QLT Inc. is cutting its work force by up to 46 percent and reducing its sales guidance for its ophthalmic product Visudyne amid mounting pressure from a pending regulatory filing and a probable approval next year of Genentech Inc.'s would-be competitor Lucentis.

Genentech's drug has threatened other wet age-related macular degeneration (AMD) products because of data reported in May, which showed that 95 percent of Lucentis-treated patients, compared to 62 percent of those on placebo, maintained or improved their visual acuity at week 54.

The drug is a major reason for New York-based Eyetech Pharmaceuticals Inc.'s recent purchase by Melville, N.Y.-based OSI Pharmaceuticals Inc. for $935 million - a price that some analysts have said is too much, considering the diminishing market share of that company's approved wet AMD drug, Macugen.

And now, Genentech's anti-angiogenesis drugs are wounding QLT, a company best known for gaining the first wet AMD drug approval in 2000.

"Visudyne will face significant competition from Lucentis assuming it's approved, which we do," said Robert Butchofsky, the company's acting CEO since September. "We are also already seeing the initial impact of a paradigm shift to anti-angiogenic use with off-label use of Avastin in the U.S. market."

Visudyne sales were expected to reach between $500 million and $530 million this year, but QLT reduced that guidance Thursday to a range of $480 million to $485 million, as a result of more retinal specialists (about 50 percent) using Genentech's Avastin on a trial basis for wet AMD.

"We didn't see that coming, quite honestly," Butchofsky said. "We didn't expect the penetration would increase that quickly."

News of the company's restructuring plan also follows data released by Genentech, of South San Francisco, last month showing that Lucentis demonstrated improved visual acuity over Visudyne in a head-to-head study in patients with the predominantly classic form of wet AMD. (See BioWorld Today, Nov. 9, 2005.)

Plans To Narrow Focus, Reduce Staff

While Vancouver, British Columbia-based QLT recognizes the pressure from Lucentis and Avastin, it expects to position Visudyne to be used as a combination therapy with those drugs.

Meanwhile, it is narrowing its focus to its two platform technologies - photodynamic therapy and Atrigel drug delivery - in developing products for ophthalmology and one other therapeutic area to be selected based on milestones hit in 2006. Potential candidates include Aczone for rosacea or lemuteporfin for benign prostatic hyperplasia. The company also intends to partner its products, as opposed to its previous strategy of retaining all commercial rights.

Lay-offs and divestitures of non-core assets will reduce the company's work force from 567 to 310. Half of those employees will leave the company early in January, and the rest would be affected through the sale of the generics and dental operations (NEW sentence)and a 60,000-square-foot manufacturing plant in Fort Collins, Colo. QLT will keep the portion of the Fort Collins operations focused on Atrigel.

By re-prioritizing its pipeline, QLT also is reducing from $100 million to $80 million its research and development and selling, general and administrative expenses in 2006. And it is doubling the size of its share buy-back program, increasing it to $100 million in common shares. So far, QLT has bought back 3.1 million shares, or about $28 million worth.

The restructuring plan will include a charge of about $5 million to $6 million to be recorded in the fourth quarter, but going forward, it should save the company about $10 million a year. "We have significantly flattened the organization, including significant reductions at the management level," Butchofsky said.

The changes at QLT include the resignation in September of its former CEO, Paul Hastings, and the more recent resignation of Mohammad Azab, the company's chief medical officer, who was integral in obtaining worldwide approvals for Visudyne and the oncology product Photofrin, which QLT sold to Axcan Pharma Inc., of Mont Saint-Hilaire, Quebec, in 2000. Azab has agreed to work as a company consultant for the next 18 months.

QLT Backpedals On Atrix Merger

One disappointment that has led to QLT's streamlining, Butchofsky acknowledged, is the company's $855 million merger of Atrix Laboratories Inc. in June 2004. (See BioWorld Today, June 15, 2004.)

At the time, the company was looking for new sources of revenue aside from Visudyne and a way to enhance its pipeline. Along with its manufacturing facility in Fort Collins, Atrix brought to the table its prostate cancer product, Eligard, for which QLT expects modest sales of $89 million this year, and Aczone, for which a launch is delayed until the company completes a Phase IV trial aimed at eliminating a blood testing requirement currently in the FDA label.

"We thought we were taking a step in the right direction with that deal," Butchofsky said, adding that "things haven't quite turned out" as hoped.

If launched for acne without the blood testing requirement, Aczone does have a worldwide sales potential of up to $150 million, he said, and Eligard might have a better future outside of the U.S. once it's introduced in Europe and Japan. But that doesn't remove certain mistakes made by QLT when taking on Atrix.

The company, Butchofsky said, "failed to realize significant headcount synergies" and has existed with "too many layers of management," as well as "expenses that were clearly too high." In addition, he said, "We have lacked focus and have had difficulty in making decisions, slowing our progress."

Moving forward, QLT expects Phase IIb results in the first quarter of 2006 for its BPH product lemuteporfin, which could bring in up to $250 million in worldwide sales if approved. Data from the Phase IV study of Aczone and the Aczone trial in rosacea also are expected in 2006.

The company is continuing to develop a three-month suspension of octreotide for acromegaly, but has halted further development of the one-month formulation for carcinoid tumors syndrome, as well as a program for breast cancer that would have entered the clinic in 2006.

QLT had $449 million in cash and short-term investments at the end of the third quarter.

The company's stock (TSE:QLT) fell C90 cents Thursday, or 11.1 percent, to close at C$7.20. On Nasdaq, the shares (NASDAQ:QLTI) fell 80 cents, or 11.4 percent, to close at $6.20.