Telix Pharmaceuticals — Making progress despite headwinds

Telix announced on 1 May 2020 that it had submitted a completed MMA application for approval of illumet (TLX591-CDx) in Europe. This is the first major marketing application submitted for the product, and the first for the company in general. The submission was officially for the detection of prostate cancer with Positron Emission Tomography (PET) in patients with elevated prostate specific antigen (PSA) following radical prostatectomy or radiation therapy (so called biochemical recurrence).

We are reassured to see continued regulatory progress with the product, and although the company was well prepared for this submission, it was a hurdle. There was some concern that additional clinical studies may be needed for a European submission due to differential regulation of 68Ga-PSMA-11 in Europe as a drug (as opposed to an active pharmaceutical ingredient, or API, in the US), and we are pleased to see the application moving forward (although these studies may still be requested if the application is rejected). As the data in the application is substantially similar to the NDA in preparation, we expect the NDA submission will not be far behind.

On its Q120 earnings call, the company provided a frank assessment of the impacts of COVID-19 on its business, but given the company’s current position, most of these impacts will be limited, assuming that the COVID-19 pandemic effects are mitigated in coming months and ZIRCON trial recruitment can return to normal by the end of Q320. Sales of illumet kits for research purposes will likely be affected and the company guided towards flat growth quarter-on-quarter in Q2. This is on top of the expected slowdown of US sales as the company prepares for the launch of the approved product (anticipated in either in late 2020 or early 2021). However, we previously forecasted a steeper slowdown, so our estimates have actually gone up based on Q1 performance (A$3.5m 2020 sales compared to A$2.0m, previously). At this time the goal of these sales is focused less on generating revenue and more on engaging with future customers of the approved product, so even if volume is flat or declines, the company can still successfully form a beachhead for the eventual launch of the product.

The biggest impact of COVID-19 will be on the company’s clinical programs and regulatory submissions. Luckily, the company was able to get FDA feedback on the illumet NDA submission before the lockdown was in full swing, so delays in that submission will be minimal. The company guided towards the application being completed in the next two months (from March or April 2020 in prior guidance).

The company’s clinical trials have currently paused enrolment. The company expects to be able to reopen these trials (albeit with limited productivity) in June, and for enrolment to be back to normal by September. The Phase III ZIRCON study of TLX250-CDx is now expected by management to fully enrol by the end of 2020 (from mid-2020 guidance previously), and enrolment in the IPAX-1 Phase I/II study of TLX101 will be paused until September or October.

The company announced several developments since the beginning of 2020, which have laid out the eventual commercial infrastructure to support sales of illumet in the US. Importantly, the company has signed an additional distribution agreement for illumet in the US with Cardinal Health, which will assemble the final patient specific doses of radiolabelled illumet for distribution in the US. Cardinal Health is one of the largest healthcare distributers and manufacturers in the US with US$145.5bn in revenue in 2019, and is the largest nuclear medicine distributer in the US. It will undoubtedly be a major channel to support the sales of illumet following its anticipated commercial launch in around the end of 2020 or early 2021. The company estimated that the arrangement should provide access to 80% or more of the US market. The company previously had distribution agreements with United Pharmacy Partners and PharmaLogic in the US, among many others for other regions.

It was also announced in May 2020 that the company entered into a collaboration with ARTMS Products, a producer of alternative isotope generation technology. The companies agreed to employ ARTMS’s cyclotron technology to generate 68Ga for use in illumet. ARTMS uses a 68Zn target to generate 68Ga in a hospital based medical cyclotron. The benefit is that 68Zn is a more readily available stable isotope as opposed to the typical 68Ga source, 68Ge. The generation of 68Ge needs high energy protons beyond what can be produced in a cyclotron. Moreover, although considered a long-lived isotope, 68Ge cannot be stored indefinitely, with a half-life of 271 days. Using 68Zn has the potential to simplify the illumet supply chain and having access to an alternate source of 68Ga may avoid shortages.

Additionally, in April 2020 the company announced that it had completed the previously announced acquisition of a radiopharmaceutical manufacturing facility in Seneffe, Belgium, from Eckert & Ziegler Strahlen und Medizintechnik. This transaction is important because it includes the necessary licences to manufacture a range of isotopes in Europe (Class IIA radiation licence, approval of Belgium’s Federal Agency for Nuclear Control). Moreover, the licences allow the company to tap into key isotope supply chains for products produced elsewhere. The company stated that isotopes generated at this site will support the commercial sales of illumet and TLX250-CDx in Europe following their launches, although it will not be limited to these products and will be able to supply a range of isotope needs. More generally, the acquisition will allow the company to expand its R&D footprint. The transaction had a nominal fee of €1, but carried a decommissioning liability of €5.2m.

