SRX - Sirtex Medical

[Knobby22]

The growth didn't meet expectations and this company is priced for very high growth. The price always seem volatile also.

I sold near the top due to luck more than anything as I needed the money but I am now looking seriously at this company. Even if the growth is a bit slower $28 looks an OK price to me, that is what I think is the technical level. Will wait a bit to see whether the downtrend continues.

I would like to buy at $25 as it would give me a level of comfort. I really would expect growth much better than 15% in the future otherwise I will be disappointed.

 

[McLovin]

P.S. $30 is an important technical level FWIW so the break below that is bearish. Given the dose sale disappointment from H1, this new is enough to trigger a cascade.

The funny thing about the dose sales is that have historically been weighted toward the second half (obviously when growing at 20% it helps that second half beat the first). Compared to previous years the first half split doesn't make the second half target overly onerous. Clearly I'm in the minority on this point though!



PS it's just by coincidence that that chart is in the SRX fan colours.

I don't see SRX going up any time soon, seems to have a lot of negativity around it, and $30 did look like support.

 

[McLovin]

There's some interesting commentary in the JCO regarding SIRFLOX, what the data shows and some of the shortcomings of the data, as well as how the cohorts may have influenced outcomes.

The site and pattern of first disease progression in control and SIRT patients offer insight into the apparent discordance between PFS at any site and PFS in the liver. Whereas control of intra- and extrahepatic disease is required to achieve a benefit in PFS at any site, the analysis of first progression site suggests that progressive disease in nonliver sites (7.9% v 27.7%) may mitigate the benefit of controlling liver disease with SIRT. Furthermore, the appearance of new lesions accounted for a substantially greater proportion of first progressions in the liver in SIRT (Appendix Table A2). Collectively, these data suggest that although SIRT used in conjunction with systemic chemotherapy provides prolonged control of evident liver disease, this is insufficient to influence PFS at any site. The increased incidence of progression within the lungs for SIRT patients would seem to reflect lung progression destined to occur in patients receiving a liver-directed intervention.

Other factors that may have compromised the ability of SIRT to significantly affect PFS at any site and the gains achieved in control of liver metastases include the 21 patients (7.9%) randomly assigned to SIRT but not receiving SIRT and the 19 patients (7.7%) with bilobar disease who received SIRT in only one liver lobe. Ultimately, only 84% of patients allocated to SIRT received SIRT as per protocol. This is explained partly by the random assignment of patients before consideration of their suitability for SIRT, but, on the basis of previous experience, the proportion of patients not receiving SIRT as per protocol was unexpectedly high.14,15,24 Also unanticipated was the large proportion of patients (approximately 45%) with an intact primary tumor; this had an uncertain impact on the primary study end point of PFS at any site and was reported to be associated with inferior survival outcomes.25 There are also uncertainties regarding the 10 patients (3.8%) who withdrew consent after being randomly assigned to control (and may have received SIRT off protocol as part of first-line therapy) but were included in the ITT population PFS analyses for control.

The median 20.5-month liver PFS for patients treated with chemotherapy plus SIRT represents a substantial prolongation of local disease control compared with systemic chemotherapy alone (median, 12.6 months). Because, to the best of our knowledge, this is the first study to evaluate PFS in the liver, there are no other studies that provide context for this result. However, recently reported data from the Chemotherapy + Local Ablation Versus Chemotherapy (CLOCC) study, which combined radiofrequency ablation with FOLFOX-based systemic chemotherapy in patients with unresectable mCRC confined to the liver, demonstrated that improved control of hepatic metastases can translate to a substantial impact on OS.26 In contrast to those in SIRFLOX, all patients randomly assigned in the CLOCC study, which also demonstrated an improvement in PFS at any site (HR, 0.57; 95% CI 0.38 to 0.85; P = .005), had a low burden of liver disease and no extrahepatic disease, and all had had their primary CRC resected.

http://jco.ascopubs.org/content/early/2016/02/24/JCO.2015.66.1181.full

The bit about the CLOCC study is interesting, because in the HY earnings call one of the analysts questioned whether management could be confident of increasing OS and cited CLOCC as an example that the opposite occurred, iirc it was something along the lines of "if the disease is controlled in the liver it will just spread elsewhere so how can you be confident of an OS improvement?" Management seemed pretty confident that this would not be the case, the lack of extrahepatic disease in CLOCC probably matters.

