So what does an investor get when purchasing QLT?
First, they get ~$110m in cash.
Second, they get significant tax assets. QLT has over $140m in Canadian NOLs and R&D tax
credits which can shield future taxes, either from merging with a profitable business or launching
the orphan drug. Putting an exact value on those is difficult, as their
value depends on how quickly the company can turn a profit to utilize the tax shield. However,
there is no doubt that a profitable company would find significant value in those R&D assets.
Third, the company has a Canadian domicile. While the treasury is tightening rules on
inversions, a Canadian domicile is still very valuable for QLT. They could potentially use their
omicile to invert a U.S. company if a merger partner of the right size came around; if not, QLT
can use their lower tax rate to as a competitive advantage over American firms in M&A deals.
Fourth, and most importantly, investors get QLT's orphan Retinoid program, QLT091001.
QLT091001 is a synthetic retinoid compound for treatment of certain rare forms of Leber's
Congenital Amaurosis (LCA) and Retinitis Pigmentosa . The forms of LCA and
RP the program treats are very rare forms of two diseases that are already quite rare; combined,
there are less than 5,000 people in the world with the indications the program tries to treat.
Because there are no treatments currently approved for these orphan diseases, QLT091001 has
Fast Track designation from the FDA.
QLT091101 will begin Phase 3 trials in 2016, and QLT is hoping for approval and launch in
2018. If approved, the potential is enormous: QLT estimates the market size is ~$500m/year, and
with orphan designation for 7 years post marketing approval, the program would be incredibly
valuable if approved. To put it into perspective: if the product is approved and the market size is
actually $500m/year, the product would easily throw off more than $250m/year in cash flow.
That means this one program has the potential to generate more cash in one year than QLT's
entire current market cap. It is also worth pointing out that QLT's advisor during the potential
Auxilium merger valued the NPV of retinoid program at ~$4/share (with an appropriately high
discount rate to adjust for development risk).
QLT Inc trades at NASDAQ as QLTI around $1.55 while its cash is more than $2.00 per share.
(All numbers in USD)