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QLT Inc. (NASDAQ:QLTI)

Q1 2010 Earnings Call

May 6, 2010 8:30 am ET

Executives

Karen Peterson – Investor Relations Specialist

Robert Butchofsk – President, Chief Executive Officer

Cameron Nelson – Chief Financial Officer

Analysts

David Dean – Cormark Securities

[Scott Henry – Roth Capital]

[Ehad Khalil – Joy Fund]

Operator

Welcome to the QLT Inc. first quarter 2010 conference call. (Operator Instructions) At this time, I’d like to turn the conference over to Karen Peterson, Investor Relations Specialist.

Karen Peterson

Good morning everyone, and welcome to QLT’s first quarter 2010 earnings conference call. If you have not yet received a copy of our press release, you can find it by visiting our website at www.qltinc.com. The conference call is being webcast live and will be available on our website for the next 30 days.

Presenting today is Bob Butchofsk, our President and CEO and Cameron 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 make 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 clinical development or business plans and projected time lines for these, sales and other financial guidance, and the potential benefits, targets, market share and commercial success of our products and technologies, and statements which contain language such as belief, goal, future, project, expect and outlook and similar expression.

Forward-looking statements are predictions only, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from those expressed in such statements. Many such risks and uncertainties are taken into account as part of our assumptions underlying these forward-looking statements including but not limited to our future operation results are uncertain and are likely to fluctuate. Currency fluctuations may impact financial results.

The risk of future sales of Visudyne or [Aligard] may be less than expected. Uncertainties related to timing, cost and success of R&D and commercialization of products, outcomes for our clinical trials of our programs may not be favorable or may be less favorable than interim results or previous trials, and other future unknown liabilities 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 U.S. and Canadian securities regulatory authorities.

Forward-looking statements are based on the current expectations of QLT and QLT does not assume any obligation to update 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 Butchofsk

Thanks a lot Karen. Good morning everyone and thanks for joining us on our first quarter 2010 earnings call. During our last call in March, I explained that in 2010 we’d concentrate our efforts on developing our differentiated pipeline of ocular-based drugs and technology.

Moving forward, this renewed focus on ophthalmology prompts us to leave QLT’s R&D efforts to advancing our innovative therapies and devices in ophthalmology including products that could save or improve vision.

We’ve also added a key member to the management team, bringing Dr. Dipak Panigrahi into the company as our Chief Medical Officer and Senior Vice President of Research and Development. I’m thrilled that he’s agreed to join our team, and believe his role will be critical in advancing our pipeline activities and increasing our overall probability of research and development success.

On today’s call, I’ll plan on updating you on our various clinical programs including the newest program for the Punctal Plug as well as a brief update on our Latanoprost Punctal Plus product. I’ll talk about ongoing device activity in the Punctal Plus program, the progress on our novel beta-blocker QLT091568, which is in formulation development, and we’ll talk a little bit about Visudyne activities, especially our first quarter commercial results which Cameron will highlight more during his section of the call.

However, I want to start the call by sharing with you our recent announcement concerning QLT091001, our synthetic retinoid compound currently in a Phase 1b trial for patients with the devastating and inherited retinal disease, LCA.

About two weeks ago, we issued a press release with the interim results from the first three LCA patients treated in our study. In addition, earlier this week on Monday, Dr. Robert [Kunuku], who’s at the children’s hospital in Montreal, and the principal investigator for this trial presented these interim results to a large audience at the RVO, which is the Association for Research in Vision and Ophthalmology conference, which was held in Fort Lauderdale, Florida.

Needless to say, we’re all very excited and pleased by this preliminary data. Let me talk a little bit about LCA. It’s an extremely rare disease with likely incidence rates of approximately three children per 100,000 births, and there’s two specific mutations that we’re focusing on. These are called LRAT, and RPE 65 mutations.

These are likely to comprise about 10% of the total LCA patient population. Thus, when you do the math, worldwide incidents rate for these two specific mutations is likely to be in the range of 1,000 to 2,000 eligible patients.

Now children who are born with this disease, are normally diagnosed relatively early in life. They typically have poor vision, usually worse than the legal limit of blindness which is 2200 and this poor vision is especially true under low light conditions. The disease is generally progressive in nature, and there’s currently no treatment or cure that’s been approved or available.

