Sirtex Medical
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The share price of liver cancer treatment provider Sirtex Medical is down 13% since our update of the company’s profit result on 29 Aug 11 (Speculative Buy – $4.95). There’s been no negative news of note; on the contrary, the company reported total dose sales rose 11% in the first quarter this financial year.
Strong growth of 19% was reported for each of the US and Asia-Pacific regions, although dose sales fell 7% in Europe due to the summer holiday period. Dose sales won’t rise in a consistent fashion each quarter, but management expects a recovery in Europe in any case.
Perhaps investors are focusing on the clinical trial investment program, where Sirtex expects to spend $60m over the next five years. Patient recruitment for these studies has commenced, with the aim of establishing the SIR-Spheres technology as a first-line treatment for various tumours. While this investment is necessary for long-term growth, it does reduce cash flow in the short term. In 2011, free cash flow fell from $19m to $5m.
While setbacks are common in the biotech sector, Sirtex’s technology is strong and the business has a lot of momentum. Expect the stock to be volatile, but it remains a SPECULATIVE BUY.
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