Sirtex potential class action

Maurice Blackburn, in partnership with litigation funder IMF Bentham, has announced a class action against Sirtex Medical Limited (ASX:SRX) on behalf of shareholders following an announcement of deteriorating earnings and sales growth, followed by a further announcement confirming an external investigation into the share trading activities of then-CEO Gilman Wong.

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The proposed shareholder class action is expected to allege contraventions of the ASIC Act, Corporations Act and the Australian Consumer Law in seeking to establish that Sirtex engaged in misleading or deceptive conduct and/or breached its continuous disclosure obligations.

Read our media statement.

To register as a participant in the class action, click here to go to the IMF website, http://www.imf.com.au/sirtex.

The background

SRX is a life-sciences company listed on the ASX100, which has regulatory approval for a product called SIR-Spheres Y-90 resin microspheres which provides targeted radiation treatment for liver tumours. The SIR Spheres are priced at around USD$16,000 per dose.

The primary disclosure issue relates to Sirtex’s dose sales growth guidance for the SIR Spheres and it’s disclosure to the market that the 1H17 dose sales were substantially less than previously forecast. After Sirtex was prompted by the ASX, it made an announcement on 9 December 2016 that the dose sales growth rate would be 4% to 6% rather than the 15.7% previously forecast. Upon the announcement, the Sirtex share price fell by 37%.

A further disclosure issue is the nature of share trades undertaken by then-CEO, Gilman Wong. Mr Wong sold 74,968 Sirtex shares on 26 October 2016 in order to, in the company’s words, ‘cover the tax incurred in relation to the recently vested tranche of rights.’ When Sirtex subsequently announced on 16 December 2016 that they had formally engaged its legal advisors, Watson Mangioni, to investigate Mr Wong’s trading activities, the Sirtex share price suffered a two day price drop of 9%. Mr Wong’s employment with Sirtex was subsequently terminated on 13 January 2017.

In short, we are investigating whether:

  • Sirtex’s FY17 dose sales growth guidance first provided on 24 August 2016 and restated on 25 October 2016 had a reasonable basis;
  • Sirtex failed to update the market regarding a material divergence between the FY17 dose sales growth guidance and the 1H17 sales and earnings performance; and
  • Sirtex misled the market in relation to its corporate governance.

The disclosures

The key disclosure events are as follows:

24 August 2016
Sirtex stated, in providing a FY 2016 overview, ‘another year of strong double digit volume, revenue and profit growth delivered.’

SRX also provided FY17 market guidance that ‘we anticipate double digit dose sales growth will continue in FY17…’

25 October 2016
At Sirtex’s AGM, CEO Gilman Wong restated that ‘we anticipate double digit dose sales growth will continue in FY17…’

26 October 2016
Representatives from the ASX had a discussion with Sirtex regarding the use of imprecise terms such as ‘double digit’ in the 25 October announcement

2 November 2016
Sirtex announced that CEO Gilman Wong disposed of 74,968 ordinary shares on 26 October 2016. In a subsequent announcement, Mr Wong stated that ‘To clarify, the reason for the sale of shares was to cover the tax incurred in relation to the recently vested tranche of rights.’

2 December 2016
Following a tip-off, the ASX had a discussion with Sirtex querying whether Sirtex’s double digit growth guidance for dose sales was still current, and that upon conclusion of an internal planning process, Sirtex would take the appropriate action to ensure that ASX continuous disclosure requirements were met.

6 December 2016
A Sirtex board meeting was held, and received a report regarding revised dose sales growth for FY17.

The report was discussed but not adopted or approved by the board, as it required further work to be completed on the revised estimate.

9 December 2016
Sirtex released a Trading Update to the ASX, in which it confirmed

  • First half dose sales growth was expected to be in the order of 4-6%, compared to 15.7% in the prior corresponding period;
  • First half EBITDA was anticipated to be in the range $30m to $32m (representing a decline of 16% to 9% on the prior corresponding period)
  • Full year dose sales growth was anticipated to be in the order of 5% to 11%, compared to growth of 16.4% in FY16;
  • Full year EBITDA was anticipated to be in the range of $65m to $74m, representing a decline of between 12% to no growth compared to FY16;

16 December 2016
Sirtex informed the ASX that it had retained Watson Mangioni to coordinate an investigation into the trading of Sirtex shares in October 2016 by CEO Gilman Wong.

13 January 2017
Sirtex announced that following the receipt of a report from Watson Mangioni, it had terminated the employment of CEO Gilman Wong with immediate effect.

The impact

The disclosures on 9 and 16 December 2016 resulted in significant share price reactions:

  • 9 December 2016: a 37% share price drop (from $25.49 to $16.00) which wiped more than $500 million from SRX’s market capitalization; and
  • 16 and 19 December 2016: a further 9% price drop over two days of trading (from $16.40 to $14.94).