Telix Pharmaceuticals Ltd(TLX) - 2024 Q4 - Annual Report

Key Information This section outlines significant risk factors impacting the company's financial position, operations, and investment appeal Risk Factors The company faces significant risks related to its financial position, commercialization efforts, regulatory compliance, third-party dependencies, and intellectual property protection Risks Related to Financial Position and Capital Requirements The company faces risks from its history of net losses, potential need for additional capital, debt obligations, and challenges in integrating recent acquisitions Financial Position Highlights (as of Dec 31, 2024) | Metric | Value (A$) | | :--- | :--- | | Profit After Tax (FY 2024) | 49.9 million | | Net Operating Cash Flow (FY 2024) | 43.0 million | | Accumulated Deficit | 213.0 million | | Cash and Cash Equivalents | 710.3 million | | Convertible Bonds Issued (July 2024) | 650.0 million | - The company's loan agreements with BNP Paribas and IMBC Group, used to fund the Brussels South manufacturing facility, contain covenants that, if violated, could lead to accelerated payments and impact the facility's buildout[59] - Telix faces risks in integrating recently acquired businesses, including QSAM, ARTMS, and IsoTherapeutics, which could lead to loss of key employees, operational disruptions, and failure to realize anticipated synergies[76] Risks Related to Commercialization and Product Development Success depends on Illuccix commercialization and product candidate approvals, facing challenges from short half-life products, intense competition, and market acceptance hurdles - The business is substantially dependent on the commercial success of Illuccix® and obtaining regulatory approvals for other candidates like TLX250-CDx, TLX007-CDx, and TLX101-CDx[78] - In July 2024, the FDA issued a Refuse to File (RTF) determination for the TLX250-CDx BLA due to sterility assurance concerns, which was resubmitted in December 2024. The FDA has accepted NDAs for TLX007-CDx and TLX101-CDx with PDUFA goal dates in March and April 2025, respectively[81][82] - The radioactive nature and short half-life of Illuccix and other product candidates create significant fulfillment and logistical challenges, as products cannot be stockpiled and require timely delivery after radiolabeling[121][122][123] - The company faces substantial competition for Illuccix from approved PSMA-PET diagnostics by Novartis, Lantheus, and Blue Earth Diagnostics. Future products for kidney and brain cancer imaging will also face competition from companies like ITM and Debiopharm[133][134] Risks Related to Regulatory Matters The company faces complex, uncertain regulatory approval processes, extensive post-marketing requirements, and evolving healthcare legislation impacting pricing and data privacy - The regulatory approval process is lengthy and uncertain. The FDA and other authorities have substantial discretion and may require additional trials or data, potentially delaying or preventing commercialization[177] - The company has received Breakthrough Therapy designation for TLX250-CDx and Fast Track designation for TLX101-CDx, but these designations do not guarantee a faster review or increase the likelihood of approval[216][217] - Recently enacted legislation like the Inflation Reduction Act (IRA) could significantly impact product pricing through Medicare price negotiations and inflation rebates, affecting future profitability[261][263] - The company is subject to stringent and evolving data privacy laws in the U.S. (HIPAA, CCPA/CPRA) and Europe (GDPR), with non-compliance potentially leading to significant fines and penalties[281][286][290] Risks Related to Dependence on Third Parties Telix heavily relies on third parties for collaborations, clinical trials, manufacturing, and distribution, where any failure could cause significant delays and increased costs - The company depends on collaborations with third parties like Grand Pharmaceutical Group and Merck KGaA for development and commercialization, and the success of these partnerships is not entirely within Telix's control[326] - Telix relies on a distribution network of specialty pharmacies and distributors to get Illuccix to patients. Any performance failure or termination of agreements