The first challenge in looking behind the numbers of any share is understanding the company’s business model and the market in which it operates. What do they do to make money?  Who buys their products?  What is their competition?

If you have zero understanding of what it is the company does, you will not know what to look for, and you would not see it if you found it because you could not understand what it is you found!

There are few sectors more daunting than biotech. How much do you know about modern medicine and biochemistry?  Some retail investors might stop searching the moment they encounter technical and scientific jargon they cannot comprehend.  

Researching biotech shares takes time and an attitude that says, “I am smart enough to figure this out.” And you can.  You will need to keep multiple windows open in your browser to go back and forth to get definitions for medical terms you cannot understand. If you invest the time, you will learn even the most technical research studies contain bits and pieces of language you can grab onto and comprehend.  Let us begin.

As you know, there are three principal sources for looking behind the numbers:

•    Read Annual Reports.
•    Learn what you do not know through online searches.
•    Read company-specific news items and industry-related items through online searches.

The Annual Report

We find the Annual Report on the Sirtex Medical website. Before getting into the report we wander around the site a bit to see what more we can learn about their business.  

We quickly learn they make treatments for liver cancer using small particle technology, whatever that is. Their treatment is called Sir-Spheres, and it targets non-resectable liver tumours. A brief trip to a definition site tells us non-resectable means not removable by surgery.

Continuing on we find a few videos on the site that adequately explain the technology behind the treatment.  We now know the market for the treatment is late stage cancer patients. We know in most cases its effectiveness is limited to lengthening a patient’s life span a small amount, but in some cases, the treatment shrinks the tumors enough to allow surgical removal.

Moving on to the annual report we learn the company attributes its declines in revenue and profit to fluctuations in the world’s currency market. Since Sirtex does business all over the world, this appears a sensible explanation.

From the report’s description of the technology, we pick up a new term – Selective Internal Radiation Therapy or SIRT. The company’s product – Sir-Spheres – apparently is an example of this therapy.  

The CEO’s report tells us what we want to know about the future. They are heavily involved in clinical studies to expand Sir-Spheres market to earlier-stage cancer patients. In addition, they are funding studies comparing Sir-Spheres to the current most widely used liver cancer therapy – a chemotherapy drug from Bayer Healthcare Pharmaceuticals.

Finally, perhaps the biggest risk posed by SRX is its single product portfolio, as analyst James Georges pointed out in last week’s Sector Scan column here on Right now, Sir-Spheres is the only source of revenue for this company. However, we learn from the report they have two additional therapies under stgelopment.  

Since there is huge risk relying on a single product, we move on to an Internet search to see what we can learn about how this treatment is doing in the market.

Searching the Web

We start by entering – Selective Internal Radiation Therapy – into a search engine and then digging into the results.

It takes only a few moments to discover a disturbing fact – there are two competing products in the market; both called Selective Internal Radiation Therapy.  The competitive product is Theraspheres, manufactured by a publicly traded Canadian company called Nordion.

Up to this point, the growth story of Sirtex seemed viable.  However, a major competitor for a single-product company is a problem.  We open another window and visit Nordion’s website where learn there are a larger company with multiple products.

The key question we need to answer is the difference between Sir-Spheres and Therashperes.  A quick search using Sir-Spheres versus Therashperes tells us while both embed radiation in tiny little beads, the Sir-Spheres beads are made of resin plastic while the Theraspheres beads are made of glass.  Does one produce better results than the other does?

Returning to the search engine, we find a PDF document from an American insurance company called CIGNA that reviews SIRT approaches for approved coverage.  The document is highly technical and very difficult to read.  We have reproduced the most relevant passage, highlighting the nuggets of understandable information buried in the jargon.  Here is the passage from the Cigna Coverage Policy Report:

•    Literature Review -Vente et al. (2009) conducted a meta-analysis on tumor response and survival in patients who underwent 90Y radioembolization. Thirty articles (n=1217 patients) were included in the meta-analysis. The proportion of ‘any response’ (AR) for HCC and liver mCRC combined, varied between 0.29 and 1.00 with a median value of 0.82. Treatment with glass microspheres showed a lower response (AR=0.77) than treatment with resin microspheres (AR=0.85) (p=0.07). The AR category comprises all patients originally from the categories complete response, partial response, and stable disease. Vente et al. noted that complications have been reported when microspheres were inadvertently deposited in excessive amounts in organs other than the liver. For liver mCRC, in a salvage setting, response was 79% for 90Y radioembolization combined with 5-fluorouracil/leucovorin (5-FU/LV), and 79% when combined with 5-FU/LV/oxaliplatin or 5-FU/LV/irinotecan, and in a first-line setting 91% and 91%, respectively. For HCC, response was 89% for resin microspheres and 78% for glass microspheres. In patients with liver mCRC, the tumor response of 90Y radioembolization is high, with AR rates of approximately 80% in a salvage setting, and over 90% when used as first-line treatment, as neoadjuvant to chemotherapy. Resin (SIR-Spheres) microspheres were significantly more effective in treating HCC than glass (Theraspheres) microspheres (AR 89% vs. 78% [p=0.02]). Vente et al. stated that this was a rather unexpected finding, because only the glass microspheres are FDA-approved for treating HCC, whereas the resin microspheres are approved for liver mCRC, not HCC. For liver mCRC, median survival after 90Y-RE, irrespective of differences in determinants (microspheres type, chemotherapy protocol, and stage: salvage or first-line), varied from 6.7 to 17.0 months. The reported median survival from diagnosis of liver mCRC ranged from 10.8 to 29.4 months. For HCC, median survival from microsphere treatment varied between 7.1 and 21.0 months, and median survival from diagnosis or recurrence was 9.4-24.0 months. The author concluded that 90Y radioembolization is associated with high response rates, both in salvage and first-line settings; noting true impact on survival will only become known after publication of Phase III studies.

Even to the layperson, it appears Sir-Spheres is a more effective therapy.  The sections we highlighted show the resin plastic beads yield slightly better results than the glass beads.

There is more searching we could do, but at this point it appears we know enough to take a chance on SRX.  Going forward, intelligent investors would keep a close watch on the clinical trials Sirtex Medical has underway.  That is where their real future lies.

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