QLT: An "Eye" on Biotech

12/19/2003 12:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

The Best Buy portfolio maintained by Upside has gained 204% since its May 1999 inception, versus a 21% gain in the Russell 2000 Index. The service seeks fundamentally and technically attractive stocks within the small-cap arena. Here, they turn their quantitative "eye" toward QLT, vision-related biotech.

"QLT (QLTI NASDAQ), a fast-growing biotechnology company, is capitalizing on an attractive market position. The company is a leader in light-activated drugs. Its Visudyne product accounted for roughly 97% of sales through the September quarter. The product is the leading treatment available for macular degeneration—the leading cause of blindness in people over 55. Visudyne, marketed through an alliance with drug giant Novartis, is approved in more than 70 countries. QLT boasts a strong customer base and extensive global presence, and near-term prospects are bolstered by an expanding product pipeline and solid finances.

"Vancouver-based QLT has delivered outstanding growth. In 2002, sales were $110 million, up from $18 million in 1999. For 2003, management expects profits to grow 31% to 43%, putting per-share earnings guidance in the range of $0.62 to $0.67. For 2004, analyst per-share profit estimates range from $0.72 to $0.93, with a consensus of $0.78. The consensus could prove conservative given the company’s operating momentum. Financially, QLT is in good shape, with nearly $461 million, or $6.67 per share, in cash and short-term investments.

"Despite the strong showing this year, the stock still trades well below its 2000 high of nearly $86. The shares are attractively valued for such a strong grower. QLT’s P/E ratio is 21 based on expected earnings for the next four quarters—a 30% discount to the average profitable biotechnology company. The stock has nearly doubled this year, yet plenty of upside remains. QLT represents an attractive, though aggressive, opportunity among specialty-drug companies. The biggest risk facing the company is impending competition. QLT is rated Best Buy. While the stock will likely be volatile, investors buying now should reap attractive 12-month returns."

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