Telix Pharmaceuticals — Making progress despite headwinds

Telix Pharmaceuticals (AU: TLX)

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−0.20 (−2.80%)

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Research: Healthcare

Telix Pharmaceuticals — Making progress despite headwinds

The NDA submission for illumet has been delayed slightly by COVID-19 but is expected to be submitted in Q220 (from March-April guidance). A European MAA has already been submitted. Telix’s clinical studies (including the ZIRCON Phase III study that recently opened enrolment in the US) are paused, but the company expects them to reopen in June and be back to normal around September. Telix is now guiding to ZIRCON full enrolment by the end of 2020.

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Healthcare

Telix Pharmaceuticals

Making progress despite headwinds

Earnings update

Pharma & biotech

7 May 202011 May 2020

Price

A$1.40

Market cap

A$355m

US$0.66/A$

Est net cash (A$m) at 31 March 2020

33.3

Shares in issue

253.4m

Free float

50.3%

Code

TLX

Primary exchange

ASX

Secondary exchange

OTCMKTS

Share price performance

%

1m

3m

12m

Abs

14.8

(2.1)

60.9

Rel (local)

23.1

5.9

49.1

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

Illumet NDA submission

Q220

ZIRCON enrolled

Year end 2020

Analyst

Nathaniel Calloway

+1 646 653 7036

Telix Pharmaceuticals is a research client of Edison Investment Research Limited

The NDA submission for illumet has been delayed slightly by COVID-19 but is expected to be submitted in Q220 (from March-April guidance). A European MAA has already been submitted. Telix’s clinical studies (including the ZIRCON Phase III study that recently opened enrolment in the US) are paused, but the company expects them to reopen in June and be back to normal around September. Telix is now guiding to ZIRCON full enrolment by the end of 2020.

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

11.9

(30.3)

(12.0)

0.0

N/A

N/A

12/21e

97.3

57.4

22.5

0.0

6.2

N/A

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

European application submitted

At the beginning of May 2020, the company submitted a completed MAA for the approval of illumet in the EU (with the Danish Medicines Agency as the Competent Authority) for imaging in prostate cancer patients after biochemical recurrence. This is the first major marketing application submitted by the company and a major hurdle in the eventual commercialization of the product.

Impact of COVID-19

The company is well positioned to weather the COVID-19 crisis. The major regulatory steps leading up to the illumet NDA submission were luckily completed before the crisis took hold, so the company is still on track to submit the NDA in Q220, albeit slightly delayed. The ZIRCON study is not expected to be back up to speed until September 2020.

Study increases clinical support for PSMA imaging

In late March 2020, an article published in The Lancet provided some of the most rigorous support for the use of 68Ga-PMSA-11 to date in the first prospective, randomized, controlled, multicentre study of PSMA for PET-CT. The study (n=302) compared PSMA-11 PET-CT against conventional imaging with CT and bone scintigraphy and found a dramatic increase in accuracy (92% vs 65%; p<0·0001) to detect metastases, and more changes in management (28% vs 15%; p=0.008). The authors recommended that PSMA-11 PET-CT could serve as a superior replacement for conventional imaging and that clinical guidelines be re-evaluated.

Valuation: Increased to A$522m or A$2.06

We increased our valuation to A$522m or A$2.06 per basic share, from A$450m or A$1.78 per basic share, primarily due to exchange rate effects, but also rolling forward our NPVs and offset by lower cash and the trial delays (albeit this impact was minor). Telix ended Q120 with A$34.5m in gross cash (A$33.3m estimated net), which we forecast will be sufficient to finance the company into 2021.

European illumet application submitted

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.

Other programs delayed slightly

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.

Commercial groundwork being laid

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.

More clinical support for 68Ga-PMSA-11

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.

  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.

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.

Valuation

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.

Exhibit 1: Valuation of Telix

Peak sales (US$m)

Likelihood
(%)

rNPV
(A$m)

rNPV/share
(A$)

TLX250-CDx kidney cancer imaging:

75

75%

73.8

0.29

TLX250 kidney cancer therapeutic:

450

20%

67.6

0.27

TLX591-CDx prostate cancer imaging

150

80%

178.2

0.70

TLX591 prostate cancer therapeutic:

1,040

20%

150.6

0.59

TLX101 brain cancer therapeutic

510

10%

50.7

0.20

SG&A

(32.3)

(0.13)

Portfolio total

488.5

1.93

Net Cash (Q120, est.)