The first three subjects who have been treated in our study, all suffer from the same genetic mutation, which was the LRAT mutation, and this, along with the other genetic mutation, RPE65 really provide the biological basis for our compounds treatment effect in this patient population.

In short, these genetic mutations lead to absence of the production of LRAT and RPE65 proteins which in a fairly complication metabolic pathway, ultimately blocks the synthesis and production of chemicals in the pathway responsible for signaling light impulses to the brain, and this is the end results, is poor vision.

In pre-clinical testing with this molecule, we did test in both mice and dogs, and we were hopeful that we would see a similar effect on visual acuity in children with LCA given the safety and observed efficacy from the animal studies, in particular, the dog trials.

The dosing regimen in the Phase 1b study consisted of a one daily administration of 40 milligrams per meter squared of oral QLT001, which was the highest dose with established safety, and that dose was given over seven days of treatment. The doses which we’re using in the Phase 1b trials from the 1a trial that we completed in 20 normal adult volunteers last year.

The interim results from the first three patients are positive. All three patients reported rapid and long lasting improvements in their vision beyond the seven days of treatment and some persisting for up to four months following treatment. These improvements were observed in one or more of a series of standard assessments of visual function including ETDRS visual acuity, and visual field testing.

Overall, the compound was generally well tolerated with mild to moderate side effects observed such as transient headache, photo-phobia which is an increases sensitivity to light, and modest increases in triglyceride levels in all three patients, and two of the three patients returned to normal limits by day 14 or seven days following their last dose.

In addition, and perhaps most importantly, all three patients treated recorded subjective improvement in activities of daily living. The first patient treated is a 10-year-old girl, who at presentation was only able to ambulate with the assistance of a cane. Now since treatment, she’s entirely abandoned her cane, navigating the stairs in her house at night by herself for the first time in her life.

Her parents report that her self-confidence has improved and this little girl reports being able to see better at night. She’s also experiencing vision improvement from her pre treatment levels fully four months after her last dose of QLT001, and we continue to monitor her as well as the other patients we’ve treated.

Based on the success of the first two patients, both of whom are children, a protocol exception was granted allowing an adult patient to be treated. This patient is a 38-year-old female that Dr. Kunuko has been following in his practice over the past 10 years. Her base line of pre-treatment vision was the poorest of the three patients treated with only hand motion vision available to her.

After treatment, she reports being able to see images such as the shape of a tree outside a window, her cat, and she’s also now able to see the big E on the eye chart for the first time in her life.

Though all this data is preliminary in nature, it’s very encouraging and very promising and we intend to continue enrolling patients in this ongoing study. We’re also continuing to collect long-term follow up data on our study patients to assess the safety of this medication. And finally, we’ll be initiating new studies to assess longer term dosing and alternative dosing regimens designed to provide optimum efficacy while minimizing potential side effects.

This program will become a major focus of our development activities moving forward this year, and I look forward to updating you on the progress in this program in the months ahead.

Now I want to turn to our Punctal Plug program. As discussed recently on our call in March, we are reformulating Latanoprost in conjunction with our plug technology in an effort to maximize the drug’s ability to diffuse into the tear film and subsequently deliver to its target receptors in the eye.

The team has focused on generating animal data where we can measure directly the amount of drug inside the eye from various formulations that are currently being tested. We also continue to complete patient follow-up in our current clinical trial with a 95 microgram Latanoprost cross formulations and will provide you an update as this study moves towards closure.

Recall that we announced interim results from this study coinciding with our last earnings call in March. We’ll provide you updates as we progress with this new work, and plan on initiating further human clinical trials with this program later this year.

Also mentioned on our last earnings call, we’re working to finalize our study design and protocol to evaluate our Latanoprost delivery system for the treatment of allergic conjunctivitis. Let me tell you a little bit about the allergic conjunctivitis market. It’s relatively large with approximately 50 million in the U.S. alone that suffer from seasonal allergies, and sales of [Patinol] which is the trade name for [olepadadine] which is made by Alcon, were about $380 million last year.

We’re targeting this product for a six-week product delivery and currently the standard of care is administering this molecule as eye drop formulation. A proof of concept study is expected to being in the third quarter and we expect to generate results in the study by the end of this year.

We are also continuing to look at long term plug retention with multiple insertions of our third generation devices and this is all being done in a device only, so a device with no drug trial. As we highlighted in March, our third generation devices had an 81% retention rate at 12 weeks. We’re also evaluating procedure related tools and procedures designed to minimize the overall dilation trauma needed to properly insert these devices. We’ll be generating more data on the device retention through to the end of this year.

