SRX 4.35% 12.0¢ sierra rutile holdings limited

Wilsons - Pretty positive from one of the SRX Bears in the...

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    Wilsons - Pretty positive from one of the SRX Bears in the research world...


    HOLD: Positive view on the SARAH trial results

    We maintain our HOLD rating with a revised price target of $15.75 per
    share. Results from Sirtex’s liver cancer trial (SARAH) suggest that SIRSpheres
    offers similar survival benefits to the standard of care
    chemotherapy, but with significantly better tumour control and safety. If
    these data are accepted following peer review, we expect to see treatment
    guideline recommendations strengthening for SIR-Spheres in HCC, at the
    expense of Nexavar (sorafenib). SARAH also forms the basis for a broader
    marketing clearance in the USA, with Sirtex planning FDA submissions in
    the 2H. The breadth of those new claims will depend on how close the
    data can get to claiming “non-inferiority” to chemotherapy in a formal
    way. The stream of major clinical trial results expected between now and
    June heighten the near-term risks. We acknowledge that the stock
    appears cheap versus international medical device peers.

    Key points
    SARAH trial results suggests that SIR-Spheres offers similar survival
    benefits to standard of care chemotherapy, but with better safety. We take
    a positive view on the SARAH clinical trial results reported at the EASL/ILC
    meeting in Amsterdam. The trial supplied the first “Level 1” evidence that SIRSpheres
    controls hepatocellular carcinoma (HCC) tumours better than
    chemotherapy. We expect this clinical finding to support treatment guideline
    upgrades, enhanced reimbursement coverage and a modest sales boost. There
    is still much work to be done before Sirtex can firm up a claim to “non-inferiority”
    versus chemotherapy. That said, we are confident that these data and other
    studies (SIRveNIB, VESPRO, SORAMIC) can secure some form of HCC
    marketing approval in the USA, where currently Sirtex has none.
    Forecasts. Modest upgrades to HCC dose sales, the highlight of which is a 6%
    lift in FY19e EPS. The sales impact from SARAH will take time to develop as
    medical oncologists and hepatologists subject the results to peer review.
    Valuation. Price target revised up to at $15.75 per share, reflecting DCF
    forecast changes. Importantly, at this stage our model still denies any explicit
    volume upside that may result from positive Phase III clinical trial results in the
    metastatic colorectal cancer (mCRC) setting. Sirtex stock is trading on a FY18e
    EV/EBITDA multiple of 12.1x which represents a 16% discount to the
    international peer group median (14.4x). HOLD maintained.

    Risks and catalysts
    Catalysts: a) dose sales; b) SARAH, FOXFIRE and FOXFIRE GLOBAL Phase
    III clinical trial results; c) new reimbursement coverage decisions.
    Risks: a) adverse clinical trial outcomes; b) reimbursement; c) safety and
    quality risks.
 
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