QLT Q3 2009 Earnings Call Transcript

Oct.27.09 | About: QLT Inc. (QLTI)


Q3 2009 Earnings Call

October 27, 2009 8:30 am ET


Karen Peterson - Investor Relations Specialist

Robert L. Butchofsky - President, Chief Executive Officer, Director

Cameron R. Nelson - Chief Financial Officer, Vice President - Finance


John Gibbons - Odeon Partners

Matthew Golub (ph) - Greyfire Capital (ph)

Doug Miehm - RBC Capital Markets



Hello and welcome to the QLT Inc. third quarter 2009 conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. (Operator's Instructions) At this time I would like to turn the conference over to Karen Peterson, Investor Relations specialist. Please go ahead.

Karen Peterson

Good morning, everyone, and welcome to QLT's third quarter 2009 earnings conference call. If you have not yet received a copy of our press release, you can find it by visiting our website at qltinc.com. The conference call is being webcast live and will be available on our website for the next 30 days. Presenting today are Bob Butchofsky our President and CEO and Camerson Nelson, our CFO.

Before I turn the call over to Bob, I'd like to take a few moments to go over the Safe Harbor Statement. I need to remind you that certain statements in this conference call are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and constitute forward looking information within the meaning of Canadian Securities Laws.

Forward looking statements include, but are not limited to, our financial projections, statements relating to our clinical development, sales and marketing, share repurchase plans, our expectations for timing and results of clinical studies, statements related to the financial impact and accounting of the sale of QLT USA and the Visudyne (inaudible), and statements which include language such as belief, goal, future, project, expects, outlook, and similar expressions.

Forward looking statements are predictions only which involve known and unknown risks, uncertainties and other factors that may cause actual results to materially differ from those expressed in such statements. Any such risks and certainties are taken into account as part of our assumptions underlying these forward looking statements, including but not limited to (inaudible), are uncertain and unlikely to fluctuate. Currency fluctuations may impact financial results. The risk of future sales of Visudyne or Elegard may be less than expected. Uncertainties relating to costs and success of R&D, commercialization of products, and litigations, uncertainties related to the financial implications and tax treatment of transactions, and other factors including those described in QLT's annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the US and Canadian securities regulatory authorities.

Forward looking statements are based on the current expectations of QLT, and QLT does not assume any obligation such information to reflect later events or developments except as required by law. And with that, I'll turn the call over to Bob.

Robert L. Butchofsky

Good morning, everyone, and thanks for joining us on the third quarter call. I just want to highlight for you, in addition to our earnings release, we issued a separate release today announcing our intention to do a normal course issuer bid of stock buyback for 5% of our shares or about 2.7 million shares.

I want to turn to the business of the company today, and I'm very pleased with the recent corporate developments that we've had, and I want to review those for you and then let Cam walk you through our financial results, but also explain for you the recent announcements and the impact they'll have on our financial statements going forward.

Over the past couple of months we've continued to focus our business as a pure ocular company and we've positioned ourselves to enhance the revenue stream from Visudyne beginning next year, and we significantly added to our cash position with a receipt of $45 million CAD from the Canadian Revenue Agency in September.

We're even stronger financially as a result of these events with approximately $194 million the bank at the end of the quarter and approximately $210 million in the bank today, and that includes the up-front payment for the QLT USA transaction which was received just after the quarter end. Importantly, we've simplified our business considerably with the divestment of QLT USA.

Now let me talk briefly about each of the deals and what they'll mean for QLT.

On October 1st, TOLMAR Holding agreed to purchase our subsidiary QLT USA which includes the Eligard line of products, and that deal is up to an aggregate of $230 million. We believe this is a win for the company and this allows QLT to receive 80% of our previous Eligard royalty revenue. However, the royalty will come to us on a tax free basis until either the earlier of 2024 or until we receive $200 million in aggregate royalty payments. This allows us still to benefit in the product growth of Eligard and earn $200 million in royalty revenue on a plug program and the synthetic retinoid.

