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Mid-Cap

Sirtex Medical – Does it still outweigh the ASX Index?

October 06, 2015 | Team Kalkine
Sirtex Medical – Does it still outweigh the ASX Index?

Record dose sales and revenues:



Sirtex Medical Limited (ASX: SRX) generated product dose sales growth of 19.8% year on year (yoy) to 10,252 in FY15, and accordingly the sales revenues boosted by 36.1% yoy to $176.1 million during the period. The net profit after tax rose by 69% yoy to $40.3 million while the operating cash flow rose by 61.6% yoy to $51.97 million in fiscal year of 2015. As a result, Sirtex declared a fully franked final dividend of 20.0 cents, which is an improvement by 42.9% yoy as compared to the earlier fiscal year. Meanwhile, the group had been maintaining steady margins over the past few years, with the EBITDA margins improving by 600 bps to 31.3%. NPAT margins also enhanced by 440 bps to 22.9% in the FY15.
 

NPAT and Operating Cash Flow (Source: Company Reports)
 

Americas delivered solid growth, while EMEA and APAC also on track:

Americas dose sales improved by 21.2% yoy to 7,076, while the revenues surged by 42.5% yoy to $136.7 million. Meanwhile, Sirtex tripled its manufacturing capacity and also improved the sales and support infrastructure. As per the EMEA highlights, dose sales improved by 18.6% yoy to 2,273, while revenues increased by 17.3% yoy to $32.4 million during fiscal year of 2015. EMEA had 291 active treatment sites, which is an improvement of 11.5% against prior corresponding period (pcp). Sirtex has built established European markets and improved performance with Evaluation (CtE) reimbursement in the UK. With regards to Asia pacific growth, the dose sales rose by 11.6% yoy to 903, while the revenues improved by 20.5% yoy to $6.9 million. APAC had 135 treatment sites, which is an increase by 17.4% as compared to the last fiscal year. Strong performance in Australia, better prices in several markets and new direct market entries contributed to the performance.  Sirtex continues to improve awareness and education efforts in the region. The company has benefitted from low AUD given its Europe and North America operations that resulted in >$12 million as foreign currency gains which may again be expected in coming year with further fall in AUD.
 

Growth Pillars (Source: Company Reports)
 

Clinical study milestones:

During fiscal year of 2015, patient recruitment in the FOXFIRE & FOXFIRE Global studies as well as SARAH study (March) were finished. The group also reported SIRFLOX study results at ASCO (May) while WCGIC (July) Clinical investment decreased by 6.5% yoy in FY15, indicating the progressive completion of studies. Major studies related to SORAMIC and SIRveNIB are estimated to finish the recruitment by the next fiscal year (FY16). On the back of positive SIRFLOX results, the group also started the amortization of the capitalized costs of SIRFLOX (for around 8 years) in accordance with AASB 138. As per SIRFLOX Results, clinically meaningful and statistically significant strong results in the liver were witnessed. The group intends to keep the strategy to connect the results and their importance through ASCO and WCGIC meetings. Sirtex also enhanced the sales force to educate the medical community on outcomes. SRX estimates its earlier treatment lines, including first-line, to continue to improve momentum in the coming periods.
 

Sirtex clinical study milestones over the years (Source: Company Reports)
 

Guidance:

Sirtex estimates its dose sales growth to be on track and the company would be able to maintain growth momentum. With the solid Level 1 results from the SIRFLOX tests, the group is further improving its key marketing and compensation initiatives. Management also estimates solid growth potential and enhance penetration from its current as well as new markets for SIR-Spheres microspheres. Sirtex estimates to expand its US manufacturing facility by the fiscal year of 2016. Meanwhile, the group also incurred over $3 million investment into new IT system.

Stock Performance:

The shares of Sirtex Medical fell over 41% in the month of March as the group reported that its Preliminary analysis of adding SIR-Spheres Y-90 resin microspheres to its present first-line systemic chemotherapy regimen for the treatment of non-resectable metastatic colorectal cancer (mCRC) did not lead to a statistically major improvement for the overall Progression-Free Survival (PFS). On the other hand, the stock recovered over 58% in the last six months driven by its strong results in FY15 and better results in the progress of survival rates for liver cancer patients. The group delivered a total shareholder return (including dividends) of 72.9% during fiscal year of 2015, beating the S&P/ASX 200 and S&P/ASX 200 Healthcare Indices. Moreover, the group has a pipeline of clinical trials which could be used to treat cancer in organs. If the group witnesses any major results, then its addressable market would be huge. Dividend growth in last five years is also indicative of earnings growth which again is a positive aspect. Based on the foregoing, we give a “BUY” recommendation on the stock at the current price of $32.95.


SRX Daily Chart (Source: Thomson Reuters)

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