Lastly, on the plugs, from a pre-clinical standpoint, we continue to explore formulations for additional indications and these may include dry eye disease, and anti-inflammatory conditions, and we would expect to take at least one of these candidates to clinical trials in 2011. We’ll continue to update you on the progress of the whole plug program throughout the remainder of this year.

Now I’d like to turn briefly to QLT’s 091568. Recall this is the novel beta-blocker we acquired from Athera Pharmaceuticals at the end of 2009. Formulation evaluations are ongoing with this product and our current expectation is that we will be ready to initiate clinical studies on this molecule in early 2011. The goal of the formulations work is to achieve once daily dosing and we are evaluating different formulations in on-going pre-clinical testing.

Now I’d like to turn briefly to Visudyne. The radical combination study data will be available before the end of this quarter. Recall this is our evaluation of Visudyne in combination with and without a steroid versus Lucentis monotherapy.

The goal of this study is to assess visual acuity improvement using combination therapy of Visudyne followed by Lucentis to reduce the overall treatment burden of Lucentis monotherapy. The 12 month read out from this study was favorable and we await the results from 24 months which again, will be due in the next few weeks.

Turning briefly to our commercial efforts for Visudyne in the U.S., we’ve had our sales team in place since January and the team completed their first round of calls with retina specialists during the first quarter. Essentially the call cycle was based to introduce themselves to customers and understand which customers in each practice are currently treating patients with classic AMD or ocular histoplasmosis syndrome, or pathologic myopia patients with Visudyne.

Given that, U.S. physicians have not had anyone call on them for Visudyne for at least the past five quarters; the reception from customers has been very good. We expect to start messaging and highlighting the benefits of Visudyne in our second round of call activity which started this quarter.

In terms of scientific support for the brand, we recently hired our head medical affairs and expect to have a full complement of the field based team providing medical support for Visudyne in the next few months, and Cam will talk a little bit more about our specific results in just a minute.

Also in the first quarter of 2010, we’ve made a few additions to our corporate structure. In February, we added Joe Turner to our Board of Directors. He will begin serving on the audit and risk committee. He’s got a number of years of experience as a financial manager and Chief Financial officer in biotech companies and the pharmaceutical business, and as I’ve mentioned previously, we’re extremely excited to Dr. Dipak Panigrahi on board as our Chief Medical Officer. He’s got a number of years of ophthalmic experience and we’ll look to Dipak to help guide our development efforts of our ocular focused pipeline, and we’re extremely excited to have him join the organization.

The last thing I want to mention before we review our financial results is, on an ongoing basis both the management team and the Board of Directors continue to explore and evaluate our capital structure. We are really in the enviable position of being one of the very few life science companies that is not dependent on the capital markets for funding as we currently have $190 million in cash with no debt and for the first time in a decade, no legal overhang.

Over the past five years, we have returned capital to shareholders by buying back over 40 million shares of our stock while we sought to increase shareholder value by focusing our business on developing innovative ocular products and divesting non core assets.

However, we are continuously assessing the capital we need for our R&D programs, which now include the synthetic retinoid program currently in development for LCA, and Latanoprost Punctal Plug program in development for glaucoma, our program beginning development for allergic conjunctivitis, QLT 091568, which is being studied for the treatment of glaucoma, and Visudyne combination therapy for the treatment of A&D.

All these programs we believe provide several key value drivers and opportunities for the company. Our cash reserves continue to be an integral part of our ability to expand and commercialize our ocular based pipeline which we evaluate other external and internal opportunities for funding.

I’ll pledge to you that we continue to evaluate the best use of our cash to maximize the company’s value for shareholders.

With that, I’ll turn the call over to Cam to discuss our financial results.

Cameron Nelson

Overall, the financial results for the first quarter were in line with our expectations and our guidance for the full year with increased revenue from the amended Visudyne agreement and the ongoing payments we receive from the 2009 sale of QLT U.S.A. Our business continues to generate cash.

Adjusted EIBTDA plus contingent considerations for the quarter was $3.6 million, which is in line with our annual guidance for this metric of $10 million to $15 million. Our cash balance for the first quarter was just over $190 million.

