The Sirtex Medical Limited (ASX: SRX) share price dived 12% to $14.28 after the company released its annual results this morning. Here's what you need to know:
- Dose sales grew 5% to 12,578
- Revenue grew 0.8% to $234 million
- Net loss after tax of $26.3 million
- Underlying net profit after tax (NPAT) of $42.4 million
- Underlying earnings per share (EPS) of 73.5 cents
- Dividends of 30 cents per share
- $118 million in cash and no debt
- Outlook for tough market conditions to continue in 2018 but with some measured expansion into countries like France
So what?
Sirtex generated a huge loss after tax this year due to the write-down of its intangible research assets. The company's previous funds spent on research & development (R&D) had been recorded as an 'asset', and now that those trials have failed, that asset (worth $90 million) is now worthless.
On an underlying basis, excluding the R&D write-down, results were mediocre with sales growing just 5%. Revenue fell 0.8% due to currency headwinds, and was up 6% on a constant-currency basis. There should be a big decline in clinical expenditure in 2018 because most research projects are now finished, so profits could potentially improve in the near term.
Now what?
Sirtex management continued the recently-announced share buyback, with ~$3 million worth of shares already purchased, and a further $27 million to be purchased by mid-September. The company is also 're-aligning' (I read this as 'reducing') its spending on R&D and focusing on the core SIR-Spheres business. Recent trials showed an interesting result with the combination of SIR-Spheres plus chemotherapy being better than chemotherapy alone for treating certain types of colon cancer, and this could prove a fertile ground for further investigation.
One thing that stood out to me most about Sirtex was that the company, with a $940 million market capitalisation, is still priced at 22x this year's underlying profits. Once clinical spending is cut back however, the company may prove significantly cheaper. Still, dose sales are growing well below previous forecasts and there is the uncertainty added by the new CEO's strategy. I'd call Sirtex a hold today.
