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Telix boss says rising tensions with China are 'worrisome'

Nov 16, 2020

Telix Pharmaceuticals boss Christian Behrenbruch says it was "worrisome" that he had to weigh up the escalating political tensions with Beijing when penning the radiation oncology company's $450 million deal with one of China's largest pharma companies.

Telix is a late-stage biotech looking to potentially diagnose and treat various forms of prostate, kidney and brain cancer by developing radiopharmaceutical theranostics (combinations of diagnostics and therapeutics).

partnership in early November with Hong Kong-listed China Grand Pharmaceutical and Healthcare Holdings.

China Grand, and its co-investor CDH Investments, snapped up Sirtex Medical, so is well versed in the nuclear medicine space.

Dr Behrenbruch told The Australian Financial Review that China Grand is a very acquisitive company, and he had to weigh up Australia's souring relationship with Beijing.

"It is simply not possible for a Chinese company to acquire an Australian company right now," he said.

"The deal we did was exactly the deal we wanted. But for those Aussie companies who are looking for a deeper relationship with Chinese companies, it's a really difficult environment. Just the fact that government politics should factor into the decision making of a commercial transaction is sort of worrisome."

China Grand took a 7.6 per cent stake for a $US25 million ($34.4 million) equity injection, with its holding listed under an entity called Grand Decade Developments Limited.

Under the deal, Telix also received a $US25 million upfront payment, up to $US225 million in milestones and royalties; and up to $US65 million on clinical costs program-related investment for Telix’s prostate and renal cancer treatments in China.

Export opportunities

Dr Behrenbruch, who is co-founder and has been running Telix from his kitchen table in Melbourne for the past 38 weeks, said the partnership was good for Australian industry.

"We employ people and manufacture here in Australia for some programs, so it creates export opportunities, and we are doing good things for patients," he said.

Jefferies analyst David Stanton said the China Grand deal provided validation to the company's technology, and kept his 'buy' call while also upping his price target to $3.30 from $2.90.

"Prostate cancer in China is a large potential opportunity for Telix and CGP," Dr Stanton said. "We note that the Chinese market generally requires a local partner for successful entry. The upfront payment to be received by Telix will fully fund the upcoming global Phase 3 trial for TLX591 in prostate cancer, which will now include Chinese patients."

Dr Behrenbruch said Telix was active in Japan, and was working on a partnership in South Korea, which had a "more straightforward regulatory environment". Eventually, Singapore would become the logistics and manufacturing hub.

While the US and Europe are its major markets, Dr Behrenbruch is eyeing other opportunities in the developing world, such as Latin America.

The total addressable market for prostate imaging and therapy is $US850 million and $US4 billion, respectively.

Homing beacon

Telix is operating in radiopharmaceuticals, also known as "molecularly targeted radiation" (MTR) drugs, which deliver targeted radiation to a patient.

So how does MTR work? This is an injection, with a homing beacon attached to the radioactive drug. It finds the cancer cells and attaches itself and kills them. This allows it to selectively attack this area.

Dr Behrenbruch and his backers see molecularly targeted radiation as the next frontier in radiation oncology therapy.

Caledonia Investment's co-founder, Mark Nelson, is on the board and former Macquarie Bank chairman Kevin McCann is the chair.

Telix is fast approaching several key approval milestones. On November 24 it expects to hear back from the US FDA on its new drug application for its lead prostate cancer candidate, which is a cancer hunting agent used in a PET scan.

If successful, Telix will be able to tell the market what its stage 3 clinical trial size and design will look like for its prostate therapy drug.

Ability to recruit

It also is working on a therapy using the same drug (TLX-591) with higher radiation attached that would destroy this cancer.

Next year, Telix hopes to have meaningful sales of its prostate drug with its US-based partner Cardinal Health. By the end of March it expects to have more than 100 nuclear pharmacies ready to sell its product.

The possibility of Telix as an M&A target appears to be growing, with big pharma paying attention to radiation oncology since it works well alongside immunotherapy.

Dr Behrenbruch called coronavirus a "serious public health issue" that heavily impacted Telix, slowing the ability to recruit for key trials from March until August.

"We are cashed up (with $US100 million balance) but still need to be careful," he said.

Telix is looking to expand clinical trial programs in COVID-19 stable nations such as Australia and Canada.

In a year decimated by coronavirus, the irony of signing a deal with a Wuhan-based healthcare company was not lost on Dr Behrenbruch.

"It is not what we thought we would be doing in 2020," he said.