Getting into a bit more detail, I’ll start with Visudyne results for the quarter. End user sales of Visudyne in Q1 were $21.3 million, down 23% from the first quarter of 2009. The regional split for Visudyne sales was U.S., $5 million, Europe, $7.2 million and rest of world, $9 million.

A key thing to point out on Q1 sales was the impact of a reduction in U.S. distributor inventory levels. The sales revenue in the U.S. is booked when product is shipped to the distributors in this market, and in order to assure a smooth transition period when we assumed marketing Visudyne in the U.S., we agreed that the distributors would increase their stock at December 31 last year to almost four weeks of supply, or about 1,500 vials compared to the normal level of approximately two weeks.

The impact of this loading was an increase in about $1 million in Q4 2009 sales, which means that the U.S. sales in Q4 last year would have been approximately $6.3 million if the distributor inventory had remained flat during that quarter instead of the $7.3 million that was recorded.

In the first quarter of this year, distributors cut their inventories back to a more normal level of about 575 vials or a little under two weeks of supply, and this reduced reported sales in Q1 by approximately $1.2 million. Put another way, if the distributor inventory had remained constant during the quarter, U.S. sales would have been approximately $6.3 million in Q1, so just basically flat, just down a little bit from the inventory-adjusted number from Q4 of last year.

In terms of end user sales in the U.S., we sold about 75 vials per day in the first quarter compared to about 79 per day in Q4 last year.

Looking at the worldwide sequential change versus the fourth quarter of 2009, Q1 sales were down $4.1 million or 16.3% compared to Q4 last year. They would have been down about 6% without the negative impact of the reduction in U.S. distributor inventory I just mentioned and a negative impact of about $.5 million from foreign exchange rates primarily in Europe.

Turning to the financial statements, the calculation and presentation of our revenue and cost of sales differs from prior years as a result of our amended Visudyne agreement with Novartis. We’re now reporting two revenue line items; net product revenue and royalties.

Net product revenue comprises three things; one, our sales of Visudyne sales to U.S. distributors, two, revenue for supplying product to Novartis for sale in rest of world, and three, reimbursement of certain royalties and other costs from Novartis.

As mentioned in the press release, net product revenue in Q1 included about $5 million of deferred revenue recognition related to inventory that was shipped to Novartis, paid for by Novartis in prior year, and that’s inventory that Novartis retained for sale in rest of world market. On the second revenue line item is royalty revenue which represents the 21% royalty that we now earn on Novartis’ sales of Visudyne outside of the U.S.

Compared to the first quarter of 2009, total reported revenue was up $1.9 million or 16.4%, despite the 23% decline in Visudyne sales year over year, primarily due to the revenue improvement related to the recognition of deferred revenue just noted.

I want to reiterate something that I mentioned on the last call, which is that under the amended agreement, when we ship product to Novartis for them to sell in rest of world, they do not have the ability to return the product to us, or to charge us for expired or obsolete inventory. This means that unlike in the old agreement, we will now book revenue and cost of goods on shipments to Novartis right when we ship the product to them rather than when they sell it to end customers as we used to do.

This means that our product revenue and cost of sales related to rest of world sales, no longer match up with end user Visudyne sales in rest of world, but rather, they’ll occur whenever we ship product to Novartis. Because we ship product in full batch sizes, rest of world product revenue and costs will appear in discrete amounts in any period that we ship product to Novartis.

This will make the swings in our gross profit as a percent of sales but from a bottom line perspective, because there’s little profit margin on the product shipments to Novartis, there will not be a material impact on our bottom line within the different reporting periods.

Now turning to expenses, cost of sales was $6.6 million in the first quarter which was high because it included $4.3 million related to the deferred revenue recognition in the period. Moving on, we reported $.5 million of interest income in the quarter, down from $1.4 million in Q1 last year. The decline occurred primarily because last year in the first quarter we had $700,000 of interest earned on tax refunds, and also because in 2010 our average cash balance and interest rates on investments are down from last year.

The foreign exchange gain of $600,000 in the quarter results primarily from the revaluation of our Canadian dollar denominated assets including our mortgage receivable, income tax receivable and tax assets and the Canadian dollar denomoniated cash that we hold.

On the topic of foreign exchange, effective January 1 this year, we switched from the Canadian dollar to the U.S. dollar as the functional currency for QLT Inc. This means that unlike in past years, currency fluctuations on our U.S. dollar assets and liabilities will no longer generate FX gains and losses.

