QLT Inc. Q2 2008 Earnings Call Transcript

QLT Inc. (QLTI)

Q2 2008 Earnings Call

July 29, 2008 8:30 am ET

Executives

Therese Hayes - Vice President, Investor Relations

Robert Butchofsky - President and Chief Executive Officer

Cameron Nelson – Chief Financial Officer

Analyst

David Dean - Cormark Securities Inc.

Douglas Miehm - RBC Capital Markets

Frank Bianco - Argent

Mike Krensavage - Krensavage Asset Management.

Presentation

Operator

Welcome to the QLT Inc. second quarter 2008 conference call. (Operator Instructions) At this time, I like to turn the conference over to Therese Hayes, Vice President Investor Relations and Corporate Communications.

Therese Hayes

If you have not yet received the 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 Butchofsky, our President and CEO and Cameron Nelson, our CFO. Before I turn the call over to Bob, I would 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 have 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 declared but are not limited to our financial projections, statements relating to our clinical development plans, our expectations for timing and results of studies on combination therapy and other clinical programs. Statements relating to market share and success for our products and technologies, statements relating to a restructuring, the investment of assets and return of any proceeds to shareholders and statements which contain language such as believe, goal, future, projects, expects and outlook in similar expression. Forward-looking statements are predictions only which involve known and unknown risks and uncertainties and other factors and they 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 this forward-looking statements including but not limited to our future operating results and uncertain and they are likely to fluctuate. Currency fluctuations may impact financial results. The risks that future sales per products maybe less than unexpected, uncertainties related to costs and success of R&D, commercialization of products and litigation and certainly related to the timing and ability to invest assets and accept terms and prices 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 at the US and Canadian securities regulatory authorities.

Forward-looking statements are based on the current expectation 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 will turn the call over to Bob.

Robert Butchofsky

Therese, thanks for your help during your tenure at QLT. We are excited to update you on the progress we made since our last conference call in April including our ongoing restructuring efforts and some of the events since we have made in our clinical development program. Following my remarks, I will turn the call over to Cam who will review our financial results for the second quarter and then we will go to questions and answers.

One of our greatest accomplishments this past quarter was the progress we made on restructuring the Company which I like to take a few moments to update you on. In June, we signed an agreement to sell Aczone to Allergan, the deal which we recently completed. We show that our clinical and regulatory strategy pursued the removal of the blood test requirement for all patients treated with Aczone were validated by the $150 million payment we recently received from Allergan. In addition, we are in a process of divesting our corporate headquarters and land in Vancouver. Our potential buyers continuing with their due diligence on their potential purchase and we anticipate that we will be able to close this deal in the near future.

In terms of the other assets we are divesting, Eligard and the Atrigel platform, we remained much focused on divesting these assets for the most value we can, as soon as possible. We are currently in discussions with potential suitors to divest these assets and we look forward to providing you with additional information as soon as possible. As I mentioned in our last call, we hope you can appreciate that we are unable to provide you with much more clarity on either the timing or the valuation of the remaining asset sales as each asset sale is a competitive process. The last thing I want to mention before I move on is to inform you that the 45% headcount reductions we announced earlier this year have largely been completed. We expect further reductions in headcount as asset sales are completed and as we simplify and focus our remaining business.

Now, I want to turn to product sales for Visudyne and Eligard. Global Visudyne sales in the second quarter were $40.7 million which is a quarter-over-quarter increase of approximately 12% and it is the first meaningful quarter-over-quarter gain we had in Visudyne in over three years. Cam will highlight the sales breakdown in his section of the call but we were pleased with the quarter and continue to remain on track to meet our yearend Visudyne sales guidance of $145 million to $160 million although we expect to see the usual seasonal dip in Visudyne sales in the third quarter with the rebound in the fourth quarter.

The RADICAL study which is Visudyne followed by an anti-VEGF, this is a combination trial, it is on track. We anticipate that the six-month data results from this phase II study will be released in the fourth quarter as we completed enrolment as announced on May 5. Novartis has two ongoing combination studies which are also progressing. The 12-month data from the MONTBLANC study which is fully enrolled is expected in the first half of 2009 and enrolment in the second Novartis-sponsored study called DENALI is nearing completion and the study is still anticipated to report data in the second half of 2009.

