Sirtex’s (ASX:SRX) share price fell 60% on March 17 after management announced the failure of a 7-year clinical trial. So why has one of the company’s largest shareholders increased its stake by 30%?
SIRFLOX was the first of three Phase III trials that Sirtex hopes will provide doctors with enough data to support using the company’s SIR-Spheres as a first-line treatment for liver cancer. If successful, profits could increase several-fold.
However, the study found that administering SIR-Spheres didn’t improve ‘overall progression-free survival’ – the amount of time following treatment where the cancer doesn’t get worse (the study’s ‘primary endpoint’).
On the face of it, that’s a pretty scary result for a one-product company whose only claim is to slow the progression of liver cancer. But it’s actually not as bad as it seems.
A good 40% of the study’s participants had cancer that had already spread beyond the liver to other areas of the body, such as the lymph nodes or lungs, and the ‘overall’ result included these participants.
Keep in mind that SIR-Spheres are a treatment delivered directly to the liver to delay the progression of liver cancer specifically – it barely stood a chance at reining in cancer that had already spread to other organs. So why did Sirtex design a study targeting a primary endpoint it was unlikely to achieve?
The answer is speed. Clinical trials can last decades and they’re expensive – Sirtex has already spent more than $50m on them. By running the study as it did, Sirtex needed fewer participants to determine whether or not the result was due to chance: the recruitment of patients is faster and the cancer’s progression is generally quicker when it’s already heavily metastasised. Any benefit of SIR-Spheres will show up sooner. Setting a hard-to-achieve primary endpoint, but one for which the time and cost of running the trial is kept to a minimum, can often make sense.
What’s more, when combined with chemotherapy, SIR-Spheres were found to delay the progression of cancer in those patients where it was confined to the liver. And that hints at SIR-Spheres being an effective first-line therapy, though the detailed results are only being released in June.
We’re not mind readers but we suspect this may be one reason Hunter Hall Investment Management bought more that $20m of stock on the day the results were released.
Hunter Hall has been a major investor in Sirtex for many years and surely knows the trials inside out. It had sold more than half of its holding as Sirtex’s share price hit new highs in the lead up to the result. However, after the apparent setback the fund manager repurchased 1.2m shares at half-price, increasing its stake in the company from 7.2% to 9.4%. Hunter Hall’s support is encouraging.
What you’re willing to pay for potential is another matter. Sirtex’s share price has nearly quadrupled since we first upgraded the stock on 8 Nov 10 (Speculative Buy – $5.90). Unfortunately, with a current price-earnings ratio of 44, there isn’t the margin of safety there once was.
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