QLT Inc. (Nasdaq:QLTI) (TSX:QLT) ("QLT" or the "Company") today reported financial results for the second quarter ended June 30, 2010. Unless specified otherwise, all amounts are in U.S. dollars and in accordance with U.S. GAAP.
"We are pleased with our financial results for the second quarter, particularly the adjusted EBITDA generated in the period," said Bob Butchofsky, President and Chief Executive Officer of QLT. "The second half of the year will be important for us on the R&D front, as we continue to enroll patients in the Phase Ib synthetic retinoid study for patients with inherited retinal diseases. We also anticipate the initiation of two important clinical trials in our punctal plug drug delivery platform: a Phase II study of latanoprost for patients with glaucoma, and a Phase II proof-of-concept study with olopatadine for patients with ocular allergies."
2010 SECOND QUARTER FINANCIAL RESULTS
Worldwide Visudyne® Product Sales
Visudyne sales for the second quarter were $24.4 million, a decrease of 15.9% from the second quarter of 2009. Sales in the U.S. were $6.4 million, down 25.3% from the prior-year second quarter, while sales outside the U.S. were $18.0 million, down 11.9% from the prior year.
For the second quarter, total revenue of $12.4 million was up 15.4% from the second quarter of 2009, despite the 15.9% drop in Visudyne product sales. The increase occurred because (i) following the amendment of our Visudyne agreement with Novartis, in 2010 we book more revenue per dollar of product sales than under the profit-sharing arrangement that was in effect during 2009, and (ii) revenue in the second quarter of 2010 included approximately $2 million for the shipment of a batch of Visudyne to Novartis.
QLT Expenses / Other Income
For the second quarter, Cost of Sales was $3.4 million, down from $7.1 million in 2009 primarily because the prior year number included a charge of $4.6 million to provide a reserve for obsolete Visudyne inventory.
For the second quarter of 2010, Research and Development (R&D) expense was $7.3 million, up slightly from $7.2 million in the same period of 2009. The change occurred primarily because increased spending on our synthetic retinoid and QLT091568 programs and a negative foreign exchange variance due to the stronger Canadian dollar were largely offset by reduced spending on punctal plugs and Visudyne.
For the second quarter of 2010, Selling, General and Administrative (SG&A) expense was $5.0 million, up from $4.3 million last year primarily due to Visudyne sales and marketing expenses for the U.S. market and a negative foreign exchange variance.
Investment and Other Income of $2.4 million included a $2.5 million gain for the Fair Value Change in Contingent Consideration. This gain occurred primarily because the Contingent Consideration asset is recorded as the present value of expected future payments, and therefore as each quarter elapses, even if no changes are made to the underlying forecast, we will book a gain as we move one quarter closer to realizing the full face value of the asset.
The operating loss for the second quarter was $3.7 million, compared to a loss of $8.2 million in the prior-year second quarter. The improvement occurred primarily because the prior year results included the $4.6 million charge for obsolete Visudyne inventory.
Earnings Per Share (EPS) / Loss Per Share, Adjusted EBITDA
GAAP loss per share was $0.02 in the second quarter, down from GAAP EPS of $0.16 in the prior-year quarter. The decline occurred primarily because the 2009 second quarter results included $7.7 million of Income from Discontinued Operations, but the current year second quarter results had no Income from Discontinued Operations following the divestment of QLT USA, Inc. and its Eligard® product line on October 1, 2009. Also, the 2009 second quarter benefited from significant net foreign exchange gains that resulted from intercompany debt.
In the second quarter, non-GAAP EPS was $0.12. The items that were excluded in the determination of non-GAAP EPS were (i) stock compensation expense, (ii) interest income related to the note receivable from the QLT USA divestment, (iii) the fair value change in contingent consideration, and (iv) Other Income related to divestment during the quarter of non-core assets. We also added back (within Income from Discontinued Operations) $9.5 million of Contingent Consideration earned based on Eligard sales during the second quarter. Adjusted EBITDA plus Contingent Consideration earned for the second quarter was $6.7 million, as follows:
The full reconciliations of GAAP to non-GAAP financial measures for the second quarter and six months are provided as Exhibits 1 and 2. The adjusted non-GAAP financial measures have no standardized meaning under GAAP and therefore may not be comparable to similar measures presented by other companies. We believe that the adjusted non-GAAP financial measures may be useful to investors to analyze the results of our business. We use these non-GAAP measures internally to evaluate our financial results and to establish operational goals. Certain items are excluded from non-GAAP financial measures because we consider such items to be outside of our core operating results or because they represent non-cash expenses or gains.
