Company Reports

No-moat Telix Pharmaceuticals reported interim 2024 underlying EBITDA growth of 66% to AUD 58 million, below our expectations. While group revenue grew strongly by 29% on second half 2023, underlying operating expenditure, excluding research and development, grew by 35%. Higher expenses were driven by increased investment in salesforce operations and unexpectedly high investment in infrastructure to support commercial operations.

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. The 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.

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. The 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.

We initiate coverage on Telix Pharmaceuticals with an AUD 17 fair value estimate. Shares are currently overvalued, trading at an 18% premium to our intrinsic assessment. We suspect the market is too optimistic about the speed and extent of Illuccix's commercial sales, contributing over 85% of our fair value estimate. We estimate that the average selling price of Illuccix will decrease by 15% when its transitional pass-through payment status expires in June 2025. The market is also overly excited about potential new earning streams from Telix's product pipeline that commercially remain unproven in an increasingly competitive market. Regardless, due to low capital requirements and high profit margins, Telix enjoys high returns on invested capital. Our Morningstar Uncertainty Rating for Telix is High, and we assign a Standard Capital Allocation Rating.