Telix Pharmaceuticals Limited

ASX:TLX

Telix Pharmaceuticals Limited

ASX:TLX
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$24.62 (-0.5%)
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#19
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Pinned straw:
Remorhaz
Added 3 months ago

FWIW UBS has released an updated broker report and upgraded their 12m price target (from $29 to $31). The full report runs 29 pages (almost 10 pages of disclosures & disclaimers :)) - below the summary from the front page

Telix Pharmaceuticals - What if the pipeline works?

We revisit valuation and contemplate upside scenarios

As Telix approaches three potential new product approvals in 2025 (Pixclara, Zircaix, Illuccix 2) we refine our NPV SOTP to value the company by business area (Therapeutics, Precision Medicine (diagnostics) and Telix Manufacturing Solutions (TMS)), rather than by individual asset. We think investors will take the view that new products are revenue at high incremental margin, and re-weight our cost allocations to reflect this. Our new base case AUD31 PT (from AUD29) sees c.AUD8/share for Therapeutics, c.AUD22/share for PM, and c.AUD1/share for TMS, which includes the recently announced proposed acquisition of 31 US radiopharmacies from RLS. We see c.AUD12/share of plausible further upside from various product success scenarios in Therapeutics and c.AUD6/share in PM, based on information known at the moment (and probably beyond a strict 12 month view). Our PT rise comes from increased peak sales for Zircaix (AUD1b from AUD370m), higher assigned margins in Therapeutics and inclusion of RLS assets. These changes also drive single digit movements in our near term EPS forecasts

Therapeutic pipeline: Acknowledging higher margin set-up in valuation

Innovative therapeutics in the field of oncology sell for many times the cost of diagnostic agents. In Telix's case the assets in development are largely in similar areas to the diagnostics that will launch first and can use commercial infrastructure already in place. These features are conducive to higher margins than in PM and than if we treat the assets as standalone projects, and we now use gross margins in the 80%s for therapeutics we see coming to market (60%s prior). We think there are a number of scenarios for a first therapeutic product, but this aside, TLX591 makes up the biggest part of our Therapeutics valuation at AUD6/share

Precision Medicine: UBSe AUD2b revenue in FY27

We have reworked our forecast for Zircaix (pipeline, kidney cancer imaging) to make it less conservative and now see peak sales of AUD1b with a further AUD1.5b of upside via wider use, and better operating margin than prior as it will also leverage existing infrastructure if approved. Our Illuccix (prostate cancer imaging) assumptions are unchanged and we see AUD1b in sales in FY25, ahead of consensus, with longer term upside from more scans per patient. Our Pixclara (pipeline, brain cancer imaging) forecast is the smallest part of PM but like the other two assets it is near-term and derisked to a degree. Our overall PM estimates see 35% mid term sales growth CAGR

Valuation

We continue to value TLX shares using NPV SOTP but now divide the company by business area rather than by asset, as detailed above. WACC remains at 9.3%


DISC: Held in RL & SM
mikebrisy
Added 3 months ago

@Remorhaz thanks for posting the summary.

I know I am not thinking about this one in the "right" way, but with my base valuation of $22/share for the 3-product diagnostic business, this is precisely where UBS has got to for Precision Medicine. (Just goes to show, two people can be precisely wrong in the same way!)

With TLX591 valued at $6/share, they are only ascribing $2 to the rest of therapeutics and $1 to TMS. It is interesting to see that breakdown, as it one level of further sophistication than I had.

Did UBS provide further detail on the assumptions that got them to $6 for TLX591? Assuming it is risked, then a positive readout of ProstACT GLOBAL in H1 2025 (that CY 2025) would be a big SP catalyst (>$10+). I wonder what risking they are carrying for it? I haven't gotten far enough into the clinical details to have my own view.

It is also interesting to note that they have upped the ultimate potential of Zircaix to $1bn sales + $1.5bn upside sales. My numbers for Zircaix get to $0.91m by 2030, which also assumes wide application beyond kidney cancer. For these I've just used the JD Cowan profile, that has Zircaix continuing to grow to reach $1.5bn by 2035, so it sounds as if UBS are even more bullish on that prodict.

My cunning plan, is to build my position based on the likely more modest SP impact of positive newsflow around Zircaix BLA later this year, as well as Pixclara getting to NDA submission. The idea is then to be positioned for the riskier "upside" of the therapeutics, knowing that there is a robust business in place for the diagnostics as well as an increasingly material radiopharmacy manufactucting/distribution business.

Still a huge amount to learn here, but given MY biggest risk is my lack of knowledge, I've happy to hold a modest RL position.

Disc: Held RL (2.9%) and SM

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Aaronfzr
Added 3 months ago

Im bullish too, but for the risk profile I do feel its relatively expensive @ 140 PE.

Its trading like a growth stock, and while it IS a functional business there is a lot of risk being discounted into those growth assumptions.

#iwanttobelieve

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Remorhaz
Added 3 months ago

@mikebrisy I'm not sure this is exactly what you're looking for but this from a quick search - obviously take this with whatever grains of salt are required ...

TLX591: Clearly identifiable use case

We previously set our peak sales forecast for TLX591 in prostate cancer at AUD1.4b following the disclosure of data from the phase I ProstACT SELECT trial. These pointed towards an asset that we think is approvable (so no risk adjustment) and we used a placeholder 25% of incumbent Pluvicto's (Novartis) consensus sales peak sales at the time.

This approach is (clearly) somewhat flawed since it is not derived from a view of the total market (which would be difficult based on the potentially multiple lines 591 could be used in and is why we do not do it), but on a moving benchmark that happened to be a certain size on the day we made the forecast. We are sticking with AUD1.4b for now, pending data from the phase III ProstACT GLOBAL trial in 2025 that could allow a more detailed approach.

Upside: AUD840m

The phase III VISION trial for Pluvicto included around 40% of patients with renal insufficiency, which means that 591 is potentially a better choice than Pluvicto, since 591 is cleared via the liver instead of the kidneys. Changing our peak sales to 40% of Pluvicto's consensus sales would add AUD840m to our forecast.

UBS view on what to watch:

  • Interim futility analysis for ProstACT GLOBAL, we assume in 1Q/2Q 2025
  • Interim efficacy data in mid 2025, subject to ongoing discussions with FDA
  • Any other information disclosed, given the focus on this asset


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mikebrisy
Added 3 months ago

@Remorhaz thanks! That's exactly what I was looking for.

"No risk adjustment" ... that's very aggressive at this stage. However, 25% of Pluvicto sales is not unreasonable. However, to assume that with zero risking pre-approval well, as they say themselves .... "The approach is (clearly) somewhat flawed ..."

I'm not sure that just because everything is moving so quickly in this space justifies these loose assumptions, however, no single assumption can be well-founded in this case. So you have to go into this considering a wide range of potential scenarios.... from zero to very big. In that context, 25% of pluvicto is probably not a totally unreasonable "central case". As long as you understand the risk around it.

The idea of a "price target" is highly flawed. Particularly for investors who might not be prepared or able to understand the very wide range of outcomes around it.

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