Telix Pharmaceuticals Limited (TLX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Telix Pharmaceuticals Third Quarter 2022 Results Call. [Operator Instructions] I would now like to hand the conference over to Ms. Kyahn Williamson. Please go ahead.

Good morning. Thank you so much, Ashley. As mentioned, I'm Kyahn Williamson. I'm the Senior Vice President of Investor Relations and Corporate Communications at Telix. And I'm pleased to welcome today my colleagues speaking on the call, Dr. Christian Behrenbruch, our Group CEO and Managing Director; and Darren Smith, our Group Chief Financial Officer. So today, we will be discussing the quarterly results, which were lodged on the ASX this morning, along with the appendix for free cash flow and activities report. This is the first time we've hosted a webcast on our quarterly results, and we thought it was fitting to do so now that we are in a commercial stage and given the level of interest in the progress. If you are joining via phone, I refer you to the slide deck that was lodged on the ASX this morning. We will give a verbal cue when it is time to move to the next slide or taking Q&A. So just moving to slide -- the growth strategy slide. Before we jump into the results, I just want to take a moment to remind you of our growth strategy, and that really supports our purpose of helping patients and is ultimately what will drive shareholder value. We've talked before about the concept of Illuccix being our commercial launch pad into urology. And we are now seeing the benefits of that as we're starting to build that customer engagement and providing a revenue stream on the path -- that's really on the path to building a self-funding model. We certainly now have additional products to commercialize in our sites. The late-stage therapeutic pipeline is another key pillar of the strategy, and we see this as a major clinical and commercial opportunity and something that will be an ultimate value driver. The quality and the depth of our pipeline is a key differentiator, and we have very highly engaged clinical and pharma partners. And this is a really key area of focus for us. Our supply chain is really the key to long-terms commercial success. It's important in any industry, but vitally so in radiopharma. So we've already done so much investment here. But the building at the facility of Brussels South will give us an even greater control of scale up, production process and access to raw material, the depth of the license itself is a key asset and very difficult to replicate. And finally, the building of the future pipeline. Now our expertise in identifying targets, developing and validating new technologies is a source of competitive advantage that will add value, and we'll continue to invest selectively in the R&D areas that will enhance our portfolio and shape the Telix of the future. Next slide, please. So just to touch on the highlights for Q3 and how this is really coming to fruition. So -- and Chris and Darren will talk through this in more detail. But the headlines. U.S. sales will continue to grow at a rapid pace, up 178% or 2.8x on the launch quarter to AUD 53.7 million or USD 36.4 million. Cash utilization has significantly improved with our cash burn down to $5.3 million for the quarter, and this is really a result of increased commercial sales and controlled expenditure. We have a major milestone ahead the readout of our Phase III ZIRCON study. And finally, the therapy programs continue to progress. We've had some new data from the IPAX-1 study, 1-year follow-on data. The prostate cancer therapies continue to enroll well with selected target studies, and acknowledging the level of interest in ProstACT GLOBAL, and we are very focused on the scale of the manufacturing and finalizing regulatory submissions to commence the international sites for this large-scale and important trial. Next slide, please. So just really a touch on the key financial metrics for the quarter. And the key takeaways here is that the majority of revenue is from the U.S. And while we are committed to commercializing globally, the U.S. is really the major market opportunity for us. The cash receipts this quarter were $44.5 million. So we're still seeing some gap between revenue and cash receipts as we ramp up. But you can see now that engine is really moving and the cash receipts have significantly improved. And finally, from a cash burn basis, our cash balance is finished at $117.1 million. I think that really shows that the business is heading in the right direction in terms of that cash flow management, with a significantly reduced delta from the last quarter. So with that, I'd like to hand over to Chris to talk in more detail about the launch, and followed by Darren to give some commentary on the financials.

