By Debbie Strickland

Special To BioWorld Financial Watch

This year is shaping up as a turning point for companies in biotechnology's photodynamics niche, as products with large market potential for age-related macular degeneration and donated blood products near the end of their development cycles.

Photodynamic therapies are inert until a physician directs a beam of nonthermal light at a specific wavelength to the site where the chemical reaction is desired. The drugs, usually tweaked or selected to target specific tissues or biological compounds, allow the physician greater control of drug activity, since the timing and location of the light activation can be controlled precisely.

QLT PhotoTherapeutics Inc., of Vancouver, has emerged as the dominant firm among the handful of companies working in this field, earning the FDA's first approval of a light-activated cancer drug for Photofrin (porfimer sodium) in 1995. The company has followed up on the initial indication of palliative treatment of esophageal cancer by winning approvals to add two lung cancer indications.

QLT has gone 3-for-3 at the FDA and won approvals elsewhere with Photofrin, but its markets are small. The product generated sales of $2.9 million in the second quarter, more than double the figure for the comparable 1998 quarter but still minuscule especially compared to the $1 billion potential of the company's ophthalmology product now before the FDA for marketing clearance.

Indeed, QLT's stock didn't take off until January, when investors saw the first Phase III data for Visudyne (verteporfin), a photodynamic drug for the "wet" form of age-related macular degeneration (AMD). Their enthusiasm has propelled the share price (NASDAQ:QLTI; TSE:QLT) to $80.69 as of Sept. 22, a 600 percent gain since the start of the year. The company's market capitalization now tops $2 billion.

Last month, the FDA granted six-month priority-review status to the NDA for Visudyne, which addresses an unmet medical need. The vision-robbing disease is characterized by the growth of weak, leaky blood vessels behind the center of the retina (the macula). Some 500,000 new cases are diagnosed worldwide each year, and the numbers are projected to rise as the population ages. Currently, laser surgery is the only treatment option, but is applicable to only 15 percent of cases.

Joe Dougherty, senior biotechnology analyst for Warburg Dillon Read, calls wet AMD a "blockbuster opportunity for QLT" and pegs 2001 sales at $320 million. The New York-based analyst expects FDA approval in early 2000. The product also is undergoing marketing review at the European Medicines Evaluation Agency.

QLT could, however, eventually face direct competition from Miravant Medical Technologies and Pharmacyclics Inc., both of which are developing light-activated therapies in the wet AMD indication. A pivotal Phase III trial of Miravant's PhotoPoint system granted FDA fast-track status last year is on track to complete enrollment by the end of the year. Pharmacyclics' Optrin is in Phase I/II trials.

All three companies have landed pharma marketing partners for their AMD drugs QLT has hooked up with CIBA Vision, the eye-care unit of Basel, Switzerland-based Novartis AG; Miravant with Pharmacia & Upjohn, of Peapack, N.J.; and Pharmacyclics with Alcon Pharmaceuticals Ltd., of Fort Worth, Texas.

The first company to tap a new pharmaceutical market always enjoys an edge over later competitors, but in photodynamics the effect is likely to be stronger since, as Dougherty notes, physicians and eye centers will have to invest approximately $35,000 for the complementary laser designed to go with Visudyne.

"This is likely to be a field where there's a substantial advantage to being first," Dougherty said. "Physicians are unlikely to want an assortment of lasers taking up space in their offices."

QLT this month got a further head start on marketing with the FDA's approval of a treatment IND, allowing physicians at 200 North American sites to use the product for up to 4,000 patients while it is under regulatory consideration.

"There is a tremendous amount of demand for the product," said Kenneth Galbraith, senior vice president and chief financial officer at QLT. "There are patients out there who, if they don't get access now, could lose their vision."

Dougherty noted that "QLT and CIBA Vision are doing a remarkable job of getting out there early. By the time of approval in the U.S., they should be in at least 10 percent of the major retinal specialist centers."

Meanwhile, Miravant's chairman and CEO, Gary Kledzik, touts the benefits of being second in the market QLT will have introduced the concept to physicians and trained them in its technique, and will have hashed out reimbursement issues with government and private payers.

"Everything that QLT does that creates a positive awareness for photodynamic therapy in the ophthalmology community makes us happy," Kledzik said. "We think that if we have better results, if our product shows visual improvement versus QLT's stabilization, their [earlier] marketing activity is going to be a good thing for us."

Santa Barbara, Calif.-based Miravant is hoping to gain a competitive edge by confirming Phase I/II results suggesting its product not only stabilizes vision, but improves it, an effect possibly linked to its longer half-life in the body.

