Sometimes I am baffled by how the market behaves. Take, for instance, the Canadian drug company QLT (NASDAQ:QLTI), which I recommended in the November 2004 issue of Motley Fool Hidden Gems. The past year has not been kind to its stock, which is now down more than 50% from its 52-week high. I touched upon this story last month and I'm revisiting the topic now in light of information that came out of this morning's earnings conference call.

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 (NYSE:PFE) and Eyetech's (NASDAQ:EYET) Macugen.

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 (NYSE:NVS), QLT will record about $155 million to $170 million of that as revenue. This situation still bears watching, but I'm more confident now than I was a month ago that Visudyne sales will be up this year compared to '04.

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 (NYSE:ABT) and Takeda Pharmaceutical.

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.

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Fool contributor Charly Travers is the biotech analyst for Motley Fool Rule Breakers. He owns shares of QLT. The Motley Fool has adisclosure policy.