Telix Pharmaceuticals — A look at future directions

Telix Pharmaceuticals (AU: TLX)

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6.94

−0.20 (−2.80%)

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Research: Healthcare

Telix Pharmaceuticals — A look at future directions

For the first time, Telix provided a profile of its deep pipeline outside its lead asset on its H120 earnings call. It presented the details of four assets derived from its existing pipeline, the majority of which are expected to be tested in the clinic before the end of the year. This provides a roadmap for the company beyond the upcoming potential approval for TLX591-CDx and completion of pivotal studies for TLX250-CDx.

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Healthcare

Telix Pharmaceuticals

A look at future directions

Earnings update

Healthcare equipment & services

8 September 2020

Price

A$1.80

Market cap

A$456m

US$0.66/A$

Net cash (A$m) at 30 June 2020

23.3

Shares in issue

253.3m

Free float

71%

Code

TLX

Primary exchange

ASX

Secondary exchange

OTMKTS

Share price performance

%

1m

3m

12m

Abs

32.8

26.8

40.1

Rel (local)

33.2

26.5

54.3

52-week high/low

A$1.91

A$0.80

Business description

Telix Pharmaceuticals is a Melbourne-headquartered global biopharmaceutical company focused on the development of diagnostic and therapeutic products based on targeted radiopharmaceuticals or molecularly targeted radiation.

Next events

TLX591-CDx NDA submission

Q320

ZIRCON enrolled

Year-end 2020

TLX591 Phase III start

Q420

Analyst

Nathaniel Calloway

+1 646 653 7036

Telix Pharmaceuticals is a research client of Edison Investment Research Limited

For the first time, Telix provided a profile of its deep pipeline outside its lead asset on its H120 earnings call. It presented the details of four assets derived from its existing pipeline, the majority of which are expected to be tested in the clinic before the end of the year. This provides a roadmap for the company beyond the upcoming potential approval for TLX591-CDx and completion of pivotal studies for TLX250-CDx.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

10.3

(15.7)

(6.8)

0.0

N/A

N/A

12/19

15.2

(31.1)

(11.9)

0.0

N/A

N/A

12/20e

15.0

(29.9)

(11.8)

0.0

N/A

N/A

12/21e

97.8

54.5

21.7

0.0

8.3

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Moving closer to pivotal study of TLX591

Telix had a meeting with the FDA on 7 July 2020 to discuss the clinical development plan for its prostate cancer therapeutic, TLX591. Importantly, the agency agreed that selection of patients could be made using the company’s analogous diagnostic TLX591-CDx, allowing Telix to target just PSMA expressing cancers. If the drug were approved on the basis of this study, we would expect assessment of PSMA status to be included on the label, which supports the company’s ‘theranostic’ approach to development of diagnostic/therapeutic pairs.

Japanese bridging study initiated

The company announced in August 2020 that it had started enrolling patients in its Japanese study of TLX250-CDx. The study has a planned enrolment of 40 patients and is designed to serve as a bridging study with the ongoing Phase III ZIRCON study. Patient enrolment for the Japanese study is identical to ZIRCON and will be submitted with the ZIRCON data to support regulatory approval in Japan. The study has a planned completion date of August 2021, whereas ZIRCON is planned to have full enrolment at the end of 2020.

TLX591-CDx NDA expected in Q320

The date of reckoning for TLX591-CDx continues to approach. Telix has already filed an MAA for approval of TLX591-CDx in Europe and recently reiterated guidance that it plans to submit the NDA to the FDA in Q320. Following this submission, the FDA will have two months to accept the application followed by a 10-month review period.

Valuation: Flat at A$567m or A$2.23

Our valuation is roughly flat at A$567m or A$2.23 per share (from A$571m or A$2.25 per share). We have increased our expected SG&A spend for 2020 to A$16.3m from A$13.7m because of a less than anticipated slowdown on account of COVID-19.

