Pinned straw:
I set out here my more complete analysis of today's "Regulatory Update" on Zircaix.
TLDR: This is a significant setback, however, the SP fall of $3.43 (-19%) on what is arguably already a beaten up share price can be considered an over-reaction. My estimated valuation impact range is $0.15 to $1.40, depending on a wide range of assumptions set out at the bottom of this note.
The market's reaction is more in line with a belief that the drug will now never be approved. In fact, it is likely worse than that, given that the market opening share price was unlikely to have attributed fair, risked value to Zircaix (in my assessment).
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In this Straw I set out:
Part 1: What's Happened
Part 2: Insights from Today's Investor Call
Part 3: Valuation Impact Analysis
Part 1: What Has Happened
- Telix has received a Complete Response Letter (CRL) from the U.S. FDA for its Biologics License Application (BLA) for Zircaix.
- Zircaix is an investigational PET imaging agent for the diagnosis and characterization of renal masses as clear cell renal cell carcinoma (ccRCC).
Two groups of issues were raised:
- Chemistry, Manufacturing, and Controls (CMC): The FDA requested additional data to prove comparability between the product used in the ZIRCON Phase 3 trial and the scaled-up commercial process.
- Manufacturing issues: Notices of deficiency (Form 483) were issued to two third-party manufacturers/supply chain partners. These must be remediated before resubmission.
Telix Response
- The company believes the issues are readily addressable.
- Plans to request a Type A FDA meeting to clarify deficiencies and set a resubmission timeline.
- Zircaix retains Breakthrough Therapy designation and Priority Review, reflecting its clinical value and unmet medical need.
Part 2: The Investor Call
Here is a detailed analysis of the investor call (prepared by my BA, edited by me for important omissions)
Summary:
Telix views the Zircaix CRL as fixable, non-clinical, and not revenue-threatening. Management signaled confidence that remediation will not take a full year, with ongoing business momentum cushioning the impact. They framed the setback as an operational challenge, not a scientific one, and positioned Telix to emerge stronger in handling radiopharma regulatory complexity.
- The CRL does not affect Telix’s 2025 revenue guidance, as guidance excluded contributions from unapproved products.
- Patient access will continue via the FDA-approved Expanded Access Program (EAP), subject to FDA consultation.
Management’s View of the CRL
- Not catastrophic: Management repeatedly emphasized that the FDA’s concerns should be seen as a “speed bump” rather than a major setback. They stressed that this is not a material issue for the company and doesn’t derail the broader growth strategy.
- Nature of issues: While not detailed beyond what was in the ASX release, the transcript reinforced that the concerns relate to manufacturing comparability and supply chain quality, not clinical efficacy or the technology itself.
- Novel drug with complex supply chain: CB emphasised the novel nature of Zircaix, as well as the complexity of its manufacturing and supply chain. He indicated that these factors could be contributing to the “bumps in the road”. Without directly criticising the FDA, he expressed a view that this was the first time this division of the FDA were faced with having to approve a drug of this kind.
Timing and Delay Expectations
- No year-long delay: Analysts pressed management on timelines (Jefferies’ David Stanton suggested the possibility of a year). Management responded they “don’t see this as being a year delay,” and expect considerably less than that.
- Uncertainty acknowledged: Exact timing depends on resolving FDA questions and remediation of third-party manufacturing deficiencies. Management committed to pushing forward quickly once a Type A meeting is held.
Financial and R&D Implications
- R&D spend intact: The CRL is not expected to force changes to Telix’s R&D investment profile. Management said R&D spend will continue to grow with revenue, and Zircaix still has strong unmet-need driven commercial potential.
- Revenue guidance unaffected: They reiterated the CRL has no impact on FY25 revenue guidance, since unapproved products were excluded. The company highlighted other revenue drivers (Illuccix, Gozellix, European launches) to reinforce financial resilience.
