Thank you for standing by, and welcome to the Telix Pharmaceuticals third quarter 2022 results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via webcast, please enter it into the ask a question box and click submit. These questions will be answered online. 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. Today we will be discussing the quarterly results, which were lodged on the ASX this morning, along with the Appendix 4C 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 commercial stage and given the level of interest in the progress. If you are joining by 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 before taking Q&A. Just moving to the growth strategy slide. Before we jump into the results, I just wanna 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 Illucix 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, you know, 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 sights.
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. You know, this is a really key area of focus for us. Our supply chain is really the key to long-term commercial success. It's important in any industry, but vitally so in radiopharma. We've already done so much investment here, but the building of a facility at 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. Finally, the building of a 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. Just to touch on the highlights for Q3, and how, you know, how this is really coming to fruition. As Kyahn and Chris and Darren will talk to this in more detail, but the headlines. U.S. sales will continue to grow at a rapid pace, up 178% or 2.8 times on the launch quarter to AUD 53.7 million, AUD 53.7 million Australian dollars or $36.4 million.
Cash utilization has significantly improved with our cash burn down to AUD 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 with the readout of our phase III ZIRCON study. Finally, the therapy programs continue to progress. We've had some new data from the IPAX-1 study, one-year follow-on data. The prostate cancer therapies continue to enroll well with selected target studies. Acknowledging the level of interest in ProstACT Global, you know, 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. Just really a touch on the key financial metrics for the quarter.
The key takeaways here is that, you know, majority of revenue is from the U.S., and while we're committed to commercializing globally, the U.S. is really the major market opportunity for us. The cash receipts this quarter were AUD 44.5 million. 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. Finally, from a cash burn basis, our cash balance has finished at AUD 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.
With that, I'd like to hand over to Chris to talk a bit more detail about the launch, and followed by Darren to give some commentary on the financials.
Yeah. Thank you, Kyahn. We had an excellent quarter, continuing the great launch momentum from last quarter. We've continued, as Kyahn said, to 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, you know, focused on developing and expanding the markets available for Illucix. Just to note that we got the Health Canada approval just recently. That's just an example of that continued expansion.
Clearly from the Appendix 4C perspective, you know, the focus is really on the U.S. business. Sales for the quarter up by nearly threefold with the impact of reimbursement really starting to have effect this quarter. You know, that's reasonable given that it was our first commercial quarter post reimbursement, 1st of July. We've also continued to grow the distribution base to now 179 nuclear pharmacies. This is up from just under 120. It launched back in April. 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.
Now, we pick up a lot of doses where our competition, you know, fails to do so. As such, we continue to gain customer traction on the basis of this differentiation. Again, that's part of our growth success for this quarter. That's sort of synopsis from a sales perspective. In terms of the impact of this to the business from an operating financial perspective, I'll now hand over to Darren Smith for financial aspects.
Thank you, Chris. Today, I'll be presenting two financial slides that provide insight into how Telix is transitioning to a self-funded business model. Turning to slide 10, titled Operating Cash Flow, the waterfall graph demonstrates the key drivers to the significant AUD 20 million reduction in the cash burn during the third quarter. Firstly, a 168% increase in sales resulted in customer receipts during the quarter of AUD 44.5 million. This is a AUD 39.1 million increase on the Q2 of AUD 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 AUD 17.2 million R&D tax incentives. Going forward, Telix will fund the business and its product development activities through its commercial sales and their 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. Turning to slide 11 and titled Operating Expenditure, these graphs present expenditure on an accrued basis as per the profit and loss statements. 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 at preparing the successful commercial launch of Illucix 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 operation.
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, the TLX250-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 theranostics, that is diagnostic and therapeutic radiopharmaceuticals, with a particularly strong emphasis on urologic oncology. We believe that it's this depth in urologic 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'll be communicating in a more focused way to shareholders in order to deliver a more fulsome understanding of the pipeline beyond Illucix, and that's really gonna 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 Illucix is now successfully commercialized. Moving on to the next slide, please. A great example of such a value inflection point, and 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 renal cancer. The science behind this asset is really excellent, and the clinical data obtained to date is compelling with a high degree of thought leader interest and support.