Anyway, it's all food for thought. To me it seems like there is a product that has gained acceptance as a salvage treatment, and has the possibility of moving up the treatment chain.

 

[craft]

They will require 6544 doses 2nd half to achieve the 19.7% CAGR objective that they put out there. Things that will help 2nd half over first half: Catch up from resolution of known Korean distributor dispute, recent increased EMEA reimbursement approvals, Yesterdays JCO publication of Sirflox results as a rapid communication.

Dose sales are volatile – this chart puts into perspective longer run trend and required 2nd half 2016 (in red) to meet forecast management are sticking too.

View attachment 65957

Too me it looks O.K but SKC’c comment of 15.7% against a forecast of 20% could see weakness for a while on a perceived guidance miss and slowing momentum. Here’s to loving the volatility, end of the day even 15% CAGR justifies the price for me. (but not if its the start of continued slow down in growth, though I don't think it is)

Chart updated at the 16% (6164 doses) mid range guidance. Below trend, not statistically significantly so, but if you look really closely trend is marginally lower with the addition of this latest data point.

it is important to recognise the impacts on the business outside of the Americas are timing related

?????

That's what management say when its really management related isn't it? Either way, timing or management related Its probably not product related when America is trucking along just fine.

 

[VSntchr]

That's what management say when its really management related isn't it? Either way, timing or management related Its probably not product related when America is trucking along just fine.

Timing isn't great when you have the investment community watching with extra scrutiny for movements in growth rates that could be related to the recent clinical data.

Your point about US sales moving along well is the saving grace in that respect...unless of course you consider the argument that the Americans are the most inclined to respond to the "reach and frequency" model..and other regions such as EMEA and APAC are less responsive to sales reps and may be becoming more data driven?

Not suggesting anything, just considering the possibilities..

 

[McLovin]

Ahh...I thought as we were almost through confession season and hadn't heard a peep from SRX that they were going to hit their target.

When you look at the reasons given, it does leave you wondering why management were so outwardly confident of hitting its dose target. It's not as though the ASCO publication is a surprise that has popped up in the last few weeks. The performance in the US, leads me to think that it is partly a timing issue although whether the delays are due to ineptitude on the part of management or some other factor or a combination I don't know.

 

[McLovin]

So with of 18%-20% growth in the Americas, my guesstimate is that FY dose sales growth for EMEA/APAC will be ~10%.

 

[skc]

Chart updated at the 16% (6164 doses) mid range guidance. Below trend, not statistically significantly so, but if you look really closely trend is marginally lower with the addition of this latest data point.

FY15 dose sale was 10,252 units. With 19.7% growth it should have been 12,272 units, or +2,020. With the revised 16% growth (for the full year), it will be 11,892 units, or 1,640 units. However, given that H1 16 dose sales was 5,728 units, management originally expected H2 to be 6,544. So the actual miss is ~380 units. That's about 6%.

The market reaction today isn't overly dramatic. It's still within the recent established range of ~$29-32. It would be an over-reaction if it trades down to the low-mid $20s on the back of this. That would be nice.

SRX is trading at PE~30 but with a pretty good growth runway that is arguably better than other companies in the same PE bracket (e.g. COH, TNE)...

That's what management say when its really management related isn't it? Either way, timing or management related Its probably not product related when America is trucking along just fine.

The whole idea of periodic reporting is timing. So "a timing issue" isn't really an excuse. Nonetheless, historical growth suggests that this should be an one-off issue.

So with of 18%-20% growth in the Americas, my guesstimate is that FY dose sales growth for EMEA/APAC will be ~10%.

Given American sales achieved +20% for the year, sales should be 7,076 x 1.2 = 8,490 units. American H1 dose sales was 4,028, so H2 was 4,462. This leaves H2 EMEA and APAC to be 6164-4462 = 1,702 units. In H1, EMEA + APAC = 1,219 + 481 = 1,700. So half on half growth is basically flat... while the year on year growth = ~7.8%.

