A fellow contributor to online research community Ten Bags Full (TBF) recently reviewed the outstandingly successful biotechnology stock Sirtex (Code SRX).
These comments seek to provide an objective Technical Analysis perspective, albeit that of one observer only. Readers should not rely on these opinions when investing, but seek their own professional advice.
Although Sirtex Medical Limited is listed in the Biotechnology sector, it is not your usual biotech stock relying on venture capital for survival. It has successfully developed to become a profitable global company with 178 full-time staff in 19 countries, and is looking to expand production in the US and in Europe. It is now regarded as a Lifescience stock.
It markets a single product for delivering radiotherapy to cancerous tumours in the liver, whether primary liver cancer, or secondary deposits from colon or other primary site.
Instead of irradiating a whole field of the body in which the cancer is prevalent, a preparation incorporating minute quantities of the radioactive isotope Yttrium 90 (with a half-life of only 64 hours), embedded in ceramic microspheres finer than a human hair is used. An interventional radiologist passes an arterial catheter from the groin up into the arteries of the liver. Through this the resinous preparation of microspheres is injected delivering the beta radiating yttrium isotope directly to the tumour. This technique is known as Selective Internal Radiation or SIR-Spheres.
This product obtained regulatory approval for use in North America, Europe and in Australia in 2002. Furthermore the cost of the treatment is government subsidized in Australia where it attracts a Medicare rebate. Each year more patients have been treated with 7299 dose sales in 2013, producing revenue of $100 million.
Some of the profits are used for research and development in centres that include the ANU, the University of Sydney, and the Peter MacCallum Cancer Centre in Melbourne.
Since 2005 Gilman Wong has been the CEO and under his leadership the company has enjoyed remarkable progress with the share-price jumping 24% in the last few days to reach an all-time high of $14.59. He was recognized in 2012 as Australia’s Executive of the Year.
The long-Term Picture – Monthly candlestick chart from 2002
When Mr Wong took the helm in 2005, the share-price was languishing at its lows around $1.15. Since then the share-price has been in an uptrend with the most dramatic climb occurring in the past two years rising from $4 to $14.
The share-price remains in an uptrend, but momentum has slowed. The higher prices were associated with a crescendo-like increase in volume.
The chart appearances should be monitored closely in the next few months. A failure to make another higher high could create a head and shoulder pattern, or a double or triple top that might herald a change in trend. More likely is a resumption in upward trending, but with diminished momentum.
The Short – Term Outlook from a Daily Candlestick chart.
The announcement last week of 38 consecutive quarters of dose sale increase resulted in an amazing euphoric market response.
On the 8th January 2014 the share price gapped 74 cents at the open, and continued to rise higher intra-day until reaching a high of $13.96 before easing back. The true range for the day was an astonishing $2.21 or 18.8%
Such a strong price movement is unlikely to continue without a corrective pull back. I would expect however that the break-out gap from January 8 would prove a support level (at about $12.50), to limit further decline at lease for a while.
Is there evidence of institutional Distribution of shares?
Point & Figure Chart – 20 cent box, and 2 box reversal, from a weekly chart.
What this Point & Figure Chart shows is a strong and sustained period of committed buying leading into a trading range consolidation with resistance at about $14.
It is sensible for institutional investors to seek to reduce risk now when the shares are fully priced. Retail investors buying now are buying into a strong company that analysts expect could outperform in the next year or two. They can expect to receive increasing dividend payments, and most likely will realize some capital gain. They should be mindful however that they are entering a mature trend, and need to be on the watch for technical evidence of trend reversal.