As many of you already know, we believe that Visudyne market share could eventually begin to rise if results from some of these controlled clinical trials indicate that use of Visudyne followed by one or more anti-VGEF agents leads to improve vision, fewer number of treatments which really should result in a pharmaco-economic benefit of reduced cost and finally, if the data we generate support a label change.

Now, turning to Eligard. We continue to be encouraged by growing Eligard sales. Worldwide sales in the second quarter were $60.3 million with growth of about 34% from last year. The majority of our sales growth was driven by the six-month formulation product sales in Europe which is still on the launch mode. Clearly, the $10 million incremental quarter-over-quarter growth in the second quarter is something that we are pleased to highlight on our call today.

Now, I want to turn to the pipeline. I want to start on the clinical development program for lemuteporfin or QLT 0074. On our last call, we said that we have plans to conduct proof of concepts that is using two different formulations of QLT 0074 in acne patients. Recall that we have in development an IV formulation as well as a topically applied formulation of this compound and that we have presented data showing that the molecule localizes in human sebaceous glands. During the second quarter, we enrolled acne patients and a proof of concept study with the IV formulation. This study was designed to see what impact activation of QLT 0074 on the patients back have on both the reduction in acne lesions and on the patients' sebaceous glands following drug activation with varying intensities of light at various time points.

We recently performed an analysis of this data that showed promise for the IV formulation of lemuteporfin but did not meet the high therapeutic bar that QLT had set internally for this program. As a result, we have decided to halt our current clinical development plans for the use of lemuteporfin for acne. Halting our current clinical developing plan will allow us to conserve our projected cost for this program although we are taking a path that we feel as prudent, we still believe that there is value to be unlocked from lemuteporfin and we will continue to consider other development alternatives for the drug.

Now, I want to turn to the program that will be the focus of our ongoing R&D efforts, the punctal plug program. I continue to be excited by this technology and considered we are fortunate to have found and acquired this technology last October from the ForSight Labs. We took this program on early in its development cycle; we are adding value to the program and learning more about the drug allusion and plug retention on a daily basis. We are also working diligently to expand, strengthen and advance our IP portfolio including the filing of new patent applications around our punctal plug program. We believe we are well positioned to capitalize on our first mover advantage with this technology and all of those who have spoken would know I am a believer of this platform.

In May, we announced results from a proof of concept trial in five patients or in 10 eyes with glaucoma or ocular hypertension. The single center study was designed to determine and sustain the administration of latanoprost using the Company's punctal plug illusion technology could lead to reduction and intraocular pressure or IOP over 90 days when administered using a conventional punctal plug. The conventional plug design is an already approved and widely used technology but our small study was the first human trial using the punctal plug as a drug delivery system.

The trial's primary efficacy endpoint was measurement of IOP. At baseline, the main IOP was approximately 23 mmHg for the 10 eyes treated. At the 90-day follow up, the main IOP was reduced to approximately 17 mmHg for the 6 eyes that remained. Data from two patients were excluded due to the loss of their plugs and there were no reported significant adverse events. All patients in this trial received conventional plugs and a loss of plug is consistent with what we would expect given historical retention rates on commercially available plugs.

Despite this small patient group, we were pleased that the plugs demonstrated that there was a clinically meaningful reduction in IOP and gave us an early indication that our illusion technology may provide a therapeutic benefit for patients with glaucoma. We are pleased to report that our CORE study which is a randomized double-mask phase II trial just completed enrolment of 60 patients with glaucoma and ocular hypertension. The trial had a 90-day follow up so the last patient visit should be in October and you may expect to be reporting data shortly after thereafter.

As a reminder, CORE is designed to evaluate whether our proprietary drug illusion technology leads to a therapeutic drop in IOP and if so, which of the three different formulations of latanoprost offers the best risk-benefit ratio to proceed into further development trials. So, in summary, the CORE trial will help us determine the drug concentration for later development and it is really a focus on the drug illusion aspect of this technology. There is an additional aspect to our program mainly the design of the proprietary punctal plug that is retained comfortably in a higher percentage of patients for 90 days.

