Sirtex: Result 2016

Sirtex had another year of strong growth and is investing in new technologies.

Sirtex Medical has reported a good result, even though it was below prior guidance. Dose sales for the company’s flagship product, an internal radiotherapy for liver cancer, increased 16% to 11,931 in the year to June due to growing acceptance of SIR-Spheres in the medical community and a 14% increase in the number of US hospitals certified to use the treatment.

Revenue rose 32% to $232m, while net profit increased 33% to $54m, which was aided by a lower Aussie dollar (where most costs are incurred) compared to the US dollar and euro (where most revenue is earned). Underlying net profit rose 17% after excluding the effect of currency fluctuations.

Dose sales in the Americas – Sirtex’s largest market, accounting for 80% of revenue – rose 19%, though sales in Europe, Middle East and Africa (EMEA) and Asia Pacific rose a more modest 11% and 9%, respectively.

Year to June 2016 2015 /(–)
(%)
Table 1: SRX result
Dose sales (units) 11,931 10,252 16
Revenue ($m) 232.4 176.1 32
Net Profit ($m) 53.6 40.3 33
EPS (c) 93.7 71.4 31
Final dividend 30 cents, fully franked, (up 50%)
ex date 26 Sept

The main culprits for the slow growth in EMEA and Asia Pacific were: restricted marketing due to the late publication of clinical study results; less generous funding in several European markets; delayed insurance reimbursements; and supply constraints in Asia due to a dispute with a South Korean distributor.

Management noted these were mainly temporary issues, and a new distributor has been appointed with sales to recommence soon. Management also said that key government reimbursement contracts had been signed in South Africa and the Netherlands.

Research and Development (R&D) spending increased 26% to $11m as the company stepped up its effort to improve the current generation of SIR-Spheres and invest in new technologies.

Management said ‘A large, under-penetrated market opportunity lies ahead; with approximately 2 per cent penetration implied by our [2016] does sales. We anticipate double digit dose sales growth will continue in [2017] whilst we await the results of the three major clinical studies due to report findings in the first half of calendar year 2017.’

Sirtex’s share price has risen more than fivefold since we first upgraded the stock in Sirtex enters remission on 8 Nov 10 (Speculative Buy – $5.90) and it trades on a price-earnings ratio of 33. With no debt, significant pricing power, and operating leverage in a large, untapped market, we continue to recommend you HOLD.