Understanding Telix, page-304

Inside Telix: The Aussie-guided nuclearmissile for cancer

Innovation

By Mark Whittaker

Published onDecember 5, 2023

Radio-pharma biotech Telix is building on the success – and the cashflow– from its nuclear-guided prostate cancer tool to aim for new cancers, and newtreatments.

Telix CEO and cofounder Christian Behrenbruch

Christian Behrenbruch wasoutraged. That’s what started it all. The then 26-year-old PhD candidate fromMelbourne was at a routine lab meeting at Oxford when it was mentioned that thelab was dropping a bunch of patents it owned.

He couldn’t get his head aroundit. “We’d developed these amazing technologies that would allow the earlydiagnosis of breast cancer, and nobody was interested: not the medical imagingcompanies nor the med-tech companies. I found that deeply offensive.”

It wasn’t like Behrenbruch hadmade an enormous contribution to the inventions himself. After graduating inengineering at Monash, he’d gone to Oxford on a scholarship and was pursuing abiomedical engineering PhD – attempting to understand which breast cancerpatients would benefit most from which treatments. But the Canadian-bornstudent knew enough to know the enormous potential of the lab’s imagingtechnology.

His supervisor had already toldhim his future was not in academia – that he “sucked at it”. But he was a goodcollaborator in bringing large projects to life.

“I was so outraged that the coreintellectual contribution of the lab was just going to wither on the vine, thatwe started a company and optioned the patents for a pound,” Behrenbruchsays.

Behrenbruch found himself CEO ofthe fledgling Mirada Medical while still in his secondyear of grad school, making him the boss of his professor and others from thelab. “We raised venture capital, did clinical trials, and got an FDA approvalfor our nuclear-medicine radiology product.” Mirada grew to 100 people, andthey sold after a couple of years. “We all got great paydays, so you think,‘Well, I must be good.’ Then you realise you just got lucky.” But the spark wasthere. “In the following two decades, I’ve been involved in starting a bunch ofhealthcare companies, some successful, some not.”

The most recent of those, TelixLtd, sits on the positive side of that ledger. Since floating on the ASX in2017 at 65 cents a share, the company has risen to more than $9 a share and amarket capitalisation of $3.5 billion. Behrenbruch owns 24 million shares.

In the last year, Telix hasfound itself swimming in an enormous cashflow, running at an annualised $500million, propelled by just one product, Illuccix, a diagnostic that uses amolecule – a monoclonal antibody – loaded with radiation to find prostate cancerwherever it may have spread in the body.

But what allows Behrenbruch tosay with a straight face that he wants Telix to be the next CSL [market cap$116 billion] is that there are two more diagnostic tools just like it in thepipeline and then three more products further off that won’t just be using thesame acutely targeted nuclear medicine to find cancers, but – Phase-2-and-3trials willing – to destroy them. Those treatments are aimed at prostatecancer, kidney cancer and the most common and aggressive form of brain cancer,glioblastoma.

And while its diagnosticprostate product, Illuccix – available in Australia since September 2022 –sells in the US for about US$5,000 a pop, if they can get the relatedtherapeutic treatment into the market, it will likely go for about 30 timesthat amount. It has commenced a Phase-3 trial. Behrenbruch’s straight facemight almost be breaking into a smile.

The Snowball

Behrenbruch was born in Canadain 1975. His father was in the oil industry, so the family moved around theworld until they put down roots in Melbourne when Behrenbruch was in hismid-teens. After Mirada, he lived in the US where more start-ups followed. Hereturned to Melbourne in 2015 and became interested in technologies thatattached radioactive isotopes to molecules that sought out cancer cells so thatthe radiation could hitch a ride directly to where it was wanted.

Such technologies weren’t new.Radioactive iodine had been used to target thyroid cancer since 1942, butlacking such precise transport vehicles for other cancers, the larger field hadbeen ignored.

The other significant impedimentfor such radiopharmaceuticals to scale was their requirement for theradioactive material to go from a reactor to a patient’s arm in a couple ofhours before the radioactive material decayed. “If you can’t deliver a productto a customer anywhere in the world, every single day, you don’t really have aproduct,” says Behrenbruch.

With the industry uninterestedin the field, research had been sustained by a few key academics around theworld, such as the University of Melbourne’s Professor Rod Hicks, who keenlyfelt the lack of enthusiasm for his passion. “Radionuclide therapy was oftenseen as the treatment of last resort,” says Hicks now at Monash University andchief medical officer at the Melbourne Theranostic Innovation Centre. “Itrequired an admission of failure by the medical oncologist. ‘I’ve got nothingmore to offer you. Go off and see this guy in the basement,’ where nuclearmedicine normally is.” Even if the patient improved – and they often did – theoncologists rarely saw it, Hicks said.