I'd now like to turn to the deal announced last week with Novartis. Since last year we've publically acknowledged the possibility of negotiating a revision to the terms of our contract with Novartis for Visudyne. We disagreed with Novartis's decision late last year to pull their field force in the US that was promoting Visudyne.

We said at the time we did not expect a short term negative impact on Visudyne sales, but that we felt that lack of field promotion would be detrimental to the brand over the long term. We still believe that and our third quarter results support that conclusion when you see that average vials sold per day in the US has dropped from roughly 113 vials per day in the third quarter last year to approximately 84 vials per day in the most recent quarter.

As a result of the prolonged discussions with Novartis, we announced last week that we have emended our original vision and agreement with them to give QLT exclusive marketing rights for the product in the US starting on January 1st, and with QLT getting a 20% royalty on Novartis product sales outside the US market.

As part of the agreement we've also released each other from any claims in connection with the MEEI and MGH litigation. In short, we believe this deal will lead to more favorable economics to us and Cam will walk you through that in some detail later. Additionally, the quarterly results speak volumes to me about the need to ensure the future viability of Visudyne in the US with dedicated commercial support. I believe there will be other benefits to establishing a small commercial presence, and these include our ability in the future to provide launch support to the punctal plugs which we said we plan to commercialize ourselves in North America. An additional benefit is we will now be a viable partner for late stage end licensing opportunities for ocular products.

Previously without a commercial presence, it was virtually impossible for us to be considered as a potential partner for later stage ocular products because we lacked a sales force. Now we feel we'll have a potential to bring in other technologies to fuel our future growth in ophthalmology.

I want to turn briefly to our commercial plans for Visudyne. We're currently working through territory alignment and our expectation is that we will have a small focused effort to support the brand. We currently anticipate about 15 people in the field once we are fully operational, which won't be until sometime in Q1.

In short, we hope that a focused team dedicated to the brand will allow us to change the current trend for Visudyne sales and we're excited to be in a position to do that.

Now I want to turn briefly to the ongoing Visudyne trials. The manuscript for the RADICAL study has been submitted to a leading peer review journal and data was presented on that trial last Friday at the American Academy of Ophthalmology Meeting. We are also planning for the 24-month outcome of the RADICAL study which we expect in the first half of next year. We expect the results of the Novartis sponsored DENALI study sometime early in 2010 as the last patient visit is currently scheduled for the end of this year.

Now I want to review with you where we stand on the punctal plug development program. Our current goal is to find the right formulation demonstrating a decrease in intraocular pressure of 5 mm or greater, and to move this forward in a confirmatory Phase 2 trial next year.

As we announced last quarter, we are continuing to push the dose higher in our Phase 2 open label study and have recently completed enrollment of approximately 50 patients in the 81 mcg arm formulation. We've also started enrollment of two higher doses and expect to enroll approximately 30 to 40 patients in each treatment arm.

The higher doses we are currently studying are still below the corresponding drug load for latanoprost eyedrops, and we continue to explore and develop new formulations that may enhance the release of the drug to ensure that we have enough drug at the target receptor to achieve a therapeutic response goal of greater than or equal to 5 mm drop in pressure.

We remain hopeful that we will demonstrate a dose response and see better efficacy as a result of these efforts. Parallel to the drug dosing studies, we continue to work on and we are currently fitting patients with our third generation plug only designs.

As a reminder our goal is to achieve a 90% retention rate for 90 days in a plug that is well tolerated for the patient and is easy to insert and remove for the physician. When enrolling patients in the next series of device only designs, we hope retention rates will improve from the less than 70% rate we reported to you on our second generation plug design on our last earnings call.

We expect to have an update for you on the status of the overall program of both the data on dosing and an update on pug retention by the end of the first quarter.