Instead, the impact of exchange rate fluctuations on monetary assets and liabilities that we hold in currencies other than the U.S. dollar, principally the Canadian dollar, may generate gains and losses.

Investment and other income for the quarter also included a $2.4 million increase in the fair value of our contingent consideration asset. As discussed last quarter, this is a non-cash gain that reflects the fact that on our balance sheet, the contingent consideration is carried at the estimated present value of the expected remaining payments due from Aligard royalties.

Every quarter as we move closer to the completion of collecting the $200 million, there’s less discounting on all remaining expected payments, so the present value goes up. It is this increase in value and less discounting that creates the gain, and this gain will occur every quarter until the full amount is collected, even if the line cash collection forecast does not change.

In Q1, this impact would have led to a gain of about $3.3 million in the quarter, but we also had minor changes to the underlying Aligard forecast and the discount rates which reduced the gain to the $2.4 million recorded.

On the balance sheet, the contingent consideration now sits at $143.2 million which is split into a current portion in the long-term portion, and this represents the estimated present value of the expected $181.3 million of remaining payments due from Aligard royalties over the next several years.

Moving on to income taxes, the accounting for income taxes associated with the amended Visudyne agreement resulted in a $5.6 million noncash recovery in the tax provision for the quarter. Without this recovery, the effective tax rate would have been in the negative 20% to 25% range, and as I’ve highlighted in the past, this negative rate occurs because we’re unable to tax losses incurred in our U.S. subsidiary that is developing the Punctal Plug technology, while we must supply tax provision to the profit earned at the parent company related to the Visudyne investments.

And just to be clear, this $5.6 million impact in the first quarter is a onetime event. It won’t recur going forward.

Moving on to EPS, we reported diluted GAAP EPS of $0.06 for the quarter as the $5.6 million tax recovery outweighed the negative variance in income from discontinued operations, which was nil in Q1 following the divestment of QLT U.S.A. in the fourth quarter last year.

Just a reminder, on shares outstanding, the diluted share count for last year’s first quarter was 61.3 million shares, included a month of 74.6 million shares outstanding before we concluded our repurchase of 20 million via debt option tender offering in early February last year.

The press release includes a schedule reconciling our GAAP EPS to non-GAAP EPS for the quarter. The most significant adjustments were related to contingent consideration where we took out the gain because it was non-cash and then add back the contingent consideration earned in Q1 which will be received as cash in Q2, and then income taxes where we removed the recovery arising from the Visudyne agreement amendment.

We had adjusted EBITDA plus contingent consideration during the first quarter of $3.6 million and as I already mentioned, the cash and cash equivalents at the end of the quarter was $190 million, up about $2 million from the end of the last year.

During the quarter, given the short window in which we were able to be active in our normal course to issue our bid program, we repurchased about 229,000 shares at an average price of $5.08 per share for a total cost of $1.2 million. This brought cumulative purchases under the normal course program which expires in Q4 to 1.1 million shares at an average of $4.69 per share for a total cost of $5.1 million.

And finally, capital expenditures for the quarter were approximately $.5 million.

And with that, I’ll turn it back to Bob.

Robert Butchofsk

Thanks a lot, Cam for going through all that. Operator, I think we should open the call now for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Dean – Cormark Securities.

David Dean – Cormark Securities

Can you talk us through the strategy for the decision process regarding the Punctal Plug and what you’ll do through the remainder of the year? I understand looking at some animal models, but can you just talk us through that, if it’s a go or no go decision.

Robert Butchofsk

I think there is likely to be a go no go decision on the Latanoprost program this year. We’re looking to see if we can get more drug to the target and looking at different formulations to see if we can achieve that in animals and with the goal of getting a formulation with a higher drug load that is effectively reaching the target, and then taking that back into proof of concept and seeing if it works.

If we can achieve that in animals, then we move forward with a quick proof of concept study and we hope to get that initiative and have some data at least before the end of this year. So that’s what it looks like. We’re still confident we’ll get it done, but we are putting a lot more emphasis obviously based on the positive data we’ve gotten from the synthetic retinoid program on that program as well.

David Dean – Cormark Securities

Do you know how much of an increase in delivery you need for the Latanoprost product?

Robert Butchofsk

We do, and for competitive reasons I don’t want to specify it, but we have some clear targets in mind that we’re trying to achieve.

