disseminated disease or patients who have
locally advanced diseased. But in reality, the practice pattern is that patients
with various stages of prostate cancer get treatment with hormonal therapy. So
that is reflected in our clinical trials, where we've had a fair number of early
stage patients. For some patients that's the right choice. So yes, it is a
variety of degrees of dissemination that we're dealing with here. I don't know
if I answered your question.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
But hormonal therapy usually lasts about three years. Am I right? Are you saying
this takes over too, and overlaps?
DR. STEVE WARREN - ATRIX - VP R&D
Well, the decision to stop it is when the patient becomes hormone refractory and
then they obviously offer other options. But the patients who are hormonally
responsive could have disease of any early or late stage, although generally
it's, by the time they, a lot of the patients do have late stage disease. But
now, with earlier and earlier diagnosis, it's the right choice for many patients
to do it with earlier stage disease.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
Okay. So it is-- Anyway, could I ask another thing? What would you expect to
obtain? You're saying it's a $1.3b market, growing fairly rapidly. That's US, I
assume. What percentage of the market would you obtain, you're targeting, say,
in three to five years?
PAUL HASTINGS - QLT - PRESIDENT, CEO
That is US dollar sales. I just didn't want to confuse the-
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
No, and it's US market, right?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Well, that $1.5b is the worldwide market.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
Okay. Fair enough.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Right? But it's in US dollars. Okay? And because you're a Canadian investor and
we used to report in Canadian, I just wanted to clarify that for folks. David, I
think I can speak for both of us. We're not really giving guidance yet, and
probably won't, on what we expect to penetrate the market. But you'll start to
see that in our revenues, and it'll become much more and more evident as this
product breaks out and starts. When the six-month formulation is on the market,
ahead of the competition, we think you'll see substantial growth and you'll be
able to calculate it in a backward fashion.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
Okay. And it'll be a fairly large factor in your 40% of 2008 revenues?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Eligard is definitely a very large factor, but the other products as well and
the dermatology business, and the Atrisone product. Absolutely. Right David?
Would you agree?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Absolutely. I'll just make one comment about the size of the market. The global
market is closer to $2b, and the US market is around $1b. Of course some of that
is inclusive of the endometriosis claim for female patients. But the market has
been a little bit stable in the US in terms of its growth. It had tremendous
growth over the last three or four years, because of the PSA test being more and
more used. And now that PSA is routinely used, so new diagnosis has stabilized,
but it does not have any reduction in its interest and its use. Leuprolide is
the primary product for hormone-resistant prostate cancer.
DENNIS MARSH - BEUTEL GOODMAN - ANALYST
Thanks again, gentlemen.
OPERATOR
And your next question comes from the line of Douglas Chow of Haywood
Securities. Please proceed.
DOUGLAS CHOW - HAYWOOD SECURITIES - ANALYST
Hi. I was wondering if you could just give me a bit more detail about the
competitive position of Eligard and what are the advantages of that product over
Lupron.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Okay. I walked you through that in the presentation, but David, if you'd like to
have someone do that again, that would be great.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Yes, sure. Well, I'll ask Mike Duncan, our Vice President and General Manager,
to comment about the basically only two competitors that we have in the entire
market in the US.
MIKE DUNCAN - ATRIX - VP, GENERAL MANAGER
Right. The two competitors in the market are, obviously, the Lupron product and
the Zoladex product. There is also another product called Viador, but that's a
very small competitor. Competitive advantages of Eligard just, besides the
technology of the Atrigel system, allows for the product to be delivered with
much fewer breakthroughs than the competitive products, which results in less
side effects. Also, for the patient handling benefits, the injection volume is
substantially lower. It's a subcutaneous injection. What else, Steve, am I
forgetting?
DR. STEVE WARREN - ATRIX - VP R&D
You can inject anywhere.
MIKE DUNCAN - ATRIX - VP, GENERAL MANAGER
Yes, you can inject the product anywhere and you have a lot more locations where
you can inject the product. And again, with the science, [suppressing
testosterone] lower than the other competitive products. You have a lot less
internal hot flashes.
DR. STEVE WARREN - ATRIX - VP R&D
There is also the competitive advantage, of course, of the six-month formulation
that will be, that was filed and we're expecting approval early next year. So
that will be the first six-month formulation available of any LHRH product.
