My call on drug developer QLT (NASDAQ:QLTI) has been a classic case where being right about a company's prospects hasn't necessarily translated into being right about the direction of the stock's price (at least in the short run). Ever since I mentioned that it would be best for investors to stay away from QLT because of the oncoming competition from Genentech's (NYSE:DNA) Lucentis, shares have run up over 20%.

QLT is best known for its macular degeneration treatment, Visudyne, which is partnered with Novartis (NYSE:NVS). Last week, QLT announced fourth-quarter sales numbers for the drug. Worldwide sales of Visudyne for the quarter came in at $77 million, down 29% from last year. This has been the trend for the past several quarters as Visudyne has faced some tough competition from Genentech and the former Eyetech's (now part of OSI Pharmaceuticals (NASDAQ:OSIP)) Macugen.

With last year's second-quarter approval of Genentech's Lucentis in the U.S., sales of Visudyne have declined at an even more precipitous pace. U.S. sales of the drug only accounted for 12% of worldwide Visudyne sales for the fourth quarter. This is bad news for QLT and foreshadows what will happen to Visudyne sales in the rest of the world in the coming year, since Lucentis should receive final marketing approval in the European Union sometime in the next couple of weeks.

Here's a chart of Visudyne's U.S. sales decline; note the near doubling of the percentage point sales decline -- from 41% to 79% -- after just the first two quarters of competition from Lucentis.

Visudyne US Sales*

Year-Over-Year Growth

Q4 2006



Q3 2006



Q2 2006



Q1 2006



*In millions

Not only are Visudyne sales declining rapidly, but the margins on the drug are collapsing as well. And as sales fall, so too does the percent of profits that QLT keeps (since QLT shares Visudyne revenue with marketing partner Novartis). For instance, in the first quarter of this year, QLT was getting to keep 31.6% of the profits from sales of Visudyne; by the third quarter, QLT was only receiving 24.8% of the profits from sales.

Visudyne sales will reach a floor at some point. Some hope that the drug could be used synergistically with Lucentis, and QLT is running clinical trials to test this theory. But other trials are testing Avastin versus Visudyne, and the results could have a detrimental effect on Visudyne's sales.

Visudyne's European sales will probably experience a similar decline once Lucentis hits the market over there. The problem with QLT is not that it is ill-managed, but rather that a superior drug has come along and now the company's top product is facing a strong competitive challenge. Absent some really strong combination study results with Lucentis, QLT isn't much of a bargain at today's prices.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.