Telix Pharmaceuticals — A new theranostic with a clinical readout in days

Telix Pharmaceuticals (AU: TLX)

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Telix Pharmaceuticals — A new theranostic with a clinical readout in days

Telix has announced that it intends to acquire TheraPharm, a company developing radiopharmaceutical and diagnostic solutions for disorders of the blood and bone marrow. TheraPharm has developed the anti-CD66 antibody besilesomab, which has diagnostic and therapeutic applications for osteomyelitis, hematopoietic stem cell transplant (HSCT), and the rare disease systemic amyloid light-chain amyloidosis (SALA).

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Healthcare

Telix Pharmaceuticals

A new theranostic with a clinical readout in days

Partnering update

Pharma & biotech

9 December 2020

Price

A$3.75

Market cap

A$1,031m

US$0.66/A$

Net cash (A$m) estimate at 30 September 2020

24.7

Shares in issue

274.9m

Free float

46.7%

Code

TLX

Primary exchange

ASX

Secondary exchange

OTCMKS

Share price performance

%

1m

3m

12m

Abs

59.6

103.3

123.2

Rel (local)

47.4

81.8

119.7

52-week high/low

A$4.15

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

SALA Phase I readout

Mid-December 2020

ZIRCON enrolled

Q121

TLX591 Phase III first patient

Q121

TLX591-CDx approval decision

Expected H121

Analyst

Nathaniel Calloway

+1 646 653 7036

Telix Pharmaceuticals is a research client of Edison Investment Research Limited

Telix has announced that it intends to acquire TheraPharm, a company developing radiopharmaceutical and diagnostic solutions for disorders of the blood and bone marrow. TheraPharm has developed the anti-CD66 antibody besilesomab, which has diagnostic and therapeutic applications for osteomyelitis, hematopoietic stem cell transplant (HSCT), and the rare disease systemic amyloid light-chain amyloidosis (SALA).

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)

(11.5)

0.0

N/A

N/A

12/21e

97.8

52.2

19.5

0.0

19.2

N/A

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

Deal: €10.2m upfront, €10m milestones, 5% royalties

The deal (expected to close five to seven days after the 30 November 2020 announcement) includes an upfront payment of €10.2m (of which €10.0m is payable in stock), two €5m milestone payments for completion of a Phase III study and approval for the 90Y-anti-CD66-MTR therapeutic (either US or EU) respectively, and a 5% royalty on the first three years of sales of 90Y-anti-CD66-MTR.

A quick turnaround on SALA results

Besilesomab fits well into the Telix portfolio because, like the company’s other products, it can be functionalized with different nuclides for a range of both diagnostic and therapeutic uses. 99mTc-besilesomab is currently marketed in Europe as an imaging agent for osteomyelitis under the brand Scintimun by Curium Pharma. Telix sees significant potential in the therapeutic derivative 90Y-anti-CD66-MTR as a conditioning agent for HSCT. It is in a Phase I study of SALA patients (where HSCT is the standard of care) expected to read out in mid-December 2020.

ProstACT ready to go

The company reported the results of a meeting with the FDA regarding the upcoming ProstACT Phase III study of TLX591. The endpoint agreed to with the FDA was radiographic progression free survival. The protocol allows for the enrichment of the study population using TLX591-CDx identify patients expressing PSMA. The target enrolment will be 390 patients, and the company expects to start enrolling patients in Australia and Europe in Q121 and in the US in mid-2021

Valuation: Withholding updates until after SALA P1

We are withholding updates to our previous valuation (A$671.0m or A$2.44 per share) until after the upcoming readout on the Phase I study of 90Y-anti-CD66-MTR in SALA.

