June 6, 2012 / 11:19 AM / 5 years ago

QLT shares rise after activist prevails in vote

5 Min Read

(Reuters) - Shares of QLT Inc rose more than 5 percent on Tuesday, a day after an activist investor's nominees for the board prevailed in a shareholder vote, signaling a shakeup at the Canadian drug development company.

Six of the seven directors elected at the company's annual general meeting on Monday were nominated by NB Public Equity Komplementar ApS, a Danish investment fund with a 15.2 percent stake in QLT. NB is the company's second-biggest shareholder.

The fund, which invests mostly in biopharmaceutical companies, said in the filing in May that it thought a change was needed on the board, without being specific. All six NB nominees were elected.

Among those ousted from the board was Bob Butchofsky, who remains the company's chief executive. QLT put up a full slate of seven nominees.

C. Boyd Clarke, the incumbent chairman, was replaced by Jason Aryeh, founder and general partner of Jalaa Equities, a hedge fund focused on the biotechnology and specialty pharmaceutical sector.

In an interview on Tuesday, Aryeh said he was open to new business partnerships and asset sales, and that he favors a share buyback and instituting a dividend and other tax-free capital returns to shareholders.

He said Butchofsky's future with the company will ultimately be determined by the board.

"In a public company, every asset including the company is always for sale," Aryeh said. "I think that any good board working collaboratively with its management team needs to always be receptive to any strategic opportunity and that's in-licensing, out-licensing, buying, selling."

Aryeh is not in favor of a Dutch auction share repurchase plan that management had earlier proposed as a way to return to shareholders.

Focus on Eye Treatments

Vancouver-based QLT was a strong performer in the early 2000s mostly powered by sales of its Visudyne treatment for macular degeneration, a common form of age-related blindness. Since then competing products such as Novartis's Lucentis, approved in 2006, have eroded QLT's share of that market.

After Butchofsky took over in 2005, the company sold off assets to focus on developing ocular drugs, including a treatment of inherited retinal diseases. QLT still receives royalties on some older products.

Critics have expressed frustration over the company's spending on developing its punctual plug drug delivery system to be used in treating of glaucoma and other eye conditions.

"We've raised some issues in the past about some of the funding of their pipeline, specifically the punctual plug program," said Morningstar equity analyst Michael Waterhouse in Chicago.

"This is something they've had in development for years and years, and it seems to go nowhere," he said. "With the new board in there, potentially they think they can obviously shake things up a little bit."

The company is also involved in the development of QLT091001, the treatment for inherited retinal diseases, which it aims to move into a late-stage trial this year.

U.S. health regulators have given the treatment orphan-drug status, which makes it easier to win marketing approval for treatments for rare diseases.

"Unquestionably, there is enough capital to pursue all the projects that the company currently has if we wish to and the question is not if there's enough capital but how is that capital most effectively deployed to create shareholder value," Aryeh said.

Some analysts speculate that if the latest trials are unsuccessful, the company could sell its remaining product rights and royalty deals, and essentially liquidate.

Waterhouse said a more positive outcome would be a sale of the company on the back of its retinal disease treatments.

"If the drug looks like it's doing well and it's a phase 2 or phase 3 trial, they could potentially stay standalone or sell the company because a potential orphan drug like that could be attractive to a lot of larger pharmaceutical companies."

The newly appointed board of directors includes Kathryn Falberg, who had been nominated by both the shareholder and QLT's management.

Shares of QLT ended up 5.5 percent at C$8.25 on the Toronto Stock Exchange on Tuesday.

(This story was corrected to show C. Boyd Clarke was former chairman, not Bob Butchofsky)

Editing by Frank McGurty

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