David Dean – Cormark Securities

Is it exponential or is it …

Robert Butchofsk

No, you can tell from our ILP results that we’re very close to getting optimal levels. We think that just some slight improvements are needed to get us from the basic 3.5-millimeter response that we’ve generated today to a five-millimeter response which is really the threshold that we plan on hitting to take the program forward into more advance studies.

David Dean – Cormark Securities

What’s the strategy for delivery of the retinoid? When I looked at the data and what we know of it, it looked like it might be okay as an oral. I’m wondering about your thoughts on that.

Robert Butchofsk

You’re right. We’re really excited to see the long term benefit in the patients that we’ve treated thus far from the oral administration. Previously when we started this program, the assumption was that if we demonstrated visual improvement from the oral, that we’d move towards local administration. So potentially an injection using astragal for sustained delivery.

It remains to be seen, and one of the things we plan on doing as we move the program forward is really trying to understand what’s the optimal dosing. Is it a product that can be dosed with minimal dose frequently, or maybe something that could be pulsed with an oral dosage form.

So as we determine that, it will help us decide what’s the right pathway forward. Is it to maintain the program on an oral formulation or is to seek to deliver this drug locally. And that’s just a question we don’t know the answer to yet.

David Dean – Cormark Securities

Do you know how you’re going to work your way through that?

Robert Butchofsk

We’re going to work our way through it starting with an oral study and try and understand what’s the minimum effective dose and then try and understand what is the longer term dosing regimen, whether it’s something that’s administered daily or something that could be administered weekly or even every other week or monthly.

So as we understand that, then we’ll make a decision about whether or not we need to deliver it locally or whether we can deliver it orally.

David Dean – Cormark Securities

Do you know when you’re going to start those studies?

Robert Butchofsk

The first goal is to try and complete enrollment in Phase 1b, but I would anticipate we’ll get the other dosing study started in the second half this year.

David Dean – Cormark Securities

When you look forward to next year, you bought more programs, just looking now at a greater depth than might have though a couple of years ago. What do you think R&D is going to look like next year?

Robert Butchofsk

We look at that as based on success, you would expect it to increase. If the retinoid goes forward with LCA, we’re doing dosing and we’re running through dosing studies through next year, the Latanoprost program back in the clinic. If we generate positive proof of concept that would be advancing in clinical studies.

568 will be back in the clinic and we plan on having one additional plug program in the clinic. We have a pretty nice pipeline shaping up for 2011 and beyond.

David Dean – Cormark Securities

As far as R&D expenses then, I would expect an increase, but do you have an idea about what they could be?

Robert Butchofsk

It’s tough to answer. We’re not in a position now to give guidance, so I don’t want to lead you down that road, but obviously based on success in the pipeline, we would expect to see some increases in R&D expense going forward.

Operator

You're next question comes from [Scott Henry – Roth Capital]

[Scott Henry – Roth Capital]

On Visudyne, your guidance for 2010 and the end user sales U.S. of $27 million to $30 million internationally $63 million to $69 million, are you maintaining that guidance?

Robert Butchofsk

Yes we are. The first quarter in the U.S. basically was a flat quarter and we look at really end user sales when we say that, so as Cam mentioned in the script, we had average vials per day of 75 and that was 79 in the fourth quarter last year.

We expect to see a ramp up in sales as the team gets out there and really starts to begin messaging, and we expect that really to kick in as we get into summer and though the second half of this year. So at this point, we’re maintaining our guidance, but it’s predicated on a turnaround in particular in U.S. sales.

[Scott Henry – Roth Capital]

On the financial side, the company has certainly been an active buyer of its shares. As you’ve done that, fortuitously, the share price has increased. How do you think about a buy back at the $6.00 level versus the $4.00 or $5.00 level? Is there a ceiling or do you still consider actively buying back shares.

Robert Butchofsk

We definitely plan on acting aggressively to the plan we have in place. We always, and continuously evaluate our underlying net asset value so cash, the contingent consideration from Aligard, the value of Visudyne. And so our hard assets, when we’re evaluation, especially doing share buybacks.

We still believe that there is underlying value of the company well beyond where our share price is trading today, and as a result, it makes it a fairly easy decision for us to continue to purchase stock with all these considerations taken into account.

[Scott Henry – Roth Capital]

Shifting to the pipeline, the synthetic retinoid, I know you presented in Florida I believe this past weekend or early week, is there an abstract available from that presentation that we can look at?