by these partners could adversely affect operations[332] - The company is dependent on third-party contract manufacturers for its products and candidates. These facilities are subject to FDA inspection and cGMP compliance, and any failure could disrupt supply and lead to regulatory sanctions[343][344] Risks Related to Intellectual Property The company's success depends on obtaining and maintaining strong intellectual property protection, facing risks of patent invalidation, limited patent duration, and reliance on in-licensed rights - The company's success is contingent on its ability to obtain and maintain commercially valuable patent claims, trademarks, and trade secrets, which is an uncertain process[351] - Telix relies on licenses from third parties for key technologies, such as the girentuximab antibody from Heidelberg Pharma. The company may not have full control over the prosecution and enforcement of these in-licensed patents[370][373] - Patent terms are of limited duration and may expire before or shortly after product commercialization, opening the company to competition from generic or biosimilar products[392] Risks Related to an Investment in the ADSs Investing in Telix's ADSs carries risks including market volatility, limited ADS holder rights, reduced SEC reporting as a foreign private issuer, and potential PFIC classification - An active and liquid market for the ADSs on Nasdaq may not be sustained. Future sales of a substantial number of shares could depress the market price[424][425] - As a foreign private issuer, Telix is permitted to follow certain Australian corporate governance practices in lieu of Nasdaq requirements, such as those related to quorum and shareholder approval for certain equity issuances[447][448] - The company has identified two material weaknesses in its internal control over financial reporting as of December 31, 2024, which could affect the accuracy and timeliness of financial reporting[460][461][462] - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC), which would result in adverse U.S. federal income tax consequences for U.S. investors[476][477] Information on the Company This section provides an overview of the company's history, business operations, product pipeline, manufacturing capabilities, intellectual property, and organizational structure History and Development of the Company Telix Pharmaceuticals, incorporated in Australia in 2017, achieved dual listing on Nasdaq in 2024 and maintains a global operational presence - Incorporated in Australia in January 2017 and listed on the ASX in November 2017[484] - Became dual-listed on the Nasdaq Global Select Market (as ADSs) on November 13, 2024[484] - The company has a global presence with headquarters in Melbourne, Australia, and major operations in the United States (Indianapolis, Sacramento, Angleton), Belgium (Brussels, Liège), and other locations[485][486] Business Overview Telix is a commercial-stage biopharmaceutical company specializing in radiopharmaceutical theranostics for oncology, with a strategy to fund therapeutic pipeline development through diagnostic revenues and vertical integration - Telix is a global, commercial-stage biopharmaceutical company focused on developing and commercializing therapeutic and diagnostic radiopharmaceuticals, a concept known as 'theranostics'[489] - The business is structured into five operating segments, which are reported as three reportable segments: Therapeutics (Tx), Precision Medicine (Px), and Telix Manufacturing Solutions (TMS)[490] - The company's strategy is to launch innovative imaging agents to finance the development of its therapeutic pipeline, supported by a vertically integrated supply and manufacturing approach[553] Product Pipeline Telix's pipeline includes therapeutic and diagnostic radiopharmaceutical candidates targeting prostate, kidney, and brain cancers, with a theranostic approach and expanded assets from recent acquisitions Core Development Pipeline Overview | Indication | Target | Isotope | Therapeutic Candidate | Diagnostic Candidate | | :--- | :--- | :--- | :--- | :--- | | Prostate | PSMA | 177Lu | TLX591 (rosopatamab tetraxetan) | Illuccix® (68Ga-PSMA-11) | | Kidney | CAIX | 177Lu | TLX250 (girentuximab) | TLX250-CDx (89Zr-girentuximab) | | Brain (Glioma) | LAT1 | 131I | TLX101 (IPA) | TLX101-CDx (18F-FET) | | Hematology | CD66 | 90Y | TLX66 (besilesomab) | TLX66-CDx (Scintimun) | - The pipeline includes lifecycle management programs for late-stage assets, such as TLX007-CDx, a new PSMA-PET imaging agent with an NDA submitted to the FDA[501] - The company is advancing TLX591 (prostate cancer) in a global Phase 3 trial (ProstACT GLOBAL) and has multiple other candidates in Phase 2 and Phase 1 trials[508][519] Operations and Manufacturing Activities Telix is building a vertically integrated global supply chain and manufacturing network through facilities in Belgium and the U.S., and strategic acquisitions like ARTMS and RLS - Opened a large-scale, 30,000 sq. ft. radiopharmaceutical production facility in Brussels South, Belgium, to serve as a primary manufacturing site for the EMEA region and an R&D hub[546] - Acquired ARTMS in April 2024 to enhance vertical integration of the supply chain and gain control over diagnostic isotope production using its QIS technology[548] - Acquired RLS (USA), Inc. in January 2025, adding a network of 32 radiopharmacies across the U.S. to augment last-mile delivery and expand manufacturing capacity[549] Intellectual Property Telix's IP strategy combines regulatory exclusivity, trade secrets, and patent protection for its products and processes, relying on owned and in-licensed patents with varying expiry dates - The IP strategy integrates regulatory market/data exclusivity with patent protection covering compounds, dosing, and manufacturing processes[786] Key Product Patent Portfolio Summary (as of Dec 31, 2024) | Product/Candidate | Key IP Protection | Expected Expiry (earliest) | | :--- | :--- | :--- | | Illuccix | Owned patents on product/kit and manufacturing method | 2035 / 2042 | | TLX250-CDx / TLX250 | In-licensed patents on girentuximab antibody; owned patents on manufacturing and use | 2025 - 2043 | | TLX101 / TLX102 | In-licensed patents on methods of treatment and manufacturing | 2026 - 2038 | | TLX591 | Sub-licensed patents on the product and combination therapies | 2028 | - As of December 31, 2024, Telix owned or co-owned 11 U.S. patents and 108 foreign patents, and had in-licensed 31 U.S. patents and 380 foreign patents[808][809] Collaboration and License Agreements Telix has key collaborations and license agreements, including with Heidelberg Pharma and Grand Pharma, and has completed several acquisitions to expand its technology, manufacturing, and pipeline - License agreement with Heidelberg Pharma for the girentuximab antibody (TLX250) involves milestone payments and royalties on net sales[843] - Strategic partnership with Grand Pharma grants exclusive development and commercialization rights for Telix's portfolio in Greater China, involving up to US$225 million in potential milestone payments plus royalties[849][853] - Acquired QSAM Biosciences in May 2024 for US$33.1 million upfront and up to US$90.0 million in contingent value rights, adding TLX090 to the pipeline[864][868] - Acquired RLS (USA) Inc. in January 2025 for US$230.0 million upfront cash plus up to US$20.0 million in milestones, significantly expanding U.S. manufacturing and distribution[869] Organizational Structure Telix Pharmaceuticals Limited is the parent company of a global group, holding 100% ownership in subsidiaries across key markets to support international operations List of Major Subsidiaries (as of Dec 31, 2024) | Name of Entity | Jurisdiction | Ownership Interest (%) | | :--- | :--- | :--- | | Telix Pharmaceuticals (US) Inc. | Delaware | 100 | | Telix Pharmaceuticals (Belgium) SRL | Belgium | 100 | | Telix ARTMS Inc. | Canada | 100 | | Telix QSAM, Inc. | Delaware | 100 | | Lightpoint Surgical Ltd | United Kingdom | 100 | | RLS (USA), Inc. | Delaware | 100 | Operating and Financial Review and Prospects This section reviews Telix's operating results, liquidity, capital resources, and critical accounting estimates, highlighting significant revenue growth and financial performance Operating Results Telix reported significant revenue growth to A$783.2 million in 2024, achieving a profit of A$49.9 million, driven by strong Illuccix sales and increased operating expenses from commercial expansion and R&D Consolidated Financial Performance (A$ in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenue | 783,207 | 502,547 | 160,096 | | Gross Profit | 509,678 | 314,390 | 94,926 | | Operating Profit/(Loss) | 82,130 | 15,840 | (91,930) | | Profit/(Loss) for the year | 49,919 | 5,211 | (104,079) | | Basic EPS (Cents) | 15.07 | 1.63 | (33.50) | - Revenue growth in 2024 was driven by a 55% increase in commercial sales volumes of Illuccix in the United States[1135] - R&D costs increased by 51% to A$194.6 million in 2024, primarily due to preparations for new product launches and the Phase 3 ProstACT GLOBAL trial[1137] - The company has reorganized into three reportable segments: Precision Medicine, Therapeutics, and Manufacturing Solutions, with prior period information restated for comparability[1158] Precision Medicine Segment The Precision Medicine segment, driven by Illuccix sales, generated A$771.1 million in revenue and A$259.3 million in Adjusted EBITDA in 2024, marking a 55% and 79% increase respectively Precision Medicine Segment Performance (A$ in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | 771,106 | 496,738 | | Gross Profit | 500,285 | 308,581 | | Operating Profit | 244,859 | 104,545 | | Adjusted EBITDA | 259,341 | 145,194 | Therapeutics Segment The Therapeutics segment generated A$9.4 million in revenue from R&D services in 2024, with an Adjusted EBITDA loss widening to A$73.5 million due to increased investment in the therapeutic pipeline Therapeutics Segment Performance (A$ in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | 9,351 | 5,391 | | Operating Loss | (73,463) | (42,496) | | Adjusted EBITDA | (73,463) | (42,451) | Manufacturing Solutions Segment The Manufacturing Solutions segment reported A$2.8 million in revenue in 2024, with an Adjusted EBITDA loss widening to A$23.9 million due to increased personnel and occupancy costs from acquisitions and facility preparation Manufacturing Solutions Segment Performance (A$ in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | 2,750 | 418 | | Operating Loss | (25,038) | (5,934) | | Adjusted EBITDA | (23,868) | (5,703) | Liquidity and Capital Resources As of December 31, 2024, Telix had A$710.3 million in cash, primarily funded by Illuccix sales, equity issuances, and a A$650 million convertible bond issue, supporting operations for at least the next 12 months Cash Flow Summary (A$ in thousands) | Cash Flow Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash from/(used in) operating activities | 43,029 | 23,884 | (63,970) | | Net cash used in investing activities | (135,173) | (25,489) | (16,997) | | Net cash provided by financing activities | 638,923 | 10,186 | 174,960 | - In July 2024, the company issued A$650.0 million of unsecured convertible bonds due 2029, receiving net proceeds of A$635.0 million[1192] Contractual Obligations (as of Dec 31, 2024, A$ in thousands) | Commitment Type | Total | < 1 year | 1-3 years | 3-5 years | > 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Capital commitments | 65,181 | 42,679 | 22,247 | 255 | - | | R&D commitments | 37,771 | 30,151 | 7,620 | - | - | Contingent Consideration Liabilities (as of Dec 31, 2024, A$ in thousands) | Acquisition | Total Contingent Consideration | | :--- | :--- | | ANMI | 77,798 | | TheraPharm | 4,317 | | Optimal Tracers | 40 | | IsoTherapeutics | 8,072 | | ARTMS | 26,089 | | Total | 116,316 | Critical Accounting Estimates The company's financial statements involve critical judgments and estimates for R&D expenses, intangible asset impairment, contingent consideration, decommissioning liabilities, revenue recognition, and share-based payments - Accrued R&D expenses are estimated by reviewing contracts and communicating with service providers like CROs and CMOs to determine the level of service performed[1226] - The valuation of contingent consideration liabilities from acquisitions is a significant estimate, calculated using a discounted cash flow model with unobservable (Level 3) inputs like expected sales volumes and probability of milestone achievement[1230][1232] - Decommissioning liabilities for radiopharmaceutical production facilities are estimated based on the discounted cost of future restoration obligations, which involves uncertainty in technology and regulatory requirements[1233][1234] - Share-based payments are valued using the Black-Scholes model, which requires key assumptions