Stock of the Day – Sirtex Medical  (SRX)

Sirtex’s SIR-Sphere microspheres uses targeted radiation therapy on patients with inoperable primary or secondary liver tumors. Currently the treatment is considered a last case/salvage therapy for those patients who are no longer responsive to traditional chemotherapy techniques. Sirtex continues to reinvest capital into R&D to develop sufficient clinical data to elevate its use to a first line therapy.  


SRX NPAT (Source – Company Reports)

SRX reported 3Q14 dose sales growth of 18.2% below our expectation and 50 basis points lower than growth seen in 2Q14. Sales growth increased across all regions with the Americas (67% of total doses) showing solid gains while EMEA (23% of total doses ) remain subdued given residual issues associated with UK reimbursement, but should clear as march sales were the strongest in a year. Growth across APAC was also soft due to the ongoing shift to a direct sales force from distributors.


SRX Dose Sales + Sales Revenue (Source – Company Reports)

 
While we view 3Q doses sales growth as reasonable and are encouraged by solid US gains, growth is below trend and EMEA and APAC should be closely monitored for signs of continued weakness. We continue to believe the key medium/long term driver remains the outcome of ongoing clinical studies, with the main SIRFLOX study due to report 1HCY15. While we continue to believe the trial may show a favorable improvement in the progression –free survival endpoint, the likely lack of an overall survival advantage, limited quality of life improvement and little pharmacoeconomic data should hinder commercial success and the overall clinical programs carries clinical risk.


SRX Daily Chart (Source – Thomson Reuters)

Major risks associated with SRX are: 1) New therapies that may be introduced to treat similar conditions. 2) Further clinical trials – quality of results & incremental benefits displayed. 3) Change in private health reimbursement and government funding. 4) Influence of government regulation and competitor activity. 5) Endorsement of the treatment by high profile cancer experts & medical journals and rate of adoption. Beyond the likelihood of continued double digit near term dose sales, we think trading levels reflect excessive optimism for clinical/commercial success, which we continue to believe should be more tempered given uncertainties and risks. We gave the buy on the stock at a price of $14.10 on 03/02/2014, we recommend  a sell at the current price of $18.92.
  
Note - The following report was covered on 07/07/2014 in the Kalkine Daily section and an email was sent to the clients with following report on 07/07/2014.

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