Maintaining Launch Momentum
- Expanded Access Program (EAP): Telix hopes to keep momentum by continuing the EAP for Zircaix while working through FDA requests, though this will require FDA agreement.
- Broader context: Management pointed to ongoing launches (Illuccix in Europe, Gozellix in U.S. with reimbursement code from Oct 1) and new trials (e.g., bypass Phase 3 in PSMA) to show that the company has other growth engines reinforcing revenue while Zircaix approval is delayed.
CEO’s Closing Remarks
- Personal disappointment: Dr. Behrenbruch admitted being personally disappointed by the delay, as bringing Zircaix to market was a founding goal.
- Confidence in approvability: He stressed the CRL “doesn’t reflect the quality of the technology or the approvability of the product.”
- Learning opportunity: Management sees the process as a chance to strengthen Telix’s capabilities, acknowledging that handling such CRLs builds regulatory and operational resilience for future product launches.
Part 3: My Assessment
As I wrote earlier today in my reply to @lowway, there are a few key facts to focus on:
- There are no issues relating to safety and clinical efficacy in the CRL. This is good news, and points towards the ultimate approvability of this product.
- Historically, some 30% to 40% of NDAs/BLAs receive a CRL at first review, of which about half relate to CMC issues.
- Importantly, >80% of CMC-related CRLs are ultimately approved. Those with minor deficiencies typically face delays of 6-12 months. Those with major issues (including those requiring comparability studies) can face delays of 12-24 months or longer.
- Regarding the contractor (CMO) issues, timescales also vary with severity of finding. Minor issues can be typically resolved in 3-6 months; moderate severity in 6-12 months; and severe issues can also take 12-24 months or longer.
So, as CB stated today, it all really depends on what emerges from the follow-up “Type A” meeting, which should be held over the coming weeks. After that meeting, $TLX will be in a position to give more detail on the feedback, the remedial work required, and the future timelines.
In the spreadsheet below, I have analysed the impact of the approval delay (1-year and 2-year delays scenarios) for a range of peak sales and valuation multiples for Zircaix. At the bottom of the table, I have indicated the value impact if Zircaix is NEVER approved.
Today's SP fall of -19% of $3.43 is significantly more that 1 and 2 year delay scenarios across a range of product valuations which estimate the SP impact ranging from $0.15 - $1.43.
But how much of the full value was assumed in the opening share price today for $TLX? Of course that's impossible to answer. But given that the SP was only around $18, the implied value of Zircaix was likely more in the $1-4 range than the $4-8 range.
So, by almost any conceivable measure, the market has reacted as if there is a 0% change that Ziraix will ever be approved.
I don't claim to know the answer, but I am interested to hear the next update following the Type A meeting with the FDA.
My Investment Decision
My starting position at the open this morning was that $TLX is materially undervalued.
Given that, the $3.43 drop today more than wipes out any reasonable allocation to Zircaix success in today's opening share price.
The market is CERTAIN that Zircaix will fail altogether. (In fact, the SP drop implies that the market was attaching huge value to Zircaix.)
I strongly disagree. And I have therefore taken the opportuity to increase my RL $TLX holding by 15%.
And for the avoidance of doubt, I believe that this will prove to be a good decision, EVEN IT Zircaix ultimately fails, such is the scale of the SP over-reaction. (In fact, I might be back for another bite.)
Given the market's inefficiency at processing today's information, I think it likely to also misprice the next briefing which will likely be after the Type A meeting in a few weeks. So, I would like to have the opportunity to buy more at that time under the right circumstances. Information from that meeting can materially feed into my assessment of Zircaix risk, because now the BLA milestone has essentially been de-risked from a clinical perspective.
Thanks for your clinical overview @mikebrisy, detailed as always!! I had already re-valued $TLX to be largely in line with your adjusted value and decided to add this holding to my IRL portfolio today an average of $15/share. I'll be holding these in my SMSF long term or until $TLX prove otherwise. Already a holder in SM, but no spare cash there to load up today.