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Biotech / Medical : QLT PhotoTherapeutics (QLTI) -- Ignore unavailable to you. Want to Upgrade?

To: Ian@SI who wrote (803)	1/13/2000 12:14:00 AM
From: Julian	Read Replies (1) \| Respond to of 1321

Christine Charette's Jan.12th report and recommendation on QLTI: "EVENT: The U.S. biotech sector has continued its rapid valuation increase over the past month. Both the NASDAQ and AMEX indices have increased by about 50%. As a result multiples have expanded dramatically. IMPACT: Positive. Higher growth biotech companies are now trading at earnings multiples that are above 2x growth. This contrasts to QLT's 2001-2002 multiples, which are at about 1x growth. The expanding multiples justify a higher multiple and a higher target price for QLT. [We] are therefore increasing our target price from $87.50 to $125.00. DETAILS: QLT is now trading at 100x and 49x our 2001 and 2002 EPS estimates, respectively. These multiples are in line with [our] projected growth rate. This contrasts to the three U.S. high growth biotech companies [Medimmune, Immunex, Idec] that have become profitable in the last year or so and on which we base [our] QLT valuation. As a result of strong performance, they are now trading well above 2x growth. If QLT was to trade at a PEG of two, the stock would double in the next two years. The more mature biotech companies (those with growth of less than 30%) have also experienced a large increase in valuation recently. As of the close on January 11, these were trading at almost 3x growth. These companies are trading at 42x 2002 EPS estimates, despite a 2002/2001 growth rate of only 16%. This contrasts to QLT's current multiple of 49x 2002 EPS estimates and a 2002/2001 estimated growth rate of 104%. Based on this comparison, QLT is undervalued on a comparative basis. QLT's 2001 earnings multiple (100) is also below that of the average multiple of large cap U.S. companies expected to be profitable for the first time in 2001. These are trading at an average 187x 2001 earnings (range 102-415). At a multiple of 187, QLT's stock price would be $168.00. VALUATION: Earnings multiples for biotech companies are at an historical high. Because of the potential eventuality of a contraction in multiples, [we] prefer to set [our] target price at a substantial discount to what could be justified based on the valuation parameters of the U.S. biotech companies. [Our] new target price of $125 is based on 81x estimated 2002 earnings discounted by 20% for one year. This represents a PEG of 1.6 on estimated 2002 earnings, which is the lowest of the high growth biotech companies. Although the company is expected to reach a number of milestones on other programs this year, [we] believe the biggest drivers for QLT's share price this year will be: 1. The two-year results of the TAP trial (Q2) 2. The one-year results of the VIP trial (Q2) 3. Early Visudyne sales Given the valuation of the high growth biotech companies, positive news from all three events could have a large impact on stock price. RECOMMENDATION: [We] continue to recommend purchase. The stock is rated with a $125 target price. "