We continue to evaluate and test our proprietary plug designs in human trials and we continue to evaluate whether these may offer a benefit over commercially available plugs. We anticipate further phase II trials to asses our proprietary plug design with our drug illusion technology. By conducting these trials, we hope to address all possible questions and technical hurdles to be fully prepared to move in to phase III development which we estimate will be next year. We believe this clinical strategy gives us the best probability of success.

Another CORE ophthalmology opportunity we are moving forward with is our synthetic retinoid drug program. For those of you who are new to the story, in 2006 QLT entered into an exclusive worldwide co-development and licensing agreement with Retinagenix LLC to develop active synthetic retinoid products for the treatment of degenerative retinal diseases. We have filed the clinical trial application with the therapeutic products director in Canada and this is somewhat similar to an IND filing in the US.

We are specifically looking for the retinoid to treat a condition called Leber Congenital Amaurosis or LCA. Our preclinical work has provided early indication that orally administered synthetic retinoid drugs may cause long lasting restoration of retinal function. LCA is an inherited retinal degenerative disease characterized by severe loss of vision at birth. This is very interesting opportunity for us as there are no current treatments on the market and this would potentially be a candidate for this sight robbing disease. Turning now briefly to other issues.

Our litigation with Massachusetts Eye and Ear Infirmary for appeal of the July 2007 court ruling that found QLT liable for unfair trade practices in connection with the 349 Patent still ongoing. Oral arguments are now being scheduled for September and we will update you with any material developments in this litigation until its final resolution.

So, in short we are extremely pleased with the performance of our second quarter. The QLT team has done an excellent job of executing on the advancement of Aczone and is rigorously working on completing the remainder of our non-core asset investitures. Importantly, we are excited that we are moving toward our goal of becoming a leaner company with the punctal plug development program our highest development priority but also with the retinoid program poised to move into clinical trials. We look forward to reporting the RADICAL results before yearend and using the revenue stream for Visudyne to help fund operations.

With that, I will turn it over to Cam to go to the financials for the quarter.

Cameron Nelson

We had a very positive second quarter in terms of end-user sales with both of our marketed compound showing strong quarter-over-quarter growth. I would like to start by outlining some details about end-user sales starting with Visudyne. The regional split for second quarter Visudyne sales was US, $10.1 million; Europe, $14.3 million and rest of the world $16.3 million, for total worldwide sales of $40.7 million.

Sequentially, the worldwide sales increased from the first quarter to the second quarter of 11.5% was broad base as US sales were up 8.8%, sales in Europe were up 9.3% and sales outside of the US and Europe were up 15.3%. Compared to the 2007 second quarter, sales dropped 31.5% with US sales down almost 2% while EU sales fell 52% and rest of the world sales dropped 16%. In terms of foreign currency impact, the US dollar continued to weaken during the second quarter which helped our reported sales. Sequentially, compared to the first quarter, FX added about $600,000 to sales. Compared to the second quarter of 2007, FX benefited sales by above $3.4 million which means that excluding this FX benefit, worldwide sales would have been down above 37% instead of the 31.5% decline reported.

Finally on US sales, the inventory of distributors increased in the quarter by above 450 vials or roughly 4 days of sales which caused reported sales to be about $0.6 million higher than they would otherwise have been. In terms of end users, sales were about a 111 vials per day in the second quarter, down from the full year average in 2007 of a 121 per day and the Q1 2008 average of 117 per day. So, basically we continue to see relative stability in the US sales when we look at average daily vial sales. Inventory of the distributors in the US is sufficient to cover about two weeks of supply now.

Now, looking briefly at Eligard, sales in the quarter of $60.3 million were up 34.9% from last year and up almost 20% sequentially from the first quarter. In the US, sales of $19.9 million were up 3% from the prior year quarter and up almost 2% from Q1 2008. Outside of the US, sales were up over 59% over the second quarter of 2007 and up over 31% from the first quarter driven by a very strong performance in most major European markets. In total, about half of the $10 million quarter-over-quarter increase in worldwide sales was due to the ongoing launch and reimbursement of the 6-month Eligard formulation in Europe.

