Sirtex Medical Limited

SRX Details

Reiterated FY17 guidance: Shares of Sirtex Medical Limited (ASX: SRX) zoomed 16.16%, after the announcement of its full year guidance for FY17 and write down of R&D assets. SRX expects 5.5% yoy overall growth in worldwide dose sales at approximately 12,590 and underlying EBITDA of $72 million for FY17. Further, across the three regions, it estimates 4.7% yoy growth in dose sales in the America, 5.9% yoy growth in EMEA and 11.3% for the APAC region respectively. However, sales from the America (represents 70% of dose sales) has not grown as fast as expected.The actions commenced in May to reset the foundation in America, and the restructure is a continuation of activities designed to enhance future sales growth.
Write down of the carrying value of recent clinical studies:  The company has assessed the carrying value of SIRFLOX/FOXFIRE/FOXFIRE Global studies in metastatic colorectal cancer (mCRC) and the SARAH/SIRveNIB studies in hepatocellular carcinoma (HCC) following data release and presentation at major oncology conferences, noting in all instances the primary endpoint was not met. As a result, it has decided to impair the entire carrying value of those assets and the SORAMIC study, representing an estimated pre-tax, one-off, non-cash impairment charge of approximately $90 million in 2HFY17.

Organizational restructure to drive the growth: Further, following results of recent clinical studies, an extensive review of the business was undertaken by the company to identify areas where greater efficiencies could be implemented. From an initial reduction of $7 million related to R&D and administration identified in February, SRX is eliminating resource inefficiencies and focusing on the core business, which will result in headcount reductions of approximately 15% and a pre-tax restructuring charge of approximately $5.3 million. Notably, SRX considers the salvage liver cancer opportunity across existing markets within which Sirtex covers 184,000 patients per annum. Further, there is additional scope to expand into Japan, China and to grow its presence in several South American markets. Additionally, an immediate priority is to finalize a submission for expanded coverage with the FDA during 1HFY18.

 In the last one year, the stock has declined 48% (as at June 28, 2017) and currently trading at low levels. However, given the latest developments of restructure and cost control measures to improve the operational efficiencies,we give a “Buy” recommendation at the current price of $15.80


SRX Daily chart; (Source: Thomson Reuters)

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