Yes. Thank you, Kyahn. We had an excellent quarter, continuing the great launch momentum from last quarter. And we've continued, as Kyahn said, we see strong month-to-month growth through a combination of new customer acquisitions and dose capture from competition. The revenue is coming from a diverse customer base, and we're seeing good growth across all the major customer segments of hospital, independent imaging centers and government purchasing. Kyahn noted quite rightly that right now, the growth engine for the company is the U.S. business. But of course, we remain focused on developing and expanding the markets available for Illuccix. And just to note that we got the Health Canada approval just recently. That's just an example of that continued expansion. But clearly, from a 4C perspective, the focus is really on the U.S. business. Sales for the quarter were up by nearly threefold, with the impact of reimbursement really starting to have effect this quarter, and that's reasonable given that it was our first commercial quarter post-reimbursement first of July. We've also continued to grow the distribution base to now 179 nuclear pharmacies. This is up from just under 120 at launch back in April. And we're adding pharmacies as a function of market need and ability to meet customer expectations. We believe we're delivering industry-leading performance to our customers in terms of proximity of access to production, uptime and just overall delivery integrity. We pick up a lot of doses where our competition failed to do so. As such, we continue to gain customer traction on the basis of this differentiation. And again, that's part of our growth success for this quarter. So that's sort of synopsis from a sales perspective in terms of the impact of the business from an operating financing perspective. I'll now hand over to Darren Smith, Chief Financial Officer.

Thank you, Chris. Today, I'll be presenting 2 financial slides that provide insight into how Telix is transiting to a self-funded business model. Turning to Slide 10, titled operating cash flow. The waterfall graph demonstrates the key drivers to the significant $20 million reduction in the cash burn during the third quarter. Firstly, 168% increase in sales resulted in customer receipts during the quarter of $44.5 million. This is a $39.1 million increase on the Q2 of $5.4 million in customer receipts. Telix has put in place sound commercial processes to control its cash collections. It should be noted that during Q2, Telix received $17.2 million R&D tax incentives. Going forward, Telix will fund the business and its product development activities through its commercial sales and the continued growth. Looking to the expenditure side of the ledger. You will note that the outflows of cost of goods sold, including distributor services fees, have increased, reflecting the growth in the volume of sales. Cash flow related to other costs, SG&A and R&D have remained relatively stable and reflect Telix's cash management processes. Now turning to Slide 11, and titled operating expenditure. These graphs present the expenditure on an accrued basis as per the profit and loss statement. As reported at the presentation of the first half accounts, Q1 and Q2 commercial expenditure of COGS and SG&A included a number of one-off costs that were directed to preparing the successful commercial launch of Illuccix and building the operational infrastructure to support the business as sales grew. As we can see in the Q3 numbers, as sales have grown, our gross margin percentage has improved significantly, reflecting progress towards normalized commercial operations. Further improvement in gross margin percentage is expected in the coming quarters. Further, we note that in the third quarter, our investment in SG&A has reduced in absolute terms, but more importantly, it has reduced as a percentage of sales. Going forward, we expect sales growth will outpace the growth in SG&A investment as we continue to build out the organization. R&D investment is consistent with our asset development plans to commercialize late-stage assets to 250-CDx and progress the development of the high-value assets through the ProstACT studies. I'll now hand over to Chris to talk you through the milestones ahead. Chris?