As our glaucoma studies are ongoing, we're looking to advance at least one new formulation into a punctal plug clinical proof of concept study next year. We continue to evaluate molecules from currently available eye drop formulations in the areas of allergy, dry eye, and post-surgical inflammation, and are also evaluating other medications in glaucoma as well.

We're hopeful and excited that our punctal plugs for glaucoma patients will prove the utility of the punctal plug technology platform and will be the preeminent source of our pipeline growth.

Now I'd like to turn to the synthetic retinoid program. We've nearly completed getting all of the necessary approvals to be able to start the study. We would hope to start it in the near future. The Phase 1B trial of QLT-091 will be tested in a pediatric population of children with Leber's congenital amaurosis, or LCA. The trial will be conducted at a single site which is the Montréal Children's Hospital. The Phase 1B study will be an open label repeat dose trial to evaluate the safety and visual acuity of QLT-091 in eight pediatric patients between five and 14 years of age. Any positive impact we have on vision will be a huge benefit for these patients as there are currently no other approved treatment options. We are very excited to get the trial underway and to determine if there is a possibility that this compound can provide functional vision for children with LCA.

The last thing I want to highlight for you is to just give you a brief update on our case with Massachusetts General Hospital or MGH. We're completing the discovery process and are formulating our arguments to support our position in this upcoming case. We continue to believe in the merits of our case and intend to defend ourselves vigorously. The case is scheduled to be tried in front of a jury next summer if it is not otherwise resolved before then.

And with that update I want to turn the call over to Cam to review our financial results and give you a little bit more color on the accounting treatment for our deals in Visudyne and in particular for Eligard.

Cameron R. Nelson

Thanks, Bob. Today I'm going to start by going over some of the usual financial data that I normally review with you, but then I'd like to spend some time reviewing the financial implications of the two major announcements that we made recently regarding the sale of QLT USA and the amendment of our Visudyne agreement with Novartis.

So first let's look at end-user sales results for Visudyne in the third quarter. The regional split for Visudyne sales was $6.2 million, Europe $6.5 million, and rest of world $10.8 million for total worldwide sales of $23.5 million. Weak sales in the US were somewhat magnified by a reduction in inventory at the distributors there, but the underlying end user sales still declined to about 84 vials per day, down from above 94 vials per day in Q2 and 101 vials per day in the first quarter of this year and also down from 113 vials per day in the year ago third quarter. At the end of the quarter US distributors held about 800 vials or about two weeks of supply.

Changes in foreign exchange rates have a small negative impact on the year-over-year sales decline from the third quarter of 2008, but for the sequential comparison to Q2 '09, FX rate had a small positive impact.

Now briefly on Elgard sales in the quarter, $65 million, or up 18.8% from last year, but down 3.9% sequentially from the second quarter. In the US, Eligard sales of $18.8 million were up 11.4% from the prior year third quarter, but down 10.5% from Q2 '09. Outside the US, sales were up 22.1% from the third quarter of 2008 and down less than 1% from the second quarter of '09.

Now turning to the QLT financial statements, subsequent to quarter end we announced the sale of our QLT USA subsidiary and as a result, our third quarter P&L reflects the results of the divested assets which primarily encompass the Eligard product line as discontinued operations. This means that the operating results for QLT USA were summarized into a net total and reported as one line called income from discontinued operations. Therefore, all the operating line items that we report in our P&L such as revenue, COGS, R&D, G&A, etcetera, do not include any portion related to the QLT USA business.

Product revenue which now comprises only revenue from Visudyne was $8.8 million for the quarter, down 19.2% from the third quarter of 2008. The revenue from Visudyne included about $6.8 million of profit share and $2 million for reimbursed expenses.

The Visudyne profit share rate for the quarter came in at 28.9%, up from 22.6% in the prior year third quarter due to lower spending on marketing and distribution.

Turning now to expenses; cost of sales, which again comprises only Visudyne cost of goods, was $2.2 million for the quarter, and this includes the ongoing damage award payable to MEEI of 3.01% of end-user sales.

