Seeing the Value in QLT

Even though Novartis (NYSE: NVS  ) and its partner, QLT (Nasdaq: QLTI  ) , announced strong 2004 sales for the drug Visudyne, QLT's stock is taking quite a hit. It could be an opportunity for investors to take advantage of a market that's squeamish about an emerging competitor to the drug, which treats age-related macular degeneration (AMD), a disease that is the leading cause of blindness in people over 50.

Novartis and QLT announced that sales for Visudyne came in at $448 million for 2004. The numbers mark a robust 25% increase over 2003 sales. While QLT will not be announcing its full financial results for another month, the company tends to record revenue in the low 30% range of Visudyne sales under the terms of the agreement with Novartis. It looks as if QLT revenue from Visudyne will therefore be just under $140 million.

But despite all of this good news, QLT's stock has languished and isn't too far away from hitting a 52-week low. The problem is that the market doesn't care how well Visudyne has done in the past, because it's worried that a new product, Macugen, from Eyetech (Nasdaq: EYET  ) and Pfizer (NYSE: PFE  ) , is going to come along and capture significant market share. Macugen was approved last month to treat AMD and is just now available.

We're looking at an old-fashioned street fight here, with an entrenched product battling to keep its position against a strong, new competitor. Neither side is pulling any punches in pointing out the opposition's deficiencies, while both pump up the strengths of their own product. My hunch is that the end result will be win/win for the companies, since the two drugs work by different mechanisms. But the retinal specialists will render the final verdict, and in the coming quarters we'll be able to see what impact Macugen has on Visudyne's growth.

All of the focus on this battle has masked QLT's having become more than a one-drug company with its recent acquisition of Atrix Laboratories. I'm convinced that Visudyne will more than make up for any sales losses through the rapid growth of Atrix's Eligard franchise in the treatment of prostate cancer. This compelling story has been lost in the shuffle, and it's created a situation where there's a profitable drug company trading at a low multiple of earnings.

For additional articles on the drug industry, see:

• Biotech Class of 2004
• The Future of Cancer Vaccines
• Cloning Fluffy

Fool contributor Charley Travers owns shares of QLT and recommended it in the November 2004 issue of Motley Fool Hidden Gems . Charley is the biotech analyst for Motley Fool Rule Breakers .