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March 31, 2004.


The opinion of the court was delivered by: SIDNEY STEIN, District Judge


This action arises from a sharp fall in the price of QLT Inc. common stock on December 14, 2000, after QLT, a Vancouver-based pharmaceutical manufacturer whose common stock is listed on the NASDAQ and Toronto stock exchanges, issued a financial update stating that the fourth quarter 2000 sales of its main product, Visudyne, were expected to be lower than previously forecast. This announcement triggered a drastic reaction by the investing public, as the price of QLT shares fell from approximately $40.44 per share at the close of December 13 to a low of $28.06 per share on December 14.*fn1

Plaintiffs, the class of purchasers of QLT stock between August 1, 2000 and December 14, 2000, brought these actions pursuant to Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), Section 20 of the Exchange Act, 15 U.S.C. § 78t(a), and Rule 10b-5 of Securities and Exchange Commission, 17 C.F.R. § 240.10b-5. The Consolidated Class Action Complaint ("the Complaint") alleges that QLT and its Chief Executive Officer and Chief Financial Officer — individual defendants Dr. Julia Levy and Kenneth Galbraith, respectively — issued false and misleading information to the public concerning sales projections for Visudyne. Plaintiffs seek compensatory damages for the losses Page 2 they incurred due to their purchases of QLT shares during the class period, interest, and attorneys' fees.

  Defendants have moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint for failure to state a claim upon which relief may be granted. For the reasons set forth below, that motion is granted.


  Visudyne treats symptoms of age-related macular degeneration ("AMD"), a disease of the eye that typically afflicts people over age 65.*fn2 (Complaint at ¶ 29). There are two types of AMD, "wet" and "dry." Wet AMD results from leakage of abnormal blood vessels under the macula — the central part of the retina — and can cause vision loss and sometimes blindness. (Complaint at ¶ 30). Wet AMD can be further classified according to the location of the abnormal blood vessels into subfoveal, juxtafoveal, and extrafoveal CNV forms or according to the pattern of leakage into "occult" or "classic" forms. Id. Visudyne was approved to treat the "predominantly classic subfoveal CNV form of AMD" by the Food and Drag Administration ("FDA") on April 12, 2000. (Complaint at ¶ 32). Visudyne treatment involves "infusion by doctor of Visudyne, a light-activated drag, followed by the use of a non-thermal laser," which "activates and temporarily closes the leaking blood vessels." (Complaint at ¶ 31).

  A. Alleged Misrepresentations of the Size of the Market for Visudyne

  Plaintiffs allege that defendants had exaggerated the potential market for Visudyne treatment. In an April 12, 2000 press release, QLT described the potential market for Visudyne Page 3 as follows:
Specifically, the FDA approved Visudyne therapy for the treatment of AMD in patients with predominantly classic subfoveal choroidal neovascularization (CNV). Medical experts estimate that of the 500,000 new patients that develop wet AMD every year around the world, 40-60% will develop predominantly classic lesions during the progression of their disease. Patients with this condition lose their ability to read, drive and recognize faces in as little as two months to three months.
As the first approved drug therapy for this devastating condition, Visudyne provides new hope to many of the 200,000 Americans who lose their vision from wet AMD every year.
(Attached to Chlapowski Declaration at Exhibit 6)
  According to plaintiffs, the 40-60% figure in the press release greatly exaggerates the prevalence of the forms of AMD suitable for Visudyne treatment. (Complaint at ¶ 36). The actual percentage, plaintiffs claim, is "far less than [QLT] represented." Id. For example, a survey of retinal specialists conducted by a Merrill Lynch research analyst reported that only 17% to 20% of "patients with wet AMD fit the FDA's criteria for Visudyne treatment," and a similar survey contained in a research report by analysts at Leerink Swann & Co. indicated "doctors expected up to 17% of their patients with wet AMD to be eligible to use Visudyne." Id. Plaintiffs also cite a statement of Dr. Dan Montzka, a retinologist, that only 2% of patients with wet AMD "would benefit from treatment [with Visudyne]." Id. Finally, a February 9, 2001 article in the National Post (Canada) reported that "[a]bout 200,000 people in North America suffer from wet AMD. Scientists working for QLT believe that 40,000 of these patients have the classic form and can be treated with Visudyne. Adding occult sufferers could make Visudyne available to another 80,000 patients." Plaintiffs allege that defendants knew that the press release had exaggerated the market for Visudyne prescriptions or that they acted recklessly in disregarding this fact. Plaintiffs further allege that, in light of the exaggeration of the market for Visudyne, defendants knew that the initial forecasts for Visudyne sales in the fourth quarter of Page 4 2000 were false and misleading or that they recklessly disregarded this fact.

