Sirtex Medical
Recommendation
Sirtex Medical produced another record quarter of dose sales, up 37% over the prior period ending 31 September. Sirtex’s sole product, SIR-Spheres microspheres, an innovative form of radiotherapy to treat liver cancer, performed particularly well in the critical US market, where dose sales rose 42%.
Despite this impressive result, considerable future growth remains possible. SIR-Spheres are still considered a ‘last line’ treatment for liver cancer, used by around 1% of possible patients. There remains a vast market of potential customers. Sirtex is working furiously to complete clinical trials required to prove the value of its solution as an alternative, or complimentary, treatment to traditional cancer treatments such as chemotherapy. Early signs are promising, but nothing certain will be known until late 2013. In the meanwhile these trials will absorb around 40% of the company’s free cash flow.
Sirtex, though, remains a highly profitable, debt free company, producing growing profits. On a price to earnings ratio of 33 it isn’t superficially cheap—but if current success is continued this business could be worth multiples of today’s share price. Indeed, there’s a case that our current recommendation guide undervalues the company. This will be the focus of a more detailed review over the coming months. For now, with the share price rising 34% since Sirtex Medical: Result 2012 from 30 Aug 12 (Hold – $7.47), it remains a HOLD.