Robert Butchofsk

There’s not. The presentation was conducted as part of a symposium on inherited retinal diseases, so it wasn’t specific to our program. We had a full room and a large audience in attendance. It was well received, and I do plan on incorporating some of that data into our corporate presentation moving forward. So we will share that information with you as we get out in the second quarter and meet with investors.

[Scott Henry – Roth Capital]

If I heard you correctly, you would look at using more of a local delivery than an oral. Is the basis for that to avoid some of the retinoid side effects? Is that the thought process?

Robert Butchofsk

It really is, and again we don’t know if that’s something that’s going to be necessary depending on what level of oral dosing we have to undertake to achieve efficacy. So we want to keep doing the dosing studies with the oral formulation before we make a decision about pursuing local delivery. So that’s a decision I think will be evolving over the next six months or so.

[Scott Henry – Roth Capital]

Shifting over to the Latanoprost program, it would seem like the trick now is getting the drug in the right amount to the eye, which may require different recipients to do that effectively. If you care to comment, how have your early studies or examinations went in terms of looking at how effective that molecule can be with different recipients? Any color you can provide on how hard that hurdle will be?

Robert Butchofsk

I think it’s probably inappropriate for me to provide too much color other than to say that the team is focused on getting higher drug loads to the target and I want to give them some time to achieve that. It’s a bit of a trial and error process and understanding what changes they can make to the formulation to enhance that overall drug load.

So we will let you know once we hit success with that and are moving that program back into the clinic, and until we’re able to do that, I think it’s difficult for me to put too much more color on it.

Operator

You're next question comes from [Ehad Khalil – Joy Fund]

[Ehad Khalil – Joy Fund]

Congratulations for the initial results for LCE. I need to know if there is any feedback from the big pharmaceutical companies more interested to know the results for LCE, because I am very encouraged with the results and what does it mean for us as shareholders.

Robert Butchofsk

We’re encouraged by the results as well. It’s impossible to talk about partnering discussion, but our business model is really predicated on keeping molecules that we develop and commercializing them ourselves in North America, and looking for partnerships for Europe and Asia and rest of world countries.

This product in North America would be commercialized essentially through our existing Visudyne commercial team. The target is really a sub set or small pool of retina specialists that, could reach with our current infrastructure, so it’s a perfect fit, and combined with Visudyne, if we’re able to successfully commercialize this product and we will be evaluating and look to license this with partnership opportunities in Europe and Asia as I previously mentioned.

[Ehad Khalil – Joy Fund]

Can you give us a prediction of sales for this drug if it comes to the market or you can give me any details or how much, because for the first time you can find a treatment for a blind patient so it’s a very promising drug.

Robert Butchofsk

It really is. The things that really factor into this is, it’s a very, very small patient population and because of that, you essentially would be in a position to be forced to charge a very high price for this product. We’ll be evaluating that in ongoing market research, but essentially, we feel based on our early data and early projections, that this molecule within LCA or inherited retinal diseases, would be at least $100 million product.

Obviously we’ll be refining that as we get more grasp around what the patient population is and more feedback from payers once we have a dossier together and understand exactly where this product with the benefits and features are, so that we can determine what the appropriate pricing is. But I’ll commit to you that we believe this molecule is at least $100 million opportunity.

Operator

There are no further questions at this time.

Robert Butchofsk

Thank you all for joining us on the call today, and I just want to close by saying that we are really embarking on an exciting time at the company. We’ve got several data points from our development programs this year, and we’ll continue to build out our integrated commercialization efforts for Visudyne.

Our Phase 1b study with the synthetic retinoid for LCA remains on track. Our results so far have obviously been positive and we’re excited to see where they take us. We hope to have additional results for you later this year that demonstrate the drug continues to improve vision both in children and adults.

The retention for the Punctal Plug delivery devices has improved. With subsequent design generations, and we’re committed to resolving the challenges we’ve had with the formulation of Latanoprost for patients with glaucoma using this proprietary drug delivery technology.

Still, we’re encouraged by the prospect of our program that will start a little later this year and we’re also committed to our goals for the sales and marketing of Visudyne. We’ll support that program as much as possible in the U.S.

And as always, we’ll keep you updated on all of these programs and we go through the course of the year. With that, I want to thank you again, and I look forward to talking to you in July.

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