about share price volatility, option term, and risk-free interest rates[1241] Directors, Senior Management and Employees This section details Telix's executive compensation framework, board practices, and employee distribution, highlighting governance structures and workforce demographics Compensation Telix's executive remuneration includes Total Fixed Remuneration, Short-Term Variable Remuneration based on an annual scorecard, and Long-Term Variable Remuneration as PSARs tied to multi-year performance milestones 2024 Executive Officer STVR Outcomes | Name | Target STVR | Actual STVR Awarded | % of Target Achieved | | :--- | :--- | :--- | :--- | | Dr. Behrenbruch (CEO) | AUD $371,007 | AUD $315,536 | 85% | | Mr. Smith (CFO) | AUD $176,400 | AUD $134,946 | 76.5% | | Dr. Cade (CMO) | AUD $171,500 | AUD $131,198 | 76.5% | | Dr. Patti (COO) | USD $102,181 | USD $86,854 | 85% | - The 2024 Long-Term Variable Remuneration (LTVR) was awarded in Performance Share Appreciation Rights (PSARs) with a 3-year performance period. Vesting is tied to financial targets (Adjusted EBITDA and R&D expenses) and product milestones for prostate and renal cancer therapies[1271][1272][1275] - The company has an Equity Incentive Plan (EIP) for granting options, rights, and restricted shares to employees and directors. It also plans to implement a U.S. Employee Stock Purchase Plan (ESPP), pending shareholder approval[1286][1292] Board Practices Telix's board practices align with ASX Listing Rules, with independent directors and established committees, while leveraging foreign private issuer exemptions from certain Nasdaq governance rules - The board has established an Audit and Risk Committee and a People, Culture, Nomination and Remuneration Committee to assist with its duties[1315] - The board has determined that H. Kevin McCann, Mark Nelson, Tiffany Olson, and Jann Skinner are independent directors[1313] - As a foreign private issuer, Telix relies on exemptions from certain Nasdaq corporate governance rules, including those related to shareholder meeting quorums and shareholder approval for specific securities issuances[1322] Employees As of December 31, 2024, Telix had 554 employees across 12 countries, with the majority in the United States, and a highly skilled workforce primarily engaged in R&D and commercialization Employee Distribution by Country (as of Dec 31, 2024) | Country | Number of Employees | | :--- | :--- | | United States | 307 | | Australia | 93 | | Belgium | 63 | | Canada | 39 | | Switzerland | 20 | | United Kingdom | 15 | | Other | 17 | | Total | 554 | Major Shareholders and Related Party Transactions This section identifies Telix's major shareholders and details related party transactions, particularly with ABX-CRO, and outlines the company's policy for reviewing such transactions Major Shareholders As of December 31, 2024, major shareholders include State Street Corporation, former director Andreas Kluge, and CEO Christian Behrenbruch, with directors and executive officers collectively owning approximately 8.74% of outstanding shares Beneficial Ownership (as of Dec 31, 2024) | Name of Beneficial Owner | Percentage Ownership | | :--- | :--- | | State Street Corporation | 5.23% | | Andreas Kluge (Former Director) | 6.78% | | Christian Behrenbruch (CEO) | 6.97% | | All directors and executive officers as a group (8 persons) | 8.74% | Related Party Transactions Telix has engaged in transactions with ABX-CRO, a company owned by a former director, for clinical and analytical services, and has a formal policy for reviewing related party transactions - Telix has a master services agreement with ABX-CRO, a company owned by former non-executive director Dr. Andreas Kluge, for clinical and analytical services[1332] Payments to ABX-CRO | Year | Amount Paid (A$) | | :--- | :--- | | 2024 | 778,617 | | 2023 | 1,256,490 | | 2022 | 3,685,543 | - In March 2024, Telix partnered with ABX-CRO on the QDOSE dosimetry software platform, involving an upfront payment of €1.2 million and a profit-sharing arrangement[1334] Quantitative and Qualitative Disclosures About Market Risk Telix's primary market risk is foreign currency exchange rates, particularly USD and EUR, managed through strategic cash holdings, with limited interest rate risk and significant credit risk exposure to