MIKE DUNCAN - ATRIX - VP, GENERAL MANAGER
That's correct.
DOUGLAS CHOW - HAYWOOD SECURITIES - ANALYST
Okay, Steve, thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
See, we're already one team here.
OPERATOR
And your next question comes from the line of Michael Lachman of ThinkEquity
Partners. Please go ahead.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Good morning. First a pipeline question then a few on the financials. Could you
discuss a little bit more about the applicability of this sustained release
technology that you're acquiring to optimize you? Is this something that is
synergistic with Visudyne or should we be thinking of this as being synergistic
with something that either QLT or Atrix has in the pipeline?
PAUL HASTINGS - QLT - PRESIDENT, CEO
We're not looking for an ocular delivery system for Visudyne because we think we
have the optimal ocular delivery system for Visudyne. It's an intravenous
injection followed by a ray of light which activates the drug in the back of the
eye where the bleeding occurs, and the leakage. We're looking at the future of
AMD, which will include small molecules and large molecules that will be
directly injected into the back of the eye, these so-called intravitreal
injections.
And there is a common knowledge out there that people are just simply not going
to give repeated month after month intravitreal injections. And so our concept
has always been to find a delivery system that we can work with these partners
who have these peptides, proteins, small molecules, antiangiogenics,
antioxidants, to deliver to the back of the eye in a sustained release format
where you won't have to give repeated intravitreal injections. And every company
that's developing such products is looking for such a delivery system, and that
is something that even though that wasn't a main area of the focus of Atrix, it
was something that they were aware of and had started working on long before we
even looked at them. So it's an emerging area and one that together we want to
accelerate. But we're really excited about it.
I don't know, Steve, if you want to add to what you think about that ocular
delivery system, or how it might be used in the future and which products in
your pipeline, for example, Octreotide or something of that nature.
DR. STEVE WARREN - ATRIX - VP R&D
Sure. In the basic research that we do on Atrigel, we look at it, how tissues
respond to it. And in those experiments we've put it in all sorts of places in
pre-clinical studies, including the eye, and we were delighted to find that
there were almost no significant irritation or inflammatory reactions when you
inject into the eye. And that just opened the door to thinking about all the
things that Paul just listed.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Okay. Thanks, Steve.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Great. And then on the financial side, just to clarify. It sounds like you used,
you were talking about a roughly 10% dilution on '05, based on where estimates
are at this point. Am I correct in assuming that's something in the order of
11c?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Mike?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Well, no. 10% is a fairly rough estimate at this point. So I don't think we want
to get into the pennies per share. We're putting together two profitable
companies here. Both of them are generating cash. So on a cash EPS basis, again,
we'll be somewhat diluted in '05 and we'll be accretive by 2006.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Okay. And I know you mentioned that the accretion in '06 and beyond is not based
on headcount reduction, but are there operating synergies here? And are there
places that we can be looking at in our models when we look at combining these
two companies, where we could take out, where one plus one equals something less
than two, where we can reflect some cost synergies, whether that's in SG&A area
or manufacturing costs, R&D, etc?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Let me try to attack that a little bit. It's very early for us to tell these
things, but rest assured that we've noticed there are a number of
[indiscernible] that both companies have that the other company will benefit
from in the combined entity.
For example, one of the things we look at is the 60,000 square foot
manufacturing facility, and the fact that we have multiple suppliers for the
Visudyne supply chain, and that we might want to use this manufacturing
facility. And the folks at Atrix have asked us to consider and we're in the
process of diligence of looking at this and it's very attractive. And so that
may be a very nice way to maybe in the longer term help us not only
control our own manufacturing or fill and finish, but also to potentially lower
cost of goods. But those are synergies we'll see in the out years if we were to
do something of this, because it would first be a capital investment. It would
be rather small, but we'd still have to do one.
As I mentioned before, if you think about the programs that Steve just talked to
you about, that are in pre-clinical, that will very easily fit not only into
their lean clinical team, but also our 120-person development organization here.
