From UBS Telix Pharmaceuticals "The next leg up" (Buy)...

From UBS Telix Pharmaceuticals "The next leg up" (Buy) SutcliffeWe think the next new leg up is TLX250-CDx, potential approval in 2H24We think Telix's kidney cancer diagnostic, TLX250-CDx, is clinically de-risked via standout data from the phase III ZIRCON trial, meets a clear unmet need and will likely be approved by FDA in 2024. We see conservative peak sales of c.AUD320m − higher than before as it now looks likely, based on physician feedback, that more patients will be given the agent. We also envisage more upside from widening use over time. TLX250-CDx still appears to be largely outside the share price which we think will change given proximity of potential approval. We have raised our Illuccix (prostate cancer diagnostic) forecast substantially, with peak sales now AUD2.1b vs 1.8b prior; our SOTP suggests the share price bakes in c.AUD1.3b. Our 2024 revenue forecast ex 250-CDx is AUD705m, equal to the top end of the guided range (UBSe total AUD717m) and our PT rises to AUD18.50 (+c4.5AUD from Illuccix and +c.1AUD from 250-CDx).We thought we were done with raising our Illuccix forecast but we were notOur previous Illuccix forecast accounted for a 96% price cut to 40% of US sales (certain parts of US Medicare) when pass through payments end in 2025. Competitor Lantheus indicated on its earnings call that the portion of sales in this channel is more like 20%, which Telix sees as reasonable. Our Illuccix sales forecasts rise by 18%/34%/34% in 2025/26/27 via changing our estimates to reflect better pricing, the long term margin impact of this, greater numbers of people getting scans than we thought, and commentary from both companies that minor players in the space have not made major inroads. We are 52% ahead of VA consensus for Illuccix sales in 2028.Expectations for TLX591 data: between VISION and PSMAfore resultsTelix expects to have PFS data for TLX591 (prostate cancer therapeutic) from the ProstACT SELECT trial mid year. Novartis's VISION and PSMAfore data for Pluvicto present benchmarks in a sicker and less sick population respectively with median rPFS benefit over standard of care of 5.3 and 6.4 months, respectively. We are therefore looking to something between the two, albeit Pluvicto and 591 are structurally different. We still use a small placeholder forecast since Novartis is a formidable commercial presence. If the data rPFS are good enough to suggest Novartis may have to cede share, this would likely change. Therapeutics cost many times more than diagnostic agents and if TLX591, or indeed TLX592 which should have early data in the next few months, look good then there is substantial upside potential to our existing forecasts.Valuation: Increased NPV SOTP PT of AUD18.50 per share (from AUD13)Our'24 earnings estimate falls due to higher R&D. 2026 onward UBSe earnings rise, and our PT rises, via changes to sales / profit forecasts for Illuccix and 250-CDx. I like to think that analysts have a good handle on things ...expecting a rebound once the day traders have finished playing