This morning, Sirtex Medical Limited (ASX:SRX) reported a jump in half-year dose sales but a fall in net profit.
Here are the key takeaways:
- Revenue rose 0.2% to $112.8 million
- Profit fell 20% to $20.8 million
- No dividend was declared
- Dose sales rose 5.6%
- A share buyback of $30 million was approved
Sirtex is a $900 million biotechnology company which produces a product called SIR-Spheres. It is a tiny treatment that attacks small blood cells in liver cancer tumours. It is administered by a radiologist.
Sirtex's major markets are:
- The USA, which reported 4,248 doses – representing growth of 5.5%
- Europe, the Middle East and Africa (EMEA), which reported 1,269 doses – growth of 4.1%; and
- Asia Pacific, which had 530 dose sales, up 10.2%
Given the growth in dose sales, revenue held mostly steady during the half despite challenging currency movements.
Sirtex said profit fell as the revenue mix shifted (keep in mind a lot of growth came from Asia), it increased expenditure, and manufacturing costs rose.
Also affecting profit was an increase in marketing expenses and impairments.
Profits per share fell to 35.8 cents per share, from 44.6 cents.
"We are clearly disappointed with the 1H17 financial results in light of the lower than anticipated growth in dose sales," interim CEO, Nigel Lange, said. "However, we have made it our absolute priority to stabilise the business through the appointment of experienced senior executives, initiated a cost cutting program in areas non-core to our SIR-Spheres® Y- 90 resin microspheres business, and importantly recognised our loyal shareholders with a $30 million onmarket share buy-back over the next six months."
Controversy
The Sirtex Medical share price plummeted earlier this year when the market was caught off-guard by a profit downgrade. Former CEO Gilman Wong had his employment terminated following an internal investigation into his sale of company shares.
Subsequently, the company was served with a class action by lawyers and shareholders who allege it misled them. At this stage, Sirtex says it is unable to assess how large the claim could be.
Are Sirtex shares a bargain?
Looking ahead, Sirtex has dropped its three-pillar '2020 Vision' strategy and will focus on SIR-Spheres. It is aiming to cut $7 million in costs, starting from its 2018 financial year. Importantly for investors focused on the short term, it also reiterated its operating profit guidance for the remainder of this financial year. It expects dose sales growth between 5% and 11%, with operating profit of $65 million to $74 million.
At today's prices, Sirtex shares trade on 22 times its profits, which may not exactly be a bargain when we factor in the uncertainty around the lawsuit, management and competitive pressures.
Having said that, Sirtex clearly has a lot of potential and — in my opinion — could be worthy of a small speculative / high-risk investment.
