Although this article will focus more on Sirtex Medical Limited (ASX: SRX), it applies to any biotech company with a successful business. If you're going to own a biotech company, you need to think long term.
The research pipeline
A quick look at the trial code provided by Sirtex in its announcement yesterday showed that it first registered its RESIRT renal (kidney) cell carcinoma Phase 1 trial (for patients who can't be cured by other methods) way back in August 2010. The results from the trial itself were presented at a conference just last week.
Sirtex's SIR-Spheres treatment itself was initially intended for liver cancer. An expansion into renal and other forms of cancer would potentially increase the target market, and increase profits for the company – perhaps significantly. Yet it's been six years since the trial was first registered, and this was a Phase 1 trial. By the time the company makes it through (IF it makes it through) the hurdles of Phases 2 and 3, plus regulatory approval in each of its target markets internationally, it could well be another five years before Sirtex can start selling renal cancer treatments.
The company is also investigating a variety of other cancers, like Cholangiocarcinoma (see today's announcement), which is in a Phase 2 trial. This trial started in October 2016 and is expected to finish in 2019. There are a number of other opportunities for Sirtex to expand into related areas, and its primary SIR-Spheres treatment has only captured a small percentage of its main market.
The growth opportunity
With these trials, which are funded from company profits, Sirtex has a number of chances to expand the 'indications' (situations in which its treatments can be used) for its treatments in the future. This does not mean that all opportunities will come to fruition, and those that do may not grow sales that much. Yet we can see from the timeframes of the above trials that the wheels of biotech companies grind extraordinarily slowly – sometimes belied by occasionally explosive movements in their share prices.
Thinking long term
CSL Limited (ASX: CSL) is the obvious paragon of a biotech company that 'made it'. Its shares are up 705% since late 1999, excluding dividends. Yet even CSL is on a never-ending wheel of funding research and reporting trial results. It pours an astonishing percentage of its revenue into R&D, and some of its products it sells now first entered development a decade ago. CSL is a very profitable company, and generates a high amount of cash.
Sirtex also has quite attractive economics, and I hope I have shown why it's necessary to take an ultra-long term view (longer than with some other businesses), with this type of company. Last year there were a number of varying analyst opinions around the company's 'value', but to worry about whether it's worth $33 right now is to get the company wrong. If your time-frame is 10 years or more, I'd consider both CSL and Sirtex a strong buy today.