Also remember that the year-to-date COGS of $12.7 million included a $4.6 million non-cash charge for inventory obsolescence taken in the second quarter of this year.

R&D expense for the quarter of $7.4 million was up 7% compared to last year, primarily due to the increased spending on our punctal plug program. G&A expense of $4.5 million, which was up less than 2% from a year ago, included a $0.5 million expense for capital taxes that is not expected to recur in the future. Combined R&D and G&A expense of $11.9 million for the quarter included approximately half a million dollars of stock compensation expense.

For the first nine months, combined R&D and G&A expense of $33 million was down almost 15% from the prior year, primarily due to benefits realized from our first half of 2008 restructuring activities. We reported a net foreign exchange gain in the quarter of $7.5 million, but as in the second quarter, this was driven by a non cash gain on an inter-company loan which has been excluded from our determination of non-GAAP EPS . The loan has been eliminated with the sale of our QLT USA subsidiary.

Interest income of $1.9 million for the quarter was flat from the prior year, but approximately $1.6 million of the current year total came from interest earned on income tax refunds received during the quarter which will not be repeated going forward, and another $0.2 million came from the second mortgage financing that we provided to the purchaser or our retail estate assets in Q3 last year.

The underlying interest rate earned on our cash balance continues to be very low, reflecting the company's conservative treasury policy which aims to preserve principal by investing in conservative instruments.

Moving onto income taxes, the effective rate year to date was extremely high, reflecting the fact that income earned at the parent company level has a tax provision, while expenses and losses incurred in our US subsidiary that is developing the punctal plug technology do not have a tax recovery recognized against those losses.

Moving onto EPS, just a reminder on shares outstanding, recall that we completed our $50 million Dutch auction in the first quarter, purchasing 20 million shares or about 27% of our outstanding shares, and these were cancelled in early February. So the diluted shares outstanding for the third quarter of 54.8 million shares fully reflected the new lower share count while the year to date share count of 56.8 million included one month at the old share count of 74.6 million shares.

So in the bottom line we reported diluted GAAP EPS of $0.16 for the third quarter of 2009 compared to EPS of $1.97 in Q3 2008 that was driven by the gains last year on the sale of Aczone dapsone gel and our headquarter’s land and building. GAAP EPS in the current year quarter was driven by earnings generated by our discontinued operations which will not be present on the P&L in future periods and the large foreign exchange gain on the inter-company loan. The press release includes schedules reconciling our GAAP EPS to non-GAAP EPS.

In the third quarter we had a non-GAAP loss per share of $0.08, significantly lower than GAAP EPS primarily because we eliminated the income from disc ops and the non cash foreign exchange gain related to the intercompany loan.

Turning to cash flow, with the current accounting for discontinuing operations, a traditional calculation of EBITDA starting with operating income would not include the earnings of Eligard in QLT USA. Adjusted EBITDA as calculated from the third quarter P&L was a loss of approximately $4.2 million, and this was derived by starting with operating income or loss and making the same adjustments as for non-GAAP EPS as well as adding back depreciation expense.

However, if you include the EBITDA associated with our discontinued operations, in other words, looking at EBITDA on the same basis that we reported it in the first and second quarter, adjusted EBITDA would have been $4.9 million. As outlined in the press release, the cash collected each quarter based on 80% of Eligard royalties will not be recorded as revenue on our P&L. However, going forward we're going to include these quarterly amounts in an adjusted EBITDA metric because we believe this is a more reflective measure of the real underlying cash flow of the company for as long as it takes to complete collection of the contingent consideration resulting from the sale of QLT USA.

Moving onto cash, our total cash and cash equivalents balance at the end of the quarter was $194 million, up from almost $135m million at the end of the prior quarter, primarily due to the tax refund received in September, as well as cash flow generated from operations during the quarter. Please note that the cash balance at September 30th did not include the up front posit from the sale of QLT USA which were received immediately after quarter end. So if you added the amount received which was $20 million up front, but offset that by about $3.5 million of transaction fees, the cash balance would have been over $210 million at September 30th.