Everything from pre-clinical development all the way through basically
regulatory and marketing approval. There's going to be a lot of synergies in the
processes. So that's where we expect to see them. And we constantly, even before
we were looking at doing a transaction, we're constantly looking at synergies
within our own organization and decreasing cost of goods in any way possible and
increasing profitability in any way possible. And I'm sure that we'll do that as
a combined company as well.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Let me just ask it another way. When you talk about '06, the idea that '06 on a
cash EPS basis would be modestly accretive, you said that that's not based on a
headcount reduction. Is there any operating synergy?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Yes, absolutely. We did our budgeting based on 100% probability of success of
most of our programs. And so there was room there to be able to do some
[indiscernible] sets, calculations, and determine whether or not we could even
spend the R&D budget the two companies would be able to spend. So we feel very
comfortable that there will be operating synergies, and we'll still be able to
spend between $60m-$70m in net R&D. So the gross R&D number could go up higher
than that based on partnerships, and that's something that Atrix has been
terrific at getting and something that I'm sure we'll be adding value to as
well. So there'll be a lot of discussions in that area and maybe we'll be able
to spend more. Think of the upsides for Visudyne and Eligard and the other
products, if competitive products don't quite pan out the way people might think
they might pan out, or might pan out more to our advantage.
So we'll be looking at that on a constant basis. We do our budgeting and our
forecasting on a rolling 18-month basis right now here. We'll continue to do
that and look at forecasts for all of our products.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Okay. So when you look at the $75m-$85m of gross R&D that's contemplated for
'06, how would that compare to what the gross R&D spend of the two separate
companies might have been? The initial look at some of the models out there,
unless I'm reading them wrong, that combined number was something closer to
$100m. Am I reading that right, and is that representative of?
PAUL HASTINGS - QLT - PRESIDENT, CEO
No. I think you're a bit high and I think that we don't have the resources to
spend $100m. We don't have the human resources to be able to do that, not right
now. But having said that, if these products are all doing really well in the
clinic, that would be a first-class problem to have. If we have products that
seem to us that we'd want to invest that kind of money in, we'd be looking for
opportunities to partner some of them, and to have a net R&D number that would
be consistent with our profitability goals.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Then one final housekeeping question, getting back to the deal valuation. What
full share count was used to arrive at the $855m?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Just under 24m shares.
MICHAEL LACHMAN - THINKEQUITY PARTNERS - ANALYST
Great, thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thank you.
OPERATOR
And your next question comes from the line of David Martin of Dundee Securities.
Please go ahead.
DAVID MARTIN - DUNDEE SECURITIES - ANALYST
Hi, Paul and David. First question is, given that consensus estimates for Atrix
are $1.02 per share for '05, I'm wondering how it comes out to mildly dilutive
for QLT to acquire this company in '05. Are there opportunities that you can
amortize at one time a lump sum of R&D and maybe get accretion in '05 on a GAAP
EPS basis?
The other question is, it sounds like Eligard has some advantages over Lupron
right now, but the sales are relatively low. I realize that the drug has been on
the market a relatively short period of time, but what hurdles are you facing
selling against Lupron, and will the six-month dosage really give you that much
more market share, do you think?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Well let's deal with the cash EPS question first. Mike, do you want to deal with
that?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Sure. As I mentioned earlier, we're focused primarily on cash EPS and the
profitability of the two companies and the cash that will be generated going
forward. It's difficult for us to talk specifically about it on a GAAP basis
until we have the opportunity to complete the appraisal that I referred to
earlier. Once we have that appraisal completed we'll have a much better view as
to the effects of amortizing the various categories of intangibles, or those
that are amortizable and be able to give you an update at that point.
PAUL HASTINGS - QLT - PRESIDENT, CEO
So on the Eligard versus Lupron, David, do your team want to address some of
those issues?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Absolutely. Well, the Eligard competitive environment here in the US is quite
aggressive here. Obviously, Abbott's had this market to themselves for many,
many years and to dislodge them is a good solid battle. I would ask Mike to make
some specific comments about some of the recent activities.
MIKE DUNCAN - ATRIX - VP, GENERAL MANAGER
Yes. One thing I would just briefly mention the history too. When we launched
the Eligard four-month, Synofi just had 50 sales reps. They increased last June
to approximately 100. They increased again in August to about 120. So we saw
their sales force grow and realign three times last year, which we were thrilled
about, but it got bigger each time. And then recently what we've seen too is
that some recent pricing pressure that's pushed the price down a little bit. And
the thing that David mentioned, and we really just can't say enough of it, TAP
was an entrenched competitor.