 

[McLovin]

Given American sales achieved +20% for the year, sales should be 7,076 x 1.2 = 8,490 units. American H1 dose sales was 4,028, so H2 was 4,462. This leaves H2 EMEA and APAC to be 6164-4462 = 1,702 units. In H1, EMEA + APAC = 1,219 + 481 = 1,700. So half on half growth is basically flat... while the year on year growth = ~7.8%.

I took the mid-point of both estimates (16% overall sales growth; 19% Americas sales growth) to get to 10% (actually it was 9.3%). The second half will be weak. In October they were tracking ahead of expectations, now they're going to miss. The loss of the Asia CEO late last year probably didn't help, although the changeover of CEOs in the Americas has evidently not hurt sales.

One of the big issues for SRX is it trades on a high pe and the market doesn't really understand the product – look at how poorly it interpreted SIRFLOX last year – so dose sales are the proxy it uses for efficacy. We end up getting these big swings in reaction to what is a smallish miss.

 

[craft]

Given American sales achieved +20% for the year, sales should be 7,076 x 1.2 = 8,490 units. American H1 dose sales was 4,028, so H2 was 4,462. This leaves H2 EMEA and APAC to be 6164-4462 = 1,702 units. In H1, EMEA + APAC = 1,219 + 481 = 1,700. So half on half growth is basically flat... while the year on year growth = ~7.8%.

I took the mid-point of both estimates (16% overall sales growth; 19% Americas sales growth) to get to 10% (actually it was 9.3%). The second half will be weak. In October they were tracking ahead of expectations, now they're going to miss. The loss of the Asia CEO late last year probably didn't help, although the changeover of CEOs in the Americas has evidently not hurt sales.

The numbers I get using annual mid guidance of 16% total and 19% America.

America 1st Half 4028 (pcp 3390) growth rate 18.8%
America 2nd Half 4392 (pcp 3686) growth rate 19.2%

Rest 1st half 1700 (pcp 1560) growth rate 9.0%
Rest 2nd Half 1772 (pcp 1616) growth rate 9.7%

Total 1st Half 5728 (pcp 4950) growth rate 15.7%
Total 2nd Half 6164 (pcp 5302) growth rate 16.3%

A chart for some perspective on 'rest of world' historical pcp growth rate variability.

 

[VSntchr]

The numbers I get using annual mid guidance of 16% total and 19% America.

America 1st Half 4028 (pcp 3390) growth rate 18.8%
America 2nd Half 4392 (pcp 3686) growth rate 19.2%

Rest 1st half 1700 (pcp 1560) growth rate 9.0%
Rest 2nd Half 1772 (pcp 1616) growth rate 9.7%

Total 1st Half 5728 (pcp 4950) growth rate 15.7%
Total 2nd Half 6164 (pcp 5302) growth rate 16.3%

A very illuminating post craft, thanks.
Viewing it like this with an increase in growth rate for ALL regions in H2, it is hard to justify an argument that the business is facing any significant growth rate issues.
What is perhaps more clear though is an expectations problem - something that management may have to improve upon. Perhaps the ditching of the quarterly dose updates was their attempt at beginning to do so?

 

[craft]

A very illuminating post craft, thanks.
Viewing it like this with an increase in growth rate for ALL regions in H2, it is hard to justify an argument that the business is facing any significant growth rate issues.
What is perhaps more clear though is an expectations problem - something that management may have to improve upon. Perhaps the ditching of the quarterly dose updates was their attempt at beginning to do so?

They ditched the quarterly dose figures because they claimed concerns on how the market reacted to the normal variability in the growth trajectory. Then they go and lob a 12 month forecast out there, to the decimal point mind you. Go figure that one out?????

Anyrate - all good for me.

 

[Klogg]

Sorry, derailing the thread a little from dose sales here.

I decided to ignore the seemingly expensive price tag on this one and look at it in more detail. Specifically, what I'm trying to approximate is the level of expense actually required to maintain the current level of dose sales.