Now, turning to our P&L, as a reminder with the reclassification of our QLT, USA business has discontinued operations, revenue for the quarter now consist entirely of product revenue from Visudyne. For the quarter, revenue from Visudyne was $13.7 million and our share of profits from Visudyne sales was 23.2% which is down 1 percentage point from the level of profitability seen in the second quarter of last year. Before the year, we expect the profit share percentage will be in the low 20s and finally, revenue from Visudyne comprised about $9.4 million of profit share with the balance being reimbursed expenses.

Turning now to expenses, R&D expense came in at $8.1 million for the quarter including stock compensation expense of about $250,000. Also the weakening US dollar had a negative impact on our reported expenses because of significant portion of our expenses are incurred in Canadian dollars. For the second quarter, our R&D expense was above $0.3 million higher than the second quarter of 2007 because of this FX impact. G&A expense in the quarter was $4.6 million which included approximately $0.4 million of stock compensation expense and again on G&A, the weakening US dollar added above $0.3 million to the 2008 second quarter spend compared to the prior year quarter.

Still on expenses, I want to point out that the 2007 comparatives in our current results have been reinstated to conform to our current discontinued operations reporting. So, our reported R&D expense in Q2 '08 of $8.1 million compares to $11.1 million that we actually reported a year ago in our results for Q2 '07. Similarly, in G&A, our reported expense in Q2 '08 are $4.6 million compares to $5.6 million that was reported a year ago. When you take this report and change into account, our combined spending for R&D and G&A was down about 24% compared to the second quarter last year.

Moving on, we recorded another $1.7 million in the restructuring expense in the quarter bringing the year-to-date total for just over $9 million. On the restructuring charge, we are estimating that the charge for the rest of the year will be less than a million dollars as most of the restructuring announced in January is now complete and to be clear, this remaining charge does not include any amounts related to further restructurings above and beyond those already announced that will occur after completion of our remaining asset divestments. Moving on, as I have the past three quarters, I will remind you of the two places that the MEEI judgment impact to P&L.

First, we have an expense line on the P&L called accrued cost of sales re MEEI which captures the ongoing damage award of 3.01% of worldwide drug sales of Visudyne. In the second quarter of 2008, discharge was $1.2 million. The second place, we have an interest expense that is accruing on the amount of July damage award and on post judgment damage that is at the rate of 5% per year. For the quarter, discharge was approximately $1.4 million. This interest will continue to accrue at the 5% range stipulated by the court prior to the judgment. Both of these items are being backed out in our determination of non-GAAP EPS.

Moving on to income taxes, the effective rate on our pre-tax loss for the quarter was low reflecting the fact that a significant amount of our expenses are incurred in our new US subsidiary QLT Plug Delivery Inc. which is developing the punctal plugs. Because this subsidiary has no revenue and no history of profitability, we are not able to tax the losses incurred there which drags down the effective rate on our overall loss position for the quarter. We continue to expect the effective tax rate for the year to be in the mid to high in range. So, on the bottom line, we reported diluted net loss per common share of $0.10 compared to a net loss of $0.92 in the second quarter last year.

For the quarter, we have included in the press release schedule that reconciles our GAAP EPS to non-GAAP EPS. The significant items excluded in determining non-GAAP EPS were the inventory charges primarily related to the Aczone divestment, accrued cost of goods and interest charges related to the MEEI judgment, stock compensation expense, restructuring and a charge associated with the BioLife arbitration. Non GAAP EPS for the second quarter was $0.02 but if you take out the positive $0.05 impact of our profitable discontinued operations, we would have had a non GAAP loss per share for the quarter of $0.03.