Cash and Short-Term Investments
The Company's consolidated cash balance at June 30, 2010 was $186.3 million, down from the consolidated balance at March 31, 2010 of $190.1 million. The decline occurred, despite positive Adjusted EBITDA plus Contingent Consideration, primarily because during the quarter the Company bought back approximately 1.2 million shares of QLT stock at a total cost of $7.2 million.
Punctal Plug Program Update
In the second half of the year, the Company plans to initiate a masked, randomized, active-controlled Phase II clinical trial examining the safety and efficacy of the latanoprost punctal plug drug delivery system in glaucoma patients. This trial will feature simultaneous placement of punctal plugs in both the upper and lower puncta in order to deliver an approximate bioavailable daily drug load approaching that of daily administered Xalatan® eye drops. The objective of the study is to enable a clear go/no-go decision with respect to ongoing development of this molecule in our punctal plug drug delivery system. Data from this trial is expected in the first half of 2011.
In addition, during the second half of 2010, the Company plans to initiate a masked, randomized active-controlled Phase II proof-of-concept study examining the safety and efficacy of the olopatadine punctal plug drug delivery system in patients suffering from allergic conjunctivitis. Data from this trial is expected to be available in the first half of 2011.
All guidance ranges are unchanged from original guidance provided during the first quarter this year, however we now expect Visudyne sales to be near the bottom end of the guidance ranges. As a reminder, the key guidance provided for the full year 2010 was as follows:
RECENT COMPANY HIGHLIGHTS
- Announced that the Toronto Stock Exchange (TSX) accepted the amendment to the Company's notice of intention to conduct a normal course issuer bid in the open market through the facilities of the TSX and the NASDAQ Stock Market (NASDAQ). The amended notice increased the number of common shares that QLT may purchase under its normal course issuer bid over the twelve month period that commenced on November 3, 2009, from 2,731,534 common shares, representing 5% of the outstanding common shares on October 28, 2009, to 4,700,060 common shares, representing 10% of the public float as at that date. Since this program commenced, the Company has purchased 2,278,178 common shares for a total cost of approximately $12.3 million, or $5.41 per share.
- Announced final results from the Novartis-sponsored Phase IIIb DENALI study which was presented on June 8, 2010 during the World Ophthalmology Congress in Berlin. DENALI was a 24-month randomized, double-masked, multicenter trial in patients with subfoveal choroidal neovascularization secondary to wet age-related macular degeneration (wet AMD) (all lesion types). The purpose of the study was to evaluate if Visudyne (verteporfin PDT) (either reduced- or standard-fluence) combined with Lucentis® (ranibizumab) was not inferior to Lucentis monotherapy with respect to the mean change from baseline in visual acuity (VA) and to evaluate the proportion of patients with a Lucentis treatment-free interval of at least three months duration after Month 2 until Month 11. At Month 12, patients in the standard fluence combination group gained on average 5.3 letters from baseline and patients in the reduced fluence combination group gained on average 4.4 letters. Patients in the Lucentis monthly monotherapy group gained on average 8.1 letters at Month 12. DENALI did not demonstrate non-inferior visual acuity gain for Visudyne combination therapy compared with Lucentis monthly monotherapy.
- Announced final 24-month results from the Phase II RADICAL study (Reduced Fluence Visudyne Anti-VEGF-Dexamethasone In Combination for AMD Lesions) in patients with exudative (wet) age-related macular degeneration. The purpose of the study was to determine if Visudyne combined with Lucentis reduced retreatment rates compared with Lucentis monotherapy, while maintaining similar vision outcomes and an acceptable safety profile. Three Visudyne-Lucentis combination therapies were evaluated against Lucentis monotherapy. The results of the final 24-month analysis were consistent with the primary analysis results after 12 months of follow-up. The 24-month results showed that significantly fewer retreatment visits were required with combination therapies than with Lucentis monotherapy. Mean visual acuity (VA) change from baseline was not statistically different among the treatment groups, although the sample sizes were insufficient to draw definitive conclusions regarding visual acuity outcomes. Overall adverse event incidence was similar across treatment groups, with no unexpected safety findings.
- Announced that the Company was added to the Russell Global Index. The 2010 reconstitution of the Russell Indexes, a comprehensive set of U.S. and global equity indexes created by Russell Investments, took place after the market close on June 25, 2010. Membership in the Russell Global Index remains in place for one year and is reconstituted annually.