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 two 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.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.


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  1. Roger, a recent broker report stated that up to 65% of usage in the US is off label. And the suggestion that this may cause a slowdown in usage. The implication was that this off label usage was for 1st line?

    I understand that most of this off label usage is for HCC, nMets, and a smaller amount for other cancers like breast.

    Do you have any information that would validate my understanding, or do you think there is substantial usage is for 1 st line, currently in the US?


    • Hi Colin,
      We are aware of the significant off-label usage but have clarified with management on a number of occasions that very little of this is for first-line (though we suspect there is some).
      The off-label usage is predominantly for HCC and other indications as you have mentioned.

  2. Richard Endersbee

    One of the more interesting things I find is that post reading value.able and with my somewhat limited understanding of the investment thesis behind Montgomery Funds, I am slightly surprised to learn that the Fund would have exposure to something that the market perceives as having binary outcome.

    Company and industry specifics aside, the greater Buffet investment style doesnt appear to be reflective of an investment in something like Sirtex? Just wondering if there was something striking abou Sirtex that led the managers to believe a binary outcome was against the norm or long term moats, high ROE and FCFF etc?

    • Hi Richard,

      We think the long term value of the business in the demonstrated salvage setting is not binary. We bought below an estimate of value based on that outcome. The outcome of the recent trial however was always going to be treated by the market with volatility and that is why we reduced the position materially.

  3. Both fund prices do not even seem to have suffered at all from the Sirtex announcement. I had thought there would be a ‘blip’ from the SRT share price going down. Is this correct?

  4. Impressive Roger, once again you’ve shown why The Montgomery team are the professionals and I’m still a student. I looked at Sirtex yesterday after the huge price drop and was tempted to jump in, I held back because quite frankly, I didn’t understand the results announcement well enough. I still feel that this was the right decision – I’d prefer to miss out on an opportunity that I don’t understand than risk my capital – but it’s definitely another lesson learnt.

  5. jerome mellor

    From my back of hand calculations, with respect to Sirtex holding $ Value… at the present $21 per share, we are back to where we were before you sold 35% of SRX if you include the value of the holding you sold?
    Although as a Doc, I have some doubts we’re going to have a magic bullet for Liver Metastases in the near future.

    • Thanks for sharing your thoughts Jerome. There will always be a bunch of oncologists who, for example, believe cancer is systemic and no localised treatment is going to help.

  6. Thanks Roger for your insights.

    When I first read the announcement I took it as a somewhat positive outcome. In that SIRT was shown to be effective for liver tumours. I do wait to see the publication of the final results before making any judgement but this may help increase the usage of SIR – Spheres.

    The recent fall in share price, from what I did consider to be a quite expensive level, does highlight what you continually stress, the importance of buying at the right price and portfolio allocation of stocks.

    Having been a shareholder in Sirtex for almost 5 years I am still very happy with the company performance. It makes up only about 3% of my overall portfolio and the recent drop in share price equals only what the value of my portfolio increased by in the last 2 weeks.

    If I had been lost on a desert Island from the the day I bought the shates until today and knew nothing of the recent share price movements I would be very happy to see that over the last 5 years Sirtex has had an increase in dosage sales year on year, the share price now is more than 4 times when I purchased it, and there is a clinical trial just completed that shows the product is effective for liver cancer.

  7. Carlos Cobelas

    Lucas Hainsworth : your comparison with Avexa is not relevant. Unlike Avexa, Sirtex has been having 42 consecutive quarters of sales, earnings & profit growth at 20+% return on equity, not to mention paying dividends. This has been achieved through use of Sirspheres as salvage treatment. The Sirflox trial results means that Sirspheres will not be elevated to first line treatment alongside conventional chemotherapy. However the secondary end point achieved ( statistically significant progression free survival in the liver ) means that Sirspheres use as salvage treatment will likely be supported even more so.
    Sirtex is also debt free.

    • Lucas Hainsworth

      Thanks for the input Carlos.

      I didn’t say I followed this space very closely.

      Maybe like a 90+% mortality rate of this disease means that as a Salvage Therapy, it’s just doing something.

      Avexa’s product was meant to be a Vaccine so it’s at the other end of the treatment cycle right? Front up.

      Having debt or not having debt is just the difference between borrowing or getting capital raised.

      42 quarters of sales on a treatment that wont get to be conventional treatment means that it will always be a last resort.

      I don’t know what happens to these things but if trials show that it has little or no impact, then eventually as a treatment it will get dropped right.

  8. Hedley Calvert

    I love the fact that as an investor of the Montgomery Fund you guys always protect the downside. Yesterday I took a bath on my direct share portfolio due to Sirtex (my largest holding). The unit price of the fund however was little changed. Investing through your fund makes it easy to sleep at night. Thank you.

  9. I’m impressed by your risk reduction strategy re Sirtex exposure. Did the 35% sell off before the announcement also apply to the Montgomery (Retail) Fund?

