Telix Pharmaceuticals — Another buyout of related assets

Telix Pharmaceuticals (AU: TLX)

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6.94

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Research: Healthcare

Telix Pharmaceuticals — Another buyout of related assets

The world of prostate imaging received a shake-up with the recent US$450m buyout offer for Blue Earth from Bracco. Blue Earth’s revenue derives primarily from its prostate imaging agent, Axumin (US$140m Q1–Q319, according to Bracco), which we expect to offer competition for illumet. Blue Earth is also developing a PSMA positron emission tomography (PET) agent, although it is only in Phase I. Serendipitously, a study was recently initiated at Emory University to investigate Axumin vs illumet in a 140-person, head-to-head study.

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Healthcare

Telix Pharmaceuticals

Another buyout of related assets

Clinical update

Pharma & biotech

5 August 2019

Price

A$1.46

Market cap

A$364m

US$0.76/A$

Net cash (A$m) Q219 + offering

58.0

Shares in issue

249.1m

Free float

64.8%

Code

TLX

Primary exchange

ASX

Secondary exchange

OTCMKTS

Share price performance

%

1m

3m

12m

Abs

20.6

71.8

128.2

Rel (local)

16.6

59.2

109.8

52-week high/low

A$1.7

A$0.6

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

The world of prostate imaging received a shake-up with the recent US$450m buyout offer for Blue Earth from Bracco. Blue Earth’s revenue derives primarily from its prostate imaging agent, Axumin (US$140m Q1–Q319, according to Bracco), which we expect to offer competition for illumet. Blue Earth is also developing a PSMA positron emission tomography (PET) agent, although it is only in Phase I. Serendipitously, a study was recently initiated at Emory University to investigate Axumin vs illumet in a 140-person, head-to-head study.

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

14.2

(20.8)

(9.5)

0.0

N/A

N/A

12/20e

14.4

(19.8)

(9.1)

0.0

N/A

N/A

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

Blue Earth deal additional evidence of value in space

The Blue Earth buyout highlights the steadily increasing interest in prostate imaging and radiopharmaceuticals. It followed the other recent acquisition of Endocyte by Novartis to acquire the former’s 177Lu-PSMA-617 radiopharmaceutical. Blue Earth is also investigating a PSMA targeted imaging agent/therapeutic, which we believe is an important part of the Bracco deal, as it provides a follow-on candidate to the company’s more established Axumin.

Investigator-initiated trial to compare illumet/Axumin

Although it is becoming generally accepted that PSMA targeting provides benefits over other PET agents, Telix recently entered into a collaboration with Emory University to test illumet against Axumin in a randomized, 140-person prospective clinical study. Telix’s only financial obligation is to provide sufficient illumet test kits. We expect the initial study treatment portion of the trial to be complete in 2020.

Diagnostics make regulatory progress

Telix recently announced that it had completed a pre-IND meeting with the FDA regarding its plan to include US patients in its ongoing ZIRCON Phase III study of TLX250-CDx for clear cell renal cell carcinoma (ccRCC). Telix will need to submit an IND (targeting Q319) and has guided to complete enrolment by the end of 2019. The company also met with EU authorities to finalise the approval pathway for TLX591-CDx and confirmed that it will seek a decentralised MAA. The company plans to complete its MAA requirements in six months.

Valuation: Increased to A$443m from A$380.2m

We have increased our valuation to A$443m or A$1.78 per share, from A$380m or $1.74 per share. The increase is driven by rolling forward our NPVs and an increase in net cash associated with the July offering (30.8m shares at A$1.30), and offset by a slight increase in SG&A expenses.

Blue Earth buyout highlights programme value

On 27 June 2019, Bracco Imaging announced that it would acquire outstanding Blue Earth Diagnostics equity for a US$450m valuation (plus an estimated US$25m in closing adjustments). Blue Earth is a privately held developer of diagnostic imaging agents, with approximately $140m in revenue expected in the first three quarters of 2019 (according to the announcement). Blue Earth’s current revenues come from its prostate PET imaging agent, Axumin, which was approved by the FDA in 2016. Axumin is an amino acid-based imaging agent, which labels cancer cells based on their amino acid demands, but lacks the specificity of a truly targeted agent. Therefore, the company is also developing a prostate-specific membrane antigen (PSMA) targeted PET diagnostic (denoted 18F-rhPSMA-7), similar to Telix’s illumet (TLX591-CDx), as a follow-on technology. The imaging agent is currently in Phase I testing, and the antibody is being investigated in preclinical studies for therapeutic purposes.

We believe that 18F-rhPSMA-7 is a significant contributing factor to the value of the deal. Blue Earth has established a market using Axumin, but there is reason to believe that PSMA targeted agents will command increasing market share in the space and the development of 18F-rhPSMA-7 is an important follow-on product to maintain the company’s market share. The European Association of Urology (EAU) recently updated its prostate imaging guidelines to specifically recommend the use of PSMA imaging agents, without any mention of Axumin or other PSA agents.