33.3

0.13

Enterprise total

521.8

2.06

Source: Telix Pharmaceuticals reports, Edison Investment Research

Financials

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.

Exhibit 2: Financial summary

 

A$'000s

 

2018

2019

2020e

2021e

Year end 31 December

AASB

AASB

AASB

AASB

PROFIT & LOSS

Sales, royalties, milestones

195

3,485

3,505

97,292

Other (includes R&D tax rebate)

10,142

11,693

8,400

0

Revenue

 

 

10,337

15,178

11,905

97,292

R&D expenses

(18,692)

(21,162)

(21,750)

(21,250)

SG&A expenses

(9,150)

(15,800)

(13,699)

(14,110)

Other

0

0

0

0

EBITDA

 

 

(17,505)

(24,327)

(26,102)

61,932

Operating Profit (before amort. and except.)

 

 

(18,992)

(24,078)

(26,481)

61,534

Intangible Amortisation

0

(4,236)

(4,309)

(4,309)

Exceptionals

0

0

0

0

Operating Profit

(18,992)

(28,314)

(30,790)

57,225

Net Interest

304

(2,310)

446

150

Profit Before Tax (norm)

 

 

(15,714)

(31,122)

(30,344)

57,375

Profit Before Tax (reported)

 

 

(15,714)

(31,122)

(30,344)

57,375

Tax benefit

1,884

3,255

0

(378)

Profit After Tax (norm)

(13,830)

(27,867)

(30,344)

56,997

Profit After Tax (reported)

(13,830)

(27,867)

(30,344)

56,997

Average Number of Shares Outstanding (m)

202.1

233.4

253.5

253.8

EPS - normalised (c)

 

 

(6.84)

(11.94)

(11.97)

22.46

EPS - diluted (c)

 

 

(6.84)

(11.94)

(11.96)

21.91

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

40,852

43,928

48,710

44,474

Intangible Assets

39,451

41,948

46,638

42,329

Tangible Assets

226

1,899

1,990

2,063

Investments

1,175

82

82

82

Other

Current Assets

 

 

35,856

58,679

25,279

92,433

Stocks

643

542

0

0

Debtors

8,436

12,071

8,778

378

Cash

25,771

44,598

15,033

90,587

Other

1,007

1,468

1,468

1,468

Current Liabilities

 

 

(8,242)

(10,625)

(1,581)

(6,271)

Creditors

(6,893)

(9,218)

(175)

(4,865)

Short term borrowings

(1,133)

(490)

(489)

(489)

Other

(216)

(917)

(917)

(917)

Long Term Liabilities

 

 

(15,562)

(21,902)

(31,336)

(31,336)

Long term borrowings

(596)

(1,641)

(2,075)

(2,075)

Other long term liabilities

(14,966)

(20,261)

(29,261)

(29,261)

Net Assets

 

 

52,904

70,080

41,072

99,301

CASH FLOW

Operating Cash Flow

 

 

(21,065)

(23,314)

(30,114)

76,253

Net Interest

316

(19)

446

150

Tax

0

0

0

(378)

Capex

0

(403)

(471)

(471)

Acquisitions/disposals

(2,693)

(65)

0

0

Equity Financing

0

43,890

140

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(23,442)

20,089

(29,999)

75,554

Opening net debt/(cash)

 

 

(48,414)

(24,042)

(42,467)

(12,469)

HP finance leases initiated

0

0

0

0

Other

(929)

(1,664)

1

0

Closing net debt/(cash)

 

 

(24,042)

(42,467)

(12,469)

(88,023)

Source: Telix Pharmaceuticals 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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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

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

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3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

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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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RCM Beteiligungs — Realising value through disposals

RCM continues to pursue its broadened investment mandate including both residential and commercial properties, focusing on the greater Dresden area. FY19 results were again marked by a high level of property disposals, translating into c €18.5m in revenues. Further realisations were closed in 2020, leading to reduced leverage (53% equity ratio at group level at end March 2020) and improved liquidity. Management proposed a dividend of €0.06 per share (c 3% yield), in line with the previous year.

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