We're now waiting with excitement for the outcome of the ZIRCON study, which, if successful, will yield a follow-on asset targeted at the same sales call point as Illucix, with a very significant market opportunity in its own 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 Illucix in terms of the sales infrastructure, distribution networks, and market access function. It's the perfect follow-on product to Illucix in many ways. In terms of indications, there are several that we are pursuing, but the two key ones are diagnosis of indeterminate renal masses and surgical staging.
In the 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. It's gonna be really exciting to report out. This asset has FDA breakthrough designation and can progress fairly rapidly for a biologic-based program towards commercialization. Once the ZIRCON trial reads out in the next couple of weeks, and we have a clear go-forward for the program, we'll be providing a lot more detail to shareholders and clarity around the timelines and the commercialization pathway for this really exciting program. Next slide, please.
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 wanna 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 needs. You know, watch this space. We're gonna be very strategically building clinical depth in this program, and 2023 is gonna be a very vibrant year for this program, particularly on the therapeutic front.
Just, you know, 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. Just to wrap up this 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 gonna 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 just mentioned, is the ZIRCON phase three 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 wanna 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'll also be giving a concrete update on resubmission timeline, 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 gonna be for this asset in Europe. On that, final note, I will open up the floor to questions.
Thank you. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via webcast, please enter it into the Ask a Question box and click Submit. These questions will be answered online. Your first question today comes from Shane Storey with Wilsons. Please go ahead.
Good morning. Thanks for taking my questions. Chris, as always, I'm interested in the relative activity levels and competitive intensity that you're seeing in the various settings. I guess I'd ask you at this stage to just concentrate on the IDTFs, specifically, please. Just any updated observations you can make about how you're seeing that specific part of the market take 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. It's a segment of the market where the competition between Illucix and Pylarify is probably the most intense. You know, there's a lot of different types of customers in that market. Clearly right now, you know, 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 gonna move more towards the IDN group purchasing, you know, opportunities that are available, you know, as the market kinda matures. I think, you know, 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 wanna answer this one, but I mean, we have had some recent feedback saying that, you know, 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 commercially kind of. I think, you know, 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. You know, I think much beyond that's probably the extent of the commercial commentary.
No, that's fine. No, I expected that. Maybe just one final one perhaps for Darren, and just, I guess, also in anticipation of the ZIRCON study and the commercialization process that'll, you know, be enacted over the next year or two. Just trying to help. I mean, I appreciate that it's gonna leverage, you know, 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 six months - 12 months.
Darren, I'm happy to take that one. It's kinda more of an operational than a financial question. I think,
Sure.
You know, the follow-on product in renal cancer imaging will very much follow the Illucix model. 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 Illucix, is a ready to inject product. You know, we love the nuclear pharmacy distribution model. We will continue to utilize it even for follow-on products. I think that the infrastructure and the relationships, you know, some very trusted and close working relationships that we've built in the United States, those are relationships which will continue to develop and be leveraged as we do follow-on product launch.
In Europe, of course, Shane, the situation will be rather different. You know, 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. 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, you know, that forms the basis of the investment in the Brussels South, or what we used to call the Senneffe. Now we stopped calling it Senneffe 'cause nobody knew where Senneffe was, but everyone knows where Brussels is. We refer to it now as Brussels South. That site is just going very well towards build-out completion.
We expect that, obviously subject to regulatory processes, that 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.
Thanks, Chris Behrenbruch. That's all the questions I have at this point. Thank you.
Thanks, Shane. Appreciate the question. David, I see you're up next. Do you wanna fire away?
Great. Thank you very much and well done, team. Look, you've mentioned that you're at circa 170 radio pharmacies. I'd just like to know what the market, how many radio pharmacies there are in the U.S., and what you'll be targeting getting into over the medium term, please?
Yeah, no, it's a fair question. I mean, look, 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. 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, you know, some of those are serviced better by, you know, one network or another. We're trying to position ourselves for that kind of next wave of the commercial dynamic.
There's about 300 nuclear pharmacies in the U.S., I mean, give or take. I'd say just over one out of every two right now is dispensing Illucix. 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. One of the neat things about our deployment model is, unlike our competition, it's super scalable, right? We can add, remove, adapt, we can, you know, not just add nuclear pharmacies, but we can take nuclear pharmacies out as well, to make sure that we're kinda optimizing the cost base of the business and customer access at the same time. It's really one of the strengths of our deployment model.
Does that answer your question?
Understood. Yeah. Just so, just to be clear, you're at about 50% now, and you expect potentially in the future to get to 80%-85%?
