Shares in liver cancer treatment business Sirtex Medical Limited (ASX: SRX) have climbed around 1.6% to $15.40 in afternoon trade on a strong day for companies across the healthcare sector.
Today the company revealed dose sales growth for H1 2017 clocked in at 5.6% versus H1 2016, which is at the upper end of its revised guidance for growth between 4%-6% for the period.
However, 5.6% is still a long way below the anticipated "double-digit" growth for FY17 that the CEO referred to at the August 2016 full year results presentation and October 25 AGM. There's also the possibility that Sirtex's half-on-half growth is now flat or falling when you compare H2 2016 dose sales to H1 2017. The company's latest guidance is for dose sales growth between 4%-11% for the full year and this guidance will rely upon a much stronger second half.
The CEO is now also on "temporary leave" while a team of lawyers investigate concerns raised about his selling of stock at a time when it traded on prices inflated by the market's belief that the "double digit" forecast was solid. The decision to have the share selling investigated was apparently prompted by "shareholder" and "other" enquiries.
Sirtex also conceded in a response to an ASX price query that the regulator had questioned whether it was in compliance with its disclosure obligations on December 2 – a week before it disclosed the need to revise down its dose sales forecasts.
Evidently it would take a brave investor to buy shares before an update is provided over this investigation as it is unusual for the regulator to challenge a company over its disclosure obligations unless it thinks it has good reason to.
What prompted the December 2 regulatory query is unknown for now, but it must have been compelling enough for the regulator to act on and my impression is that there may be more negative news to come out of the company.
Sirtex is also due to post its financial results for H1 2017 on February 22, when it will reveal just how much costs have been rising as a result of increased operating or capital expenditures that may have supported the dose sales growth. The company has already flagged to expect EBITDA to be down between 9%-16% for the period, despite the 5.6% dose sales growth.
The company's 1.6% rise today compares unfavourably to healthcare giants Cochlear Ltd (ASX: COH) and CSL Limited (ASX: CSL), which lifted 4.2% and 1.7% today respectively. Both of these companies I would consider far superior buys on current valuations, especially if you expect the U.S. dollar to edge higher over the course of 2017.
