Highly-anticipated results from Sirtex Medical Limited's (ASX: SRX) clinical trial for its specialised liver cancer treatment came out Tuesday. The preliminary analysis showed the primary endpoint of the SIRFLOX study was not achieved. However, it was shown the study's secondary endpoint was achieved.
Sirtex Medical's share price plummeted to as low as $14.80 in morning trade on Tuesday and is currently trading down 57.6% at $16.55.
The clinical trial hoped to show the company's SIR-spheres treatment, which is currently a salvage therapy for liver cancer patients, might be suitable as a first-line treatment.
According to the company's release: "Preliminary analysis shows that adding SIR-Spheres® Y-90 resin microspheres to a current first-line systemic chemotherapy regimen for the treatment of non-resectable metastatic colorectal cancer (mCRC) does not result in a statistically significant improvement in the overall Progression-Free Survival (PFS)."
High expectation, high PE
High expectations for the company have been building over the past year, as the market waited for the clinical trial results. A year ago, the stock was trading at $15.78 and it last closed at $39.00.
All the while, the stock had a very high price/earnings ratio because more investors picked up the stock, expecting a huge expansion in Sirtex's production levels. The company estimated it might have to triple current production to meet the potential demand if its cancer treatment became a first-line therapy.
Previously, I wrote that there wasn't enough margin of safety in the share price for value investors.
Sirtex's long-term success story
To Sirtex's credit, the secondary endpoint of the study did result: "In a statistically significant improvement in Progression-Free Survival (PFS) in the liver." The company is already successful with its SIR-spheres treatment.
Its recently reported half-year revenue and net profit were up 37.3% and 58.1%, respectively.
This follows strong growth over the past 10 years. Sirtex Medical is still a good company with room to grow in overseas healthcare markets.
However, market expectations and the share price have gone further than a value investor could follow. Looking over the long term, though, this could be a buying opportunity after the share price settles.
