Regulatory progress in Japan and the US

Telix Pharmaceuticals 16 September 2019 Update
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Telix Pharmaceuticals

Regulatory progress in Japan and the US

Regulatory update

Pharma & biotech

16 September 2019

Price

A$1.34

Market cap

A$342m

US$0.76/A$

Net cash (A$m) at Q219 with subsequent financings

54.1

Shares in issue

253m

Free float

65.33%

Code

TLX

Primary exchange

ASX

Secondary exchange

OTCMKTS

Share price performance

%

1m

3m

12m

Abs

(5.3)

39.2

63.6

Rel (local)

(7.1)

35.9

50.7

52-week high/low

A$1.67

A$0.57

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

IPAX-1 GBM Phase I/II interim results

Q319

TLX591-CDx (illumet) FDA approval filing

H219

TLX591 Phase III go/no-go decision

H219

Analyst

Nathaniel Calloway

+1 646 653 7036

Telix Pharmaceuticals is a research client of Edison Investment Research Limited

Telix Pharmaceuticals is making progress on all fronts and recently announced that it has reached an agreement with the Japanese Pharmaceutical and Medical Device Agency (PMDA) to perform a 40-patient bridging study in Japan to support the approval of TLX250-CDx for the detection of renal cancer. Additionally, the company announced the details of its meeting with the FDA to discuss the NDA submission for illumet (TLX591-CDx), which appears to be near completion and may be submitted shortly.

Year end

Revenue (A$m)

PBT*
(A$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

0.4

(6.4)

(5.0)

0.0

N/A

N/A

12/18

10.3

(15.7)

(6.8)

0.0

N/A

N/A

12/19e

10.4

(24.6)

(9.3)

0.0

N/A

N/A

12/20e

14.6

(20.2)

(8.0)

0.0

N/A

N/A

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

Renal cancer significant in Japan

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 goes away 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 c 25,000 new patients will be diagnosed with the disease in Japan in 2020. We forecast that the product will achieve similar market share (20%) in Japan and have similar pricing (US$2,450) to our estimates for the product in Europe, which correlates to peak sales of US$6m.

Illumet NDA a go

The company released a summary of the minutes from its July 2019 meeting with the FDA to discuss the upcoming NDA submission for illumet. The FDA agreed that the company could use historical data gathered on the molecule to support a 505(b)2 application. This is important because it does not require the company to perform any additional burdensome trials. The FDA did have additional safety and efficacy data requests, but the company stated that these were already within the scope of its ongoing activities and that it will be submitting an NDA shortly.

Valuation: A$448m or A$1.77 per basic share

We have increased our valuation to A$448m from A$443m, although it has remained steady on a per share basis (A$1.77 from A$1.78). The increase is driven by the addition of Japan to our model for TLX250-CDx, which increases the valuation by approximately A$6m. Additionally, we have rolled forward our NPVs, and the increase is offset by lower estimated net cash (A$54m) and the increase in shares (253m).

Renal cancer in Japan

The company announced on 30 August 2019 that it had formulated plans to initiate a clinical study of TLX250-CDx in Japan for renal cancer imaging. The imaging agent is currently already in the clinic in the pivotal Phase III ZIRCON study, which will be used to support approval for renal cancer imaging in the US and Europe. The company stated in the new announcement that it reached an agreement with the PMDA on the design of a bridging study in Japan with a planned enrolment of 40 patients to support an approval package that includes the ZIRCON data. Such bridging studies in Japan are a common requirement for companies that generate the majority of their clinical data outside of the country. The company stated that it plans to initiate the study within 60 days following the announcement, and that it should take six to nine months to complete.

The age-adjusted incidence rates for renal cancer are slightly lower in Japan than in the west: 7.2 per 100,000 vs 10.9 in the US and 8–12 in Western Europe.1 However, this difference is lost in the crude rate of the disease given the ageing population in Japan: 18.9 per 100,000 and similar in the US and Europe. GLOBOCAN 2018 estimates approximately 25,000 new cases of renal cancer in Japan in 2020, approximately a quarter of those expected in Europe in the same period.

  Gobocan 2018

FDA meeting on illumet: NDA submission upcoming

The company also recently announced in August 2019 the results from its meeting with the FDA to discuss the clinical development plan for its prostate cancer diagnostic illumet (TLX591-CDx). The meeting was held on 24 July and was regarding the upcoming submission of an NDA for the drug. Importantly, the FDA agreed that the drug could seek approval under the 505(b)2 pathway, which allows the company to use data that it did not gather to support the application. This is important because the product has been widely studied in the literature in over 10,000 patients, which the FDA said could be used in the application. There are other agreed safety and efficacy data requirements that were discussed, but the company simply stated that these were ‘consistent with Telix’s existing and ongoing clinical data capture activity.’ The company stated that it is filing an amendment to its drug master file (DMF) to include its US manufacturer, and will file the NDA shortly thereafter, and given this timeline, we assume that any outstanding requests by the agency are minor.

Valuation

We have increased our valuation to A$448m from A$443m, although it has remained steady on a per share basis (A$1.77 from A$1.78). The increase is driven by the addition of Japan to our model for TLX250-CDx, which carries a valuation of approximately A$6m. Our assumptions for the region are similar to other geographies. We assume the product will be reimbursed similarly in Japan to Europe (at US$2,450 per test). We assume similar peak penetration (20%) and royalty rates (30%) as other geographies.