key distributors - The company's main market risk is foreign currency exchange risk, primarily from the U.S. dollar and Euro, arising from international sales and R&D activities[1407][1411] Cash and Equivalents by Currency (as of Dec 31, 2024) | Currency | % of Total Cash | | :--- | :--- | | U.S. Dollars (USD) | 64.8% | | Australian Dollars (AUD) | 32.0% | | Euros (EUR) | 2.9% | | Other | 0.3% | - A +/- 10% change in the AUD/USD exchange rate would impact 2024 profit after tax by A$19.6 million or -A$16.0 million, respectively. A similar change in the AUD/EUR rate would have an impact of +A$2.4 million or -A$2.9 million[1416] - The company has significant credit risk exposure to three main distributors, which accounted for 87% of receivables in 2024[1776] Controls and Procedures As of December 31, 2024, Telix's disclosure controls were deemed ineffective due to material weaknesses in financial reporting procedures and segregation of duties, prompting a remediation plan - Management concluded that as of December 31, 2024, disclosure controls and procedures were not effective due to identified material weaknesses[1443] - Two material weaknesses were identified: 1) Lack of appropriately designed, implemented, and documented procedures and controls for complete, accurate, and timely financial reporting. 2) Insufficient segregation of duties across key business and financial processes[1445][1446][1447] - A remediation plan is underway, which includes hiring more accounting staff, investing in technology, formalizing governance, and engaging a third-party firm to enhance Sarbanes-Oxley (SOX) compliance[1448][1449] Corporate Governance and Other Matters This section covers Telix's principal accountant fees and cybersecurity program, detailing audit expenses and the company's risk management framework Principal Accountant Fees and Services PricewaterhouseCoopers served as Telix's auditor, with total fees increasing to A$4.5 million in 2024, primarily due to higher audit fees reflecting increased complexity from the Nasdaq listing Auditor Fees (A$ in thousands) | Service Category | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | 4,370 | 1,380 | | Audit-Related Fees | - | 170 | | Tax Fees | 126 | 292 | | All Other Fees | - | - | | Total | 4,496 | 1,842 | Cybersecurity Telix implements an ISO 27001:2022 aligned cybersecurity risk management program, overseen by the Audit and Risk Committee, and has not experienced any material incidents as of the report date - The company has a cybersecurity risk management program aligned with the ISO 27001:2022 international standard[1469] - Oversight is provided by the Audit and Risk Committee of the board, with day-to-day management led by the Chief Information Officer[1473][1475] - As of the date of the report, no cybersecurity incidents have materially affected the company[1472] Financial Statements This section presents Telix's audited consolidated financial statements for 2022-2024, prepared under IFRS, showing significant revenue growth, net profit, increased assets, and positive operating cash flow Consolidated Statement of Comprehensive Income or Loss (A$ in thousands) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenue from contracts with customers | 783,207 | 502,547 | 160,096 | | Gross profit | 509,678 | 314,390 | 94,926 | | Operating profit/(loss) | 82,130 | 15,840 | (91,930) | | Profit/(loss) for the year | 49,919 | 5,211 | (104,079) | | Total comprehensive income/(loss) for the year | 92,617 | (536) | (103,488) | Consolidated Statement of Financial Position (A$ in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Current assets | 918,564 | 232,504 | | Non-current assets | 597,867 | 173,454 | | Total assets | 1,516,431 | 405,958 | | Current liabilities | 330,912 | 165,064 | | Non-current liabilities | 617,306 | 91,983 | | Total liabilities | 948,218 | 257,047 | | Net assets | 568,213 | 148,911 | Consolidated Statement of Cash Flows (A$ in thousands) | | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash from/(used in) operating activities | 43,029 | 23,884 | (63,970) | | Net cash used in investing activities | (135,173) | (25,489) | (16,997) | | Net cash provided by financing activities | 638,923 | 10,186 | 174,960 | | Cash and cash equivalents at end of year | 710,346 | 123,237 | 116,329 |