"Much has been said about the potential disadvantage of longer half-life light sensitivity," said Kledzik, "but we do believe the long half-life of the molecule contributes significantly [to efficacy]."

Technology Originally Targeted Cancer

Because photodynamic drugs provide a controlled, site-specific reaction, they first drew the attention of cancer researchers in the 1970s and '80s. But their usefulness in oncology was largely limited to treating accessible tumor sites rather than systemic, metastatic disease, and the plethora of therapies already on the market and in development eventually convinced the major players to look for more marketable indications.

"Our initial applications were in oncology, because that's where most of the original research was done," Galbraith said. "In oncology there's definitely a benefit for patients, but photodynamic indications tend to be smaller indications. In 1993, we decided to broaden the use of the technology beyond cancer and move toward treating diseases of the eye, specifically AMD. It was a tremendous match between the disease and the cause, and what our drug could do to shut down those blood vessels."

Dougherty applauds the strategic move. "In AMD," he said, "they have a treating physician population completely used to using lasers in therapy and who give intravenous agents in one of their routine diagnostic angiograms. There are no major cultural barriers in the way."

Miravant also shifted from cancer to AMD in the 1990s, entering the clinic in 1996 with PhotoPoint. The company meanwhile took the product all the way through Phase II/III testing in cutaneous metastatic breast cancer before dropping that indication, as well as AIDS-related Kaposi's sarcoma, in 1998. Miravant continues to do early-stage work in other cancer indications.

Pharmacyclics is branching out as well, although its two lead products are for cancer Xcytrin, in Phase III as a radiation-enhancer for tumors that have spread to the brain; and Lutrin, which has completed a Phase II trial for recurrent breast cancer.

Pharmacyclics leads its rivals in another indication with a potentially large market photoangioplasty. The company's Antrin is designed to accumulate selectively in and reduce vascular plaque when activated by light energy supplied by an optical fiber inserted into the vessel via a catheter. Pharmacyclics completed a Phase I trial using Antrin in patients with blocked arteries in the legs.

Pharmacyclics officials were unable to comment on their programs since the firm was in registration for a $49 million public offering. The company proposed the sale of 1.75 million shares at $28.25 per share, but it completed Friday with the sale of 2.3 million shares at $38.75 each, raising about $89 million.

The financing more than doubled Pharmacyclics' cash reserves, funding operations through at least 2001.

Cerus Shines Light On Blood Products

Cerus Corp. has taken a different tack altogether with its S-59 psoralen compound, targeting pathogens in blood products instead of in vivo diseases. With partner Baxter Healthcare Corp., of Deerfield, Ill., Cerus has taken its photodynamic technology into Phase III trials in transfusions of platelets and fresh frozen plasma.

"What makes our technology different," said John Hearst, vice president for new science opportunities, "is our photochemistry targets nucleic acid very specifically. It's active against viruses, bacteria, fungi, white blood cells. It is a general way of targeting all things that have a biological urge to proliferate."

Since blood products platelets, fresh frozen plasma and red blood cells do not have DNA, the product kills bugs such as hepatitis B and C without harming the desired transfusion components.

Cerus this summer ventured into the therapeutics arena with S-59, initiating a Phase I bone-marrow transplant trial. Patients receive a transfusion of donor T cells treated with S-59 in conjunction with bone marrow cells. The idea is to maintain the therapeutic properties of the T cells, while stopping their ability to multiply and cause graft-vs.-host disease.

The Concord, Calif., company also is studying S-59's potential to treat restenosis, as well as other undisclosed indications.

Financing Picture Bright At Light-Therapy Firms

Both QLT and Cerus completed public offerings this spring, with QLT garnering $138 million and Cerus $46 million.

QLT has about $185 million in the bank in the wake of the offering, its largest to date. With a burn rate of $20 million, QLT is positioned to make a play for additional technologies or products, noted Galbraith.

"We're looking at a broad range of options, including collaborations, in-licensing and acquisitions," he said. "Some go beyond photodynamic therapeutics. We have expertise in oncology and ophthalmology and also in autoimmune and cardiovascular disease."

As for Miravant, it secured a $41.5 million investment from partner Pharmacia & Upjohn in February, consisting of $19 million in equity and a $22.5 million line of credit. Miravant, Kledzik said, is not planning to take advantage of the improving biotech financing market until Phase III data start coming in. Kledzik said the company's current price of about $9 is too low to make financing attractive.

"We're going to wait and see," he said, noting that QLT's stock was trading in the teens before disclosure of its AMD Phase III results. *