Our probability of success for Japan is 70%, as opposed to 75% in the US and Europe. We assume that the results from the ZIRCON study will be the main driver of approval and assume a 75% chance of success for this, and include a small risk for the bridging study, bringing the total risk adjustment for the Japanese program to 70%. Additionally, our valuation is lifted by rolling forward our NPVs and is offset by lower estimated net cash (A$54m from A$58m following the most recent financial report) and an increase in shares (253m from 249m).

Exhibit 1: Valuation of Telix

 

Peak sales (US$m)

Likelihood
(%)

rNPV (A$m)

rNPV/share (A$)

TLX250-CDx kidney cancer imaging:

75

70–75%

59.0

0.23

TLX250 kidney cancer therapeutic:

460

20%

55.1

0.22

TLX591-CDx prostate cancer imaging

160

80%

137.2

0.54

TLX591 prostate cancer therapeutic:

1,060

20%

115.2

0.46

TLX101 brain cancer therapeutic

520

10%

39.8

0.16

SG&A

(11.9)

(0.05)

Portfolio total

394.4

1.56

Net cash (Q219 and following offerings)

54.1

0.21

Enterprise total

448.5

1.77

Source: Telix reports, Edison Investment Research

Financials

We have updated our model for the Q219 financials, which includes accounting adjustments for R&D rebates among other details, but has a minimal cash impact on 2019 estimates, and otherwise our forecasts remain unchanged. Subsequent to the end of the period, the company raised A$40m through a direct offering and A$5m through the company’s share purchase plan, resulting in an estimated net cash of A$54m. We expect this to be sufficient for the company to reach profitability in 2022, and do not expect the company to need additional capital.

Exhibit 2: Financial summary

 

A$000s

 

2017

2018

2019e

2020e

Year end 31 December

AASB

AASB

AASB

AASB

PROFIT & LOSS

Sales, royalties, milestones

0

195

4,860

7,012

Other (includes R&D tax rebate)

403

10,142

5,530

7,600

Revenue

 

 

403

10,337

10,390

14,612

R&D expenses

(2,977)

(18,692)

(20,000)

(19,750)

SG&A expenses

(3,538)

(9,150)

(10,873)

(11,199)

Other

(291)

0

0

0

EBITDA

 

 

(6,403)

(17,505)

(20,483)

(16,337)

Operating Profit (before amort. and except.)

 

(6,403)

(18,992)

(20,528)

(16,393)

Intangible Amortisation

(4)

0

(4,309)

(4,309)

Exceptionals

0

0

0

0

Operating Profit

(6,407)

(18,992)

(24,837)

(20,703)

Net Interest

30

304

258

454

Profit Before Tax (norm)

 

 

(6,377)

(15,714)

(24,580)

(20,249)

Profit Before Tax (reported)

 

 

(6,377)

(15,714)

(24,580)

(20,249)

Tax benefit

0

1,884

2,599

0

Profit After Tax (norm)

(6,377)

(13,830)

(21,981)

(20,249)

Profit After Tax (reported)

(6,377)

(13,830)

(21,981)

(20,249)

Average Number of Shares Outstanding (m)

128.0

202.1

235.7

253.0

EPS - normalised (c)

 

 

(4.98)

(6.84)

(9.33)

(8.00)

EPS - diluted (c)

 

 

(4.98)

(6.84)

(9.33)

(8.00)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

1,549

40,852

36,597

32,332

Intangible Assets

1,508

39,451

35,142

30,832

Tangible Assets

5

226

281

325

Investments

35

1,175

1,175

1,175

Current Assets

 

 

49,545

35,856

50,248

35,568

Stocks

0

643

0

0

Debtors

339

8,436

3,824

5,894

Cash

48,759

25,771

45,399

28,649

Other

447

1,007

1,024

1,024

Current Liabilities

 

 

(1,468)

(8,242)

(1,592)

(1,699)

Creditors

(1,123)

(6,893)

(243)

(351)

Short term borrowings

(345)

(1,133)

(1,133)

(1,133)

Other

0

(216)

(216)

(216)

Long Term Liabilities

 

 

(332)

(15,562)

(12,651)

(12,651)

Long term borrowings

0

(596)

(286)

(286)

Other long term liabilities

(332)

(14,966)

(12,366)

(12,366)

Net Assets

 

 

49,293

52,904

72,602

53,549

CASH FLOW

Operating Cash Flow

 

 

(6,060)

(21,065)

(20,718)

(17,104)

Net Interest

29

316

258

454

Tax

0

0

0

0

Capex

(6)

0

(100)

(100)

Acquisitions/disposals

4

(2,693)

0

0

Equity Financing

55,561

0

40,500

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

49,528

(23,442)

19,940

(16,750)

Opening net debt/(cash)

 

 

1,115

(48,414)

(24,042)

(43,980)

HP finance leases initiated

0

0

0

0

Other

0

(929)

(2)

0

Closing net debt/(cash)

 

 

(48,414)

(24,042)

(43,980)

(27,230)

Source: Telix Pharmaceuticals accounts, Edison Investment Research


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.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 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

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

1,185 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

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.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 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

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

1,185 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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