  10. sharon lazarus

    I was concerned when I saw the stock price, and read the news reports…. I thought to myself, that surely you guys could not have made such an ill advised investment — now I have read your explanation, I know that our money is well invested and that your actions in selling and buying buying back cheaper will prove to be another shrewd move.. Thanks for the well timed explanation — much appreciated… Best wishes, Nevil Lazarus

    • Thank you Nevil. Please be aware that inevitably we will make mistakes and while we are outperforming the market over the month and since inception, we won’t always outperform over every time frame.

  11. Loved reading this one, it’s probably the biggest reason I have my money with you guys rather than doing it myself – I don’t have the time to keep on top of the happenings of every business, or the tact to realise when it’s time to pull out.

    So just a ‘thanks’ for reducing the funds stake in Sirtex.

  12. Lucas Hainsworth

    I’m a bit green on this one, I don’t follow Biotech because I’m not a scientific guy. But I have heard a similar story arc – I’m sure there are differences.


    I had a friend who was put into this on a recommendation.
    AVX was a company that made small molecules for the treatment of infectious diseases. It never made it through trial.

    Now I’m not an expert on the FDC approval process or how things proceed through trials, it’s just not something that really I am interested in, but looking at the businesses,

    Both had binary outcomes with a single product that focussed on small molecules.
    Everyone has to go through a trial phase.
    SRX has taken like 11 years to get this stage
    AVX much less. Now I’m sure it’s reassuring to fax stuff to a cancer guy and have him look at it.
    Reassuring maybe, I dunno.

    But the biotech sector is really a hit/miss and it’s very much a have many picks not just one and hope you hit. Kinda like spreading your chips out on the table at roulette.

    It’s a lot of money to bring these things to market and I believe the core thesis of this post is still quite accurate:


    “While most people understand in a vague way that modern biomedical science is advancing at a remarkable pace, many people are less aware that we have been far less successful at translating science from the laboratory bench to the clinic. This is not to say that the pharmaceutical industry has been quiescent; total spending on health related research by the drug industry has increased from about $6 billion in 1980 to about $39 billion in 2004.”

    So its not the issue of actually finding an idea developing it etc, it’s the degree of difficulty in getting it through the hoops and working.

  13. Thank you very much for this illuminating and grounded analysis. Your reports and articles provide a dependable reference point where mostly there are shifting sands. Jill Davis

  14. Greg McLennan

    Hi Roger and team,

    Thanks for that great summary and insights from the oncologists at the coalface (so to speak). It pays to understand the effect that patient recruitment has on the outcome. Nothing that I read indicated that a portion of the subjects already had other mets outside the liver and as you say, SIRT to the liver tumours can hardly be expected to impact these. Treatment has to be specific to the condition.

    An analogy I use sometimes is the orthopaedic surgeon who has developed a revolutionary approach in his surgical management of patients. In half of his patients, it produces a lasting, 100% recovery. In the other half, it has no effect. Is it a good technique or a bad one? As far as the patients are concerned, it depends on which half you are in. If that surgeon identifies among his potential patients those who are suitable for his new technique and exclude the rest, his success rate can be 100% in the operations he performs. Sirflox didn’t exclude all of those who were probably unlikely to benefit and this is one factor which would have influenced the outcome on the primary endpoint.

  15. I won’t repeat in detail, however I had similar thoughts to you and most other bloggers when I read the company’s announcement. I also though you might have repurchased the shares you sold, remembering the thought process you guys went through when MMS was also sold down.

  16. tahereh talebi

    well-explained Roger. Thanks for the article. I think they should have asked you to write a report for today so they could save the stock price! I think SRX is a great company and will get its value back.

  17. Gaveen Jayarajan

    I think in general biotech is one area where you particularly need to remember the “don’t invest in anything you don’t understand” rule, and being mindful that there maybe a lot of variables / confounding factors in the trials that may affect the final outcomes that as a lay person you may not be able to be fully across.

  18. Incredibly insightful post Roger, you managed to post the answers to every single question I had going through my mind all day. I was struggling to comprehend how the primary end point could be achieved given that sir spheres were only administered to the cancer in the liver. How could one expected that administering a targeted treatment specifically to the liver would statistically improve PFS in the entire body when the cancer had already spread elsewhere and was not being treated with sir spheres at all!?

    At least this is my understanding, please correct me if I’m wrong.

  19. The key here for all investors is that this was always going to be PERCEIVED BY THE MARKET as a binary outcome. I had not owned SRX but I too was buying today because the current indication for liver mCRC is intact by my reading of the statement. This was NEVER EVER a set- and- forget stock….and still isn’t.

    • Gaveen Jayarajan

      I guess the nature of biotech is such that there maybe even more binary outcomes pending the results of future trials, which may or may not be positive and as such cause similar share price reactions.

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