Professor Rod Hicks – kept the field ofradiopharmaceuticals alive when others were ignoring it. | Image: MelbourneTheranostic Innovation Centre

But Behrenbruch sensed that thefield was evolving. Thanks to government investment in the Australian NuclearScience and Technology Organisation (ANSTO), Australia was reaching
supply-chain maturity. Speciality transport companies appeared capable ofmoving nuclear material around. Clinics were geared up to receive it. “It’s asnowball effect. It started with a few little clinical trials. ‘Wow! Thislutetium 177 stuff works great.’ Then, that triggers interest in investing inthe infrastructure, which results in more clinical data that becomes this kindof virtuous cycle. We have thousands of clinical trials running globallybecause that infrastructure has been built.”

Belles of the ball

In Germany, Andreas Kluge hadbeen thinking the same thing. Kluge had been a hospital neurologist who hatedthe night shift and switched to research. “Due to my big mouth, I was firedafter two years,” he says, “which afforded me a very big golden handshake whichallowed me to found ABX advanced biochemical. Today, it’s the leadingmanufacturer of radiopharmaceutical precursor compounds with 500 employees,based near Dresden.”

Telix co-founder Andreas Kluge. | Image: Supplied

Kluge felt that traditional drugcompanies would not/could not understand radiopharmaceuticals. There’d alreadybeen failures, so nobody would touch it. Kluge was also working on a specificradiopharmaceutical for glioblastoma, looking for ways to take it forwardwithout selling the IP to a major drug company who, he was sure, would likelyshelve it.

A colleague and customer,Professor Jean-Francois Chatal, told him that Behrenbruch was looking to starta company doing just that sort of thing. “That is how we fell, let’s say, inlove, professionally,” says Kluge. “We share the vision that this is thepotential for an entirely new industry.” They formed Telix in December 2015.“We spent a year and a half shopping around and building a portfolio of assetsthat we thought were interesting,” says Behrenbruch. “Andreas and I paid foreverything. It was an under-invested space, so the cost of licensing IP was notvery high.”

Australia’s competitive edge inthe field, Behrenbruch could see, was that the Therapeutic Goods Administrationdid not control the field as stiffly as the FDA in the US, allowing physiciansto lead the research, driving innovation.

For example, they found the workof associate professor Paul Donnelly at the University of Melbourne’s Bio21Institute. Donnelly had found a better way to tag cancer antibodies with aradioactive trace so they could go on their search-or-destroy missions. Telixlicensed his tech, though Donnelly has since founded rival ClarityRadiopharmaceuticals Ltd [market cap $267 million].

They continued to self-fund,Behrenbruch says, until they got to the point of making drugs, when “it startsto stretch household budgets and marriages”. He tried to raise money in the US.“But at the time, there just wasn’t the institutional investor appetite forradio-pharma. Today, it’s super-hot. I turn up at an investor forum in NewYork, and it’s like I’m the belle of the ball.”

Former Macquarie Group andOrigin Energy chair Kevin McCann got a phone call from his former MacquarieGroup colleague Allan Moss, who said he’d invested in Telix and they werelooking for a chair to take them through an IPO. Would he be interested?

McCann was cautious aboutthrowing his lot in with a start-up. “You do have a brand,” he says. He metwith Kluge and Behrenbruch and did his due diligence, meeting with auditors andthe proposed CFO and travelled to Melbourne to meet key academics in thefield.

“I had to satisfy myself thatthese people were what they said they were,” McCann said. A lawyer by training,McCann knew little about the field but was reassured by mentoring from anotherinvestor, Caledonia’s Mark Nelson, who has a PhD in pharmacology.

Through all this, he started todraw conclusions about Behrenbruch. “He didn’t come across as a personmotivated by profit. He wanted to help patients and clinicians.”

Telix raised $8.5 million inseed capital in January 2017, then floated on the ASX in November of that year,selling 77 million shares at 65 cents, raising $50 million and giving thecompany a market capitalisation of $128 million. Its success was “unheard of”,says Kluge, “and certainly had to do with very favourable conditions of theAustralian finance environment due to the
mechanics of your superannuation system.”

Kidney punch

Dr Brian Shuch, director ofUCLA’s kidney cancer program, ran the Phase-3 study intoTelix’s kidney cancer diagnostic, Girentuximab, published in February. Hetold a Telix investor meeting it was “one of the most exciting advances we’vehad in the field for a very long time”.