The next generation

For the first time, Telix profiled the drugs in its extended pipeline. This is an excellent time to introduce investors to the next generation of products as the company’s lead programs approach approval. Four new products are included in the pipeline (along with an expanded approach to the existing diagnostic TLX250-CDx).

Three of these programs are expansions of the TLX591 technology. TLX591-Sx is a derivative of TLX591-CDx that has an additional fluorescent tag added to the molecule. This would allow the product to be used in fluorescence guided surgery, where tumorous mases can be differentiated from healthy tissue through the use of fluorescence. This product is expected to be in investigator-sponsored studies starting in Q320.

The company also developed TLX599-CDx which, like TLX591-CDx, is targeted against PSMA for prostate cancer imaging, but is labelled with a 99mTc nuclide used in single photon emission computed tomography (SPECT). The logic here is that while SPECT is a lower-resolution detection process than positron emission tomography (PET, for which TLX591-CDx is designed), SPECT is much more widely available on a global basis. This product is meant to be used in geographies that might not have access to PET and will be investigated in a global Phase II study, which is expected to initiate before the end of 2020.

Telix is also developing a direct follow-up to its prostate cancer therapy, TLX591, which it is calling TLX592. The new drug is a monoclonal antibody targeting PSMA that is engineered to clear the body 10 times faster. This is important because it is labelled with the 225Ac nuclide, which has the potential to deliver a higher dose of radiation than the 177Lu nuclide used in TLX591. The new drug could potentially be used in patients that have progressed on therapy using 177Lu. It is slated to enter the clinic in Australia in Q320.

Finally, Telix has developed a derivative of TLX101 using an alpha emitter 211At that it is calling TLX102. The goal with this product is to target multiple myeloma, which also expresses the LAT-1 target of the drug. However, because multiple myeloma is a much more diffuse disease, the nuclide was switched to an alpha emitter to limit collateral damage. This product is planned to enter the clinic in H221.

Exhibit 1: Telix extended pipeline

Source: Telix Pharmaceuticals

TLX591-CDx NDA: What will the market be?

Telix is making regulatory progress on multiple fronts. At the forefront is the upcoming submission of the NDA for TLX591-CDx, which the company expects to complete in Q320. One question that we are waiting the answer to is what precise initial indication(s) the US marketing application will be submitted for, as PSMA imaging can be used in a range of diagnostic settings.

The company previously completed its MAA submission in May 2020, for the indication of imaging after biochemical recurrence. Biochemical recurrence is when men show elevated prostate specific antigen (PSA) levels following surgical treatment for prostate cancer. PSMA PET is recommended by the European Association of Urology in its guidelines for the detection of residual disease following biochemical recurrence. Of the patients that are diagnosed with prostate cancer in a given year (191,9301 in the US, 473,240 in Europe)2 approximately 25–30% will later have a biochemical recurrence. We consider this indication to be the most supported by the literature and governing bodies.

NIH SEER database.

Globocan 2018.

However, earlier in 2020 the landmark proPSMA study3 was published describing the use of PSMA in the initial staging of the disease, which we discussed in our previous report. The company announced in June 2020 it would be adding additional data to its US NDA submission from the proPSMA study (and potentially others), we assume to support approval for a broader label. The proPSMA study specifically focused on the initial staging of high risk patients, which correspond to 31.2% of initial diagnoses. We expect initial staging in high-risk patients to be an indication included in the US NDA.

Hofman MS, et al. (2020) Prostate-specific membrane antigen PET-CT in patients with high-risk prostate cancer before curative-intent surgery or radiotherapy (proPSMA): a prospective, randomized, multicentre study. Lancet 395 1208-1216.

