Company: Sirtex Medical Limited  
Share Price: $4.54
Market cap: $248m
Recommendation: ‘Buy’


Compared to US and European markets, Australian cupboards are relatively bare when it comes to bio-tech ‘movers and shakers’ delivering on their promises and generating some real cashflow. Whilst our shores are not short on ‘blue-sky’ stories, most have yet to reach the commercialisation stage and some companies never will. This is where Sirtex Medical Limited differs. The company is a profitable bio-tech just embarking on its next expansion phase, generating strong cashflows and on track with a genuine growth path. At a time when global markets may be showing signs of short term exhaustion, a defensive earnings stream could be just what the doctor ordered.

Founded in 1997, Sirtex has stgeloped a groundbreaking treatment for inoperable liver cancer. The liver is the largest organ in the body and its importance paramount for healthy blood circulation and the destruction of harmful substances such as alcohol and ridding of waste products. Sirtex’s novel treatment for liver cancer couldn’t be more timely with it becoming the fifth most widespread cancer and one of the most deadly. In a shocking fact, sufferers typically pass away within a year of diagnosis of the disease.

Differing from traditional chemotherapy which delivers radiation externally, Sirtex’s form of treatment minimises patient discomfort and surrounding tissue damage by exposing the tumour to high doses of radiation internally. Sufferers are injected with millions of radioactive microspheres named SIRT, standing for ‘selective internal radiation therapy’. The particles are 1/3 the width of a human hair and are injected into the hepatic artery (which connects to the liver), lodging themselves in the tumour and releasing high doses of radiation to the cancerous area. The process is minimally-invasive and delivers radiation up to 40 times higher than conventional radiotherapy. Clinical trials have confirmed that liver cancer patients treated with SIRT have response rates higher than with other forms of treatment, resulting in increased life expectancy, greater periods without tumor activity, and improved quality of life. SIRT has been found to shrink liver tumors more than chemotherapy alone.

Sirtex’s SIRT treatments have been gaining traction in world markets following years of intense stgelopment. After generating low sales in the previous financial period, FY09 results indicate that sales breached a new level. Pretax profit leapt 812% compared with FY08 on the back of a 41% increase to overall unit sales. Sirtex now has around 8,500 patients worldwide and this revenue basis is expanding rapidly. The company appears to finally be on its way to meeting earnings potential and its largest markets are still being infiltrated.

Increased demand has come on the back of trials demonstrating SIRT’s effectiveness in treating cancer and strong international government backing. Federally funded reimbursement programs have been gaining increasing popularity, providing a strong driver to sales. It is expected that this sizeable sales growth will continue to be supported by government healthcare initiatives being implemented across the globe. Just recently, US Congress has voted to extend the current Medicare Bill and, as a result, the present level of reimbursement for treatment using SIRT will be maintained until at least January 2010. National reimbursement schemes have also been implemented in Belgium and Germany, which are currently Sirtex’s strongest markets. Reimbursement in other European markets is increasing, although they have been slower in stgelopment thus far.

In addition to governmental backing, management’s plan to expand into lucrative Asian markets could see a re-rating of the stock. It is anticipated that Sirtex will receive regulatory approvals in the Korean and Indian markets in the near term, which will have a positive impact on sales in the region. Regulatory approval in Taiwan will take up to two years to complete and these plans are all a part of management’s long term goal of continued global infiltration. Of the +430,000 new cases of liver cancer reported each year, about three quarters of the cases are found in Southeast Asia (China, Hong Kong, Taiwan, Korea and Japan). Continued infiltration of these markets offers large boosts for sales.

So with high gross margins of 80%, profit growth is strongly tied to building sales momentum. The uptrend is expected to continue on the back of the ongoing move into Asia and further penetration in key markets – the US and Europe. Trading on a PE of 22 and yet to pay a dividend, the company attracts a similar valuation as CSL, however the significant upside potential to earnings more than justifies the investment case. Carrying no debt and with $26.7m cash, adequate funding is on hand to lead the international sales charge and continue R&D. The recurring nature of earnings due to patients’ needs for continual cancer treatment also provides further confidence in the stock. Even allowing for any currency risks, we rate the stock a ‘buy’.

Joshua Terlich is an analyst at All views in this article are those of, not of and do not constitute advice.  


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