So we're in there and it's a personal sale. We have to get in front of the
doctors and sell our product on what we think are superior features. And the
six-month product we do think is going to differentiate us pretty dramatically.
If you look at just how the market's shifted over the last three years, it
really moved to the 120-day. Using those same type of strategies we think that
the six-month product will have a lot of market appeal to physicians and
patients.
DAVID MARTIN - DUNDEE SECURITIES - ANALYST
Okay. I just have one more housekeeping question for Paul. Just an update on the
diabetic macular edema program for Visudyne, the retinopathy program. What's the
status of that?
PAUL HASTINGS - QLT - PRESIDENT, CEO
That program was discontinued a year and a half ago.
DAVID MARTIN - DUNDEE SECURITIES - ANALYST
Okay, thanks.
PAUL HASTINGS - QLT - PRESIDENT, CEO
You're welcome David.
OPERATOR
Your next question comes from the line of Doug Miehm of RBC Capital Markets.
Please go ahead.
DOUG MIEHM - RBC CAPITAL MARKETS - ANALYST
Yes, good morning. Couple of housekeeping questions. What do you expect the
filing date to be for the transaction?
MIKE DOTY - ATRIX - SENIOR VP, CFO
The filing will be before, within about 30 days.
DOUG MIEHM - RBC CAPITAL MARKETS - ANALYST
30 days. And are you expecting any regulatory hurdles?
PAUL HASTINGS - QLT - PRESIDENT, CEO
No.
DOUG MIEHM - RBC CAPITAL MARKETS - ANALYST
No. And then, on that filing date, we'll probably hear about the break up fee,
etc., etc. And then just with respect to the ocular potential here. Could you
just go into detail in terms of timelines, into when we might see some of those
products coming into the clinic, above and beyond the ones we have right now?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Steve, I don't know if you can give just a really broad idea of when a potential
product could get into the clinic, taking into account the pre-clinical work
that would need to be done.
DR. STEVE WARREN - ATRIX - VP R&D
Well, the timeline that we've been working with at Atrix on our Octreotide
product is just to get the three-month formulation into the clinic in the first
part of next year. We have an open IND on our one-month product. Now, in terms
of taking one or both of those into an ocular indication, we really have to work
that out as a joint company, and discuss it. Because the QLT folks are the
experts in eye disease, and that's what we'll do.
PAUL HASTINGS - QLT - PRESIDENT, CEO
I think that's a very good answer. So it's still too early to tell. We really
need to look at what's going to be involved here. I'm sure that Steve and
Mohammad and Mo all have opinions as to when we might be able to get this in the
clinic, but rest assured that there aren't that many ocular delivery systems out
there and those that are out there are being very closely held within the
companies that they're sitting in.
It would be our intention to make this delivery system available to people to
take it into pre-clinical models with their compounds. There's no reason not to
do that. So we expect to be talking to our partner. We expect to be talking to
other partners, about what interest they may have. And by using those resources
outside the company, we think we can accelerate this thing going into clinic on
a bunch of multiple different products. So that's what I think we'll probably do
together, and I think everyone's going to be happy with that, and we'll take it
one step at a time.
DOUG MIEHM - RBC CAPITAL MARKETS - ANALYST
Okay. And then just finally, with respect to the intangibles that should come
out of this deal, what do you expect the amortization period to be for those
intangibles?
MIKE DOTY - ATRIX - SENIOR VP, CFO
We really can't comment on that until we retain an appraiser and assess the
various categories of intangibles. As soon as we do that we'll come back to you
with our GAAP EPS views.
DOUG MIEHM - RBC CAPITAL MARKETS - ANALYST
Okay. Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thanks Doug.
OPERATOR
Your next question comes from the line of [Bo Fizer] of PCW. Please go ahead.
BO FIZER - PCW - ANALYST
Thanks. Good morning. If I heard you correctly, you determined the cash/stock
split of the deal based on trying to keep some amount, about $300m, in the bank
post transaction. Without getting into product or timing specifics, was that for
general purposes or do you have your eye on specific opportunities, and would
that be in-licensing? Does this basically satisfy your appetite for M&A at this
point?