A third potential indication is using TLX591-CDx to monitor for the response to therapy. This is roughly analogous to a role of PSA testing in the current regime, in which patients undergoing treatment are routinely screened to gauge if they are responding to the drugs. We would expect this to be limited primarily to metastatic castration resistant patients (mCRPC), which has an estimated incidence of 42,970 cases in the US per year.4

Scher H, et al. (2015) Prevalence of Prostate Cancer Clinical States and Mortality in the United States: Estimates Using a Dynamic Progression Model. PLoS One 10, e0139440.

A final option for the upcoming NDA submission is the company will seek approval broadly for all forms of prostate cancer imaging, irrespective of context. This would include all of the above indications and ones we have not anticipated. We do not know if the company has sufficient data to support such a broad label, but we expect that some of the current preparations for submission are evaluating this possibility. At the very least we expect the product to be submitted for initial staging in high risk patients, and also for biochemical recurrence. It is important to note that if the company seeks approval for an indication that is too broad for the FDA, it may receive a refusal to file (RTF) letter or a complete response letter, but it would be able to resubmit quickly with a more restrictive label. We conservatively model the product exclusively for biochemical recurrence at this time, but may expand this depending on what is included in the NDA.

Other regulatory progress

In another regulatory note, Telix has filed its drug master file (DMF) with the FDA for TLX101, its experimental treatment for glioblastoma multiforme (GMB). A DMF is a confidential document that outlines the specifics of a drug’s manufacture and formulation. Although not documents that are ‘approved’, DMFs are referenced in a variety of applications at the agency, eg NDAs, INDs. Other parties, such as academic investigators, can reference DMFs when seeking approval to run investigator-sponsored trials, for instance, and the file gives them a way to provide adequate information to the FDA without having access to the proprietary information.

Telix has also been meeting with regulatory authorities regarding the planned clinical development of TLX591. TLX591 is the companion therapeutic to TLX591-CDx (although it is of a different composition), and the company is planning a pivotal clinical study. Both products target the prostate cancer biomarker PSMA, but whereas TLX591-CDx is linked to a PET tracer, TLX591 is designed to deliver molecularly targeted radiation treatment. Following a meeting with the FDA in July 2020, Telix reported that it had reached a consensus with the agency regarding multiple aspects of the design of the study. Importantly, TLX591-CDx could be used in the study to identify patients with PSMA expressing cancers. This is important because the drug is more likely to show a definitive signal of efficacy (if it exists) in this enriched patient population. Also importantly, if the drug is eventually approved, screening for PSMA status will likely be included on the drug label, making TLX591-CDx a companion diagnostic for the product. This is the core premise of Telix’s ‘theranostic’ development strategy in which it uses one platform for the development of radiolabelled diagnostics and targeted radiation therapies, and is indicative of the synergies to this approach. The company has guided towards starting the Phase III study in Q420.

The ZIRDAC-JP study

The company announced in June 2020 that it was restarting patient enrolment in its ongoing study of TLX250-CDx for detection of clear cell renal cell carcinoma (ccRCC) following disruptions earlier in the year due to COVID-19 (the ZIRCON study). More recently, in August 2020, Telix announced that it was expanding the clinical program for TLX250-CDx to a new study in Japan, the ZIRDAC-JP study. ZIRDAC-JP is a bridging study, meaning it is designed to supplement data from the ZIRCON study for submission in Japan. The PMDA in Japan requires that marketing submissions for new products include data that represents Japan demographically, and one way of ensuring this is by carrying out a small study in Japan using the same or a very similar protocol to that used in other geographies. The study has a planned enrolment of 40 patients and a target completion date of August 2021. The ZIRCON study is planned to reach complete enrolment by the end of 2020, so we would expect Telix to begin preparing marketing submissions shortly thereafter.

Rates of renal cancer in Japan are lower on an age-adjusted basis (7.2 per 100,000 vs 10.9 in the US), but this difference diminishes when considering the ageing Japanese population (18.9 per 100,000 crude rate). It is therefore an attractive market for TLX250-CDx and other cancer diagnostics. GLOBOCAN 2018 estimates that 25,000 new patients will be diagnosed with the disease in Japan in 2020.

