QLT's Age-Related Stock Disease
No doubt there's much weeping in the biotech community today after BC's most iconic biotech, QLT, announced that it might be put on the auction block as one of several options being considered by the company's management in an effort to boost its value, but age-related stock disease inevitable.
The local biotech community's first (and one of the very few) profitable drugmaker has been reeling in recent years from competitive attacks on its signature drug, Visudyne, which treats the age-related eye disease Macular Degeneration.
In many ways, QLT's problems are age-related as well. The company started way back in the 80s with the groundbreaking Visudyne, so it's pretty close to management guru Peter Drucker's magic number for the life of companies today – 30 years. It's a business that's pretty long in the tooth.
Sure the market it identified long ago for its drug is growing overall as the North American population ages. But that market growth has become apparent to several other companies over time, and so has drawn competitors.
In a sense QLT is suffering from the innovation leadership disease – invent a solution to a problem, and after you've proved its worth and created a market, somebody else comes in with an improved product and steals part of that market. QLT stock traded at the $40 level in 2004, but it's become much more feeble since then, sinking to $3.44 a share over the past year.
Many companies with a good idea follow this path over time. They gear up to produce their product, draw investors who like the revenue potential, and often fail to look beyond that product until it's too late. Sometimes its those very investors who prevent any change that threatens their predictable return.
As a result the companies become one-trick, albeit comfortable, ponies. In investment terms, they don't diversify their portfolio so they can deal with the inevitable downturn.
Granted, QLT tried to remedy this situation by attempting to convert itself to – in its own words -- “a “global biopharmaceutical company dedicated to the discovery, development and commercialization of innovative therapies”. In recent years, it began to buy up other companies to fill a drug pipeline that would prove the bold description it gave itself.
But becoming a developer and commercializer of drugs can take a long time and with a market cap below $300 million and about 250 employees, QLT isn't really big enough to fulfill its bold claim Visudyne and the prostate cancer drug Eligard still account for the majority of its revenues.
It appears that investors, particularly the mutual fund company Mackenzie Financial Corp. became a little tired of waiting for the turnaround, and so started pressuring management to do something to “enhance shareholder value”.
This is business-speak for “We're tired of waiting to make a profit on our investments, so sell off some assets or yourself to get those damn share prices up”.
So it looks like QLT is simply running out of time. Kind of like people do when they age.
Read Tony's previous blog here.
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