What can we learn from the Sirtex AGM?

What can we learn from the Sirtex AGM?

Earlier this week Sirtex (ASX: SRX) held its AGM and below we have noted some of the business’ highlights for 2015 and their expectations for the year ahead based on recent trading. 

2015 financial year highlights;

• Positive outcome in SIRFLOX Phase III trial in holding back tumour progression within the liver.

• Coupled with expanded marketing budget, Sirtex saw very strong organic business growth.

• Dose sales growth accelerated to 19.3 per cent from 17.3 per cent in the prior year.

• Business lifted product pricing and was a large beneficiary of a falling Australian dollar.

• Growth delivered record revenues, earnings and cash flows.

• Business tripled manufacturing capacity in Boston and opened a new facility in Frankfurt to support future growth in dose sales. 

• All five remaining key clinical studies are progressing well. FOXFIRE, FOXFIRE Global and SARAH have recruited and are closed. SORAMIC and SIRveNIB are expected to be 85 per cent recruited by the end of this year. SARAH results are due in late 2016 with the FOXFIRE studies being added to SIRFLOX in the 2017 calendar year being key upcoming catalysts.

2016 business update;

• Management have stated that dose sales are tracking slightly ahead of management’s expectations.

• In September, Sirtex recorded 1,000 dose sales for the first time ever (for 1 month – showing good momentum)

• Guidance is for dose sales to grow at least in-line with historical trends which has averaged a CAGR of 19.7 per cent.

In terms of our expectations, this is an in-line update. In our modelling we have previously estimated total dose sales of 12,307 in 2016, a 20 per cent increase on 2015. We see no reason to adjust this although this may prove conservative if sales momentum lifts further.

2016 should therefore prove to be another year of records right across the group.  We estimate the businesses revenues will break through $200 million with further expectations that this continues into 2020 as SIR-Spheres lifts its penetration use in the global market for Salvage and Liver-Only-Disease (LOD).  

We note that we have made only one minor change – we have lifted our average selling price given a large proportion of sales are made in the US (>70 per cent) and the Australian dollar has fallen further since June 30 (currency is now 5.5 per cent lower).

This sees our base-case valuation lift from $32 to circa $33 and assumes SIRT doses administered grow by and average 19.2 per cent per annum from 2015(A)–>2020. That’s 10,252 doses going to 24,654.

Within the AGM presentation however, Sirtex’s head again commented that the business expects dose sales momentum to continue building over time. Given they have averaged 19.7 per cent average growth rates more recently, we have modelled an additional uplift in sales above our current base case. 

Under a more bullish growth scenario, if we assume a higher average dose sales growth rate of 20.9 per cent over the same period, this sees 10,252 doses going to 26,511. Our valuation if this holds true could be expected to be around the $37 mark.