New collaborations in guided radiation

In July 2020, Telix announced that it had entered into a strategic collaboration with RefleXion, in which Telix’s diagnostics will be evaluated for use with RefleXion’s external-beam radiotherapy platform. The RefleXion X1 machine is a guided radiation machine that uses PET to precisely target radiation beams at cancers. This is roughly analogous to other forms of guided radiation therapy such as MRI-LINAC (Magnetic Resonance Imaging Guided Linear Accelerator). The X1 device has the potential to use targeted radiation to treat relatively small metastases, which would be missed with other irradiation techniques. The combination with Telix’s tracers is a natural one because they have the potential to provide substantially better signal detection than other tracers such as 18F-fluorodeoxyglucose (FDG). We consider this collaboration largely exploratory at this point, but believe it is important for Telix to ensure that its technology is paired with innovative new applications of PET-CT in this rapidly evolving field.

Later in September 2020, the company announced a collaboration with Varian Medical Systems, a major developer of external radiation therapy solutions. The goal of the collaboration is to use the data gathered by Telix on PSMA-targeted PET imaging with Varian’s radiation treatment planning platform. The Eclipse system is the current manifestation of this software suite, which uses imaging from MRI, PET and other sources to help plan a range of different radiation treatments, and identify optimal beam paths and other parameters. Unlike the RefleXion system, this analysis is performed separately from the imaging and treatment. It is important for PSMA imaging and the data from TLX591-CDx to be integrated into the platform because it will allow for the seamless integration of this new prostate imaging methodology into the existing radiotherapy workflow in the future.

Valuation

Our valuation is roughly flat at A$567m or A$2.23 per share from A$571m or A$2.25 per share previously. We have rolled forward our NPVs, but this increase was offset by lower net cash ($23.3m at the end of Q220 compared to $33.3m previously) and an increase to our unallocated SG&A costs (A$41m from A$32.1m, more information below). Our fundamental assumptions regarding the company’s development programs remain unchanged. We are not adding any of the products from the extended pipeline to our valuation at the moment, as we consider them highly exploratory, but may do so in the future if they gain traction in the clinic.

Exhibit 2: Valuation of Telix

 

Peak sales (US$m)

Likelihood (%)

rNPV (A$m)

rNPV/share (A$)

TLX250-CDx kidney cancer imaging:

80

85%

93.6

$0.37

TLX250 kidney cancer therapeutic:

500

20%

74.4

$0.29

TLX591-CDx prostate cancer imaging

180

80%

211.7

$0.83

TLX591 prostate cancer therapeutic:

1,090

20%

153.2

$0.60

TLX101 brain cancer therapeutic

510

10%

51.8

$0.20

SG&A

(41.0)

($0.16)

Portfolio total

543.6

$2.14

Net cash (Q220)

23.3

$0.09

Enterprise total

567.0

$2.23

Source: Telix reports, Edison Investment Research

Financials

Telix reported that in July 2020 it received an A$11.4m R&D tax rebate, higher than our previous estimates of A$8.4m, which has increased our expected 2020 revenue to A$15.0m (from A$11.9m). The company reported a loss after tax of A$18.3m for the first half of 2020. It spent A$8.6m on R&D and $9.9m on SG&A. We have increased our SG&A forecasts for FY20 (to A$16.3m from A$13.7m previously). We previously expected a greater reduction in operations on account of the COVID-19 pandemic, and are pleased to see the pace of developments in spite of this.

Exhibit 3: Financial summary

 

A$'000s

 

2018

2019

2020e

2021e

Year end 31 December

AASB

AASB

AASB

AASB

PROFIT & LOSS

Sales, royalties, milestones

195

3,485

3,630

97,773

Other (includes R&D tax rebate)

10,142

11,693

11,400

0

Revenue

 

 

10,337

15,178

15,030

97,773

R&D expenses

(18,692)

(21,162)

(21,750)

(21,250)

SG&A expenses

(9,150)

(15,800)

(16,274)

(16,762)

Other

0

0

0

0

EBITDA

 

 

(17,505)

(24,327)

(25,643)

59,761

Operating Profit (before amort. and except.)

