Sirtex Medical Limited (ASX: SRX) announced on Thursday that sales of its SIR-Spheres targeted radiation therapy for liver cancer grew 27.1% for the quarter ended 30 June 2014, compared to the previous corresponding period. The standout performer on a regional basis was the Americas with sales growth of 33%; Europe, Middle East and Africa grew 16.7%, and Asia Pacific 11.7%. Sirtex has now reported 40 consecutive quarters of dose sales growth and aims to accelerate that growth over the medium to long term.
Shares closed up 3.89% to $17.64 and hit an all-time high in the process, with confirmation that the efficacy of Sirtex’s innovative liver cancer treatment is gaining wider acceptance amongst the global community of professional oncologists (cancer specialists) meaning the outlook appears brighter than ever. In November 2013 fund manager Hunter Hall, manager of the Hunter Hall Global Value Ltd (ASX: HHV) fund, declared Sirtex to have the potential to be a $100 stock. This on the basis that the company is able to penetrate 10% of its addressable market if the radiation-therapy treatment becomes recognised as the standard of care, rather than a treatment of last resort. In 2013 it’s estimated Sirtex penetrated just 1.4% of its addressable market.
The company posted revenues of $58.6 million for the first half of FY 2014 and with sales up 19% and 27% on the previous corresponding periods for the second half, full-year revenues can be estimated at around $130 million. With Hunter Hall’s $100 share price valuation based on future revenues of $830 million and EBITA of $565 million, the prospect might not seem so fanciful after all. Investors should note Hunter Hall’s funds are significantly invested in Sirtex, so it’s no surprise that it’s happy to act as cheerleader in chief.
It’s also no surprise that Sirtex trades on a fruity 40 times projected earnings and investors should expect short-term price volatility. Especially because the company is expected to announce in late 2014 the initial results of clinical trials intended to provide evidence that its cancer treatment should be promoted to use as a standard of care. If Sirtex is able to translate positive trial results into a quantum leap in revenues, the stock may run hard into the future. If the results from the studies disappoint the stock is likely to face selling pressure, although any investors left underwater would still own a growth business generating big profits.