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QLT in a Rut or Ready for a Comeback?

Last week, drug developer QLT (Nasdaq: QLTI  ) released its third-quarter results and guidance for the rest of the year.

Depending on how you envision the future unfolding for QLT's age-related macular degeneration (AMD) drug Visudyne, you can take this quarter's 25% drop in revenue and 35% Visudyne sales shortfall as either a signal of more bad times to come or a bump in the road until the future improves.

There's nothing new this quarter to the story about the sales shortfall with Visudyne. As Genentech's (NYSE: DNA  ) rival AMD treatment Lucentis gets rolled out in more European countries, sales of Visudyne head into a free fall in each market that experiences the new competition.

Both Visudyne and Lucentis are marketed by Novartis (NYSE: NVS  ) in the European Union. In order to expand the market for Visudyne, Novartis and QLT have been running several combination studies with the two AMD drugs to see if there are clinically meaningful efficacy improvements with using them together.

Interim six-month results from one of these studies are expected to be out before the end of 2008, with more trial results coming in 2009. QLT's hope is that if these studies are successful, it will be able to keep Visudyne worldwide sales in a range of $200 million to $250 million a year even with the continual penetration of Lucentis into new markets.   

The rest of the QLT story remains the same; acne treatment Aczone has a March 23 FDA PDUFA target date for the possible label improvements that QLT is seeking before it markets or out-licenses the drug. If the FDA approves the less-burdensome label, then QLT is guiding for $100 million in peak annualized sales from the drug.

The 2007 sales guidance range for hormone therapy drug Eligard was upped thanks to continued penetration of the six-month formulation in Europe. Sales are now expected to be in the $175 million to $185 million range, compared to an earlier 2007 range of $160 million to $180 million, which itself was the product of raised guidance.

With the continued decline of income from Visudyne, QLT experience a small $2.6 million operating loss for the quarter. Whether this is a sign of continued fiscal deterioration or the bottoming out of its fortunes likely depends on the results of those Visudyne combination studies. Place your bets accordingly.

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