All Is Not Lost For Sirtex

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

-Secondary end point met
-Need to evaluate full data set
-More studies/trials to come
 

By Eva Brocklehurst

Sirtex Medical ((SRX)) has dashed expectations that its SIRFLOX study would show a statistical significance for overall survival rates for treatment of metastatic colorectal cancer (mCRC). A run-up in the share price ahead of these findings and the savage sell-off that ensued afterwards signalled the market, and many brokers, were surprised at the outcome. Still, brokers point to several reasons to remain positive.

The primary end point of the study was not met, that being overall progression-free survival in the treatment of mCRC. The secondary end point was achieved, however, in terms of progression-free survival in the liver. This is an important aspect of the result because, as Moelis maintains, it offers a potential opportunity for the SIR-Spheres treatment to form a first-line therapy.

In simple terms, UBS describes the results as revealing a significant treatment for liver cancer, but not when it has progressed to the bowel. The broker was disappointed in the results but concedes there is still an opportunity to treat the liver as part of a broader treatment regime and, given the trial designs are not well understood, expects to obtain further advice on the subject.

In re-examining its views around the SIR-Spheres penetration of the first-line treatment market for liver cancer, UBS now considers that perhaps only 30% of this market is available to Sirtex. The stock price is likely to reflect these doubts in the medium term but, assuming the secondary end point does lead to higher utilisation of the treatment, the broker retains a Buy rating and lowers its target to $28.75 from $50.40. Ultimately, UBS believes the trials and studies will prove to have expanded the market to some degree.

Moelis revises its valuation to reflect the outcome, given the likely reduction in the reach of SIR-Spheres in first-line patients, but believes the stock was oversold in the initial reaction to the findings because of confusion around the wording of the announcement as well as the primary end point. The broker anticipates a rebound in the price when the market absorbs the facts of the case.

For SIR-Spheres to become a first-line therapy it requires a peer review to validate the data. With a revision to the potential market size, the current results for the liver (secondary end point) could increase the likelihood of validation, in Moelis' opinion. Sirtex will submit the results of the SIRFLOX study to the American Society of Clinical Oncology in June.Moelis retains a Buy rating, lowering its target to $31.14 from $36.70.

Macquarie considers that, while the direct cause of death for most patients with mCRC is the liver tumour itself, it remains possible that the treatment could improve overall survival rates, even in the absence of proving progression-free survival. Still, there is uncertainty regarding the chances of this conclusion, which will remain the case until the full data set is evaluated in 6-7 weeks time. If positive results or trends are subsequently observed, the chances that overall survival is extended in the longer FOXFIRE study being undertaken will be considerably higher, in the broker's opinion.

The extent of the share price reaction was probably fair, in Macquarie's observation, given the very high levels the stock price achieved in recent months. The broker retains a Neutral rating – target drops to $26 from $32 – because of the uncertainty about the strength of the data. Moreover, in addition to the FOXFIRE study, the company has three other studies examining its treatment in primary liver cancer.

Goldman Sachs believes that if there is limited evidence supporting the use of first line treatments, growth rates for the treatment could slow from current levels, even while there could be still sufficient evidence for use beyond last resort patients. If overall survival rates from the study remain unconvincing with the full data set, Goldman believes the medical community will opt to wait for the release of the FOXFIRE results in the first half of 2017 before considering taking up the product in first line treatment. The broker's bear case valuation at $18 a share implies the market is factoring in limited value for the growth option beyond the last-resort/salvage market.

The failure of the study to meet its primary end point was a bitter pill to swallow, Bell Potter observes, as it follows a series of encouraging results from earlier studies with double digit dose sales growth over a number of years. This broker, too, is awaiting more detailed analysis to make further conclusions regarding the efficacy of the treatment.

As the outcomes of the study become widely known the broker assumes physicians may question the benefit of the therapy. Future revenue from mCRC treatment now depends almost entirely on proving an overall survival benefit and this will not be known for some time, in Bell Potter's view. The broker retains a Hold recommendation and Speculative Risk rating.

Sirtex Medical has one Buy, one Hold and one Sell (Morgans, yet to review the study results) on the FNArena database. The consensus target is $23.46, suggesting 19.9% upside to the last share price.

See also, Important Catalyst Looms For Sirtex Medical on February 9 2015.
 

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