No. 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, you know, 90%+ of the customer base in the U.S. we're able to reach with our current model. One out of every two nuclear pharmacies is dispensing Illucix, but we don't have a forecast on how we plan to grow that further at this point in time.
Understood. My second and final question is, you know, it follows up from a previous question. You know, what's the potential impact for you from the approval of Locametz, the reimbursement approval of Locametz, in this December quarter? What do you think the impact might be on your sales in this quarter from Locametz entry into the market?
Well, we haven't given guidance on the quarter, so therefore, I haven't given guidance on what competitor impact will be. I think qualitatively, I mean, we're obviously aware, very much aware of the competitive landscape. You know, we see the impact of Locametz in a very specific market and very specific customer segments. We don't see it as having a particularly large impact on some of the key segments that we are commercially focused and differentiated in. I think, you know, there's obviously, you know, always an effective competitor will always take a share, but I think we're in such a growth stage in the market right now that I don't see it as a particularly major headwind at this point in time.
Understood. Thank you.
Yeah. Thanks, David. Appreciate it.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Dennis Hulme with Taylor Collison. Please go ahead.
Morning, Chris. Congratulations on the results. I was just wanting to change tack to the brain imaging molecule, the 18F-FET. I see on your slide that, you've got, you know, potential completion of phase II over the next 12 months. Can you talk a little about what the likely pathway is to approval for 18F-FET in brain imaging?
Yeah. Look, Dennis, we're not gonna do a ton on other pipeline in this call. I think the goal is really to open ourselves up to questions about the sales, but I mean, I'll just briefly comment. We have in previous investor calls and including our half-year results indicated that we intend to file a new drug application for that asset by the end of Q1 of next year. We're in this fairly advanced stage of getting that package ready. You know, we'll certainly be giving some relevant commercial update closer to the event. That's an asset that we feel we can commercialize, complete the commercialization of next year as well.
Yeah. Great. Thanks very much for that. Secondly, are you able to give a little more color on the SG&A spend, just as far as how much of the sales infrastructure is in place currently and how much you'll have to add to that over the next sort of three months- six months?
Yeah. I'll make a preliminary comment then Darren, if you wanna add anything. I think from an SG&A perspective, I mean, we have largely built out the infrastructure that we intend to use going forward. You know, as a function of sales growth and opportunity, of course, we may elect to make some further strategic investments in the U.S. Sales force. Clearly, we've got a second urology product coming down the pathway. Whilst that doesn't mean that we double the size of the sales force, it does mean that there's additional product launch and market access readiness that's necessary for that second asset. I can assure you that we will be making those investments judiciously and as a function of clinical success.
I mean, we haven't preempted the readout of the ZIRCON trial. We're gonna take the trial readout and then decide how that will impact the follow-up on the sales team. As Darren noted, overall, you know, our business does demonstrate a volume-based efficiency. It's not a perfectly linear one, but the revenues from Illucix will certainly continue to outpace our SG&A ramp up. I think, you know, what shareholders should be seeing is a nice, clear snapshot of stability, that we're in a really good financial position. We're managing the burn rate well on both the commercial side and the R&D side. You know, we'll continue to be vigilant about that from an SG&A perspective as Illucix ramps up.
Okay. Thanks very much for that. Is that Darren, have you got anything to add or is that sort of, pretty much-
Well, I think that's a very good overview from a commercial perspective. You know, when we start talking about the AI or the administration side of the SG&A, obviously a lot of that capability is in place. You know, there might be some small tweaks and additions to that group, but the expectation is that it'll be significantly smaller or additional to than the actual growth that we'll see on the top line. We'll get some leverage out of the model.
Yeah. I think that's a good summary. Thanks for the question.
Okay. Thanks very much for that.
Dennis, did you have anything else you wanted to ask?
No. That's all from me. Thank you.
Cheers, Dennis.
There are no further phone questions at this time. I'll now hand back to Ms. Williamson.
Look, thank you, as always for dialing in and for your support. We're really happy with the results this quarter. You know, as we've laid out, we've got a very clear growth strategy and a real focus on the upcoming milestones and progression of the therapeutic pipeline. With that, thank you, Chris and Darren. I will draw the call to a close.
Thank you, everybody.
That does conclude our conference for today. Thank you for participating. You may now disconnect.