One last thing to note, capital expenditures for the quarter were less than $0.5 million.

Now looking in a bit more detail at the impact of our recently announced divestment of QLT USA and its Eligard product line, I want to highlight several points. First, the transaction occurred on October 1st, which means that the accounting for the disposition will be included on our P&L in the fourth quarter, however, we have gone back to reporting the results of the QLT USA business as discontinued operations in our third quarter and nine month P&Ls.

Second, in the fourth quarter, although there will not be any operating results of Eligard business reflected in our income from discontinued operations, you can expect to see a gain of over $100 million within disc ops which will reflect the difference between the estimated present value of the expected net proceeds from the deal relative to the net book value of all the assets sold.

Third point, going forward as already mentioned, the quarterly cash payments that we are receiving based on 80% of Eligard royalties will not appear as revenue on our P&L. Rather, our year-end balance sheet will have an asset called contingent considerations, which will be split into short term and long term that reflects the estimated present value of these expected cash payments to us.

As we receive the payments each quarter, the asset will be drawn down.

Another point related to the contingent consideration associated with our sale of QLT USA, going forward with current fair value accounting rules, every period will be required to evaluate the fair value of the contingent consideration in this deal which could change at anytime based on material changes in sales projections or in changes in the discount rate used. If there are changes in the value, any resulting gains or losses will be recorded in the P&L for that period within other income and expense.

And finally on the QLT USA deal, the contingent consideration assets is denominated in US dollars while our functional currency is the Canadian dollar, so you can expect to see foreign exchange gains and losses related to this balance. However, it's important to note that the amount of the receivable and the ultimate cash collected from it in US dollars will not move due to FX as these FX gains or losses are only generated relative to our Canadian dollar functional currency.

Now turning to the recently announced amendment to our Visudyne agreement with Novartis, I want to highlight a few points here as well. First, our P&L and profit sharing related to Visudyne will be reported the same as they have been historically for all of the results for fiscal year 2009.

Beginning with our results for Q1 2010 however, the reporting will look different. As a reminder, in our current structure our revenue from Visudyne comprises our share of the profits from worldwide sales of the product plus expenses that QLT incurs on behalf of the Visudyne alliance for which we are reimbursed by Novartis, and these include cost of goods and third party royalties.

Starting at Q1 2010, our revenue reporting will be different. In the US market we will simply book net end user sales of the product as our revenue while for rest of world our revenue will comprise royalties in the amount of 20% of end user net sales plus payments from Novartis for Visudyne product sold to them and reimbursement for third party royalties paid by QLT for rest of world sales.

So the best way to think about rest of world revenue under the amended agreement is in two parts. The primary component is the 20% royalty we will earn on rest of world net sales and the second component is the amount that we will receive from Novartis for rest of world sales related to the product that we sell them and for reimbursement of the third party royalties.

This last component, the reimbursement of the product and the royalties, has historically run around 7% of sales on a worldwide basis which means that our revenue from rest of world Visudyne sales based on this historical metric would be expected to be about 27% of end user sales, 20% for the royalty, and 7% for the reimbursement.

Of course, these numbers are subject to change going forward, but broadly they provide a useful way to think mathematically about how the change in our Visudyne agreement can be expected to impact our revenue going forward.

To further illustrate this, let's just take a hypothetical example in which sales of the Visudyne product are $100 million for a given period and let's further assume that 30% of those sales come in the US which is close to our actual mix through the first nine months of 2009. With these hypothetical numbers, revenue would be expected to be approximately $49 million which comprises $30 million for the end user net sales in the US and about $19 million for royalty and expense reimbursement revenue for rest of world.

And as a point of reference under the existing profit share agreement, QLT's revenue from Visudyne as a percent of end user sales has historically been in the low to upper 30s percent range.

