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With radio-pharmaceutical valuations riding high, Telix has assembled a unique product portfolio that exploits the natural synergy between radio-imaging and radio-therapy; meeting urgent unmet needs in kidney, prostate and brain cancer. Addressing substantial markets, the commercial strategy balances risk against reward. Well characterised and heavily de-risked imaging products and a niche orphan therapy sold direct by Telix lead the charge; a much-anticipated renal cancer diagnostic entering pivotal phase III. The higher value clinical stage therapeutic programmes for big pharma partnering following close behind. De-risked and diversified, the stock looks substantially undervalued on the basis of our DCF, as well as the multi-billion-dollar acquisitions and several-fold market capitalisations of key peers. We initiate with an OUTPERFORM recommendation and a target price of AUD 2.5 / share.
Urgent need for better diagnostics - There is an urgent need for better diagnosis in prostate and kidney cancers. Too frequently mis-diagnosis results in inappropriate or unneeded intervention. The increasing complexity of the therapeutic options can only be navigated with the right imaging tools for disease and treatment monitoring.
De-risked diagnostics move to market - Telix has focussed on well characterised and much anticipated diagnostic tests. The forerunner of Telix's renal diagnostic now moving into a confirmatory pivotal Phase III previously received 16-0 from an FDA advisory committee. The agent upon which the Telix prostate diagnostic is based is widely considered the most effective of the current imaging options. Telix's convenient 'shake and shoot' solution now makes its wide-scale use practicable. Marketed directly by Telix, these products should see rapid adoption.
Huge promise in cancer therapies - Advances in radio-isotopes and dosing regimes that unleash the synergy between radiotherapy and immunity are yielding exciting results. Proof of concept trials involving Telix's radiopharmaceuticals indicate efficacy in renal, prostate and brain cancers; with improved overall survival in advanced prostate and one patient with brain cancer potentially disease-free. Telix imaging products should streamline trial design and facilitate broader clinical use.
Substantial upside - Sold direct the Telix imaging portfolio represents a significantly, but relatively de-risked opportunity with the higher valued therapeutics offering significant upside. Our DCF analysis indicates that the current market valuation is justified on the basis of the imaging programmes alone and ascribes little or no value to therapeutics; despite the quality of data in all three programmes. Our risk adjusted analysis indicates a fair value of AUD 2.5 / share with upside of AUD 4.5 / share should the products achieve their full therapeutic potential.
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Managing Directors: Dr Stephan Goetz, Martin Brunninger and Ulrich Kinzel.
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