The Sirtex Medical Limited (ASX: SRX) share price traded flat today after Maurice Blackburn announced it would pursue a class action against the liver cancer specialist.
The class action relates to the company's August 2016 guidance that it expected to achieve "double digit" sales growth in FY 2017, although in reality dose sales growth was confirmed to come in at around 5.5% in an announcement on June 28, 2017.
Maurice Blackburn is alleging that Sirtex, inter alia, failed to comply with its continuous disclosure obligations and in so doing contravened the ASIC Act, Corporations Act and the Australian Consumer Law.
The class action is being funded by well-regarded litigation funding specialist IMF Bentham Ltd (ASX: IMF).
Serious litigation funders such as IMF Bentham don't agree to fund cases unless they have a high degree of certainty that they will succeed as they face heavy losses if the case is lost.
According to its website IMF Bentham globally has achieved a "90% success rate" on over 157 cases since 2001, which is no surprise, as statutory and common law generally offers certainty to professional lawyers as to the outcome of a case prior to its potential pursuit.
It's also worth noting Sirtex itself sacked its ex-CEO after an independent legal investigation as to his share selling subsequent to the "double digit" growth guidance.
It's my expectation that the company will settle with Maurice Blackburn, and IMF Bentham will take its share of fees for taking on the risks around funding the case.
Sirtex has also faced two other legal claims from lesser-known law firms Portfolio Law and William Roberts Lawyers. The claim from Portfolio Law was even lodged well prior to the company confirmed its full year dose sales growth. Notably, neither of these claims have a litigation funder as far as I can see, although one would not be strictly necessary to pursue an action.
In reality it looks like the big claim to worry Sirtex's legal advisers is being pursued by heavyweight duo Maurice Blackburn and IMF Bentham. As such I expect Sirtex could face a costly compensation bill, although there's no doubt the company can ride out this short-term problem.
The main game for Sirtex investors remains whether or not it can grow its SIR-Spheres sales. If it is able to grow sales and profits over the long-term the legal problems of FY17 will be a historical footnote for long-term investors.
