An investment theme we like
Healthcare is one of the investment themes we like at Montgomery. In most OECD countries, healthcare spend has been growing at around GDP +2% for many decades, and ageing populations will provide a tailwind for some time to come. This is a challenge for governments, who can’t readily grow revenues faster than GDP and so will need to reduce their share of the total spend. However, with demand growing, we expect that private contributions will increase to fill the gap. Baby boomers who can afford to look after themselves will likely choose to do so.
Within the Healthcare theme, a business we like (and own) in the Montgomery Fund is Sirtex. Sirtex produces radioactive micro-spheres (SIR-Spheres) that are injected into the blood supply near liver tumours, and provide highly localised radiation therapy. This is advantageous in the treatment of liver cancer, as the liver and surrounding tissues are sensitive to radiation damage, and conventional radiation therapy that fires a beam through the body is therefore problematic.
Sirtex appeals to us as it is a business with good economics, and it has steadily grown dose sales (globally) for many years. What makes it really interesting however, is the potential for Sirtex to experience a large step change in sales in the years ahead. The reason is that the company has been investing heavily in a set of clinical trials designed to demonstrate the safety and efficacy of the therapy, with the initial results to be made public in late 2014/early 2015.
To date, SIR-Spheres have been used primarily as a last resort where other therapies have not been successful, and where patient and doctor are willing to try something else. This is a small market compared to the so called “first-line” treatment market. If the trials produce good results, SIR-Spheres should be elevated to a first line treatment, which Sirtex estimates could increase the available market by a factor of 5 times or more. To date, the clinical evidence needed to justify SIR-Spheres as first line treatment just hasn’t been available, although the consistent growth in dose sales indicates that doctors have been pleased with the results of the treatment.
Because of this potential step change, Sirtex is not a straightforward business to analyse and value. However, for investors willing to roll their sleeves up, the time spent understanding the business and its prospects may be time well spent.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
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Ian Hammond
:
I do like some somoe companies in the healthcare sector. I purchased some Sirtex about 3 years ago and still hold them. Another company in this space that investors might want to do some research into is Medical Developments international (MVP).
MVP is an Australian Company who are the only producer of Methoxyflurane, which is the active ingredient in their product Penthrox (commonly known as the “Green Whistle”). Penthrox is used in Australia as an analgesic by the defence forces, ambulance and surf lifesaving services. Applications have also expanded into areas such as dentistry, general practice and cosmetic surgery.
Sales of Penthrox are mostly in Australia and New Zealand with scope for an increase in overseas sales. Another avenue of potential sales increase is to increase the number of medical procedures that Penthrox can be used for.
MVP also has a medical devices business selling nebulisers and space chambers for Asthma treatment, as well as as devices for oxygen delivery and resuscitation.
MVP have no debt and in the last few years have been increasing revenue, profits and ROE.
MVP may be another company in the healthcare space that some investors may want to research further.