Expanding to blood disorders with new acquisition

On 30 November 2020, Telix announced its intent to acquire Swiss radiopharmaceutical and radiodiagnostic company TheraPharm, a subsidiary of Scintec Diagnostics. TheraPharm is a small (three employee) company focused on developing the monoclonal antibody besilesomab. The antibody is directed against the CD66 family of proteins also known as carcinoembryonic antigens. Members of this family of proteins are found in high concentrations on certain immune cells, and this can be used to direct the diagnostic or therapeutic radiation at these cells. This positions the product well withing Telix’s ‘theranostic’ strategy to develop products simultaneously for diagnostic and therapeutic uses.

The 99mTc-derivative of the mAb is approved in Europe as a diagnostic for the detection of osteomyelitis, or infection of the bone. This is achieved because the inflammation in the bone drives the migration of immune cells to the site of infection, which can be visualized radiographically. Osteomyelitis has an estimated incidence of 24.4 per 100,000 person-years in the US. The incidence has been increasing in more recent decades due at least in part to the increased prevalence of diabetes in the US, which is a major co-morbidity. Diabetes is cited as etiology of the disease in 27% of cases, whereas 19% are caused by a blood infection, and 19% are related to trauma. The infection itself is most commonly caused by Staphylococcus aureus (44% of cases), which raises concerns from epidemiologists due to the increasing prevalence of methicillin resistant S. aureus (MRSA). The diagnostic product is marketed as Scintimun by Curium Pharma, and Telix has noted that it has a ‘few million’ in sales (no additional sales data provided).

However, Telix appears to see the greatest potential for this antibody in the therapeutic setting as a myeloablative therapy for HSCT conditioning. Myeloablation is the process of killing off a person’s existing bone marrow (and by extension hematopoietic stem cells) in preparation for the body to receive a stem cell transplant. This is typically achieved using either high doses of chemotherapeutic agents (eg melphalan) or total-body irradiation. However, conditioning regimens are very high risk: for instance total-body irradiation has a mortality rate of 20–30% (aside from the risk of relapse).1 This leaves ample room for improvement with new products, and perhaps a more directed source of radiation like 90Y-anti-CD66-MTR could improve outcomes.

  Wong JYC, et al. (2018) Total Body Irradiation: Guidelines from the International Lymphoma Radiation Oncology Group (ILROG). Int J Rad Oncol Biol Phys 101, 521-529.

There were 22,863 HSCT procedures performed in the US in 2017 (from the most recent report from the Health Resources & Services Administration). The vast majority of these are associated with hematologic malignancies, but Telix will be investigating the rare disease SALA as the primary indication for the therapy. SALA (also known as AL amyloidosis) is a rare disease caused by the overexpression of the light-chain portion of antibodies by aberrant B-cells. This protein forms deposits in critical organs such as the heart and kidneys. The treatment in patients who can tolerate it is HSCT to ablate the problematic B-cells in the bone marrow. However, a significant portion of patients are considered high risk due to existing cardiac or renal damage, and considered unfit for HSCT, and more tolerable regimens could improve outcomes in these cases. An estimated 4,500 new cases of the disease are diagnosed in the US per year.2 The product candidate is already in a Phase I clinical study expected to read out very soon, in mid-December 2020. The study will assess the safety and toxicity of 90Y-anti-CD66-MTR as the sole conditioning regime for autologous HSCT in patients with SALA, and the endpoint will be engraftment success of the product as a monotherapy. The trial is a dose-escalation study with three dosing arms – 30, 40, 45 MBq/kg (of lean body weight). In 2018, the company presented the results from the first four patients enrolled in the study, in which two had a complete response and two had partial responses.

  Amyloidosis Foundation

We expect Telix to seek initial approval with SALA as the target indication and to expand into other HSCT indications like hematologic cancers in follow-up approvals. HSCT is used for the treatment of a range of hematologic cancers, most commonly for multiple myeloma where it is a first-line treatment. An estimated 32,270 patients will be diagnosed with multiple myeloma in the US in 2020 according to the NIH. The product has already received an orphan drug designation in Europe for bone marrow conditioning for any type of HSCT-related indication.

