Australia's Second Worst-Performing Stock May Have a Silver Lining

Updated on
  • Stock may gain as doctors reassess potential for SIR-Spheres
  • Researchers to present more data Sunday at Chicago conference

Sirtex Medical Ltd., Australia’s second-worst performing stock the past year, may have upside even after its tumor-fighting treatment failed in three major studies.

Sirtex slumped 28 percent on May 18, when it said studies showed its cancer-damaging radioactive beads called SIR-Spheres didn’t extend life longer than conventional treatment in liver-cancer patients in Asia or sufferers of metastatic bowel cancer. Additional scientific data to be presented this month may indicate the results weren’t all negative.

“The bad news is all on the table -- it’s a matter now of sifting through what else came out,” Andrew Goodsall, a health-care analyst with UBS Group AG in Sydney, said in a telephone interview. “Some of these other data points that are coming out are quite encouraging.”

One study indicated SIR-Spheres may improve the potential to operate on certain tumors, UBS said in a May 18 report. Such findings may help Sirtex. The company lost 59 percent of its value in the past year as it fired its chief executive officer, cut its sales outlook, and announced the immediate departure of its U.S. CEO after less than a year in the job.

Additional data to be presented Sunday at an oncology conference in Chicago and one later this month in Barcelona will provide more clarity on the prospects for both the cancer treatment and the company for incoming CEO Andrew McLean, who starts Monday.

Dose-sales growth will decline to 5-to-11 percent in the year ending June 30, from 16 percent a year earlier, the company said on Dec. 9. The revised outlook sparked a 37 percent drop in its share price.

Salvage Therapy

Used as a so-called salvage therapy to treat end-stage cancer patients, sales of SIR-Sphere doses may increase about 10 percent annually over the next five years, said Sean Laaman, an equities analyst with Morgan Stanley in Sydney, in a May 23 report.

“We believe the stock should revert to robust earnings growth,” Laaman said. “We see enough in secondary data to support ongoing growth in salvage therapy which we value at A$17.90 a share.”

That’s above the consensus share-price target of A$15.81 of nine analysts, according to data compiled by Bloomberg. Seven of 10 analysts rate the stock an equivalent buy, the data show.

Sirtex has recorded the second-worst performance on Australia’s benchmark S&P/ASX 200 Index the past year because of the study failures and competitive pressures from London-based BTG Plc, which has a similar tumor treatment. Sirtex shares rose as much as 1.8 percent and traded 1.3 percent higher at A$12.08 as of 10:52 a.m. in Sydney.

Sirtex’s market value peaked at A$2.36 billion in December 2015 amid optimism that SIR-Spheres would become a first-line therapy, giving it access to a significantly larger market. Worldwide, 1.36 million people are afflicted with colorectal cancer each year and 782 million get liver cancer, according to the International Agency for Research on Cancer in Lyon, France.

CEO Fired

CEO Gilman Wong was dismissed by the Sirtex board in January after a company investigation into his sale of 74,968 Sirtex shares on Oct. 26 -- the day after he told the company’s annual shareholder meeting to expect “double-digit” sales growth. The share-sale, valued at A$2.14 million based on the day’s closing price of A$28.61, represented 27 percent of Wong’s total shareholding.

Wong sold the shares to cover the tax liability incurred by a “recently vested tranche of rights,” he said in a Nov. 7 statement to the stock exchange. “This was in line with my normal practice of the past three years. I informed the chairman in July 2016 that it was my intention to sell these shares.”

Wong couldn’t be reached for comment.

A week after a query from the Australian stock exchange’s compliance unit on Dec. 2, Sirtex cut its sales growth forecast by more than half.

Incoming CEO McLean said last month that he plans to focus on installing new leadership in the Americas and exploring new opportunities for SIR-Spheres.

‘Solid Foundations’

“There are solid foundations to the organization,” he said in a May 24 statement.

Growth may come from the Asia-Pacific region, where research indicates SIR-Spheres may be more beneficial and have fewer side effects than conventional treatment in certain cases. The region accounts for 80 percent of the world’s primary liver cancer because of the high burden of hepatitis B virus, said Pierce Chow, an oncologist treating liver cancer patients at the National Cancer Centre Singapore, who studied SIR-Spheres.

It’s also possible SIR-Spheres may help patients with a form of cancer that starts in the bile duct, for whom there is a dearth of effective treatments, said UBS’s Goodsall, who rates Sirtex a buy.

“Sentiment is going to be negative for them for a little longer yet, but our view is that there is still an under-penetrated market,” he said.

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