Fifteen years ago CSL Limited (ASX: CSL) earned under $50 million in profit. In 2013, it earned over $1.30 billion. Sirtex might not be as cheap as CSL was then, but the company's profits could follow a similar trajectory (though starting from a lower base). Where CSL supplies blood products, Sirtex Limited sells a treatment for liver cancer, a leading cause of cancer deaths worldwide. Both companies are concerned with saving lives. Back in 1999 CSL was less expensive than Sirtex is now, but Sirtex clearly belongs on any ethical investor's watchlist, and I regret not covering it sooner.
Sirtex Medical Limited (ASX: SRX) sells tiny radioactive microbeads that allow radiologists to deliver radiation directly to the the tumour in the liver. For this reason, the therapy is called Selective Internal Radiation (SIR). Many oncologists (cancer doctors) consider it a 3rd line treatment, although there is good reason to believe it could be more favoured in the future. One of the downsides of the treatment is the risk that the radioactive spheres end up somewhere other than the target. As a result, SIR therapy requires that radiologists place tiny coils through the catheter to block certain arteries, so that the radioactive spheres don't head to the wrong location. A couple of weeks later, after taking stomach medication and antibiotics, the patient receives the radioactive spheres through the artery.
The treatment is proven to work, and it is gradually being used more often. At present, it's not the first line of defence, and it may never be (I'd imagine surgery is preferable if the tumour can be removed). However, it is likely to be used in more and more situations, as word spreads and the number of people with liver cancer increases.
One of the major causes of liver cancer is Hepatitis B and C, and it is particularly common in Southeast Asia and Sub Saharan Africa. However, there are a number of risk factors for liver cancer, including alcohol consumption, hepatitis type 2 and obesity. Indeed, "the percentage of Americans developing liver cancer has been rising slowly for several decades," according to the American Cancer Society. At the moment, over 30,000 Americans are diagnosed with liver cancer every year.
The company is currently funding research that is testing whether SIR therapy is a good companion treatment for chemotherapy. If it is proven to be, the therapy will be used far more often. Indeed, it is arguable that patients should be treated with SIR-spheres earlier, because the treatment process itself is quite exhausting for an already weakened cancer sufferer. I also believe it is possible that the cancer itself might block relevant arteries as it develops, making SIR therapy inappropriate. If that logic is sound, concern for patients will encourage doctors themselves to want to prescribe SIR therapy sooner. Basically, investors (and patients) are hoping that SIR therapy becomes part of the standard of care for cancer patients. If this happens, Sirtex will experience rapid sales growth.
Sirtex Limited does have some competition: a Canadian company, MDS Nordion, makes TheraSpheres, which are smaller and more radioactive than SIR-spheres. SIR-Spheres are more widely used, and the company is duly poised for continued growth. However, it can't be said the market is ignorant of the potential, and the company is quite expensive, though there was a decent opportunity to buy after the company reported subdued dose sales growth of just 4% for the first quarter of 2014. In the second quarter sales rebounded, and so did the share price.
Though the share price is too high for me to want to buy right now, there was a bit of an opportunity (that I missed) to get them for under $12 twice this year, and even for under $10 after February. If I'd known what I do now, I would think I'd have bought, and I regret my negligence. There were psychological reasons I was ignoring the company, including the influence of others, the busy period of my life when I first became aware of the company, and anchoring due to the fact I had watched the share price head up so far.
If it comes back down to these levels (only 25-30%) then I would be very interested, but the share price seems to have many years of fairweather growth without any hiccups priced in. Having said that, if it does get 4-5 years of fairweather operating (gradual sales growth) or if the SIRFLOX study shows SIR Therapy should be used with Chemotherapy, the company will be a great investment. If sales disappoint or SIRFLOX fails to support SIR Therapy combined with Chemotherapy, the shares would likely become cheaper.
I think Ms Market is in love with this story for good reason. Nonetheless, I prefer buy when Ms Market is a little less giddy. Having said that, I'd say she's only just had a couple of glasses of champagne and she can, and sometimes does, go on multi-day benders. If this turns into an all-nighter, those who missed Sirtex, myself included, will definitely be feeling envy... and that's when people pay crazy prices. My gosh, the share price is even breaking out today. Sadly, I'm sitting this one out.
The bottom line is that Sirtex does appear to be an effective treatment that can extend people's lives for a year or more, and prevent the progression of liver cancer for long periods of time. Anecdotally, it's clear patients want the treatment, and want it sooner. This treatment is supported by science, doctors and patients - it seems like a very good thing.
The Author does not own shares in any of the companies mentioned in this article. Nothing on this website is advice, ever. The purpose of this blog is to keep track of my decisions and invite feedback
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