UCLA’s Dr Biran Shuch led the phase-3 trial intoTelix’s kidney diagnostic

There were 70,000 to 80,000diagnoses of malignant kidney cancers every year in the US, Shuch says, butafter the patient’s kidney had been removed, 20% to 30% of those tumours turnedout to be harmless. “I can tell you; urologists hate taking out kidneys andthen finding out the tumour was benign. It’s a punch in the guts for thesurgeon, and it’s worse for the patient.” One in 500 dies from theprocedure.

His study enrolled 300 patientsabout to have cancerous kidneys removed. Before surgery, they were givenGirentuximab and scanned. After surgery, the sliced-and-diced kidneys could becompared to the radiographers’ predictions. “It crushed any prior imagingmetrics ever performed,” Shuch said. They identified the cancer with 87%specificity in larger tumours and 90% in smaller ones.

Drug trials for diagnostics arequick and easy to run. Unlike therapeutics, you’re not waiting three years tosee who dies. This, Behrenbruch says, was the Telix strategy: punch out a bunchof diagnostic tools and use the cash flow to pay for the longer-termtherapeutic studies.

Because it’s the same antibodiescarrying the same nuclear material to the same target, it’s just a higher doseof radiation that differentiates between a diagnostic and a therapeutic. That’swhy the field has coined the word “theranostics” to embrace this class ofdrugs.

The Telix tea leaves

Telix’s share price doubledbetween February and June – peaking at $12.79 and a market cap of $4 billion –when Illuccix started to bring in hard sales numbers annualised to about $500million. The most recent quarterly revenue numbers were $133 million, downabout 5% on analyst predictions.

At the same time, the results ofthe prostate cancer therapeutic Phase-1 trial were published. Ostensiblypositive, the results appear not to have been positive enough, and the stockfell below $9, shrinking the market cap to $2.75 billion but still leaving itas the fourth largest radiopharmaceuticals player in the world by market cap –behind Novartis, Bayer and US firm Lantheus.

Professor Hicks – a scientificadvisor to Telix and a shareholder – said the market had misunderstood thepurpose of the Phase-1 trial. “I was not discouraged by the study results. Idon’t presume to understand what happens with the share market. The trial’spurpose was to look at safety, not effectiveness. Perhaps because the marketwas looking for a signal of outcomes rather than a safety profile, it was seenas underwhelming.”

Nevertheless, stock watchershave continued to rate Telix a “buy”. Investment company Jarden has a pricetarget of $12.99, while Bell Potter and UBS have $14 targets.

The head of healthcare equityresearch at Jefferies, David Stanton, has followed Telix since 2020 and remainsoptimistic. “They’ve done pretty much everything they said they would do. Theysaid they were going to get this Illuccix drug onto the market. They got that.They said we would do these clinical trials in a kidney diagnostic, TLX250-CDx[Girentuximab]. They’ve done the Phase-3 clinical trial. It was a good result.They’ve said they’re going to progress this prostate cancer therapy drug, andthey’ve done that.” Jefferies has Telix’s price target at $14.80.

Behrenbruch tries to ignore thestock price, but knows he must pay it some regard. “I try to look at it once aweek, on my second glass of wine on a Friday night.” He soaks up the abusivecomments on the forums. “That’s how I like to end my week. It’s almost my CEOobligation to tell you the company is woefully underpriced. We’ll continue togrow revenues for the next few years, and we’ve got lots of follow-on productsthat are fully cooked. We know they work. We just have to continue to executewell; if we do well by patients, the share price will take care ofitself.”

The sector remains out offavour. The Nasdaq biotechnology index is still down about 25% on its September2021 high. “It’s so fickle,” says Behrenbruch. “Just out of a pandemic wherethe biopharmaceutical industry saved millions of lives, you’d think that alonewould establish it as a credible asset class.”

He says that far from beingspeculatively financed like many in the field, Telix was earning enough to pump$100 million a year into R&D – which is not being valued into the shareprice. “What’s changed for us over the last 12 months is about 25% of ourregister are now US investors – typically sophisticated biotech investors.They’re taking the bet the market will wake up and realise the pipeline we have– which is not contributing to our market cap today – will get unlocked,” hesays.

He’s never gone after the mumand dad investors, he says. Biotech is too risky. It needs to be de-risked byinstitutional investors first. But he feels Telix has entered a new phase.“I’ve got friends and family who hold Telix stock, and it bothers me less now.”