There is no doubt Sirtex Medical Limited (ASX: SRX) and Mesoblast Limited (ASX: MSB) are two healthcare companies with exciting futures ahead of them.
Although both companies operate in the same sector, they carry vastly different risk profiles and therefore should appeal to different types of investors.
Sirtex Medical
To say its been a wild ride for Sirtex shareholders in 2015 would be an understatement. The shares climbed to nearly $40 a share on the expectation that results from its highly anticipated SIRFLOX study would confirm its SIR-sphere treatments would signifcantly improve the survival rates of patients with end stage liver cancer.
The results were not entirely as the market expected and the share price more than halved on the day of the announcement. It wasn't until the dust settled that the market realised all was not lost for Sirtex.
The SIRFLOX study did show some positive results and further promising analysis has been presented to the wider healthcare community since the initial results.
On the back of these positive results, the share price has climbed its way back up to around $30. At this price, the shares are trading on a price-to-earnings (P/E) ratio of around 45. Obviously this is a huge premium to the rest of the market but the future potential of Sirtex should not be underestimated.
The charts below just how impressive unit and sales growth have been over the past five years. This has been underpinned by 42 consecutive quarters of growth.
Source: Sirtex Company Presentation 1H15.
The important thing for investors to understand is that the SIR-spheres technology has previously only been used as a salvage or last resort therapy. It is hoped that the new trial results will allow the therapy to become more mainstream and even possibly be used as a first line therapy.
It is this possibility that is driving the share price higher as sales of Sirtex's treatment could potentially triple the current sales growth if the treatment becomes first line.
Mesoblast
Mesoblast is leading the way in developing novel treatments from adult stem cells. Unlike Sirtex, Mesoblast does not have any approved therapies at the moment and is currently in the development stage for a number of possible treatments.
The most likely candidates that could be commercialised are its JR-031 treatment for tissue graft rejection, MPC-150 treatment for heart failure, and MPC-06 treatment for lower back pain.
Although all three of these candidates are in phase 3 clinical trials at the moment, product sales are unlikely for at least another two to three years.
The biggest issue facing investors is that Mesoblast is spending huge amounts of cash without getting any revenue in return. In the last quarter alone, Mesoblast spent over $30 million to fund its operations and received less than $1 million in return.
Mesoblast has a cash balance of around $124 million but at the current cash burn rate will need to raise more capital in around 18 months.
An investment is Mesoblast is definitely a long-term proposition but investors can take some confidence in the fact that US-based company Celgene has taken a substantial interest in the company. This should provide some certainty for investors that Mesoblast is on the right track to gets some of its products commercialised soon.
Verdict
In my opinion, Sirtex is definitely the better medium-term stock. It has proven earnings growth and has the potential for further growth if more positive trial results are announced.
On the other hand, Mesoblast looks like it could be the better long-term stock. The company is not relying on one treatment for success but it is unlikely the company will be profitable for several years to come.
If you want great returns without the high risks of biotech companies then look no further!