PAUL HASTINGS - QLT - PRESIDENT, CEO
So yes, this is going to take quite a while for these two companies to integrate
with each other, and realize how much we actually have in this pipeline. So I'm
sure you'd agree with me, seeing these pipeline slides, that we've got a lot to
work with here.
So I would say that this satisfied virtually every criteria we were looking for
in terms of fit, geographic fit, by the way, because it's a very short distance
between these two companies, very similar to the distance between here and the
West Coast, Northern California, as well as therapeutic focus. It's just a
perfect situation that way.
So to think that we would then go out and look for another one immediately,
that's just not going to happen. We want to do the integration correctly. We
want to maximize the products we have in the pipeline. If something comes along
that's interesting to license in, that these two organizations collectively can
accelerate and move more quickly, I'm sure we'll be amenable to looking at it,
but we didn't keep the cash at that amount for any specific reason. What we
wanted to do was to utilize the cash we had accumulated to its greatest benefit
in the transaction and not give away as much of the currency and stock. So
that's why we did it.
So we think we have now cash that's a safe amount of cash to have. Don't forget
that we have $172m of convertible debt there as well. So it gives us a nice
cushion and a nice amount of cash to have as profitable going forward company
who may or may not at some point in time be looking at capital expenditures or
maybe in-licensing other technologies, but certainly not anything on the radar
screen in the near future. We want to maximize what we have now.
BO FIZER - PCW - ANALYST
Can you just remind us of the status of your buyback authorization and does that
get suspended pending the closing of this deal?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Our buyback plan is still in place. We have not activated it.
BO FIZER - PCW - ANALYST
And it will still be in place at the closing?
MIKE DOTY - ATRIX - SENIOR VP, CFO
Yes. It's in place for full year and it's renewable on an evergreen basis.
BO FIZER - PCW - ANALYST
Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thank you Bo.
OPERATOR
And your next question comes from the line of [Vincent Aida] of Tokyo New
Capital. Please go ahead.
VINCENT AIDA - TOKYO NEW CAPITAL - ANALYST
Thank you very much for taking my question. I think in the opening comments we
heard the case rather eloquently put about this deal from the QLT perspective as
to why Atrix was so attractive to them. I was hoping we could hear just some
comments from Atrix management as to, from their point of view, why this deal
was particularly attractive for them, what it is about QLT that was compelling
for them to get involved with, what capabilities they might have that Atrix
would not have been able to flush out on their own.
PAUL HASTINGS - QLT - PRESIDENT, CEO
David?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Absolutely. Certainly our Board has been in the process of looking at a number
of companies over the last two or three years. We've looked at many, many
technologies. We have looked at many smaller companies to acquire ourselves,
looking additionally where the opportunities arose for merger opportunities. And
the clear, clear opportunity that was here and was very visible to me and to our
Boards is that the financial and human resources that is to accelerate our
business was there with QLT.
Let's face it, this company has been unprofitable since its inception for some
fourteen plus years and this year we are going through the transition of
becoming profitable. So our shareholders are next to group - they want
profitability and I do too, as a shareholder. But we were in a way, by our own
success disadvantaged with such a rich pipeline, so the dilemma has been and has
been for at least two years, that do we become a company that continues to
invest in R&D and worry little about profitability or do we do it the other way
and become just profitable and spend less on R&D. This combination, this merger,
basically provides us with the opportunity for all of our shareholders, those
that like to see a high R&D effort and have a pipeline such as we have - the
quality of that pipeline - and those people that see a company like us emerging
from unprofitability for all these years and becoming profitable. So now we can
do both.
We can have the profitability. We can become accretive. As Paul has pointed out,
in a very short period of time we have got the resources now to advance this
pipeline of products here at Atrix which we did not have and would not have.
Obviously we could raise the money and have that money but we want it to
continue on a profitability course. So this is the core reason in these cultural
opportunities with the type of similar people that are at QLT. I went up and
when I first met all of the people that work with Paul, I was very impressed
with the quality of the human resources there - the management, the leadership.
