Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Healthcare
Telix announced on 2 November 2020 that it has entered into a licensing agreement with China Grand Pharmaceutical (CGP) for the greater Chinese rights to its diagnostic and therapeutic products. The deal includes up to US$225m in potential cash payments, including a US$25m non-refundable upfront advance, as well as royalties on therapeutic products sales and a comarketing agreement for the diagnostic products. Additionally, CGP will make a US$25m equity investment in Telix.
Written by
Telix Pharmaceuticals |
Telix signs a big China deal |
Business update |
Healthcare equipment |
5 November 2020 |
Share price performance
Business description
Next events
Analysts
Telix Pharmaceuticals is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||||
Telix announced on 2 November 2020 that it has entered into a licensing agreement with China Grand Pharmaceutical (CGP) for the greater Chinese rights to its diagnostic and therapeutic products. The deal includes up to US$225m in potential cash payments, including a US$25m non-refundable upfront advance, as well as royalties on therapeutic products sales and a comarketing agreement for the diagnostic products. Additionally, CGP will make a US$25m equity investment in Telix.
Year end |
Revenue (A$m) |
PBT* |
EPS* |
DPS |
P/E |
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 |
N/A |
N/A |
Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.
A big deal for all lead products
Telix’s therapeutic and diagnostic products are treated differently under the deal. The agreement related to the therapeutics products includes a US$25m upfront payment that is a non-refundable advance on US$225m in future milestones (US$69m regulatory, US$156m commercial). The company will also receive up to US$65m to cover clinical development costs to seek approval in greater China for the therapeutics, and undisclosed royalties on product sales. The agreement for the diagnostic programs is a co-marketing agreement in which both companies will share sales, marketing and distribution responsibilities.
Chinese market estimates
The rate of certain cancers is lower in China than in the West, but it remains one of the largest markets in the world despite this. We estimate an addressable market of 70,000 prostate cancer patients, 25,000 kidney cancer patients and 8,000 glioma patients in China, when only considering those patients with access to care.
A$71m in total new cash from the deal
In addition to the upfront advance, CGP will also be making an equity investment in Telix: 20,947,181 shares at A$1.69 for A$35m. This will leave CGP with a 7.62% stake in Telix. Combined with the upfront advance and Q320 cash of A$25.7m, we calculate pro forma cash of A$95.1m for Telix. This cash should remove any financial overhangs through the upcoming launch of TLX591-CDx and completion of the TLX250-CDx clinical program.
Valuation: Increased to A$671.0m on deal
We have increased our valuation to A$671.0m or A$2.44 per share, from A$567m or A$2.23 per share, due primarily to the CGP deal. The majority of this difference is from the upfront advance and the investment (A$71m). We have added the Chinese market to our estimates, as well as rolling forward our NPVs and updating for new net cash (A$95.1m pro forma).
A big check for a regional deal
The licensing and commercialization deal signed between Telix and CGP is notable in many respects. First, the scope of this deal is much larger than the typical regional licensing. It encompasses essentially all of Telix’s major development programs, whereas regional licensing is usually done on a product-by-product basis. The upfront payment of US$25m is substantial in this case as a result. This combined with the US$25m investment from CGP effectively recapitalizes the company. We had forecast that Telix would seek licensing agreements to support the development of the therapeutic programs, and our models assume that the company will also license the US and European rights to these programs. We are very encouraged by the current deal, because the size and scope speak to the interest in these programs from other potential partners.
When estimating the market potential for a medical product in China, an important consideration is access to care. Although the country boasts high insurance coverage rates (95% or higher), the majority of individuals covered under the New Rural Cooperative Medical Scheme (NRCMS) have little access to care, and most treatments are only available to patients on urban medical schemes (urban employee basic medical insurance (UEBMI) and urban resident basic medical insurance (URBMI), combined reflecting about 35% of the population). When combined with residents of Hong Kong, Macau and Taiwan, this represents a top-level market of 515 million individuals.
Prostate cancer is significantly less common in China than in the West: 9.1 per 100,000 compared to 75.7 per 100,000 in the US.1 The story is similar for kidney cancer (4.4 per 100,000 in China vs 14.4 per 100,000 in the US), but rates are more similar for brain cancers (4.2 vs 6.3 per 100,000, of which an expected 30% are glioma). Despite these considerations, the sheer size of the population of China makes it one of the biggest healthcare markets in the world. We estimate an addressable market of 70,000 prostate cancer patients, 25,000 kidney cancer patients and 8,000 glioma patients among those urban dwellers with access to care.
Globocan
Although there have been significant reforms in the Chinese regulatory landscape to open the market up to foreign products, it remains highly favored to partner with a Chinese domiciled company. CGP is a broadly diversified healthcare company based in Hong Kong (HKSE 0512, market cap HK$22bn), which markets products across every healthcare category, from traditional Chinese medicine, to chemotherapy drugs, to drug coated balloon catheters, to ultrasound equipment. The company entered the radiopharmaceutical market with the acquisition of Australian company Sirtex in 2019 (for A$1.9bn). The acquisition of Sirtex was a bidding war, with CGP outbidding Varian Medical (A$33.60 per share to Varian’s $28 per share offer), which we believe highlights the importance of radiopharmaceuticals to CGP’s strategy, and their view of the role of these products in China. Additionally, concurrent with the announcement of the deal with Telix, CGP announced that it was entering into an agreement with Jiangsu Institute for Nuclear Medicine to develop manufacturing, controls and preclinical research capacity for radionuclide drugs.
