Small Caps | Mar 21 2023
This story features TELIX PHARMACEUTICALS LIMITED. For more info SHARE ANALYSIS: TLX
Following FY22 results for Telix Pharmaceuticals brokers remain Buy-rated in light of an extensive pipeline of new products under development.
-Brokers retain bullish commentary on Telix Pharmaceuticals
-Jarden expects positive operational cash flows from the end of 2023
-Revenue of $156m for Illuccix in the nine months since launch
-De-risked valuations by Wilsons and Jarden
By Mark Woodruff
Telix Pharmaceuticals ((TLX)) released "transformative" FY22 results following approval of the company’s “ground breaking” Illuccix drug in late-2021.
Bell Potter formed this view early this month and noted the company has numerous opportunities over the next decade in the area of radiopharmaceuticals, which are used in the imaging and personalised treatment for a range of cancers.
While radiopharmaceuticals are not new to oncology, the broker explains the field has expanded rapidly over the last ten years due to improved funding.
Illuccix is the first prostate cancer imaging agent of its kind designed for commercial application to use the radioisotope Gallium-68. The agent is used to image metastatic castrate resistant prostate cancer (mCRPC).
In the first nine months since the launch of Illuccix in April 2022, revenues have exceeded $156m.
Telix has received global regulatory approvals for Illuccix from the Australian Therapeutic Goods Administration (TGA), the US Food and Drug Administration (FDA) and Health Canada.
For FY22, the company reported a loss of -$104m, which was higher than Wilsons’ forecast of -$78m due to a higher tax expense and a lower-than-expected level for other income. The company closed out FY22 with $116m in cash and negligible debt.
For the first time since the Illuccix launch, noted Jarden, Telix achieved positive operational cash inflows of $1.6m in the fourth quarter of FY22 compared to an outflow of -$5.3m in the prior quarter. Whilst encouraging, the positive inflows are unsustainable until the end of 2023, suggests this broker, as Telix ramps up its current R&D spend.
The promise of Illuccic revenues underpinned the $175m capital raise back in January 2022, which accelerated product development and helped fund the launch of Illuccix in the US, where it is partnered with radiopharmaceutical giant Cardinal Health and PharmaLogic.
Due to new information on growth rates and share stability for the prostate-specific membrane antigen (PSMA) market, Wilsons recently increased its FY23 and FY24 Illuccix sales forecasts to US$350m and US$395m, respectively.
Apart from Illuccix, Telix has an extensive pipeline of new products in development aiming to address significant unmet medical need in renal (kidney), brain (glioblastoma) and hematologic cancers (bone marrow conditioning), as well as a range of immunologic and rare diseases.
Wilsons expects TLX250-CDx (for the treatment of renal cancers) will be the second drug to market, with approval by early 2024. The drug is used for treatment of clear cell renal cell cancer (ccRCC), the most common type of kidney cancer in adults.
This broker now estimates sales of more than $200m for the product’s first full year, which drove FY25 upgrade in early-March. This forecast assumed full reimbursement and market access. A broad label claim for this drug is expected given diagnostic performance has been sustained with smaller tumours.
The original estimate of US$500m for TLX250-CDx’s total addressable market (TAM) should also increase, according to the analysts, due to indication creep and pent-up demand from the prevalent ‘surveillance’ population. A tendency for scan duplication in the US healthcare system should also assist.
Development of a third imaging agent TLX101-CDx for glioblastoma (GBM) is also underway. GBM is the most common (and most deadly) malignant brain tumour in adults, which currently has a poor prognosis.
In addition, the company’s first therapeutic for metastatic castration resistant prostate cancer (mCRPC) is currently being developed as a second-line therapy. According to Jarden, TLX-591 is Telix’s largest opportunity with a $5.2bn TAM.
Following Telix’s FY22 results, Wilsons raised its 12-month target price to $9.72 from $8.13, with commercialisation for Illuccix and TLX250-CDx the main drivers of valuation in the short and medium terms.
The broker felt there had been a shift in focus by the market to earnings (EBITDA) away from revenues with the PSMA PET scan market now showing more stability and consistency.
In addition, the underlying economics from Illuccix have become clearer and management’s R&S intentions are well flagged, noted the analaysts.
Over 80% of upside to Wilsons un-risked valuation of over $15/share relies upon the achievement of milestones for therapy development.
Under a scenario whereby TLX250-CDx and TLX-591 (approval expected late 2026) are fully approved and de-risked, Jarden builds to a $13.63/share valuation.
Bell Potter, Jarden and Wilsons each have a Buy (or equivalent) rating for Telix Pharmaceuticals and an average target price of $9.01, which suggests around 26% upside to the $7.17 share price at the time of writing.
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