Moving Sirtex to 'Add', now risk is behind it

Our long term "don't touch" thesis regarding Sirtex Medical (SRX) has played out (finally) with the failure of five clinical trials. Now with the majority of clinical risk in the rear vision mirror and a base business that remains viable, SRX looks attractively priced following the share price sell-off. We lower FY18-19 earnings by 14.7% on more conservative dose sale assumptions and reduce our share price target, but with more than 10% upside to our target price (following the sell-off) we move our recommendation to an Add rating.

Key points

• The Phase 3 SIRveNIB and combined FOXFIRE trials both failed to show a survival advantage in primary liver cancer and colon cancer, respectively.
• The results are not surprising, given prior failed studies and poor study designs, but lack of utility in liver-only colon cancer patients disappointed and relegates the therapy to salvage, albeit we note interesting data in right-sided patients.
• Confirmation of similar survival rates between SIR-Spheres and Sorafenib on a pre-protocol (PP) basis in primary liver cancer, along with improved tolerability is encouraging and likely a viable option in Sorafenib intolerant patients.
• Importantly, while the business is facing challenges, we view the core business as viable and unlikely to be detrimentally impacted by this result.

No OS gain in SIRveNIB...but similar on PP analysis and better tox

The SIRveNIB study in 360 patients with advanced, inoperable hepatocellular carcinoma (HCC) showed a median overall survival (OS; the primary endpoint) of 8.54 months for SIR-spheres vs 10.58 months for Sorafenib (not statistically significant p=0.203), with fewer safety issues (27.7% vs 50.6%). However, as c29% of patients failed to receive SIR-spheres, a per-protocol (PP) analysis showed similar OS (11.3 vs 10.4 months, p=0.273; HR=0.86). 

We believe similar efficacy, with a better safety profile, makes SIR-spheres a viable option in Sorafenib intolerant/contraindicated patients (c25k).

No OS gain in combined FOXFIRE...but one sub-group of interest

The combined SIRFLOX/FOXFIRE global study of 1,103 patients in front line metastatic colorectal cancer (mCRC) did not show an OS improvement or increase in progression free survival (PFS) for SIR-spheres vs systemic chemotherapy. Although the liver-only subgroup showed a 49% lower risk of tumour progression, it failed to translate into a survival advantage. However, another subgroup with right-sided tumours did show a statistically significant 4.9 month OS improvement. Nevertheless, this data is anecdotal, requiring further investigations to prove its validity and commercial relevance.

Business under review and evaluation...where to from here?

We have always maintained these studies had very high hurdles for success, so we are not surprised by the outcomes, and they were all intended to provide upside to the current base business in the salvage setting (i.e. the treatment of last resort). Importantly, the base business should be impacted. While the lack of a coherent strategy, the letting go of the US CEO and the challenges with the US business are certainly a cause for pause, we view the core business as viable, the market under-penetrated (14.5% share; 40k patients) and the sell-off overdone.

Contributed by Derek Jellinek, Senior Analyst, Healthcare: (VIEW LINK)