That is all very important you know. Most of these kinds of mergers have
problems with the leadership and so forth and I was just so pleased to see that
we have great leadership on both sides. I think culturally we are matched and,
as Paul says, their strengths are the great cash flow operation with a wonderful
product Visidan continues to give a lot of cash so that we can do the things
together that will build a greater company down the road.
OPERATOR
Your next question comes from the line of Steven Dayan (ph) of HNC New York.
Please go ahead.
STEVEN DAYAN - HNC NEW YORK - ANALYST
Hi. Congratulations on the deal. I have one quick question concerning the terms
of the transaction. You mention it is a 65%/35% split. Is there a possibility of
an election where you chose all stock or all cash, or is this just 65%/35% per
share?
PAUL HASTINGS - QLT - PRESIDENT, CEO
It is more like sixtyish, fortyish and the cash is locked in at signing. So
there will be no election.
STEVEN DAYAN - HNC NEW YORK - ANALYST
There will be no election. So what we see is getting $40.61 per share and one
share of QLT. That's it. We can't elect either or?
PAUL HASTINGS - QLT - PRESIDENT, CEO
Right. What you see is what you get.
STEVEN DAYAN - HNC NEW YORK - ANALYST
Okay. Thank you very much.
OPERATOR
The next question comes from the line of Doug Mallinson of Advent Capital.
Please go ahead.
DOUG MALLINSON - ADVENT CAPITAL - ANALYST
Thanks. My question has been answered.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Thank you.
OPERATOR
The next question comes from the line of Jason Velmyer (ph) of [Jula] Equities.
Please go ahead.
JASON VELMYER ANALYST
Good morning, gentlemen. A quick question, David. Was the company put up for
sale, was there an auction process?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well, no. We have not seen ourselves as going out and doing an auction. We
definitely didn't do an auction. We have just continued to look for company and
technology. As you know, over the years we have done this. We have looked at
some thirty different companies over the last two or three years and we were
looking for an opportunity to grow this company that way. We have never looked
at ourselves as a company that needs to be auctioned off. We know very well and
our Board feels very strongly that this company could continue to do what we
have done in the last four to five years and that is to organically grow this
company. But what was so attractive here, as I just mentioned, is allowing
ourselves to have the financial human resources to accelerate the rich pipeline
that we have and it was just a great fit particularly.
JASON VELMYER ANALYST
David, one other question. You have done just a fabulous job since coming over
to Atrix and made all of us institutional shareholders a lot of money. I guess
my question is that when you look at the valuation of Atrix and you are really
selling the company here at less than seven and a half times' next year's sales
on an enterprise value basis which is really below where the current, at least,
Biotech's stocks are trading - revenue positive Biotech stocks - and you have
got a such a deep pipeline. I guess I was just surprised that you sold the
company at this level and that maybe it wasn't to Pfizer, Novartis, Sanofi,
Synthelabo, Yamanuchi, one of the companies that you have an existing
partnership, maybe with a broader company. Can you just explain your thought
process there?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well, yes. Our Board and myself looked at this opportunity and obviously we have
spent some time, as Paul will tell you as well, negotiating this. This deal has
a floating characteristic obviously and your optics today may not be the optics
next week. We thoroughly expect and see the strong financials of QLT to have
some attractive growth and as this company grows and our company grows, you will
see a greater improvement in the opportunity and the value that has received by
the Atrix shareholder. So I think that you are just looking at one bird's eye
view of today in saying that this is so. By the way, Bank of America have done a
fairness opinion of this and we had our Board fully informed of the fairness of
this deal particularly with the combination and allowing the flexibility of
long-term shareholders to have flexibility in terms of the cash portion. We like
that. One could say that why more cash or less cash? But putting it in the
middle made an opportunity for those people who wanted to [indiscernible] and
still participate on the upside with the merged companies is there with this
arrangement.
JASON VELMYER ANALYST
Well, David thank you and thank you for all your years of service with Atrix.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Thank you.
OPERATOR
Your next question comes from the line of Harvey Cappitski(ph) of Maloney
Securities. Please go ahead.
