The US Food and Drug Administration is asking for further clinical data to support the label claims for Telix Pharmaceuticals’ pipeline product Pixclara, a diagnostic tool for brain cancer. Telix shares were down as much as 9% on the news.

We don’t expect this to materially affect Telix over the medium term. We expect eventual approval of Pixclara in our base case but delay earnings contribution to 2026 from 2025 prior.

Pixclara was granted orphan drug and fast track designation by the FDA, is still available in the US on the FDA-approved expanded access program and has been used extensively in thousands of patients globally.

Telix is requesting a hearing to decide whether they can appeal the decision, reanalyze current data, or need additional data from other active clinical programs. Regardless, we expect first sales in 2026 and maintain our AUD 19.50 fair value estimate for no-moat Telix.

Illuccix and R&D investments key

Telix’s strategy revolves around expanding its Illuccix distribution and investing in its product pipeline. Illuccix launched in April 2022 and was the second commercially available PSMA imaging agent for prostate cancer. It has gained significant market share due to changes in clinical practice and successful distribution.

Currently, Illuccix is mainly used for staging suspected metastatic prostate cancer, which determines how far the cancer has spread beyond the prostate. If the cancer is in the early stage, this may be redundant.

Adoption of Illuccix is also growing for suspected recurrence, monitoring, and patient selection for radioligand therapy. Telix has several distribution partners, including Cardinal Health, who operate the largest radiopharmaceutical network in the US and effectively distribute Illuccix to PET imaging sites.

The firm also invests heavily in research and development. In the near term, the company aims to receive regulatory clearances for two new imaging agents, Zircaix for kidney cancer and the aforementioned Pixclara for brain cancer.

Zircaix targets a cell-surface antigen expressed in clear cell renal cell cancer, or ccRCC, but absent from normal kidney tissues. Telix received exclusive global rights for Zircaix from Wilex in 2017. Pixclara aims to differentiate pseudoprogression from true progression in gliomas, or brain tumors, in a single scan. The current standard of care is multiple magnetic resonance imaging scans.

Telix is conducting various clinical trials, the most significant being TLX591. We anticipate an interim readout of its phase 3 trial in first-half 2025, recruitment to finish by 2025 year-end, and a potential launch by 2029 after assessment of final results, preparation for lodgment, and receipt of regulatory approvals.

Novartis’ Pluvicto was the first targeted radioligand therapy for PSMA-positive metastatic prostate cancer to receive regulatory in March 2022. However, Telix estimates the cost to manufacture TLX591 to be 20% of Pluvicto’s cost due to the latter’s wasted radiation. TLX591 is more targeted and only needs a fraction of Lutium-177, which affects radiation waste and patient management.

Shares look expensive

Shares are expensive with the market likely extrapolating Telix’s current sales growth rates. We expect US Illuccix sales growth to slow to a compound annual growth rate of 10% over the next five years, from 18% in fiscal 2025.

We expect average selling prices to fall 9% by fiscal 2027 after Illuccix’s transitional passthrough payment status expires in June 2025, likely making it notably cheaper for most private pay customers.

The market also appears overly excited about potential new earning streams from Telix’s product pipeline which remains commercially unproven in an increasingly competitive market. Telix’s pipeline contributes over 10% of our fair value estimate.

We assume Pixclara and Zircaix sales from 2026, and ascribe a 25% approval probability of TLX591, with sales in 2029. Pixclara and Zircaix compete in smaller markets than Illuccix, with management estimating the market size for Zircaix to be roughly a fifth of Illuccix.

Product concentration still a risk

Given low switching costs for doctors to adopt existing or newer competing products and limited intangible assets in the radiopharmaceuticals industry, we think Telix will have little to defend its position when faced with potentially stronger competition in the coming decade.

It would likely require a broader portfolio of drugs with stronger patents for a moat. However, we still expect Telix to generate high returns on capital at midcycle and attribute this to being a capital-light and high-margin business operating in a high-returning industry.

High product concentration means that new competition for key products could significantly impact our forecast earnings.

Telix Pharmaceuticals

  • Moat rating: None
  • Fair Value estimate: $19.50 per share
  • Share price April 28: $26.81
  • Star rating: ★★
  • Uncertainty rating: High

Remember: Before you get to choosing investments, we recommend you form a deliberate investing strategy. You can read more about how to form your strategy here.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.