Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Ian@SI who wrote (985)	8/1/2000 4:23:13 PM
From: BostonView	Respond to of 1321

It sure looks like HMS QLTI has left the harbour! She's heading straight for the port of profitability located on that exclusive island called First Tier. Good sailing, eh! BV

To: Ian@SI who wrote (985)	8/2/2000 10:57:41 AM
From: Julian	Read Replies (1) \| Respond to of 1321

Nesbitt Burns Christine Charette August 02,2000 EVENT: QLT announced Q2/00 EPS of ($0.01) before a one-time gain on sale of Photofrin of $0.22. Sales of Visudyne were US$25.5 million, far exceeding our estimate of US$18 million for the quarter. We are increasing our target price to $150 from $125. IMPACT: Positive. The sales were above even aggressive market estimates. DETAILS: Visudyne was launched on April 12 in the U.S. and this was the first quarter of commercial sales. The launch was very successful; surpassing the highest estimates of US$21-US$22 million. U.S. sales came in at US$19.5 million and international sales, which includes Switzerland where the product is approved and expanded access sales where it is not, at US$6 million. OTHER HIGHLIGHTS: o About 500 lasers have been placed in the U.S. as of the end of Q2/00. This surpassed expectations of having 400 lasers in place by year end. About 300 lasers have been placed in the rest of the world. Most U.S. retinal specialists now have access to a laser and 90% of retinal specialists have been trained. o As expected, due to the direct shipping to doctors, the company estimates that "pipeline fill" represented only about US$2 million in sales in the U.S. or about one week of sales. o We estimate about 11,000 NEW patients were treated in the U.S., based on the assumption of an 80-85% retreatment rate for the patients who participated in the expanded access program and a US$2 million inventory. This is 3,000 or 37% more than we anticipated. o Management upped its guidance to US$95-US$100 million in Visudyne sales for the year. We believe this is conservative and we are increasing our sales estimates to US$106 million from US$95 million. This has a ripple effect on our forecast for the following years, which is detailed in the table below. We believe our 2000 sales estimate to be conservative. EPS (C$) EPS (C$) - Revised Sales (US$) Sales (US$) - Revised 2000 Est. (0.26) (0.03) 95 106 2001 Est. 0.77 0.90 270 286 2002 Est. 1.88 2.00 472 485 2003 Est. 2.88 2.98 657 666 2004 Est. 3.60 3.70 760 777 Note: Sales in US$ millions. o Management expects growth in Q3 to be more muted due to a possible seasonal effect. Physicians must be present in the office in order to undertake the procedure and use the drug. Given holidays, the number of new patients may be more limited. Also, management would like to see actual retreatment rates before feeling comfortable with higher sales numbers. OTHER: Based on the ocular histoplasmosis and the pathological myopia data, a supplemental NDA is planned before the end of the year for the indication of predominantly classic blood vessels (CNV), secondary to other diseases. If approval is received, it could encompass most other causes of blood vessel growth. Although it is difficult to arrive at accurate market sizes for these diseases, retinologists estimate they could represent about half of the size of the AMD market. However, as a percentage of predominantly classic AMD, they would represent a much larger proportion. The top development priority is to seek an expanded label to include occult AMD patients. Management expressed confidence that this can be achieved with some changes in treatment parameters. Trials looking at this should start shortly. European approval was received on July 28. Reimbursement policy for the main markets of Italy, Germany, France and the U.K. is expected within the next six months. The price for the drug has not been set yet, but is expected to be on par with U.S. cost, somewhat over EUR1000. As expected uptake for the drug is expected to remain limited until reimbursement is achieved. UPCOMING NEWS/EVENTS: QLT will be hosting an analysts' meeting on Aug 14. We are expecting updated information on reimbursement by the state Medicare carriers and CIBA Vision's direct to consumer (DTC) program. More importantly, however, we expect an update on the company's pipeline. ASSESSMENT: Sales came in stronger than expected. This should go a long way in closing the valuation gap between QLT and other biotech companies. We believe there will be increased visibility in the company's pipeline in the next 6-12 months, starting with the analysts' meeting on August 14. The higher visibility of the pipeline will also help in closing the valuation gap. VALUATION: Biotech P/E multiples range widely (from 25 to 125 on 2000E EPS) and are highly dependent on their growth profile. Any analysis of valuation in the sector must therefore take into account a company's growth profile. We have looked at three different approaches to choosing an appropriate multiple for QLT in the context of the current market. All three methods indicate QLT is undervalued compared to U.S. peers and yield target prices that range from $180 to $220 two years from now. A 20% discount would yield a one-year target of $150 to $165. 1. Like all biotech companies that launch their first major drug, QLT will be experiencing very fast EPS growth, but its growth will also decelerate rapidly. This makes it difficult to arrive at an appropriate P/E multiple; however, three U.S. Biotech companies have launched their first major product in recent years. These companies are in essence two years ahead of QLT in that they have a 1999-2002 growth profile which will more or less mimic QLT's profile in 2001-2004. The average fully taxed adjusted three-year compounded growth rate of these companies for 1999-2002 is 63%, versus QLT's expected 61% for 2001-2004. Based on 2000 EPS estimates and their 1999-2002 growth, the average PEG for these companies is 2.7 with the lowest at 1.8. As discussed earlier, QLT will have a similar growth profile, but delayed by two years. A PEG of 1.8 on our QLT 2002E EPS and 2001-2004 growth forecast would yield a target price of about $220 two years from now. 2. We can also peg QLT's valuation by determining an appropriate multiple based on earnings in a year when its growth profile is flattening out. An appropriate year would be 2002, when we estimate its two-year compounded forward growth to be 36%. U.S. biotech companies are currently trading at 95x 2000E consensus EPS. Two-year forward compounded growth for these companies averages 30%. This translates to an average two-year forward PEG of 3.5 with a range of 1.7-7.5. If we exclude the two highest PEGs (Biochem Pharma and Immunex) this PEG becomes 2.5, within the range of (1.7-4.3). A multiple of 95 on QLT's 2002 EPS estimate would yield a target price of $194 two years from now, whereas a PEG of 2.5 would yield a target price of $181. 3. Another approach to determine whether or not QLT is undervalued is to look at where the stock should be trading today based on the 2002 P/E multiples of biotech stocks. U.S. biotech companies are currently trading at 50x 2002 consensus estimates. These multiples range widely (21-133), depending on EPS growth. The highest EPS growth estimate between 2001 and 2002 in this universe is 69%, with the average at 30%. Given the much faster EPS growth expected for QLT for the same years (126%), it should trade at a much higher multiple of 2002 earnings than the average. However, its P/E is at 48x our 2002 estimates, which is slightly below the average. We are increasing our target price to $150, from $125. This is the lowest of the target prices that the three valuation methods yield. This target price implies a P/E multiple of 75x 2002 EPS estimates or a PEG of 2.1x on two-year forward growth. RECOMMENDATION: We continue to rate QLT a Top Pick, with a target of $150.00