Liver cancer treatment specialist Sirtex Medical Limited (ASX: SRX) has another big year ahead of it in 2016, with the release of potentially blockbuster trial data that could see the company's addressable markets for its core product expand to a significant extent.
Sirtex's core product is its SIR-Spheres radiotherapy treatment used to treat cancerous tumours primarily in the liver. Currently it's mainly used alongside chemotherapy as a treatment of last resort, rather than at a less advanced stage of a cancer's progression.
Dose sales of the treatment have been growing strongly as its efficacy becomes more widely accepted amongst oncologists. The company also has ambitions to expand the SIR-Spheres' addressable markets via clinical trials that demonstrate their efficacy in treating a wider range of cancers at different stages of progression.
In 2015 the results of its SIRFLOX trial provided moderate clinical evidence to support the treatment's wider use, while 2016 is expected to see the release of the SARAH clinical trial data that focuses on the Hepatocellular Carcinoma (HCC) market, or primary liver cancer market.
UBS reports that the SARAH trial data will be released in late 2016, with a targeted goal of an overall patient survival improvement of greater than fours months, compared to the results of rival treatment Sorafenib.
The UBS analysts also noting that if the trial meets its target then Sirtex could "apply for a PMA (pre-market approval) to expand their label for HCC use in the US with potential for exponential growth on switching –capped only be capacity".
In effect the analysts believe a successful SARAH result would see Sirtex's addressable market lift 3x in FY17 and have consequently large beneficial effects on overall sales and profitability.
Further on the horizon are Sirtex's release of the FOXFIRE & FOXFIRE GLOBAL results due early 2017. UBS suggesting if these are successful in demonstrating strong overall survival data it may allow the company to market its treatment for sale in the first-line metastatic colorectal cancer market. The effective Holy Grail for the company, and its evangelical following of retail shareholders.
Last November UBS slapped a 12-month price target of $50 on the business based on it being able to achieve year-on-year sales growth of 20% in the year ahead. The bank also offered an "upside scenario" of a $63.15 share price contingent on success in the upcoming studies and subsequent accelerated sales growth in the region of 25% on a year-on-year basis.
Prior to the release of the SIRFLOX trial results in 2015 the company was already growing dose sales around 20% year-on-year with growth expected to be at least 19.7% in the current financial year as awareness of the treatment continues to increase among medical professionals and academics worldwide.
UBS estimates that Sirtex could earn diluted earnings per share of 111 cents in FY16, which would place it on around 32x forward earnings when selling for $36 today. That's not cheap, while the business also carries substantial risks around being a one-trick pony and more importantly around the potential for its trial results to disappoint.
However, if the forecast growth does materialise it may prove a decent buy at today's prices. Sirtex though is only for investors willing to take on a large degree of risk in the pursuit of high returns.