Interesting, Blue Earth released some early proof of concept data on its PSMA agent at the same time as the deal announcement. The data were largely retrospective, but highlight sensitivities of 64% to 94% depending on cancer stage and PSA levels. A sensitivity of 72% and a specificity of 93% were seen in patients with high-risk primary tumours (vs histology), which is roughly on par with other PSMA imaging agents that have been reported.1

Evans JD, et al. (2018) Prostate cancer–specific PET radiotracers: A review on the clinical utility in recurrent disease. Pract Rad Oncol 8, 28-39.

This deal highlights the potential value in prostate PET imaging irrespective of the underlying technology. The prostate imaging market is developing exceptionally quickly and has proven that it has a viable market. We expect PSMA targeted agents to be increasingly important going forward and we anticipate this merger to raise the profile of the space. The deal is planned to close in Q319.

Illumet to go head-to-head with Axumin in IIT

Telix announced that a team of researchers at Emory University will be starting an investigator-initiated trial (IIT) to compare illumet with Axumin in a head-to-head Phase II study. The study will be prospective in nature, randomized and include 140 patients. Telix’s commitment to the study is limited to providing illumet kits, and otherwise will be funded by the university. A 68Ga-PSMA agent has previously been compared against Axumin in a retrospective study of 10 patients, which suggest that 68Ga-PSMA could provide improved results: 68Ga-PSMA identified significantly more patients with cancer, and even more lymph node metastases.2 We note that this Emory-led study is prospectively defined and may provide a much more robust indication of which agent is superior and in which circumstances.

Calais J, et al. (2018) Comparison of 68Ga-PSMA-11 and 18F-Fluciclovine PET/CT in a Case Series of 10 Patients with Prostate Cancer Recurrence. J Nuc Med 59, 789-794.

It is worth noting that as this is an IIT, Telix does not have operational control over the study, and that the study’s sponsors do not have a commercial interest in the outcome. However, if they do indicate superiority for illumet, this could potentially be used in future marketing materials outside of the product’s approval package. The study consists of an initial comparison period followed by a five-year observation period. Although few details are provided, given the statutory end date of December 2025, we expect the initial evaluation period to be complete some time in 2020.

Regulatory update for TLX250-CDx and TLX591-CDx

Telix had a meeting with the FDA on 17 June to discuss its clinical trial design of the ZIRCON Phase III study of TLX250-CDx (NCT03849118). The company is developing TLX250-CDx as a PET imaging agent for the diagnosis of ccRCC, and the ZIRCON study is currently ongoing, but Telix sought FDA guidance before including US patients in the programme. The FDA confirmed that the clinical trial design as presented would be sufficient to file for marketing authorisation in the US. The product previously received a Special Protocol Assessment (SPA) from the FDA for the earlier Phase III study of the 124I version of the product (124I-girentuximab), which had positive efficacy results (86% sensitivity 87% specificity). Telix replaced the 124I label with 89Zr because it significantly improves signal to noise. The company stated in its recent announcement that the FDA had reviewed its new sensitivity and specificity targets for the ZIRCON study and the 89Zr labelled agent and provided ‘positive feedback’ (although the details of these changes were not provided). Given that the product previously had positive results and the FDA has signed off on the protocol and did not oppose the changes, we are encouraged by the chances of approval if there are no surprises in the new study. The FDA meeting was an important step in the product’s development because the US is the largest target market with over 65,000 patients per year. Telix is expected to file an IND in Q319 and begin enrolment of US patients and has previously guided towards the target enrolment of 250 (across all geographies) being complete around end of 2019 or early 2020. We expect that it may be able to launch as early as 2021.

Similarly, the company met with regulatory authorities in Europe to finalise its development plan for TLX591-CDx. It met the Danish Medicines Agency, which serves as a competent authority for drug and device approvals, and which agreed with the company’s plan for the application. Telix will be pursuing a decentralised approval process, in which TLX591-CDx will be approved in individual member states. The product is already available in Europe as an investigational product, but MAA approval would allow Telix to market the product directly for prostate cancer diagnosis. The company stated that it would complete the requirements for the MAA in six months, and we expect it to be filed shortly thereafter, and subsequently filed with other competent authorities in Europe on a rolling basis.

Valuation

We have increased our valuation to A$443 or A$1.78 per share from A$380.2m $1.74 per share. The increase is driven by rolling forward our NPVs and an increase in net cash associated with the July offering. We have also slightly increased our SG&A expense to align with recent company spending (impact of negative A$0.05 per share from A$0.03). Our other assumptions remain unchanged. We may update our valuation in the future to reflect the TLX591 go/no-go decision (reviewed in our recent Outlook note) or clinical results from any of the ongoing studies.