Marketing is their biggest expense by a country mile at ~$80m. I have a couple of approaches to determining the required 'maintenance' level of marketing, just trying to think out aloud here. I've come up with the following (conflicting) arguments:

1) Use last year's marketing expense as a guide for this year's dose sales. Hugely flawed, as it would take more than one year's worth of marketing in some cases to win clients (oncologists).

2) Once an oncologist has chosen the drug, virtually zero marketing is required to keep them using it. Hence the ~$80m is all (or mostly) 'growth'


Using option 1, there's an extra $15m PBT, or ~10.5m PAT. Taking out approx. $107m in cash/term deposits, that's about 23 times for a company investing at a ridiculous ROIC, with no real end in site (the nearest competitor in this space isn't even close).

Using option 2, it becomes ludicrously cheap given ROC, so I won't go through those figures.


For those that know the company, please let me know your thoughts on the above.

 

[McLovin]

I faded marketing expense in as a % of sales as sales rise. My theory is that this is an industry that probably trades on word of mouth more than most so that getting clinical acceptance by key opinion leaders will somewhat reduce the need for marketing spend. And of course, if they can move up the treatment regime they will have years of growth marketing spend.

I don't know if once you have an oncologist on board they don't need to be marketed. Oncology generally has moved away from a standard regime of treatment to a treatment plan that is tailored to the patient. And something like SirSpheres is not a binary sort of drug, as liver cancer isn't a binary disease; it's use and where it is indicated will continue to evolve. To my non-medical mind that would seem to require more face time between the sales force and oncologists than if they were selling Nurofen.

I think what Gilman Wong said about turning on a tap, rather than opening a floodgate is pretty good way to think about this business.

 

[Klogg]

I faded marketing expense in as a % of sales as sales rise. My theory is that this is an industry that probably trades on word of mouth more than most so that getting clinical acceptance by key opinion leaders will somewhat reduce the need for marketing spend. And of course, if they can move up the treatment regime they will have years of growth marketing spend.

I don't know if once you have an oncologist on board they don't need to be marketed. Oncology generally has moved away from a standard regime of treatment to a treatment plan that is tailored to the patient. And something like SirSpheres is not a binary sort of drug, as liver cancer isn't a binary disease; it's use and where it is indicated will continue to evolve. To my non-medical mind that would seem to require more face time between the sales force and oncologists than if they were selling Nurofen.

I think what Gilman Wong said about turning on a tap, rather than opening a floodgate is pretty good way to think about this business.

Thanks - I thought about this for a bit before responding, and I think the underlined sections are what I'm not sure of. As I understand it, it's either chemotherapy, SirSpheres or both.
TBH - I'm oversimplifying it because I don't understand it well enough. I think I need to read a little more and come back to this one...

 

[McLovin]

Thanks - I thought about this for a bit before responding, and I think the underlined sections are what I'm not sure of. As I understand it, it's either chemotherapy, SirSpheres or both.
TBH - I'm oversimplifying it because I don't understand it well enough. I think I need to read a little more and come back to this one...

Don't forget resection. That's actually the best outcome. I guess the point I'm making is the path of the disease is not straightforward, there are complications that can alter the course of treatment etc. There's a pretty good SRX discussion on the other board with a few posters who work in oncology.

 

[Klogg]

Don't forget resection. That's actually the best outcome. I guess the point I'm making is the path of the disease is not straightforward, there are complications that can alter the course of treatment etc. There's a pretty good SRX discussion on the other board with a few posters who work in oncology.

In my mind I was limiting it to inoperable liver cancer - of course it helps if I say as much in my posts...

I'll check out the posts too - thanks.

 

[Klogg]

Have people lost their minds?
Take out excess cash and you're talking 12times earnings (approx.)

The company is still growing, and a fair chunk of marketing spend is discretionary.

 

[Klogg]

Shame I hadn't completely finished my research. I knew enough to have a rough valuation, so bought half a position on the open.
Seems a little obvious TBH

 

[Ves]

Shame I hadn't completely finished my research. I knew enough to have a rough valuation, so bought half a position on the open.
Seems a little obvious TBH

I probably would have done the same if I had the funds.

It does seem a little obvious though. It's one of those situations where the rough calculations seem to make it look very cheap indeed. Which in itself, makes me wonder if there's not something going on in the background.