Sirtex Medical: Result 2012

It was a year of strong growth for liver cancer treatment company Sirtex Medical, with the US business performing particularly well. Dose sales in the US rose 32% as the company’s doctor education program begins paying off. Asia-Pacific growth was also strong, with dose sales up 32% (from a much lower base). Only Europe disappointed, with dose sales of 4%, although improvement is expected. Total dose sales rose 23%, accelerating in the second half of the financial year.

In dollar terms, Sirtex’s sales for the 2012 year grew 17% to $82.6m, while net profit rose 49% to $17.1m. It’s worth mentioning again that the profit figure is a bit of an accounting fiction; in 2012 Sirtex capitalised $8.5m of research expenses on the balance sheet. This isn’t our preferred accounting treatment, as the rapidly accumulating $15.2m worth of research-related intangibles will need to be written off or amortised in the future.

Operating cash flow, which jumped 31% to $20.0m, gives a better view of the underlying cash-generating ability of the business. Free cash flow—which deducts the $8.5m of research expenses—rose 96% to $10.4m. The company’s cash balance grew by 15% to $49.4m but, with an expensive clinical research program underway, the final dividend for 2012 is apparently still ‘to be determined’.

Sirtex is currently working on a new method for doctors to administer the SIR-Spheres treatment. In conjunction with its clinical research program—results from the first of five studies are due late in calendar 2014—the idea is to move SIR-Spheres from a ‘last line’ treatment to an early stage treatment.

While this will take many more years, the immediate outlook for Sirtex remains very positive.  Management expects ‘strong growth trends in all markets to continue in 2013’. But with the share price up 17% since 9 Jul 12 (Hold – $6.41), the stock isn’t worth buying at present. HOLD.