A recent landmark study was published in The Lancet, adding significantly to the clinical evidence supporting the use of 68Ga-PMSA-11 (the active component of illumet) in PET-CT (positron emission tomography – computed tomography) for the detection of prostate cancer.1 The study was supported by the Movember Foundation and the Prostate Cancer Foundation of Australia, and took place in 10 hospitals across Australia. Despite ample support in the literature, this study is the first randomized, controlled, prospective, multicentre study to examine PMSA’s utility in PET-CT. The study enrolled 302 men in two arms to receive PSMA PET-CT and ‘conventional imaging’, which included bone density scans and SPECT (single photon emission computed tomography). The limitation of conventional imaging is that it lacks the resolution to identify small metastases, leading to a group of men who are incorrectly staged initially as only having local disease, and therefore do not receive systemic treatment and will ultimately have high rates of recurrence. The study randomized 302 high-risk patients (295 with follow-up), of which 87 had nodal or distant metastases, and accuracy was assessed as first-line identification of these metastases.

The PSMA PET-CT arm showed dramatically higher accuracy than conventional imaging (92% vs 65%; p<0·0001), driven by much higher sensitivity (85% vs 38%) and modest improvement in specificity (98% vs 91%). The increased signal for PET-CT also translated into much improved detection of metastases: the AUC (receiver operating characteristic area under the curve) was 91% vs 59% for nodal metastases and 95 vs 75% for distant metastases. Moreover, these PET-CT results were more actionable and there were more management changes in this arm (28% vs 15%; p=0.008). This was achieved with less total radiation exposure (8.4 vs 19.2 mSv p<0·001).

These data are some of the most robust that have been gathered to date supporting the use of 68Ga-PMSA-11 for detection of prostate cancer, and the authors concluded that it is a superior replacement for conventional imaging. The benefit of the technique is unequivocal in this report, and we believe that this and the other clinical evidence supporting the product will undoubtedly have a positive impact on the adoption of illumet as it becomes the standard of care. The authors of the study suggested that clinical guidelines be revaluated in light of these data and that health-economic studies be initiated to support widespread reimbursement.

We have increased our valuation to A$522m or A$2.06 per basic share, from A$450m or A$1.78 per basic share. This is driven primarily by exchange rate effects (US$0.66/A$ reflecting 200-day moving average, from US$0.76/A$), and additionally lifted by rolling forward our NPVs. It is offset by lower estimated net cash (A$33.3m from A$42.5m). Additionally, we have adjusted our trial timelines to reflect the impact of COVID-19. The biggest material change is to the launch of TLX250-CDx, which we now forecast for 2022.

The company reported cash receipts of A$1.1m for Q120 in sales of the TLX591-CDx cold kits. We expect sales of the product to decline on a quarter-on-quarter basis later in the year as the company shifts product over to support the launch of illumet and we forecast A$3.5m in sales for 2020 as a whole. The company had an operational cash loss of A$14.2m for Q1, driven by A$10.6m in R&D spending on preparation of the illumet NDA and expansion of the ongoing ZIRCON Phase III study. These costs included A$4m of non-recurring expenses, predominantly manufacturing to support its clinical programs. The company guided to lower R&D spending going forward in 2020, citing COVID-19, although we have increased our 2020 R&D spending estimates to A$21.8m from A$19.8m because this effect was offset by the spending in Q1.

We have included the decommissioning liability (A$9.0m) for the new Belgian facility on our balance sheet and offset it with an equal amount of goodwill to reflect the nominal cost of the transaction.

The company ended the quarter with A$34.5m in gross cash (A$33.3m estimated net). We believe that this will be sufficient to finance the company into 2021 and the approval of illumet. We also include in 2021 A$91.2m in illustrative milestones associated with the licensing of its therapeutics TLX591 and TLX250. A deal (or deals) will be necessary to progress these programs in the clinic, and if the company is unable to secure such transaction(s) for them in 2021, we would expect a financing shortfall of around A$10m (in 2021) to maintain ongoing operations.