Sector Cancer Therapy Market Cap 127.7m 52 Week High/Low $3.24 - $1.73
Avge Annual Growth Rates 10yr 5yr 1yr Earnings per Share -- 23.3% 225.0% Dividends per Share -- -- --
Cash flow positive and growing strongly
SRX 's latest quarterly cash flow figures show the company to be in good shape. Net cash flow was positive $1.1m in the quarter and $4.0m for the year to June 30, 2006. Sales receipts were $5.7m and $21m respectively. Full-year receipts are more than twice last year's. There was $10.8m in the bank at the end of the period. This is a far cry from the expectations we and most shareholders had several years ago when Cephalon's $4.85 bid failed by the narrowest of margins. That is history. At current prices we strongly believe SRX offers exceptional upside, to emerge over the next one to three years. This is despite the company's low level of resources and early stage of development. The level of sales growth is difficult to predict, but should continue strongly assisted by patient reimbursement in the US and Australia. We assume 60% compound sales growth over the next three years delivering over $80m revenue in FY09 and $30m in NPAT. A market capitalisation of around $750m in late calendar 2008 would likely accompany that anticipated level of profit and growth, over five times the current value with equity dilution unlikely. We re-iterate our Speculative Buy recommendation. We emphasise speculative.
When surgery is not an option, SRX's SIR-Spheres is frequently the most effective treatment for liver cancer. Typically they extend a recipient's life by six months, sometimes several years, longer in most instances than chemotherapy. Many chemotherapy drugs also drastically reduce a patient's quality of life, attacking healthy body cells, severely weakening the immune system and causing nausea, diarrhea and other unpleasant side effects. Occasionally, and then usually in combination with surgery, the SIR-Spheres™ therapy appears to eliminate the disease. Sometimes it prolongs a patient's life until a suitable liver donor is found for transplant.
An issue associated with the use of SIR-Spheres is that the procedure is relatively labour and time intensive, taking up to two hours including preparation time. This should reduce considerably with consecutive treatment of patients and as doctors and support staff become more familiar with the technique. It also requires use of an operating theatre. Treatment centres therefore need either excess capacity or to free up capacity for the treatment.
Around 80 hospitals/clinics now offer the treatment. SRX has been working with those that have particular expertise in liver disease who are more likely to be interested in new treatments. They also tend to be opinion leaders and thus a powerful marketing vehicle if impressed with a therapy. Oncologists as a group remain relatively ignorant of the product and given the high levels of internal radiation involved are hesitant to recommend it. It seems that broad acceptance will require a quite significant change in mindset. Oncologists, as with most doctor groups, receive a barrage of marketing material from large drug companies who can refer to clinical trials that often involve many hundreds or even thousands of patients. This is SRX's only product and clinical trials to date have been quite small so credibility remains an issue. A large trial to be run over the next two years will help. Results will only be made public after full analysis of patient outcomes that will take a further three years. This is not as bad as it seems as doctors at participating centres will know how the trial is progressing at their site and will no doubt communicate with others.
In another bid to increase the body of treatment data SRX has instigated the establishment of a patient registry that will track treatment outcomes in the US. Individual patient information will be confidential to each hospital but data summaries will be available to all centres and to SRX. The registry will be maintained by an independent third party.
The SIR-Spheres technology has limited patent protection. The US Patent and Trademark Office denied approval of a patent application last year because of prior disclosure, a decision SRX is appealing. However SRX probably has a five to six year start should another player attempt to copy the technology in the US. A competitor would need to carry out clinical trials and register the product and then compete with what by then should be a strong business. SRX may have developed or acquired other patented technology by then. For example SRX continues to develop its Thermospheres. These are also microspheres but contain magnets instead of radioactive Yttrium. By a process known as induction the thermospheres heat up - only a few degrees - while the patient lies in a magnetic field. Tumours die quickly when exposed to heat. The advantage of this treatment is that it is inexhaustible unlike the SIR-Spheres, which can be used only once. The company remains very quiet about this development but we gather it is progressing. Assuming the technology is viable it is probably at least seven years from commercialisation so we don't yet attribute it any value.
DISCLAIMER: While the above-mentioned advice and information are based on information, which HII consider reliable, its accuracy and completeness cannot be guaranteed. This report is made without consideration of any specific clients investment objectives, financial situation or particular needs. Accordingly, the client should, before acting on the advice, consider the appropriateness of the advice, having regard to the client's objectives, financial situation and needs. Those acting upon such information do so entirely at their own risk. For a copy of HII's Financial Services Guide, please go to http://www.aspecthuntley.com.au/FSG or phone HII on (02) 9256 8000 to request a copy.
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VSL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