 

(18,992)

(24,078)

(26,023)

58,692

Intangible Amortisation

0

(4,236)

(4,309)

(4,309)

Exceptionals

0

0

0

0

Operating Profit

(18,992)

(28,314)

(30,332)

54,383

Net Interest

304

(2,310)

446

79

Profit Before Tax (norm)

 

 

(15,714)

(31,122)

(29,886)

54,462

Profit Before Tax (reported)

 

 

(15,714)

(31,122)

(29,886)

54,462

Tax benefit

1,884

3,255

0

707

Profit After Tax (norm)

(13,830)

(27,867)

(29,886)

55,169

Profit After Tax (reported)

(13,830)

(27,867)

(29,886)

55,169

Average Number of Shares Outstanding (m)

202.1

233.4

253.5

253.8

EPS - normalised (c)

 

 

(6.84)

(11.94)

(11.79)

21.74

EPS - diluted (c)

 

 

(6.84)

(11.94)

(11.78)

21.21

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

40,852

43,928

43,062

38,155

Intangible Assets

39,451

41,948

37,638

33,329

Tangible Assets

226

1,899

5,341

4,744

Investments

1,175

82

82

82

Other

Current Assets

 

 

35,856

58,679

21,848

87,862

Stocks

643

542

446

446

Debtors

8,436

12,071

11,778

378

Cash

25,771

44,598

7,865

85,279

Other

1,007

1,468

1,759

1,759

Current Liabilities

 

 

(8,242)

(10,625)

(3,224)

(7,932)

Creditors

(6,893)

(9,218)

(181)

(4,889)

Short term borrowings

(1,133)

(490)

(489)

(489)

Other

(216)

(917)

(2,554)

(2,554)

Long Term Liabilities

 

 

(15,562)

(21,902)

(19,875)

(19,875)

Long term borrowings

(596)

(1,641)

(666)

(666)

Other long-term liabilities

(14,966)

(20,261)

(19,209)

(19,209)

Net Assets

 

 

52,904

70,080

41,810

98,211

CASH FLOW

Operating Cash Flow

 

 

(21,065)

(23,314)

(37,021)

77,099

Net Interest

316

(19)

446

79

Tax

0

0

0

707

Capex

0

(403)

(644)

(471)

Acquisitions/disposals

(2,693)

(65)

0

0

Equity Financing

0

43,890

419

0

Dividends

0

0

0

0

Other

0

0

(218)

0

Net Cash Flow

(23,442)

20,089

(37,018)

77,414

Opening net debt/(cash)

 

 

(48,414)

(24,042)

(42,467)

(6,710)

HP finance leases initiated

0

0

0

0

Other

(929)

(1,664)

1,261

0

Closing net debt/(cash)

 

 

(24,042)

(42,467)

(6,710)

(84,124)

Source: Telix reports, Edison Investment Research

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This report has been commissioned by Telix Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Telix Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Telix Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Telix Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Standard Life Private Equity Trust — Leveraging long-term partnerships with top GPs

Standard Life Private Equity Trust (SLPET) reported a 5.8% decline in NAV total return (TR) in H120 (based on June NAV estimate), driven mainly by the COVID-19 induced market downturn in March 2020. While macro factors may trigger further declines, the quality of general partners (GPs) chosen by SLPET coupled with good portfolio diversification by region, sector and vintage are key mitigating factors. SLPET’s capacity to fund future capital calls is supported by its liquid position (£45.3m at end-July 2020) and the £100m undrawn credit facility, with an overcommitment ratio of 48.1% (close to the mid-point of the targeted 30–75%). SLPET maintains its dividend policy and the shares currently offer an LTM yield of 4.1%.

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