Outlook No Clearer For Sirtex Medical

This story features SIERRA RUTILE HOLDINGS LIMITED. For more info SHARE ANALYSIS: SRX

-Product penetration slow
-Potential re sub-group analysis
-Risks from upcoming trials
 

By Eva Brocklehurst

Just when the outlook should become clearer interpretation clouds the issue again. Sirtex Medical ((SRX)) has delivered its SIRFLOX study findings to the American Society of Clinical Oncology for peer review. There were some positive comments from key opinion leaders at the conference, but the reaction from brokers appears dependent on ascertaining the extent of the market to which the SIR-Spheres treatment might be applied in future.

There is no change to the data. To recap, the study has found no statistical improvement in overall progression-free survival in metastatic colorectal cancer (mCRC) but some improvement in terms of extending liver cancer survival, the secondary end point. Some participants at the ASCO conference consider the study advances the potential of hybrid treatment, chemotherapy plus radiotherapy or Sir Spheres.

The study has been selected for a number of official follow-up presentations in coming months, to help drive awareness of the treatment amongst prescribing oncologists. At this stage, oncologists tend to prescribe the treatment only when other forms of therapy have been exhausted and the patient is still seeking intervention, described as the “salvage” market.

The strength of the secondary end point has encouraged the company to expect regulators will expand its label. The data enables Sirtex to update its label to include the treatment as a combination therapy for inoperable mCRC in the liver only. UBS finds this development a key positive with some clinicians prepared to examine the potential for use at a level above the current salvage application. Furthermore, the broker finds the prospect that a sub-group analysis might prove positive even more encouraging.

Penetration of the product to date has been slow, with the broker observing only 7-8% of the salvage market has used SIR-Spheres. UBS believes the company can aspire to a market that is at least four times larger and may be up to 16 times larger depending on expansion to first line treatments.

The negative in the primary end point means the addressable market is smaller than might be expected but Goldman Sachs views the opportunity in the liver-dominant, first line patients as still large enough. The broker estimates that around 30% of first line mCRC patients have liver-dominant disease. Beyond this, the broker also envisage growth from ongoing penetration of the salvage market and growth from other types of liver metastases -.the spreading of cancer from the original site.

In terms of the stock, Goldman Sachs envisages limited competitive threat, given first mover advantages, and expects pricing of SIR-Spheres will remain stable. However, the stock is a higher risk investment than others under coverage given it is a single product company and continues to face event risk from clinical trials that are due over the next three to five years. Goldman Sachs has a Buy rating and $38.00 target.

Bell Potter found the developments from the presentation underwhelming and believes further data from sub-group analysis is required to adequately forecast volume growth with any certainty. If there is a lowering in September quarter dose sales, and the broker suspects there may be, then it may reflect a cautiousness among oncologists in regard to the real benefit of the treatment. Bell Potter retains a Sell rating and $19.36 target.

Macquarie concludes that uncertainty will only truly be lifted regarding whether the treatment increases overall survival and/or quality of life when data from the sister study, FOXFIRE, is available in 2017. Still, given the benefit found in liver progression-free survival, and the ultimate cause of death for most patients is liver metastasis, the broker considers a positive outcome is likely when given as a first line therapy. Therefore, Macquarie maintains an Outperform rating and $33.00 target. Just to complicate matters, the broker cautions that upcoming segment analysis may not be positive, even if overall survival rates are eventually supported.

Morgans is far less positive. The broker believes the data will have limited impact on driving adoption as a first line treatment in mCRC, given liver survival is mainly a radiological end point and not accepted as a surrogate for overall survival. A number of variables in the study suggest to the broker that the market opportunity is likely to shrink as sub-group analysis, similar to what Macquarie suggests, targets which patient population would be most amenable to therapy. As the most amenable patient population is yet unknown, the broker would use the strength in the share price to exit positions, expecting no translation benefit to an increase in near-term sales.
 

FNArena’s database has two Buy (Macquarie, UBS) and one Sell (Morgans) rating. The consensus target is $28.29, suggesting 6.9% downside to the last share price. This compares with $26.14 ahead of the update. Targets range from $13.42 (Morgans) to $38.45 (UBS).

See also, Sirtex Raises Hopes For Liver Cancer Therapy on May 15 2015.
 

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