The Sirtex Medical Limited (ASX: SRX) share price edged lower to $15.88 today after the liver cancer treatment specialist acknowledged that legal proceedings against it had been filed in the Federal court by lawyers Maurice Blackburn.
The claim for breaches of its continuous disclosure obligations is being funded by litigation funders IMF Bentham Ltd (ASX: IMF) who will meet the legal fees of Maurice Blackburn and wear the risk that the claim is unsuccessful.
IMF Bentham claims that it has a 91% success rate in claims funded to June 30 2017, with 147 out of 162 cases completed won.
Those kind of statistics are no surprise as the law is designed to provide certainty and even semi-competent lawyers should be able to assess the outcomes of potential claims based on facts and precedent with a high degree of certainty.
For example if IMF's claim is rejected by a judge it faces a substantial cost hit, credibility gap, and red faces all round as it would suggest a failure in their professional interpretation of the law.
When talking of credibility it's notable that Sirtex Medical's current board and management is reporting that it will "vigorously defend the new action" – despite having sacked its old CEO after an internal investigation (by independent legal experts) into his conduct and share trading at the end of 2016.
If IMF's claim is successful the compensation will be calculated after the court (or legal teams) agree what the share price would have been trading at but for the breaches of the company's continuous disclosure obligations over the period in a question.
In other words it's alleged that if the company and sacked CEO had kept the market properly updated as to its sales trajectory the share price would likely have been substantially lower and the difference between the actual traded price and the theoretical price will be used to calculate potential compensation quantum to claimants.
The total compensation potentially due is hard to estimate as it would depend, inter alia, on the number of claimants, which could be a big variable.
Outlook
Any final bill is unlikely to prove a massive hit to Sirtex given its strong balance sheet and its main challenges remain flattening dose sales growth and rising competition.
As such Sirtex's best days may be behind it and in the healthcare space I would still prefer market leaders like ResMed Inc. (CHESS) (ASX: RMD) or CSL Limited (ASX: CSL) for long-term growth.