Adjusted EBITDA for the quarter was a loss of $1.1 million and this is derived by starting with continuing operations’ operating profit and then making the same adjustments for non-GAAP EPS as well as adding back depreciation expense. Turning to cash, our cash balance at the end of the quarter was $244.2 million but this total balance included a $123.3 million of restricted cash which was related to the bond posted to stay the execution of judgment pending appeal in the MEEI case.

So, to summarize our cash position, we had $244.2 million of gross cash at the end of June. Offsetting this gross balance, we had a $123.3 million of restricted cash related to the MEEI judgment and convertible note of $172.5 million which we fully expect to be repaying in September this year. So, taking away these two items left us at quarter end with a net cash position of approximately negative $52 million. However, it is important to point out that the June 30 cash balance did not reflect a $150 million that QLT USA received in July for the Aczone divestment.

Adding this cash into the equation, today we have a net positive cash position of almost $100 million and further we expect that completing the divestment of other assets already announced will provide additional strength to our balance sheet and that will allow us to return meaningful proceeds to shareholders. One last thing to note on the quarter, capital expenditures were less than a $100,000. Now, turning briefly to our 2008 guidance, I just want to remind you of a few things.

As we mentioned last quarter, R&D expenses projected to be $29 million to $32 million, down from $46.4 million reported in 2007 which is a decrease of over 30%. The year-over-year comparison is negatively impacted by the weak US dollar. This impact makes the 2008 guidance about a million dollars higher than it would have been if 2000 average rates occurred in 2008. Also we are currently evaluating the spending related to the lemuteporfin program and we will update you if there is any impact to our R&D guidance. On G&A expense, our projection of $19 million to $21 million is down from $27.4 million reported in 2008 which is a drop of approximately 25%.

Within G&A, the negative impact of the weakened US dollar adds about a million dollars to the year-over-year comparison. G&A expense in 2008 still include significant legal fees related to ongoing litigation, fees related to divestment activities and commercial expenses related to Visudyne. We do expect that G&A in the second half of '08 will approximate the run rate that was established in the second quarter. One last thing I would like to comment on is taxes related to our QLT USA act of divestment. We have approximately $230 million of net operating loss carried forwards that maybe available to shield QLT USA's operating profit and gains on individual asset sales from QLT USA.

Just a couple of points here, first point is that the complicated tax environment and the broad spectrum of possible deal structures mean that it is virtually impossible to provide accurate tax guidance before transactions occur. The divestiture of the remaining QLT USA assets could range from a sale of shares for the whole subsidiary. In other words, the shares of Atrix, now QLT USA that we bought in 2004, the individual asset divestitures to straight royalty deals where only cash flows are signed and no assets are actually transferred. The second thing on taxes is that because of the mechanics and complexity of tax rules, you generally cannot look at a single transaction in isolation.

Income taxes are computed and based on the look back of the annual results of the company, in this case QLT USA and the annual results will reflect the total of the results of operations as well as the impact of all asset divestments in the period and the potential form of each divestment. Our goal in the divestment process continues to be to maximize after tax cash returns to our company and we continue to work closely with the advisers in this regard. So, summing up, we had a strong performance from Visudyne and Eligard in the quarter and after the convertible debt is repaid, we will have a very healthy balance sheet with approximately $100 million of cash.

And with that, I will turn it back to Bob for some closing comments.

Robert Butchofsky

We did have a very strong quarter with Visudyne and Eligard. We are pleased with the quarter-over-quarter gains in both of the compounds. We definitely strengthened our balance sheet up with the closure of the Aczone deal. We have other asset deals to complete and we are working diligently on those as well as moving forward on the clinical programs with punctal plug read out probably in the fourth quarter and the retinoid program moving in to the side and results from the RADICAL study in the fourth quarter as well.

So, with that, we can go to questions.

Question-and-Answer Session

Operator

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

David Dean - Cormark Securities Inc.

I am wondering if you can give us some more information on what is going to go forward with the MEEI here. You said that all will be given certainly in September but what happens after that and when do you think the verdict will come in?

Robert Butchofsky

Well, the oral arguments are relatively short. We will have that argument early or middle month of September and then really the process is one that verdict will be issued as soon as the judge gets around to writing a verdict. I think when you look historically; the average time is probably 6 to 9 months following oral arguments before verdict comes out but it could be sooner than that, it could be later than that. So, we really will not have any idea until it comes out.