Though still on the Visudyne amendment below the revenue line, COGS and royalty expense on the QLT books are not expected to be materially different under the amended and original arrangements, including the ongoing damages payable to MEEI in the amount of 3.01% of worldwide end user sales, for which we will continue to not be reimbursed going forward.

And of course offsetting the increase in revenue and gross profit that we will get from the amended agreement, we will now have higher SG&A expense going forward, reflecting our sales and marketing efforts in the US market.

As Bob mentioned, we're very pleased to have completed these two important deals in the past month and to have received a significant tax refund during the quarter. So in summary, our cash position is very strong with $194 million at quarter end and approximately $210 million after the upfront payment for QLT USA. Our financial reporting will be very different in the coming quarters as the payments we receive from Eligard will not be included in our revenue, but we do plan on highlighting our EBITDA, including these Eligard payments. There are a lot of moving parts right now because of these deals, but we will be providing 2010 guidance when we announce our 2009 results early next year.

And with that I'll turn it back to Bob.

Robert L. Butchofsky

Thanks a lot, Cam. We are really pleased with the accomplishments of the previous quarter and I want to thank the team here at QLT who really worked hard to get both the Eligard deal done as well as the Visudyne restructure. So in closing, it's a very exciting time here at QLT. We've simplified and focused the business to really drive our ocular programs and in particular, the primary focus around the punctal plug delivery platform.

We believe we’re nearing the end stages of finding the right dose to move our punctal plugs forward and glaucoma patients moving closer to having an innovative and new treatment modality which could be a revolutionary change and improve high medication as delivered to the eye.

We look forward to providing you with updates on all of our programs as we initiate the Phase 1B study in LCA pediatric patients and generate results in the punctal plug dosing and plug retentions studies, and finally generate 24 month followup in the Visudyne RADICAL trial.

With that I want to thank you for joining us on the call and thank you for your continued interest in the company and we can open it up for questions.

Question-and-Answer Session


Thank you, sir. (Operator's Instructions) Our first question today comes from John Gibbons of Odeon Partners.

John Gibbons - Odeon Partners

Hi, gentlemen. Nice support — thank you for all the updates. Bob, can you just explain to me or remind me again the difference between the RADICAL study and the DENALI study for the Visudyne?

Robert L. Butchofsky

Yeah, John. Thanks. The RADICAL study really looked at a couple of different questions. There were four treatment arms, and the broad question from the combination study was whether or not using Visudyne in combination with Lucentis and potentially a steroid gives you similar vision outcomes as compared to Lucentis monotherapy and if it gives you that, what is the impact on using combination therapy on the number of treatments required over the course of 12 or 24 months?

So the RADICAL study looked at whether or not there's a benefit of adding a steroid to that regimen and cutting to the chase, what we found is that the triple therapy regiment of Visudyne and Lucentis and the steroid was the best outcome. There wasn't a statistically significant difference between treatment arms, but it gave the best visual acuity of the combination arms and that was slightly better — again, not statistically significantly better than Lucentis monotherapy, but it was in line certainly with all the data that's been generated with Lucentis so we showed about a line and a half of visual acuity improvement.

Importantly, we showed a statistically significant reduction in the number of treatments required through 12 months. In the combination arm we had almost half the number of treatments required through 12 months. So that's probably what the result is from RADICAL. We'll report the 24 month data as I’ve said, in the first half of next year.

The DENALI study looks at a similar regimen, but it's using half fluence Visudyne in combination with Lucentis without a steroid just compared to Lucentis monotherapy. So a slightly different question will be answered by the DENALI study and we expect that data to come out, as I've mentioned, early next year.

John Gibbons - Odeon Partners

And would you hope to get the same number on the number of injections?

Robert L. Butchofsky

Yeah. The hope would still be the same, but as we showed in RADICAL, there seemed to be a benefit by the addition of the steroid. It prolonged the treatment benefit and led to the greatest decrease in treatment frequency. So we do think that there's probably a benefit to adding the steroid and that was one of the benefits of the RADICAL study design.