Exhibit 1: Valuation of Telix

 

Peak sales (US$m)

Likelihood
(%)

rNPV
(A$m)

rNPV/
share (A$)

TLX250-CDx kidney cancer imaging:

70

75%

52.6

$0.21

TLX250 kidney cancer therapeutic:

470

20%

54.2

$0.22

TLX591-CDx prostate cancer imaging

160

80%

136.0

$0.55

TLX591 prostate cancer therapeutic:

1,070

20%

112.9

$0.45

TLX101 brain cancer therapeutic

530

10%

39.4

$0.16

SG&A

-11.6

-$0.05

Portfolio total

384.5

$1.54

Net Cash (following July 2019 offering, est.)

58.0

$0.23

Enterprise total

442.5

$1.78

Source: Telix reports, Edison Investment Research.

Financials

Telix reported global sales of illumet of $1.64m for H119. Although this value is small in absolute terms it is a strong signal of interest in the product, considering it is currently marketed for ‘investigational’ purposes only. We have adjusted our accounting to reflect illumet sales as top-line revenue, consistent with company reporting. We expect revenue from the product to continue to increase throughout 2019, as it enters more markets, and currently forecast sales of A$4.8m in 2019. Telix has been establishing a large number of distribution and manufacturing agreements in different geographies to execute on this strategy. Greater than the immediate revenue from the product is the foundation that these early adopters establish for the eventual clearance of the agent. These initial sales are roughly within our projections and we have not changed our forecasts at this time, although we have slightly increased SG&A costs going forward ($10.9m in 2019 from $9.4m). We estimate current net cash of approximately $58.0m following the July offering of A$40m gross from 30.8m shares at A$1.30. We expect this to be sufficient for Telix to reach profitability in 2022.

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

4,873

7,038

Other (includes R&D tax rebate)

403

10,142

9,279

7,320

Revenue

 

 

403

10,337

14,152

14,358

R&D expenses

(2,977)

(18,692)

(20,000)

(19,000)

SG&A expenses

(3,538)

(9,150)

(10,873)

(11,199)

Other

(291)

0

0

0

EBITDA

 

 

(6,403)

(17,505)

(16,721)

(15,841)

Operating Profit (before amort. and except.)

 

(6,403)

(18,992)

(16,766)

(15,897)

Intangible Amortisation

(4)

0

(4,309)

(4,309)

Exceptionals

0

0

0

0

Operating Profit

(6,407)

(18,992)

(21,075)

(20,206)

Net Interest

30

304

258

412

Profit Before Tax (norm)

 

 

(6,377)

(15,714)

(20,818)

(19,794)

Profit Before Tax (reported)

 

 

(6,377)

(15,714)

(20,818)

(19,794)

Tax benefit

0

1,884

0

0

Profit After Tax (norm)

(6,377)

(13,830)

(20,818)

(19,794)

Profit After Tax (reported)

(6,377)

(13,830)

(20,818)

(19,794)

Average Number of Shares Outstanding (m)

128.0

202.1

218.4

218.4

EPS - normalised (c)

 

 

(4.98)

(6.84)

(9.53)

(9.06)

EPS - diluted (c)

 

 

(4.98)

(6.84)

(9.53)

(9.06)

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

49,803

35,578

Stocks

0

643

0

0

Debtors

339

8,436

7,573

5,614

Cash

48,759

25,771

41,223

28,958

Other

447

1,007

1,007

1,007

Current Liabilities

 

 

(1,468)

(8,242)

(1,592)

(1,701)

Creditors

(1,123)

(6,893)

(244)

(352)

Short term borrowings

(345)

(1,133)

(1,133)

(1,133)

Other

0

(216)

(216)

(216)

Long Term Liabilities

 

 

(332)

(15,562)

(15,560)

(15,560)

Long term borrowings

0

(596)

(596)

(596)

Other long-term liabilities

(332)

(14,966)

(14,964)

(14,964)

Net Assets

 

 

49,293

52,904

69,248

50,649

CASH FLOW

Operating Cash Flow

 

 

(6,060)

(21,065)

(20,704)

(12,578)

Net Interest

29

316

258

412

Tax

0

0

0

0

Capex

(6)

0

(100)

(100)

Acquisitions/disposals

4

(2,693)

0

0

Equity Financing

55,561

0

36,000

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

49,528

(23,442)

15,454

(12,266)

Opening net debt/(cash)

 

 

1,115

(48,414)

(24,042)

(39,494)

HP finance leases initiated

0

0

0

0

Other

0

(929)

(2)

0

Closing net debt/(cash)

 

 

(48,414)

(24,042)

(39,494)

(27,228)

Source: Company 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.

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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 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.

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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

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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StatPro Group — Organic ARR growth rises to 3.2%

StatPro produced a solid set of interim results, with organic annualised recurring revenue (ARR) growth accelerating to 3.2% from 1.1% at end-2018. The EBITDA margin continued to expand and the group has a widening range of growth drivers in place. After many years of development on the group’s Revolution cloud platform and new divisions in place, which also creates opportunities in the data space, the focus is increasingly shifting onto driving sales. Given the group’s c £57.3m recurring revenue book, the rating (c 16x FY20e) looks attractive, especially in light of the active M&A backdrop in the financial software sector.

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