David Dean - Cormark Securities Inc.

Okay and just on the plugs here, what will the business model be if you guys decide that you cannot improve upon the design of the existing plugs and any move forward, something that is already commercialized, what happens then?

Robert Butchofsky

Well, we think we are advancing the designs of the commercial plugs so I think that is a very low probability outcome. We are in clinical studies. We are looking at retention and ease of insertion of plugs and I think we are making advances. So, we will continue to try and develop plugs that we think offer more meaningful benefits in current commercially available plug designs.

David Dean - Cormark Securities Inc.

Okay, so it sounded like you are well on your way to a better plug but if by chance that does not improve through, what happens then?

Robert Butchofsky

Well, we will cross that bridge when we get there, David. I do have confidence that we are advancing the technology and that seems that we are on the right track. So, well it is not completed yet. I feel confident that we are heading in the right direction.

David Dean - Cormark Securities Inc.

Okay and can you tell us what the contribution that you previously included within your R&D guidance further more?

Cameron Nelson

We were spending about 20% of our R&D budget on 0074 or lemuteporfin. Some of that money is obviously already been spent. We are reiterating our R&D guidance for the year. At this stage, I think we probably are spending a little bit more on the punctal plug program that we had planned on starting out for the year so no changes overall yet in the R&D forecast for the year.

David Dean - Cormark Securities Inc.

So, if we wanted to just to back of the envelope calculations, could we subtract your R&D for the first half from your total guidance and take or 20% of the resulting number and subtract that whereas being a general number in which might be saved here or..?

Robert Butchofsky

David, that is probably just a bit aggressive because there is a lot of commitments and things that are going to be required to spend money on as we wrap up the year. So, it is not going to disappear immediately to spend.

David Dean - Cormark Securities Inc.

So, the spend was really front half weighted mostly…

Robert Butchofsky

It is front half plus just on you cannot just wrap things up in day. You have to satisfy commitments and what not.

Operator

Your next question comes from Doug Miehm - RBC Capital Markets.

Douglas Miehm - RBC Capital Markets

What is your outlook for Visudyne outside of the EU and the US? I know that in the US, things are looking fairly flat for the moment and maybe some continued declines in the EU but what about outside those two jurisdictions?

Robert Butchofsky

We, as Cam mentioned, we had a pretty strong…, we call it “rest of world growth” in the second quarter. We continue to expect to see pockets where we will have some strong growth like we did but overall we are reiterating our guidance of 145 to 160 for the year. It was encouraging to see the ongoing relative stability in the US, some strengthening in Europe and growth outside of those jurisdictions and we want to caution people just not to expect that the growth is going to continue in the third quarter because it always seems that the third quarter is week in Europe but we do expect to see a rebound in sales on the fourth quarter. So, we are basically on track with where we thought we would be, maybe a little bit stronger second quarter than we expected and we are pleased to see it.

Douglas Miehm - RBC Capital Markets

Okay and then just if you can refresh my memory and walk me through the timeline for the punctal plug and some of the key dates that are coming up over the next 6 to 12 months.

Robert Butchofsky

Yes, we just completed enrolment in the CORE study. So with 90-day follow up, the last patient’s last visit should be in October and we should be able to get data relatively soon after the last patient's last visit. In Punctum, we are still looking at proprietary plug designs and setting those separately. We expect it will have both of those pieces of information around the time to talk in our third quarter earnings call certainly before the American Academy of Ophthalmology meeting.

Douglas Miehm - RBC Capital Markets

When would the decision be made in terms of what you are going to be taking into phase III?

Robert Butchofsky

We would hope that results from CORE would lead us to a decision about which concentration of drug we plan on using. We will likely do a study combining that specific concentration of drug with our punctal plug proprietary design and so that would be categorized essentially as another phase II study. We would plan on doing that late this year and then taking those results and sharing them with the FDA and talking to the FDA about phase III study designs and moving into phase III next year.