Your next question comes from Matt Gollub (ph) of Greyfire Capital (ph).

Matthew Gollub - Greyfire Capital

Good morning, guys. Question on the Novartis deal. I just wanted to make sure I understood with Cam's hypothetical — if we assume that the deal was in place this year, are you saying that our nine month revenue is $30 million? Are you saying that it would have been roughly $49 million?

Robert L. Butchofsky

I think he's thinking that that would apply to the full year, Matt. So I think the differential, just to cut to the chase, is probably in the ballpark of around $15 million on that hypothetical example.

Matthew Gollub - Greyfire Capital

Okay, $15 million.

Robert L. Butchofsky

And again that would be for the year not just for the first nine months.

Matthew Gollub - Greyfire Capital

I understand. Okay. Thank you very much.


The next question comes from Doug Miehm with RBC Capital Markets.

Doug Miehm - RBC Capital Markets

Good morning. Bob, just with respect to going out into the market in the first part of next year with your own sales force, I guess a couple of questions. What's going to be the message that that sales force is going to go out with and how quickly do you expect it to have an impact on vial usage?

Second question has to do with the installed base of the lasers. Can you tell us a little bit about those, what type of usage is going on right now relative to how many are out there? And also, what type of upgrades or work on those machines are going to be required? Thanks.

Robert L. Butchofsky

All good questions, Doug. Let me start with the laser base. At peak Visudyne sales we had about 700 lasers plus or minus in the US market. Currently our market research indicates there are about 400 active lasers and we have, as you know, started earlier this year putting some people out in the field to service those lasers, to make sure that they have remained viable and that they are working and functioning properly.

As we get some more data, and hopefully positive data, on Visudyne from some of the ongoing clinical studies, we would hope that many physicians who have potentially walked away from PDT will come back to PDT. And that will require some capital investments to make sure that their lasers are working properly and are functional. And that will be a big focus of what we do.

As we get people out in the field, I think essentially the positioning for Visudyne is going to be for Lucentis failures or patients who are resistant to Lucentis, which could mean that they've just had a number of treatments or are patents who are not seeing the visual acuity benefit from Lucentis monotherapy.

So I think our message will be pretty crisp and clear. Again, we expect to have about 15 people out in the field in the first quarter and we get the data presented and more widely known and publications out there, we do expect to see some potential increase in sales as we move through 2010.

Doug Miehm - RBC Capital Markets

Okay, thank you.


(Operator's Instructions) Gentlemen, we have a follow-up question from Matthew Gollub of Greyfire Capital.

Matthew Gollub - Greyfire Capital

Hi, guys. Thanks for taking the second one. Let's assume that the punctal plug delivery system works exactly as you intend it to. What kind of intellectual property protection do you have for that? What would stop a competitor from creating a competitive design?

Robert L. Butchofsky

Great question, Matt. I mean, there are a number of IP families that we're currently building and supporting. There are probably more than a dozen families, and these relate specifically to our proprietary plug designs, insertion tools, and the exact formulations, some of our clinical findings and results, and things like that.

Now, I would never tell you that we would expect to have exclusivity in this field, but we do think that we are the leaders in this field. We have the most data and we are generating more data everyday and as a result I think we are able to build the IP platform around this technology. So it is something we are very cognizant of and something that we work and spend a lot of attention on to make sure that we build as big IP protection as possible around this platform.

Matthew Gollub - Greyfire Capital

Okay, thank you.


Gentlemen, there are no further questions at this time.

Robert L. Butchofsky

Again, many thanks for joining the call and we'll look forward to updating you on the plug program as well as LCA and other results in the first quarter of next year. Thanks again.


Ladies and gentlemen, the conference is now concluded. You may disconnect your telephones. Thank you for joining and have a pleasant day.

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