Telix Pharmaceuticals Limited

Company Overview: Telix Pharmaceuticals Limited (ASX: TLX) is a clinical-stage biopharmaceutical company, which is involved in the development and commercialisation of diagnostic and therapeutic products using molecularly targeted radiation products. The company has its headquarters in Melbourne and develops a clinical-stage oncology product that focuses on substantial medical requirements in kidney, and brain cancer. The company was founded in 2015, having its distribution networks in more than 80 countries.

TLX Details

Synergies from Acquisition, Strong Liquidity Position & Clinal Trials are Key Growth Catalysts: Telix Pharmaceuticals Limited (ASX: TLX) is in the development and commercialisation of molecularly targeted radiation products for the treatment of cancer. The market capitalisation of the company stood at ~$1.13 bn as on 14 April 2021. Despite challenging scenarios due to COVID-19 led uncertainties, TLX remained on track with a substantial growth and transformation strategy. The company remained invested in building the clinical experience with robust product pipeline. Though people remained scared and preferred to stay at home in this uncertain situation, however the spread of cancer did not stop. Notwithstanding the adverse operating conditions, the company continued to run clinical trials, delivered robust outcomes for patients, and grew its business’s operational and commercial footprint all over the world.

The company’s product TLX101 (131I-IPA) targets LAT-1, an encouraging goal in numerous cancer types, which includes glioblastoma. The company had updated the market on the analysis of the first group of patients from the research of TLX101 in the treatment of recurrent glioblastoma multiforme (GBM) in Europe and Australia. The company discovered evidence of anti-tumour effect with relatively low dose and no side-effect profile. Given these findings, TLX plans to speed up the development of TLX101 asset in FY21 and add US patients to its further clinical activities.

In 2020, the company made noteworthy development with its international, multicentre Phase III ZIRCON trial, which is assessing the understanding and specificity of pre-surgical imaging utilising TLX250-CDx in detection of ccRCC. In January last year, the company received a nod from FDA regarding its Phase III IND application, enabling the ZIRCON trial to recruit patients in the US. The company expects ~36 sites joining in the ZIRCON trial across Australia, Turkey, Europe, Canada, and the US, in mid-FY21. This marks the company’s significant milestones on the path to commercialisation of prostate cancer imaging product.

In December 2020, the company announced the acquisition of TheraPharm GmbH, developing the company’s pipeline to bone marrow transplantation, hematologic oncology, and rare diseases. Going forward, the company expects to become a fully-fledged, commercial-stage company with first product approvals. In order to preserve financial capacity, the company is focused on marketing authorisation. The company is in a sound financial position with cash runway until late-2021.

Commercial Milestone (Source: Company Reports)

FY20 Financial Highlights for year ending 31 December 2020:  TLX declared its full year results wherein, the company reported revenues from continuing activities of ~$5.231 million, up from $3.485 million in the year-ago period. The company posted a loss of $44.88 million as compared to the previous year’s loss of $27.86 million. Research and development expenses for the period came in at $23.08 million as compared to $21.16 million in FY19. In FY20, the company reported sales of ~9,500 patient doses of TLX591-CDx delivered globally, despite COVID-19 led uncertainties and earned a cash receipts of $36.53 million from customers in FY20.

FY20 Key Highlights (Source: Company Reports)

Key Updates:

1. On April 14, 2021, the company informed the market that it has received approval from Australian Therapeutic Goods Administration (TGA) for the registration of its prostate cancer imaging product Illuccix® (TLX591-CDx). Post the acceptance, the company has begun the priority evaluation process.
2. On 31 March 2021, the company completed a deal with Grand River Aseptic Manufacturing (‘GRAM’) for commercial Manufacturing Practice (GMP) of Telix’s Illuccix® product, for prostate cancer imaging.
3. On 18 March 2021, the company extended its non-exclusive worldwide clinical and commercial supply deal with Garching-based ITM Isotopen Technologien München AG (‘ITM’) for the supply of highly pure no-carrier-added (n.c.a.) lutetium-177 (177Lu). 

Top 10 Shareholders: The top 10 shareholders together form around 43.33% of the total shareholdings, while the Top 4 constitutes the maximum holding. FIL Investment Management (Hong Kong) Limited is the entity holding maximum shares in the company at 8.88%. Behrenbruch (Christian P. Ph.D.) is the second-largest shareholder, with a holding of 8.78%, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Key Metrics & Liquidity Position: The company reported $93.62 million of total current assets, including cash of $77.95 million, trade and other receivables at $12.39 million. Total debt stood at ~$2.2 million, at the end of the period. Net cash inflow from operating activities came at $1.96 million, up from cash outflow of $23.33 million in FY19. The company also had successfully completed $45 million over-subscribed capital raising program in 2019. The funds are expected to cover the financial needs of the commercialisation of its first two products.  In FY20, the company had a current ratio of 4.69x, higher than the industry median of 3.89x. The company reported negative cash cycle days of ~93.7, as compared to the industry median of ~290.3 days.

Liquidity and Revenue Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group 

Key Risks: On the flip side, the company is exposed to stiff competition from peers, COVID-19 led uncertainties and the global threat environment. The company’s business, financial and operating conditions highly depends on general economic conditions and spending powers of customers. If such circumstances worsen, it may negatively impact the overall financial performance of the company. The company’s financial instruments comprise mainly of receivables, payables, bank loans and overdrafts, finance leases, loans from related parties, cash, and short-term deposits. This exposes TLX to various risks such as foreign currency risk, interest rate risk, liquidity risk and credit risk.

Outlook: The company plans to launch TLX591-CDx product in the US in FY21 post the grant of USFDA approval for the NDA currently lodged. It has also submitted TLX591-CDx for market authorisation approval in EU and expects to receive medical consensus in early FY21. The company intends to implement the ProstACT study in Australia, and gradually add European and US sites to the study in 2HFY21, subject to regulatory approvals. In 2021, the company predicts to become a financially sustainable, revenue generating company owing to successful introduction of its first product, Illuccix® (Kit for the preparation of 68GaPSMA-11) for the imaging of prostate cancer. Also, the funds generated from capital raising initiatives would be deployed towards working capital, costs of the offer, further development of Prostate cancer imaging, and to pursue further acquisitions. Henceforth, the fund raising will further strengthen its liquidity position and makes it more effective to undertake business transactions which can prove to be beneficial over the long period of time.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Currently, the stock is trading above the average of its 52-week’s high and low level of $4.8 and $1.05, respectively. The stock of the company went down by ~5.61% in the past three months. On a technical analysis front, the stock has a support level of ~$3.931 and a resistance level of ~$4.466. We have valued the stock using an EV/sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium as compared to its peer median, considering synergies from strategic partnerships and acquisitions, increase in top-line in FY20, increase in cash flow from operation, decent balance sheet, and focus on marketing authorisation for its key products. For the purpose, we have taken the peer group - Opthea Ltd (ASX: OPT), AVITA Medical Inc (ASX: AVH), to name a few. Considering decent top-line performance, strong liquidity position, cash management activities, decent long-term outlook, and improved operational efficacy, we recommend a “Buy” rating on the stock at the current market price of $4.06, up by ~0.495% as on 14 April 2021.

TLX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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