Clinical experience

90Y-anti-CD66-MTR has previously been examined in a number of clinical studies, although only some of these data have been published in peer-reviewed journals. Dosing was initially established in a Phase I study (n=55), which did not find a maximally tolerated dose under 45 MBq/kg (in combination with high-dose melphalan).

The safety and efficacy of the product was examined in a randomized phase II study in which patients either received either high dose melphalan in combination with 90Y-anti-CD66-MTR (Arm A n=12) or high dose melphalan alone (Arm B n=12). All patients on the study received a sufficient melphalan for a normal conditioning procedure, but an improvement in outcomes was still seen in Arm A, which saw twice as many complete responses (CR, 6 vs 3). All patients on both arms engrafted, and there were no meaningful differences in toxicities between the arms.

Altogether, 90Y-anti-CD66-MTR has the potential to provide a more tolerable conditioning regimen for patients that might otherwise be unfit for HSCT. This was also tested in a Phase I/II study, where 20 elderly (55–65) patients with myeloma or acute myelogenous leukemia (AML) were treated with the drug in combination with other conditioning agents to provide a reduced intensity regimen. Strong marrow targeting was seen, with no off-target radiation toxicity seen, and no graft failures. 20% of patients acquired graft versus host disease (GvHD), and there was a non-relapse mortality of 25%. Two-year survival was 52%, which is an improvement over historical figures in this age group (only 10–20% of AML patients over age 60 are long-term survivors).

Finalizing plans with the FDA for the TLX591 Phase III

Telix announced in early December 2020 the results from an earlier meeting with the FDA to discuss the clinical protocol for its planned ProstACT Phase III study of the prostate cancer therapeutic TLX591. Several important parameters were agreed to during the meeting. The study will enroll 390 patients with metastatic castration resistant prostate cancer (mCRPC) that have previously been tested with a novel androgen axis drug, like Xtandi (enzalutamide, Pfizer). The primary endpoint of the study will be radiographic progression-free survival (rPFS), which has become a normal endpoint for this patient group. Measuring overall survival (OS) can be difficult in prostate cancer because patients tend to be long lived even with a significant disease burden. This being said OS will be a secondary endpoint along with quality of life and safety measures.

Importantly, the company will be able to enrich its patient selection population by pre-emptively screening them for PSMA expression. This will be done using the company’s own TLX591-CDx. This decision to allow patient selection enrichment is an important outcome of discussions with the FDA because it may enhance the effect of the treatment by excluding those patients unlikely to respond to TLX591.

The company is intending to begin enrolling patients in Australia and Europe starting in Q121 and for enrolment in the US to begin in mid-2021. Telix also mentioned the possibility of enrolling patients in China given its recent deal with China Grand Pharmaceutical (CGP) for the Greater Chinese rights to its products. CGP has committed US$65m is development support for TLX591 (and TLX250) in China.

In related news Telix also announced that it would be initiating Phase I clinical studies of its second-generation PSMA target therapeutic TLX592. TLX592 has the potential of addressing a similar market to TLX591, while also potentially expanding it to earlier stage patients with smaller tumors. The product is engineered to have a lower residence time in the body compared to other monoclonal antibodies, which can provide more precise control over radiographic dosing. TLX592 has a serum half-life of 12 hours compared to 133 for TLX591. Telix calls this technology the RADmAb platform, and it might have other therapeutic applications with other targets. The lower residence time allows the product to employ a more potent nuclide, 225Ac, so higher doses of radiation can be delivered in a tissue specific manner. This initial study will be using the 64Cu nuclide, which can be detected via PET unlike 225Ac, to examine the biodistribution of TLX592. The trial is a 3x3 dose-escalation/expansion study, which the company believes can be run very quickly (it estimates completion in six months). Patient enrolment is expected to start shortly. The company states that once preliminary data are acquired with 64Cu, confirming the predicted biological properties of TLX592, they can be substituted with 225Ac in subsequent studies.

Valuation

We are withholding a valuation update at this time because of the imminent closing of the transaction and the readout of the Phase I study of 90Y-anti-CD66-MTR in SALA. Our previous valuation was A$671.0m or A$2.44 per share.

