Hi all, interesting article in the AFR today. Anatomy of a...

Hi all, interesting article in the AFR today.

Anatomy of a downfall

Carrie LaFrenz
How Sirtex Medical went from market darling to facing class actions
Biotech Stockmarket darling now facing two class actions.
The fall from grace from one time biotech market darling Sirtex Medical is a tale of poor governance, an undiversified and insular board and a cozy relationship between a senior executive and the CEO, several sources claim.
Sirtex makes a key radioactive product, SIR-Spheres microspheres, which isused tofight laststage livercancer. It was a stockmarket darling, with its shares rising beyond $41 and pushing the company’s market value to $2.3 billion in December 2015. Now, it’s worth just $800 million is now facing two class actions (and was under investigation by the corporate regulator).
Heather Winslade, a grandmother now in her 70s, was appointed head of regulatory affairs and quality assurance in 2003 by Sirtex founder Bruce Gray. She was polarising. Several former employees and other industry sources say she often offered solace to the company’s former chief executive Gilman Wong, who had no healthcare expertise yet had to manage the incredibly complex regulation across the US, Australia, New Zealand and Europe.
While there is no suggestion of regulatory misbehaviour, several sources say Wong protected Winslade during a bullying investigation, which eventually led to her dismissal six days after Wong left the business in January 2017. After 14 years at Sirtex, Windslade was asked to leave for not getting along with her colleagues, according to those close to the matter.
Some say she was gruff, and not a afraid of a fight, while others say she was a woman undeterred amid a ‘‘boys club’’ at the top of the biotech.
‘‘She was a good steward for SIRSpheres existing approvals and she was good at compliance,’’ said one source.
‘‘What she was not good at was strategic regulatory advice to the CEO around how to expand or grow the use of the SIR-Spheres product.’’
Windslade declined to comment, while Wong did not return calls from the AFR Weekend .
Sirtex began as a small biotech startup with a few employees sitting on plastic chairs in the industrial estate at Lane Cove, NSW, to an Australian success story. Its SIR-Spheres device is sold in in more than 40 countries.
Roughly a year ago things began to publicly unravel. Its horror run created enormous headaches elsewhere, particularly for a few high-profile money managers, notably Hunter Hall’s Peter Hall and Perpetual Equities’ former second-in-charge Nathan Parkin, who ended up leaving the fund manager. In Hall’s case, he attributed its wipe-out as a reason he quit the industry.
Wong is believed to be under investigation by ASIC for possible insider trading, several executives have left the company – including chief medical officer David Cade (after 14 years with Sirtex) and highly regarded head of the Americas Michael Mangano, who left in June 2016. His replacement, Kevin Richardson, left in May 2017. The head of its Asian business left last year.
The company was recently fined $100,000 by the Australian Securities and Investments Commission for alleged breach of continuous disclosure obligations to shareholders last year.
Richard Hill, who has headed the board since 2004, has bowed to shareholder pressure, recently indicating he will retire after the upcoming annual meeting.
Top-three shareholder Allan Gray recently confirmed it had a number of interactions with Hill in recent months and it was aware of other shareholders’ angst. ‘‘I don’t think think this journey of renewal has run its full course,’’ Allan Gray managing director Simon Mawhinney said.
‘‘There are other long-serving members of the board who have arguably presided over capital destruction.’’

Richard Hill, chairman of the company’s board. Right: Gilman Wong, former chief executive of Sirtex.
MAIN PHOTO: DOMINIC LORRIMER
The board since its listing in 2002 has consisted of only men, until Katherine Woodthrope joined in 2015. In recent years the board composition was made up of: Hill, Wong, Grant Boyce (joined 2005) and John Eady (joined 2002). There were few, if any women in senior leadership or executive roles besides Windslade. ‘‘The composition of that team has not been sufficiently renewed and not been sufficiently diverse,’’ said one source.
Wong was elevated to CEO in May 2005, just four months after joining the company as chief operating officer. Before joining the biotech he had several senior roles at now-defunct whitegoods manufacturer Email. By 2012 he was named CEO of The Year by CEO Magazine , where he was quoted as saying the three pillars to Sirtex were: SIRSpheres product, new technology and acquisitions.
‘‘If we find the right target, we are interested. We see the future in those three pillars. It is going to be a big business even if we only succeed in pillar one,’’ he said in CEO Magazine in 2012.
However, two of three pillars remain elusive. Several insiders said that over the past several years there were many attempts by suitors such as Medtronic, Boston Scientific, and J&J, which approached Sirtex senior executives looking to explore options via distribution or marketing agreements. But the chairman and CEO never engaged. Sirtex declined to comment on the matter.
While Sirtex had no debt and nearly $100 million-odd of cash on balance sheet, Wong remained conservative while smaller British rival BTG has been highly acquisitive, buying Biocompatables in 2010, which was also presented to Wong as a possible acquisition in 2008-09.
Some say Sirtex is now suited to private hands. It is understood US private equity and strategic players are keeping an close eye on the company.
While most market watchers agree Sirtex has an innovative product in its radioactive SIR-Spheres, which was approved by the US Food and Drug Administration in 2002, it appears in recent years that the board and former CEO may have rested on its laurels.
Sirtex’s SIR-Spheres are about the third of a diameter of a strand of hair. What are known as ‘‘beads’’ release a type of radiation directly to liver tumours that are inoperable. It has been able to increase survival time for patients. But it’s not a cure.

Sirtex is the market leader in this targeted therapy and over the past five years dose sales have climbed from nearly 7300 to more than 12,500 in fiscal 2017. But a significant decline in volume growth as measured by dose sales hit profits in 2017, pushing Sirtex to a net loss of $26.3 million for the year.
Sirtex heavily focused on its $60 million five-year investment for a number of major clinical trials. It had two major clinical failures in the past year.
Sources said while research and development is important, it should be only part of the overall strategy. They argue Sirtex became a one-trick pony with one great device generating $200 million in revenue but did not follow it up with expansion of the technology to other forms of cancer or for new indications to be able to use the device in primary and second-stage liver cancer. Nor did it expand into geographies like Latin America and Japan.

Wong was fired in January following an investigation into a share sale last October just days after the company reaffirmed double digit growth in dose sales. By December a major revenue downgrade sent the stock plunging 37 per cent.
It is widely agreed by those who worked with Wong for a number of years that he was ‘‘highly ethical’’ and non-confrontational. He sold his shares with approval by the board some months prior.
‘‘It was an error of judgment that got him in trouble,’’ an insider said.
Another source said: ‘‘Gilman Wong was likely the most ethical person I’ve ever worked for. And he was hung out to dry by the board.’’
But he’s also described as someone who with a penchant for convertible Maseratis, sycophantic and happy to take credit.
Despite having 70 per cent of sales generated in the US, Wong rarely went to visit.
It is believed that it was suggested Sirtex get a US-based representative to deal with FDA matters, which he rejected.
‘‘The chairman needs to have appropriate attention and keep the CEO accountable,’’ said a source.