Opportunity In Sirtex Medical’s Upcoming Trial

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

-SIRFLOX trial result due mid 2015
-Moelis sees opportunity to buy
-But wide range of potential outcomes
 

By Eva Brocklehurst

Sirtex Medical ((SRX)) expects to know the results of its SIRFLOX study by late March next year, with full details to be presented in May-June, and the broking community is sweating on the outcome. The study in metastatic colorectal cancer is testing whether a combination of standard chemotherapy and SIR-Spheres is more effective than chemotherapy alone. If this is positive it may provide sufficient evidence for the use of SIR-Spheres as a first choice treatment.

Brokers believe these clinical trial results will be a major catalyst for the stock. Sirtex Medical intends to submit and present the findings of the study to the American Society of Clinical Oncology in June next year. Full validation of the results will be achieved after a peer review. CIMB observes greater penetration of the product will be predicated on the study demonstrating a favourable risk/benefit profile, effectively moving to first choice therapy from last resort therapy and thereby opening up a multi-billion dollar opportunity. The primary end point of the trial is described as progression-free survival. This represents the time interval from randomisation to tumour progression. Secondary end-points include overall survival, tumour response rate and quality of life. 

Moelis believes there is substantial upside risk for Sirtex Medical. Moreover, the weakening Australian dollar is also a positive as the company generates a substantial portion of its revenue from the Americas. Moelis considers the current weakness in the share price provides a significant opportunity to top-up portfolios and retains a Buy recommendation.

CIMB is taking a more cautious tack until a favourable clinical outcome and commercial success are assured. The broker expects the trial may be successful, but remains less optimistic about the ability to change clinical practice. No matter the optimism over the clinical trial, CIMB makes the point that views must be tempered by awareness of the clinical complexities and regulatory uncertainties that prevail in the market. CIMB believes the price of the stock reflects excessive optimism and, with this in mind, has a Reduce rating and $12.52 target.

UBS also upgraded the company's earnings forecasts recently on the back of the lower Australian dollar, given the company's high exposure to US dollar earnings and the high leverage to changes in the currency given the Australian dollar cost focus. Sirtex Medical's dose sales by geography are: Americas 75%; Europe 21%; and Asia/Pacific 4%. UBS sticks with a Neutral rating and $22.50 target.

The outlook for SIR-Spheres dose sales growth may be robust, given growing awareness among oncologists and the expansion into new geographies, but Goldman Sachs acknowledges the penetration levels for SIR-Spheres is highly dependent on the persuasiveness of the SIRFLOX clinical trial result. The broker assumes a positive result from the trial and expects ongoing dose sales growth around 20% for the next five years, although concedes the range of potential outcomes is fairly large. For example, the broker's bear case – which assumes a clinical trial failure – values the stock at $11.00 while the best case – which assumes higher penetration levels for SIR-Spheres – values the stock at $25.00. Goldman retains a $20.50 target and Neutral rating.

The company has impressed brokers with its dose sales growth over the last five years and holds a dominant share of a market with few effective treatment options. Goldman notes pricing dynamics in the US market have also improved with average treatment priced at US$16,000 compared with US$14,000 in 2010. The broker maintains a positive outlook and believes Sirtex Medical is also making the necessary investment in sales and marketing.
 

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