Company Overview: Telix Pharmaceuticals Limited (ASX: TLX) is a clinical-stage biopharmaceutical company, engaged in the development and commercialization of diagnostic and therapeutic products using molecularly targeted radiation products. Headquartered in Melbourne, TLX is developing 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 65 countries.

TLX Details

Strong Liquidity Position & Higher Investment 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 ~$352.71 Mn as on 15 July 2020. The Year 2019 represented a period of substantial growth and transformation. The company remained invested in building the clinical experience with robust product pipeline.

In 2019, there were four key areas of accomplishment that required special mention. Firstly, it was the company’s dedicated team, that offered advanced healthcare solutions. Secondly, the company remained focused on managing risks in its operational scope and stage of product development. In doing so, the company took necessary steps to transition itself from a development-stage company to a commercial entity. Thirdly, the company remained focused on its financial stability and appreciated the support from both existing and new shareholders, raising $45 million of further capital. The company has a strong balance sheet, which aids the company to complete the launch of its first product in Europe and the United States (TLX591-CDx for the imaging of prostate cancer), and also complete the clinical development of its second product (TLX250-CDx for the imaging of kidney cancer).

Finally, in 2019, the company offered prostate cancer imaging doses and benefits to more than 11,500 patients through clinical trials around the world. This has in turn aided the company to build a further credibility with clinicians, regulators, and the wider pharmaceutical industry, as TLX remains committed to deliver enhanced patient care. With clinical activity in almost 20 countries, Telix has built an excellent global reputation in an astonishingly short period of time.

Recently, the company entered into a strategic partnership with RefleXion Medical, a therapeutic oncology company, engaged in treating all stages of cancer. The move was taken to delve into the clinical utility of merging the companies’ technologies and enhance treatment for high-risk prostate and aggressive kidney cancers. The collaboration is in line with the company’s mission to help patients with cancer to live longer, with a better-quality life.

The company also stated that the US Food and Drug Administration (FDA) has provided a positive response that will aid TLX to finalize the Phase 3 PROSTACT trial design for the development of Telix’s prostate cancer therapy product TLX591. The company also stated that it has been granted Breakthrough Therapy (BT) designation by FDA for its renal cancer imaging product TLX250-CDx. This marks the company’s significant milestones on the path to commercialise prostate cancer imaging product.

The company also completed the buyout of licensed radiopharmaceutical production facility in Seneffe. This facility has one of the most extensive private sector medical isotope licences in Europe. The buyout will offer a substantial operational flexibility to Telix and the ability to meet the necessary production needs for its product portfolio in Europe for the long-term. The effectiveness of this procurement is significant, given Telix initiatives to launch its prostate cancer imaging product TLX591-CDx as well as its kidney cancer imaging agent TLX250-CDx in Europe in the coming 18 months.

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 authorization. The company is in a sound financial position with cash runway until late-2021.

Operational Expectations (Source: Company Reports)

FY19 Financial Highlights for year ending 31 December 2019:  TLX declared its full year results wherein, the company reported revenues from continuing activities of ~$3.48 million, up from $195K in the year-ago period. The company posted a loss of $27.8 million as compared to the previous year’s loss of $13.8 million. Gross profit for the period stood at $942K as compared to $195K in FY18. Research and development expenses for the period came in at $21.2 million as compared to $18.7 million in FY18.

FY19 Key Highlights (Source: Company Reports)

Improving Liquidity Position:  The company reported $58.7 million of total current assets, including cash of $44.6 million, trade and other receivables at $12.1 million. Intangibles were valued at $41.9 million while total equity stood at $70.1 million as on 31 December 2019. Total debt stood at $2.1 million, at the end of the period. Net cash outflow from operating activities came at $23.3 million while net cash outflow from investing activities was at $468K.

Capital Raising a Key Catalyst: The company also successfully completed $45M over-subscribed capital raising program in 2019. The funds are expected to cover the financial needs of the commercialisation of its first two products. Also, the funds 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.

Q1FY20 Update: During the quarter, the company’s cash from TLX591-CDx kit witnessed an increase of 15% on a sequential basis. The company implemented cost-control initiatives, by curbing staff costs, and travel expenses. Further, to stay afloat during the COVID-19 led crisis, the company considerably reduced clinical trial-related expenditure and focused more on marketing authorisations to sustain revenue growth. During the quarter, the company reported payments for administration and corporate costs of $1.1 million and staff costs of $2.6 million, while net cash used in operating activities stood at $14.1 million. The company reported net cash used in investing activities at $471k. The company reported its cash and cash equivalents at the end of the quarter at $34.5 million.

Cash Flow Highlights (Source: Company reports)

Recent News:

1. On July 2, 2020, TLX issued 1,350,000 unlisted share options to new employees at an exercise price of $1.83 each, with expiry date of 30 June 2024. Each option is to acquire one TLX share.
2. On 2 June 2020, the company appointed Dr Colin Hayward to its executive leadership team in the role of Chief Medical Officer (CMO).
3. In another update, the company’s subsidiary, Telix Pharmaceuticals (U.S.) Inc. (‘Telix U.S.A’), entered into a commercial distribution agreement with Boca Raton-based Pharmalogic Holdings Corp. to offer nuclear pharmacy and logistics services to support Telix’s prostate cancer imaging product TLX591-CDx. 

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 48.18% of the total shareholding. Behrenbruch (Christian P. Ph.D.) is the entity holding maximum shares in the company at 9.72%. Kluge (Andreas) is the second-largest shareholder, with a holding of 9.72%.

Top Ten Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics:  In FY19, the company had a current ratio of 5.52x, higher than the industry median of 5.23x, representing a sound liquidity position. Debt to Equity ratio for FY19 stood at 0.03x, lower than the industry median of 0.09x. The company is optimistic about business growth, looking at the potential contribution and lower debt levels.

Key Metrics (Source: Refinitiv, Thomson Reuters) 

Key Risks: 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. Further, the company is exposed to shorter-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. The company also faces stiff competition from peers which adds to the woes.

Outlook: The company will submit New Drug Application (NDA) of Prostate cancer imaging (TLX591-CDx) to FDA in 2QFY20. Further, the company expects US marketing authorisation for the Prostate cancer imaging by the end of the year and expects to launch the product in late Q4 2020 or early 1QFY21 in the US market. The company’s capital raising initiatives, and its focus towards delivering on the pipeline of catalysts are  key positives. Moreover, the company has a long-standing relationship with commercial partners which will support growth momentum in years ahead.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

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

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of TLX gave positive returns of 11.2% and 18.8% during the span of one month and three months, respectively. The stock of the company is currently trading slightly above the average of its 52-week trading range of $0.755 - $1.95. We have valued the stock using EV/Sales based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken the peer group - Paradigm Biopharmaceuticals Ltd (ASX: PAR), Neuren Pharmaceuticals Ltd (ASX: NEU), Clinuvel Pharmaceuticals Ltd (ASX: CUV), to name few. Considering the current trading levels, strong liquidity position, no material impact of COVID-19, and positive long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $1.41, up by ~1.439% on 15 July 2020.

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

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