The bargain hunter’s guide to Sirtex Medical Limited

Credit: Sirtex Medical

Shares in Sirtex Medical Limited (ASX: SRX) continue to slump following a market update at the start of June. This is in stark contrast to fellow industry leaders CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH), whose share prices continue to surge higher.

With Sirtex losing 35% of its market value this year alone, investors should reassess the recent trading update and consider adding Sirtex to their buy list today.

About Sirtex

Before investing in Sirtex, investors must understand the company. Sirtex is an established global life sciences business that develops and delivers effective oncology treatment to late stage liver cancer patients.

Unlike market aspirant Mesoblast Limited (ASX: MSB), Sirtex has an approved product in the form of its SIR-Spheres which are inserted into inoperable liver tumours to deliver Selective Internal Radiation Theraphy (SIRT).

SIRT acts as a supplement to traditional chemotherapy, providing patients the ability to better target liver tumours whilst maintaining normal functioning of the liver. SIRT has been proven to be effective in increasing the progression free survival of the liver by almost 8 months (versus standalone chemotherapy). This buys more time to fight late stage cancers.

The objective response rate, which measures the proportion of patients with a complete or partial response to treatment is also 9.9% higher using SIRT (against traditional chemotherapy alone). This means SIRT should become the preferred second-line of defence (absent new therapies).

Market update

Contributing to Sirtex’s fall in value is a market update provided by management at the start of June. Management reported dose sales grew at a rate of 18-20% in America, but that lower-than-anticipated dose sales in EMEA (Europe, Middle East & Africa) and APAC (Asia Pacific) during the second half will decrease overall sales.

Accordingly, management revised full year sales growth to 15%-17%, down from its trend of 19.7% in prior years. The downgrade means lower profits than previously expected this financial year when management reports on 24 August. However, I do not believe it justifies the savage sell-off in Sirtex’s shares, given the company remains highly profitable.

Foolish takeaway

Sirtex is ultimately a biotechnology company, meaning its share price is subject to wild swings on market upgrades and downgrades (more so than other industries). Nonetheless, Sirtex’s core offering of targeted liver radiation therapy positions it as a pioneer in the field of liver cancer treatment.

In my view, this places it in the company of other market leaders CSL, Cochlear and ResMed Inc. (CHESS)  (ASX: RMD), implying Sirtex’s long-term investment thesis should remain intact, despite the ‘downgrade’.

Although Sirtex is riskier than other companies, investors looking for healthcare exposure should look at buying Sirtex at its current price.

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Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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