Thanks, Darren. Moving on to Slide 13. This slide is just a reminder that we are prosecuting a very deep, mostly late-stage pipeline of theranostic, that is diagnostic and therapeutic radiopharmaceuticals with a particularly strong emphasis on urological oncology. We believe that it's this depth in urological oncology that particularly differentiates Telix in the market and indeed some of our biggest near-term value creation opportunities for shareholders are based on this concentration of expertise and product focus. On a go-forward basis, we will be communicating in a more focused way to shareholders in order to deliver a more fulsome understanding of the pipeline beyond Illuccix. That's really going to be a big focus for the company going into 2023. We believe that our product earnings are being invested back into an industry-leading pipeline, and so communicating that pipeline more extensively is important and reasonable given that Illuccix is now successfully commercialized. Moving on to the next slide, please. So a great example of such a value inflection point, the one that we hope to deliver to shareholders in the next couple of weeks is the readout from the TLX250-CDx ZIRCON Phase III trial in renal cancer imaging. This study is a gold standard trial design intended to elucidate the sensitivity and specificity of TLX250-CDx to detect clear cell real cancer. Science behind this asset is really excellent, and the clinical data obtained to date is compelling with a high degree of [Indiscernible] interest and support. We're now waiting with excitement for the outcome of ZIRCON study, which if successful, will yield a follow-on asset targeted at the same sales call point as Illuccix, with a very significant market opportunity if done right. Given that the renal cancer imaging space is far less commercially congested than prostate cancer, there's a real opportunity for Telix to take commercial leadership, leveraging the investment we've made in Illuccix in terms of the sales infrastructure, distribution networks and market access functions. It's the perfect follow-on product to Illuccix in many ways. In terms of indications, there are several that we are pursuing, but the 2 key ones are diagnosed indeterminate renal masses and surgical stages. In U.S. alone, this represents over 100,000 patients as an addressable market, although the exact market size will scale as the function of the final sensitivity and specificity of this asset. So that's going to be really exciting to report out. This asset has FDA breakthrough designation and can progress fairly rapidly for a biologic-based program towards commercialization. So once the ZIRCON trial reads out in the next couple of weeks and we have a clear go-forward to the program, we'll be providing a lot more detail to shareholders and clarity around the time line from the commercialization pathway for this really exciting program. Next slide, please. And look, just as a passing comment mainly because our clinical collaborators presented some nice data at the European Association of Nuclear Medicine Meeting in Barcelona this past week, I do want to point out that we believe that renal cancer imaging is just the tip of the iceberg for this asset, both diagnostically and therapeutically. Carbonic anhydrase IX, or CA9, as it's kind of named in its short form, is a fantastic target with a great deal of potential for both targeted radiation in a number of cancers with unmet medical need. So -- but watch this space, we're going to be very strategically building clinical depth in this program, and 2023 is going to be a very vibrant year for this program, particularly on the therapeutic front. So just a nice bit of up to the minute news and demonstration around how our pipeline is continuing to build depth. Okay. Moving on to the last slide, please. So just to wrap up the short quarterly investor update with a snapshot of what we've already accomplished in this half of the year, and of course, the year is far from over, as well as what we're expecting to accomplish in at least the first part of 2023. I'm not going to go exhaustively through this. Safe to note that we've had a couple of good regulatory and commercial wins this year already, and the next big one, as I've just mentioned, is the ZIRCON Phase III trial readout. We are expecting to launch further clinical activity this year, for example, for our glioblastoma program, and we'll also be giving a more comprehensive update on the ProstACT GLOBAL Phase III study in prostate cancer before year-end. We've made a lot of progress on this program, particularly around the drug product manufacturing and readiness to add U.S. and European sites, and we look forward to giving you that comprehensive update. I do also want to briefly address the EU marketing authorization, which we've discussed with the market and reported a couple of weeks back. This was clearly a setback for the company, albeit from our perspective, a temporary one. I just want to inform shareholders that we've made solid progress in addressing the remaining CMC concerns raised during the assessment process that led to our decision to withdraw. We will also be giving a concrete update on resubmission time line well before year-end, and I wish to assure shareholders that we are moving with alacrity on preparing the resubmission with a very clear understanding of next steps and what our game plan is going to be for this asset in Europe. On that final note, I will open up the floor to questions.

[Operator Instructions] Your first question today comes from Shane Storey with Wilsons.

Chris, as always, I'm interested in the relative activity levels and competitive intensity that you're seeing in the various settings. But I guess, I'd ask you at this stage to just commentate on the IDTF specifically, please. Just any updated observations you can make about how you're seeing that specific part of the market takes shape.

I'm not quite sure what the question is. But I mean, clearly, the IDTF market is a market where the nuclear pharmacy model can be very strong just because of the proximity to the customer base. And clearly, that's a doctor's office to doctor's office referral process effectively. So it's really a part -- it's a segment of the market where the competition between Illuccix and PYLARIFY is probably the most intense. There's a lot of different types of customers in that market. So clearly, right now, there's a pretty fulsome effort to capture as much of the white space as possible, as well as to take competitive share. Clearly, as we start to get towards the middle of next year and we see the market being more penetrated, that shift is going to move more towards the IDN and the group purchasing opportunities that are available as the market kind of matures. So I think, certainly, it's a super competitive space right now. But I think as you can see from the ramp-up in our numbers, we're doing a fine job of prosecuting it.