  In August and early September of 2000, individual defendants Levy and Galbraith sold large blocks of their QLT shares. Specifically, the Complaint alleges that beginning in early August 2000, Galbraith sold 115,800 QLT shares — approximately 85% of his holdings at the time — for 13.67 million Canadian dollars ("CN$"). Similarly, in early September 2000, Levy sold 42,000 QLT shares for CN$4.65 million. (Complaint at ¶ 53-a, 53-b, 72).

  B. Alleged Misrepresentations of Fourth Quarter 2000 Visudyne Sales Forecasts

  Plaintiffs' allegation also focus on the discrepancy between the expectations allegedly created by a series of statements by QLT and the individual defendants in October of 2000 — including initial fourth quarter 2000 Visudyne sales forecasts — on one hand, and the revised sales forecast released by QLT on December 14, 2000, on the other. According to the Complaint, Galbraith was quoted in a Dow Jones News article on October 17, 2000 that "QLT Inc. sees 30-50% growth in Visudyne sales for the fourth quarter over the third quarter (of 2000)." (Complaint at ¶ 57-b). Galbraith also expected, according to an October 18, 2000 article in the Globe and Mail, the sales of Visudyne to be between $40-million and $50-million" for the fourth quarter of 2000.*fn3 (Complaint at ¶ 60). In addition, defendant Levy allegedly told research analysts during a teleconference: "we just want the $40-50 [million] in sales of Visudyne [in fourth quarter 2000]. We're comfortable with the 35% quarter-over-quarter growth [from third quarter 2000]." (Complaint at ¶ 57-d).

  The Complaint also identifies a number of other allegedly fraudulent statements regarding Visudyne sales. During a conference call with financial analysts on August 1, 2000, Galbraith Page 5 stated that there was growing demand for Visudyne and that "I don't think [the second quarter 2000] is going to be a one-quarter blip." (Complaint at ¶ 50). In an October 11, 2000 press release, QLT included quotes by Levy that Visudyne received "strong endorsement by retinal specialists" and that "we are confident in CIBA Vision's (QLT's marketing partner) ability to continue strong growth in sales in the U.S. and rapidly introduce Visudyne in Europe and other markets. . . ." (Complaint at ¶ 54). Galbraith echoed those sentiments in a QLT press release accompanying its third quarter 2000 financial results. (Complaint at ¶ 57-a). Galbraith also stated during a CNN interview that "the uptick for [Visudyne] looks excellent" and that "[Visudyne would] do about 100 million (U.S. dollars in sales) this year and hopefully grow that to 6 or 700 by 2003. So pretty good growth rates." (Complaint at ¶ 57-d).

  QLT revised those forecasts in its December 14, 2000 press release and stated that "fourth quarter demand for Visudyne vials is expected to grow 20 to 25% over Q3[,] which will translate into sales of approximately US $36-38 million," down from the earlier forecast of $40-50 million sales and 35% growth. (Complaint at ¶ 65; Press Release dated December 14, 2000, attached to Chlapowski Declaration at Exhibit 10). The press release attributed the slower than expected growth to "lack of reimbursements in some countries in Europe and in the U.S. as well as a reduction in revenue caused by the [currency fluctuation]." As noted above, although on December 13, 2000, QLT shares had closed at approximately $40.44 on the NASDAQ, they reached a low of $28.06 on December 14.*fn4 (Complaint at ¶ 4, ¶ 67). Page 6

  C. Alleged Misrepresentations Regarding HCFA Reimbursement Approval

  Approval by the Health Care Financing Administration ("HCFA") or by local Medicare Carrier Medical Directors is required before physicians are permitted to receive Medicare reimbursement for Visudyne treatment. In June 2000, the HCFA assigned a temporary billing code for Visudyne treatment, known as photodynamic treatment or "PDT," as an unlisted procedure. (Complaint at ¶ 42). Furthermore, when approval for Visudyne was pending before the U.S. Pharmacopoeia, Visudyne was reimbursed as a supply by Medicare, instead of as a drug, until July 18, 2000. (Complaint at ¶ 43-44). After engaging in extensive discussions with the HCFA, QLT resolved the reimbursement issues ...

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