Sometimes I am baffled by how the market behaves. Take, for instance, the Canadian drug company QLT
There are two issues on which the market has taken a very conservative stance, which has resulted in what I think is an attractive valuation for the company. The first issue is the concern over Visudyne's future in the face of competition from Pfizer
That story is in the midst of playing out. But right now it looks pretty good for Visudyne, with sales so far in the first quarter tracking higher sequentially than the fourth quarter of 2004, according to management. Helping matters is that Visudyne is growing very quickly in Europe and Japan. QLT has guided for $500 million to $530 million in Visudyne sales this year. Because the drug is partnered with Novartis
The second pressing issue is what to make of the prostate cancer drug Eligard, which was brought in through QLT's acquisition of Atrix Laboratories last year. Eligard competes with Lupron, which is marketed by TAP Pharmaceutical, a joint venture between Abbott Laboratories
Eligard sales came in at $84 million last year in a highly competitive environment complicated by Medicare reimbursement issues. The growth driver here is the six-month formulation of Eligard since Lupron doesn't have a dose of that duration and will not for at least another 12 months. I view this as a competitive edge that should grow Eligard's franchise. But we'll have to watch sales in the coming quarters to see if I'm correct.
Despite the competitive pressures, I expect QLT to perform well over the next few years. It is soundly profitable and is creating future growth in a diversified drug pipeline that could launch another drug, Aczone, in the second half of this year. With a forward P/E ratio close to 20, I think this stock is a good value.
For additional articles on the biotech industry, see:
- Is Big Pharma a Bargain?
- Searching for Cheap Biotechs
- Investing in a Cure
- Grading Old-School Biotech
- Biotech Class of 2004
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