Executive Summary At 28 February 2015, Sirtex (ASX: SRX) represented a circa 6.5 per cent position across Montgomery Funds. After close analysis of Roche’s Kadcyla life cycle – something we reported to The Montgomery [Private] Fund investors in their February 2015 Performance Report – the Montgomery Investment Committee took steps to protect investor capital. In the first two weeks of March 2015, Montgomery cut its investors’ exposure to Sirtex by approximately 35 per cent at an average price of $35.50. After detailed analysis and discussion with various experts, Montgomery re-entered the market today repurchasing those shares it sold at less than half the price at which they were sold. SIRFLOX Trial Results
Despite our understanding of the business and the positive history of trial results; trial outcomes for a number of reasons can be inherently unpredictable.
At the end of February, Sirtex was the largest position in the Montgomery Private Fund and a large position in The Montgomery Fund. Within the first few weeks of March, the then rallying share price at the time meant that the Fund’s largest / larger position(s) were riding on the binary outcome of a medical trial whose outcome could not be known with any degree of certainty.
Case-studies including Roche’s failed Kadcyla provide evidence of hitherto positive indications not being reflected in subsequent trials. It was this risk and the knowledge of previous case studies that caused us to reduce our position in Sirtex in the days and weeks leading up to today’s announcement. A hedge was also investigated but none was found suitable.
Re-weighting our position partially (but far from completely) mitigated the impact of today’s share price decline, which we believe could be temporary, on the outcome for our investors.
The share price reaction also tells us a number of things about the market’s understanding of the results announced by Sirtex today. What was clear early today is that few analysts and other investors we spoke to could articulate exactly what the announcement meant. The fact that so many investors emailed, tweeted and Facebooked us with questions such as: “SRX share price – UP or down?” told us they should not themselves be investing.
Having today spoken at length with Management and with an interventional radiologist based at St Vincent’s Hospital, Sydney – whom we scanned and sent the announcement to – we now believe the market has overreacted.
And you may just be wondering what we think of the announcement and what we are doing now?
The SIRFLOX preliminary study results, released to the market today were, perhaps appropriately, perfunctory in nature. Its rather clumsy wording, for the lay investor, suggests to us that a conference call by the company would help both professional and part time investors understand the positive elements of the announcement.
On the one hand the SIRFLOX study did not show a statistically significant improvement in overall Progression Free-Survival (PFS). That means that the administration of SIR-Spheres did not cease or delay the progression of cancer where it existed or progressed elsewhere in the body (‘overall’).
Of course SIR-Spheres are designed to treat mCRC (metastatic Colorectal Cancer) in the liver, not elsewhere in the body.
So the question you might ask is why did Sirtex design the study for a target it never had much chance of achieving?
The answer is that smaller sample sizes are permitted (so the trials can be recruited quicker) and overall progression of cancer is generally faster so any benefits of the treatment can be seen via CT scan sooner. Further, regulators and reimbursors also see the results of PFS Trials as a surrogate for overall survival.
The company however is very “comfortable” with the second bullet point in the announcement:
“SIRFLOX study does show a statistically significant improvement in [PFS] in the liver”
Why would the company be “pleased” to announce this? Quite simply, it’s the next best thing. This is an important result in a large randomised controlled trial showing that combination SIRT (Selective Internal Radiation Therapy – SIR-Spheres – a liver-directed therapy) and chemotherapy have shown a statistically significant increased time to intrahepatic disease progression (ie. delayed disease progression in the liver – the study’s secondary endpoint) in FIRST line therapy, where more patients might be able to receive the treatment than in the salvage setting.
When a patient is suffering from mCRC, it is the case that the vast majority (up to 90 per cent) die from liver failure. Tumours overrun the liver. Any treatment that can be shown to extend the time it takes for the tumour to progress, by holding off tumour development, increases the prospect for survival (especially in cases where cancer has not progressed elsewhere in the body). The SIRFLOX trial has shown this to be the case and the results are not due to chance.
SIR-Spheres are a medical device solely focused as a liver-only targeted therapy. The company needed to report a positive result in Progression Free Survival here which it did.
If SIRT could show a clear ability to effectively halt disease progression in a statistically significant manner when used in the first-line, then the ability to control or slow down the disease above and beyond treatments which exist today would be well received by clinical oncologists.
What is now clear is that they have hit this secondary endpoint. The only question remaining to be answered now is; by how long are hepatic tumours kept at bay.
The data will be released at the ASCO conference in early June 2015. Obviously, if the tumours are kept at bay only for a few days then the administration of SIR-Spheres in the First Line setting will not be warranted. A longer period of Progression Free Survival, will warrant use of the device in the First Line Setting. After ASCO, the results of the next series of trials, known as FOXFIRE and FOXFIRE Global, recruiting more than 560 people, would determine if the application of SIR-Spheres in the First Line setting could be mandated.
Had SIR-Spheres been able to show statistical benefits in both overall PFS and PFS in the liver, then it’s highly likely that the medical device would be literally months away from being elevated to a gold standard of care in the treatment of this insipid disease.
Being a liver-targeted treatment, SIR-Spheres have shown a clear benefit in slowing disease progression in those patients with liver-only disease. But because SIRT is completely ineffective and not used on other organs, it’s impossible for SIRT to have any chance of controlling the disease once it has spread. Therefore it’s completely natural to expect that patients whose disease has already moved outside of the liver are likely to have a lower level of response and drag the overall Progression Free Survival rate lower which we believe it has.
The somewhat confusing announcement today was met with a shoot-first-ask-questions-later response. This is understandable. But the 532 person study included 40 per cent of patients where the disease had already spread outside of the liver. Had the trial included only patients with cancer limited to the liver, then it’s highly likely we would be looking at a very different announcement to that made today.
We have held the view that a clear benefit exists when SIR-Spheres Microspheres (SIRT) – Sirtex’s core medical device – is used for the treatment of inoperable liver cancers, over the current standard of care modalities (chemotherapy), and all that today’s announcement tells us is that it does.
SRX Price at posting:
$17.53 Sentiment: Hold Disclosure: Held
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