HARVEY CAPPITSKI - MALONEY SECURITIES - ANALYST
Again, Dave, I just want to follow up. It seems to me also that I can well
understand QLT making this deal. It sounds like a tremendous deal for them. They
have really done a great job guys, getting an outstanding company. I think it is
a [indiscernible] deal that is not nearly as good a deal for the Atrix
shareholders. I am just wondering why, again following evidence, why it was done
at this time -- when things were really starting to look good for the company?
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Well, I think it is a good thing for Atrix shareholders. There is no question
about that. There is an opportunity here to participate in a wonderfully strong
merged company and I think I have said it over and over to you, Harvey and other
members of shareholders of our company, that we have a great pipeline, but no
ability to accelerate that where we are starting to see that happen. So you
either say to yourself, do you want to move this company back to
unprofitability, to exploit that pipeline, or do you want to look at the ways to
do it that would be good for shareholders that look for profitability for
companies like this and also look for a great pipeline? So those were our
choices and I think that you would understand that while not all of our Atrix
shareholders have one view or the other, but many of them have views on each
side of that argument.
HARVEY CAPPITSKI - MALONEY SECURITIES - ANALYST
Okay. Thanks a lot David. Again, congratulations. You are doing a wonderful job
with the company.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Now Operator, I think we are going to stop the questions now unless there is one
question left, but I think that was it, wasn't it?
OPERATOR
Okay, folks, we do actually have still quite a few questions in queue. It is up
to you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Why don't we take two more questions, okay?
OPERATOR
Thank you sir. Your next question comes from the line of Steven Tron (ph) of
Lewis Capital. Please go ahead.
STEVEN TRON - LEWIS CAPITAL - ANALYST
Thank you. Most of my questions have been answered. I just wanted to get some
more color in terms of how did the negotiations start? What started them? You
gave quite a good idea of what has happened, but I just wanted to get some more
color there.
In terms of the filing process when you indicated a one month date from now,
what exactly were you referring to? Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
I'm sorry, could you clarify the latter part?
STEVEN TRON - LEWIS CAPITAL - ANALYST
In terms of the filing at the end of the month? I think you had mentioned that.
You got cut off a little bit and I would just like to see if we can pick up.
Thank you.
PAUL HASTINGS - QLT - PRESIDENT, CEO
I was referring to the filing of the S4 with the FCC and we are estimating that
it will take about a month before that is filed.
STEVEN TRON - LEWIS CAPITAL - ANALYST
Okay. Thank you.
OPERATOR
Your final question does come from the line of Arthur Dagliony(ph) from Merrill
Lynch. Please go ahead.
ARTHUR DAGLIONY - MERRILL LYNCH - ANALYST
Congratulations to you, both companies under transaction. Dave, one of the
comments I wanted to briefly point out is that as a very substantial shareholder
of Atrix, I am actually very pleased with this transaction. We will have to say
that I was very surprised when I first saw this earlier this morning. However,
what it does for Atrix shareholders it also does for QLTI and that is that it
allows us to move this thing forward and still participate on the upside that
our pipeline has to offer. And while we might have all expected a larger
company, if some transaction were going to happen in a business combination, I
frankly would have found that to be less attractive at this stage of the game
because what I do like is the fact that we are selling to a company who has got
a market cap of roughly $1.2b, if I am not mistaken, which allows us to really
fully participate on the
upside. With Atrix's contribution in our upcoming six-month version of Elegard
as well as the Atroson product that we anticipate making an NDA submission for
should that be successful.
So, again congratulations and thank you again to all of the Atrix management
team for the outstanding performance over the last couple of years.
DAVID BETHUNE - ATRIX - CHAIRMAN, CEO
Thanks a lot Art. I appreciate those comments.
PAUL HASTINGS - QLT - PRESIDENT, CEO
Yes. We appreciate hearing those comments too. So I think that is probably the
best way we can close this conference call now and thank everybody for their
time and attention this morning and know that we will be on the road most of
this week visiting people one on ones and we will be happy to answer all your
questions and get them all on the table and get them all answered.
We feel really good about what we are all about to embark upon and I think both
companies are going to benefit from this. Both companies' shareholders, both
companies' employees. It is going to be just a wonderful combination going
forward. So thank you all for joining us this morning.
OPERATOR
We thank you for your participation in today's conference and this concludes the
presentation. You may now disconnect. Have a great day.