The transaction (expected to close five to seven days following the announcement) includes €10.0m payable in stock determined by the volume weighted average price over the previous week of trading, which would translate to approximately 4.4m shares at the current price (A$3.75). The results of the SALA study will fundamentally guide which indications the product will be pursued in and its timeline for approval. If the trial is successful, we also expect the company to provide an update on the size and scope of future development programs for the asset.

The company estimates that there is a US$600m market to treat SALA in the US and EU5 countries, which appears reasonable based on our estimates. If we assume similar disease rates in Europe and the US, and a 40% discount to price in Europe, this corresponds to a US cost of US$85,000 per procedure. This would bring a total procedure cost to approximately US$226,000 when paired with autologous transplant (US$141,000),3 which we believe the market can bear for a rare disease. The company may face increased pricing pressure if 90Y-anti-CD66-MTR is approved for multiple myeloma, where the market is dominated by commoditized chemotherapies and volume is substantially larger.

  Broder MS, et al. (2017) The Cost of Hematopoietic Stem-Cell Transplantation in the United States. Am Health Drug Benefits 10, 366-274.

Financials

We are not updating our financial forecasts at this time, but we expect to provide an update following the SALA clinical readout. The company provided some preliminary guidance that it expects the product to add A$5m to 2021 expenses.

Exhibit 1: 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)

(19,762)

COGS and Other

0

(2,543)

(2,649)

0

EBITDA

 

 

(17,505)

(24,327)

(25,643)

56,761

Operating Profit (before amort. and except.)

 

(18,992)

(24,078)

(26,023)

55,692

Intangible Amortisation

0

(4,236)

(4,309)

(4,309)

Exceptionals

0

0

0

0

Operating Profit

(18,992)

(28,314)

(30,332)

51,383

Net Interest

304

(2,310)

446

788

Profit Before Tax (norm)

 

 

(15,714)

(31,122)

(29,886)

52,171

Profit Before Tax (reported)

 

 

(15,714)

(31,122)

(29,886)

52,171

Tax benefit

1,884

3,255

0

1,457

Profit After Tax (norm)

(13,830)

(27,867)

(29,886)

53,628

Profit After Tax (reported)

(13,830)

(27,867)

(29,886)

53,628

Average Number of Shares Outstanding (m)

202.1

233.4

259.0

274.9

EPS - normalised (c)

 

 

(6.84)

(11.94)

(11.54)

19.51

EPS - diluted (c)

 

 

(6.84)

(11.94)

(11.09)

19.77

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

92,748

157,222

Stocks

643

542

446

446

Debtors

8,436

12,071

11,778

378

Cash

25,771

44,598

78,765

154,639

Other

1,007

1,468

1,759

1,759

Current Liabilities

 

 

(8,242)

(10,625)

(38,724)

(43,432)

Creditors

(6,893)

(9,218)

(181)

(4,889)

Short term borrowings

(1,133)

(490)

(489)

(489)

Other

(216)

(917)

(38,054)

(38,054)

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

77,211

132,070

CASH FLOW

Operating Cash Flow

 

 

(21,065)

(23,314)

(1,521)

74,099

Net Interest

316

(19)

446

788

Tax

0

0

0

1,457

Capex

0

(403)

(644)

(471)

Acquisitions/disposals

(2,693)

(65)

0

0

Equity Financing

0

43,890

35,820

0

Dividends

0

0

0

0

Other

0

0

(218)

0

Net Cash Flow

(23,442)

20,089

33,882

75,873

Opening net debt/(cash)

 

 

(48,414)

(24,042)

(42,467)

(77,610)

HP finance leases initiated

0

0

0

0

Other

(929)

(1,664)

1,261

(0)

Closing net debt/(cash)

 

 

(24,042)

(42,467)

(77,610)

(153,484)

Source: Telix reports, 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.

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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.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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.

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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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