Australia | Apr 08 2013
-SIR-Spheres growth has been rapid
-Dose sales growth eased recently
-Strong potential remains in place
-Need for more clinical evidence
By Eva Brocklehurst
Medical device company, Sirtex Medical ((SRX)), has grown rapidly but as is the case with most biotechs, patience is a virtue. The company's key product is SIR-Spheres, which are radioactive Yttrium 90 microspheres enabling selective radiation therapy to be applied to the liver. The benefit here is that radiation can be directed at liver cancers while the dose to normal tissue is reduced. Sirtex is undertaking further clinical studies to broaden the application of SIR-Spheres technology to earlier stage cancers. Sirtex manufactures in Australia, Singapore and the US and markets the therapy globally.
Bell Potter expects growth to escalate as as more clinical data improves the acceptance of SIR-Spheres as a standard of care in primary and secondary liver cancer, allowing higher market penetration than the current 1%. Sirtex is currently involved in five major studies that are evaluating the use of SIR-Spheres with other chemotherapy drugs. Data from these studies should help SIR-Spheres jump to the next level in terms of market acceptance, in Bell Potter's opinion.
In the six months to 31 December 2012, dose units grew around 31% on the previous corresponding half. Third quarter dose sales data, recently released, grew just 6.3%, under what many brokers had come to expect. UBS suspected this could happen, given the strong growth in sales that occurred in the preceding year. Moreover, a tapering off doesn't indicate a lack of potential. UBS notes that in FY12, Sirtex increased the number of treatment centres using SIR-Spheres by 14%, suggesting significant dose growth potential in FY14.
UBS thinks Sirtex can generate around 11% in group dose sales growth indefinitely, and in concordance with Bell Potter, thinks more positive trial outcomes would accelerate this.Quarterly volatility is to be expected with a high value, low volume product. UBS notes that the low volume nature of sales make the quarterly data susceptible to minor changes in doctor behaviour. Just the retirement of one doctor from a treatment centre using SIR-Spheres could lead to 100 basis points movement in volume growth.
Bell Potter flags the fact that acceptance of SIR-Spheres is increasing. In FY12, 50 new centres started using the product in the US with another 32 in Europe and 10 in the rest of the world. SIR-Spheres is now administered at over 600 hospitals worldwide. The broker highlights the fact that available data regarding patient survival has underpinned the uptake of the product.
UBS has taken a Neutral stance and considers that market must balance short term performance against optimism regarding longer term upside. Joining UBS with a Neutral recommendation on the FNArena database is CIMB. This broker is more cautious and thinks upside from sales and marketing may have run its course so is prepared to stay on the sidelines ahead of more information on activity levels. UBS has reduced FY13-14 earnings forecasts by 12-13% on revised timing of sales. CIMB admits that quarterly variance should be expected, but has downgraded FY13-15 dose sales estimates by 2-3%. Again, this broker believes the key to longer term optimism is more visibility from ongoing clinical studies, which aim to move SIR-Spheres to a treatment of first resort.
Macquarie is the third broker covering the stock on the FNArena database and has a Buy rating. Macquarie conducted a survey of radiology oncologists with regard to radioembolisation and SIR-Spheres recently and came away with renewed optimism on the stock. Not just in terms of market conditions but also clinical outcomes. Of interest from the survey was the finding that long-term users of radioembolisation were three times more likely than new users to administer it as a first-line treatment (14% against 5%). This suggests to Macquarie that specialists are observing positive results in patients. In contrast to the other brokers, Macquarie is more confident in raising estimates and revised unit growth assumptions upward, to 17% for FY14-17.
Sirtex is also aiming to extend its product range beyond SIR-Spheres. This includes Carbon Cage Nanoparticles, a technology originally developed at the Australian National University in Canberra. It involves hollow carbon-based nanoparticles engineered to carry radioactive material and Sirtex hopes to target delivery of radiotherapy to cancers such as ovarian cancer. Another is a method of making large polymer chains out of small molecules, CSIRO developed RAFT coated nanotechnology, which Sirtex is using to create polymer-based microspheres. Thirdly there's radioprotector molecules, which involves the evaluation of various molecules that can protect healthy tissue from effects of radiation.
The consensus target price on the FNArena database for Sirtex is $12.09, suggesting 17.1% upside to the last traded share price.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