No, that's exactly the question I was asking. And I might even sort of extend it a little bit further, you might not want to answer this one. But I mean, we have had some recent feedback saying that might be edging out, particularly maybe the other PSMA-11 that's in the market by working just that bit more closely with providers on market access matters. I mean, are you able to share any differences there and incentives around market access in the way that you're working with the providers?

No, I think that's really -- I think that's commercially kind of -- one of the things that we get feedback from our customer base is that we just do a great job of holding the hand of the customer and making sure that the process is easy for them. And I think much beyond that, that's probably the extent of the commercial commentary.

That's fine. I expected that. But maybe just one final one, perhaps for Darren. And just, I guess, also in anticipation of the ZIRCON study and the commercialization process that will be enacted over the next year or two. Just trying to help -- I mean, I appreciate it's going to leverage much of the sales infrastructure that you already have. But then just thinking about any specific sort of market development investments you might be looking at, say, in the next 6 to 12 months?

Darren, I'm happy to take that one. It's kind of more of an operational than a finance question. But, I think, the follow-on product in renal cancer imaging will very much follow the Illuccix model. So there's some nuance difference in the way in which the product is manufactured and made available and distributed. But at the end of the day, what the customer gets, which is exactly what they're getting today with Illuccix, is a ready to inject product. And so we love the nuclear pharmacy distribution model. We will continue to utilize it even for follow-on products. And I think that the infrastructure and the relationships from very trusted and close working relationships that we've built in the United States, those are relationships which will be -- continue to develop and be leveraged as we do follow-on product launch. In Europe, of course, Shane, the situation will be rather different. There isn't that same nuclear pharmacy rollout model. We do expect to work with sales partners and distributors in Europe for the long term. And again, we've got some fantastic and very loyal partnerships there. But Telix will also take a greater degree of responsibility in the end product manufacturing, which is -- that formed the basis of the investment in the Brussels South or what we used to call the Seneffe. No, we stopped calling it Seneffe because nobody knew where Seneffe was, but everyone knows where Brussels is. So we refer to it now as Brussels South. But that site is just going very well towards buildout completion. We expect that obviously subject to regulatory processes, but the validation of that site will be done by the middle of next year, and then that will then move very rapidly to support our European product launches down the track. David, I see you're up next. Do you want to fire away?

Well done, team. Look, you've mentioned that you're at circa 170 radiopharmacies. I'd just like to know what the market -- how many radiopharmacies there are in the U.S.? And where do you -- what you'll be targeting getting into over the medium term, please?

Yes. No, it's a fair question. I mean, look, we -- when we launched with about 117 nuclear pharmacies, the goal was we could reach about 80%, 85% of the market with that sort of footprint. And then as we've been competing and looking at how we can service our customer base better and looking at some specific nuances in individual markets, we've been adding on an as-needed basis. Now we're also looking ahead to some of those group purchasing account opportunities because some of those are serviced better by one network or another. So we're trying to position ourselves for that kind of next wave of the commercial dynamics. There's about 300 nuclear pharmacies in the U.S., I mean, give or take. So I'd say just over 1 out of every 2 right now is dispensing Illuccix. I don't really have a forecast for you, David, in terms of how that's going to evolve over time. But needless to say, we're fully able to satisfy the market. And one of the unique things about our deployment model is it's, unlike our competition, is it's super scalable, right? So we can add, remove, adapt, again, not just add nuclear pharmacies, but we can take nuclear pharmacies out as well to make sure that we're kind of optimizing the cost base of the business and customer access at the same time. So it's really one of the strengths of our deployment model. Does that answer your question?

Understood, yes. So just to be clear, you're at about 50% now and you expect potentially in the future to get to 80% to 85%.

No, no, no. No. So in terms of market access, I mean, we're able to well and truly -- I mean, it's not 100% of the market, but it would be 90-plus percent of the customer base in the U.S., we're able to reach with our current model. 1 out of every 2 nuclear pharmacies is dispensing Illuccix, but we don't have a forecast on how we plan to grow that further at this point in time.