Liver cancer therapy developer and researcher Sirtex Medical Limited (ASX: SRX) confirmed to the market this morning that it would not meet its previously provided growth guidance. Here's what you need to know:
- Sales growth in the Americas is in line with guidance, growing 18% to 20%
- Lower-than-expected performance in Asia-Pacific ("APAC") and Europe, Middle East, and Africa ("EMEA") regions dragged down overall performance
- Investors should expect overall sales growth of 15% to 17% for the full year, below five-year average growth of 19.7% per annum
There are several reasons for this:
- Delays in achieving product reimbursement (presumably from insurers/government healthcare providers) in EMEA countries
- Delays in publication of SIRFLOX clinical study, which delayed sales and marketing initiatives
- A tighter funding environment in several established European markets
- Temporary supply disruptions in some Asian markets
Perhaps the best way to think of Sirtex's problems is this:
A medical or biotech company can't sell a product without thorough scientific justification showing that it is a good product (reason #2). Many health treatments are out of reach of consumers without insurance or government inputs. These insurance and government healthcare providers won't pay for a product unless it has been shown to be a good product (reasons #1 and #2).
Sirtex didn't specify whether reasons 1 and 2 were related, but readers can see how issues like this might put a lid on product sales.
Reason #4 is also a temporary one, with supply disruptions part and parcel of doing business – especially when your sales have pretty low volumes, as Sirtex does.
There's little investors can do about reason #3 except wait for more scientific evidence to mount and hope that it pries open the coffers.
'Established' markets are usually pretty good at accepting treatments once they have been shown to be effective – which can sometimes take a while, if the burden of proof requires local-language medical journals or studies (most studies are published in English).
So What?
The important takeaway for me is that the majority of these issues appear to be timing related. I paraphrase, but a wise man once said that the time it takes the Earth to move around the Sun is an arbitrary way of measuring investment returns. When your company falls short in one 365-day period, what are you going to do?
Sirtex shares are down 7% today, and further falls could be waiting in the wings if the broker community decides to downgrade its price targets. However, the company's long-term future appears intact and I will be using any further falls to pick up more shares, when Foolish trading rules permit.