In addition to the PET probes TLX591-CDx and TLX250-CDx, the deal also includes the company’s PSMA based SPECT probe TLX599-CDx. TLX599-CDx is fundamentally similar to TLX591, but using a SPECT tracer. This is important because as a ‘last generation’ technology, SPECT has a much more robust footprint worldwide, and in particular in China. Telix is planning to initiate a global pivotal study of TLX599-CDx in 2021.
Valuation
We have increased our valuation to A$671.0m or A$2.44 per share, from A$567m or A$2.23 per share. We have incorporated the details of the transaction with CGP into our models. The majority of the value from the transaction is from the upfront payment and investment (approximately A$71m).
We have made a series of assumptions when estimating the potential of these products in the Chinese market. For mainland China, we only consider those enrolled in the government’s urban health plans (UEBMI and URBMI programs) as a viable market. We assume pricing in China at approximately US$21,000 per patient for the therapeutics (compared to US$70,000 in the US) and US$500 for the diagnostics (compared to US$3,500 in the US). We assume a 12% royalty payable to Telix on the therapeutic programs and a 30% profit sharing margin on the diagnostics. The projected milestone payments to Telix are split evenly by the three therapeutic products, and we include an additional 50% risk adjustment on commercial milestones to reflect that not all may be met. Otherwise our growth and penetration assumptions for the Chinese market are the same as for corresponding US and European markets.
In addition to these changes, we have rolled forward our NPVs, updated for Q3 net cash (estimated A$24.7m based on the 4C statement and c A$1m in gross debt reported at H120), and the increased number of shares following the CGP investment (estimated 274.9m).
Exhibit 1: Valuation of Telix
|
Peak sales (US$m) |
Likelihood (%) |
rNPV |
rNPV/share (A$) |
TLX250-CDx kidney cancer imaging: |
80 |
85% |
96.4 |
0.35 |
TLX250 kidney cancer therapeutic: |
520 |
20% |
82.1 |
0.30 |
TLX591-CDx prostate cancer imaging |
180 |
80% |
222.8 |
0.81 |
TLX591 prostate cancer therapeutic: |
1,190 |
20% |
166.1 |
0.60 |
TLX101 brain cancer therapeutic |
580 |
10% |
56.8 |
0.21 |
SG&A |
(48.7) |
(0.18) |
||
Portfolio total |
575.9 |
2.10 |
||
Net cash (Q320 est + CGP upfront and equity investment) |
95.1 |
0.35 |
||
Enterprise total |
671.0 |
2.44 |
Source: Telix reports, Edison Investment Research
Financials
We expect the near-term impact on costs from the agreement to be relatively small. The R&D commitments from the agreement will largely be covered by CGP. However, Telix did note that it will be hiring additional staff to service the agreement, and guided to A$3m in additional operational costs in 2021 and going forward. This has increased our 2021 SG&A expense to A$19.8m from A$16.8m.
The A$71m in new cash from the upfront and the investment from CGP opens up a lot of options for the company. In our model we have assumed (and continue to maintain) that the company will license TLX591 and TLX250 for further development in 2021 (which includes A$91m in milestones associated with these putative agreements). This assumption was made because of the hurdle to launching these drugs in the US: the company would need to finance expensive late-stage trials and build out a commercial apparatus in the US. The new influx of cash from the CGP deal, however, gives the company options because it could potentially finance a portion of these programs internally. The company may decide to ultimately out-license TLX591, but by internally financing this product’s Phase III study, the licensing agreement post Phase III would likely be significantly more lucrative (if the study is successful). We estimate that this would increase costs by A$60m, and that the program would need to be at least in part supported by sales of TLX591-CDx and TLX250-CDx (more detail in our Outlook report). Another option available to the company with the added cash resources is that it could increase its investment in its other pipeline products. We recently profiled the ‘deep pipeline’ at the company, which includes a range of next-generation products.
Exhibit 2: Financial summary
|
A$'000s |
|
2018 |
2019 |
2020e |
2021e |
Year end 31 December |
AASB |
AASB |
AASB |
AASB |
||
PROFIT & LOSS |
||||||
Sales, royalties, milestones |
195 |
3,485 |
3,630 |
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.
|
|
Research: Investment Companies
Standard Life Private Equity Trust (SLPET) recently reported a rebound in its NAV upon receiving the underlying valuations from its general partners (GPs) as at end-June, which brought its 12-month NAV total return to end-September 2020 to a positive 4.0%. Following the upsizing of its credit facility to £200m and the £61.9m in distributions received (vs £78.6m of capital calls in the period), SLPET’s commitments coverage ratio was a solid 49% at end September 2020. This is not adjusted for the £15.3m expected deferred consideration and £67.1m of commitments it considers unlikely to be called.