Douglas Miehm - RBC Capital Markets

Cam, if we, let us just take the time with respect to closing of the Eligard in QLT USA sale, that was the date when everything were potentially finished. How soon after that would you be returning in some form capital back to shareholders?

Robert Butchofsky

I think, well Cam can give you his opinion, Doug but I think it is I do not really want to speculate how quickly we will going to be in a position to do that. It is something that we have made a commitment to do and we will try and do it as soon as we can but beyond that I do not think we want to speculate on what the exact timing would be.

Operator

Your next question comes from Frank Bianco - Argent.

Frank Bianco - Argent

Can you provide us with an update on where you stand with respect to the other non-core assets that are pending sale?

Robert Butchofsky

Yes, Frank we mentioned that it is difficult for us to give you a whole lot of details other than we are working on the other transactions. We expect that they will progress and we are committed to obviously announcing them once we have signed deals. So, I really do not want to speculate on the exact timing or evaluations. We are in active negotiations on the other assets and beyond that, there is not a whole lot we can say.

Operator

Your next question comes from David Dean - Cormark Securities.

David Dean - Cormark Securities Inc.

What is your understanding about combo use in Canada these days?

Robert Butchofsky

I think I have not seen real recent market research, David. I expect that it is probably declined a bit as Lucentis reimbursement has been approved throughout many of the provinces in Canada and I think positions are probably trialing Lucentis monotherapy to a bit higher degree than they have in the past. We expect that to be not necessarily a temporary trend but a relatively short trend and that the reasons that Canadians had the highest market share in adopting combination still exists and that is you have a relatively small number of retina specialist treating patients from large geographies with the high focus on cost effectiveness within the health payer system in Canada. So, we expect somewhat of a blip but the combination usage should expand especially if we get positive radical in MONTBLANC and DENALI data over the course of the next year or so.

Operator

Your next question comes from Mike Krensavage - Krensavage Asset Management.

Mike Krensavage - Krensavage Asset Management

I see a pretty big increase in the sequential sales for Eligard, about 20% and if I try to determine the value of that asset, I am just wondering how appropriate it is to use the second quarter sales as the run rate and the other question I have is, I believe you have said you would report the CORE results in the third quarter, now you are saying to fourth quarter so, why the change there? Thank you very much.

Robert Butchofsky

On the CORE data, it was essentially an issue of timing for enrolment as you may or may not be aware; patients went through a one-month wash up period where they had to essentially complete two criteria to gain entry into the CORE study. The first is they had to retain a commercial punctal plug for 30 days and if they did not retain the plug then they will be excluded from the trial. The second is they had to meet eligibility criteria in terms of baseline intraocular pressure and we essentially had a dropout rate that approached about 50% on the patients that we screened that were not able to be enrolled in the study so it took us a little bit longer to enroll patients than we first estimated. We just recently completed the enrolment of the study so 90-day follow up should lead to last patient visit in October. Is that clear?

Mike Krensavage - Krensavage Asset Management

Yes and the Eligard question?

Robert Butchofsky

Remind me what your Eligard, year or the year or the quarter-over-quarter gain in run rate, is that what you are asking?

Mike Krensavage - Krensavage Asset Management

Yes, I am trying to determine Bob what is the appropriate number as I try to valuate to that asset and it seems like it is a pretty big increase in the sequential sales.

Robert Butchofsky

Well, we are absolutely pleased to see it. We do not think that will harm our valuation of the product at all so we were pleased to see that incremental growth. I think it is really being driven by the European launches of the 6-month formulation. In terms of what it will do for the overall evaluation, it is difficult to asses but certainly it seems that the compound is doing extremely well. It is nice to see that strong growth, during a period of time, where we are in active discussions with divesting it. So, I cannot specifically answer your question but we certainly think it adds value to the overall ramp.

Operator

There are no further questions at this time.

Robert Butchofsky

Well, I want to thank all of you for listening in on the call today. We are presenting next year in New York at the BMO conference on August 5 and look forward to talking to you with our third quarter results in October. Thank you very much.

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