Telix Pharmaceuticals Ltd (TLX) 2022 Q2 法說會逐字稿

Thank you for standing by, and welcome to the Telix Pharmaceuticals Limited First Half 2022 Financial Results Presentation. (Operator Instructions)

I would now like to hand the conference over to Kyahn Williamson, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Good morning. Thank you, Harmony. And thank you, everybody, for joining us today. It's my pleasure -- as mentioned, my name is Kyahn Williamson. I'm Senior Vice President, Investor Relations and Corporate Communication at Telix, and it's my pleasure to introduce my colleagues who are also presenting on today's call in order: Dr. Christian Behrenbruch, our Group CEO and Managing Director; Darren Smith, our Group Chief Financial Officer; and Dr. Colin Hayward, our Group Chief Medical Officer.

Just move to the next slide, please. So the -- our financial results were lodged this morning on the ASX, you'll see those documents there. For those joining by phone, if you refer to the copy of the presentation, the ASX, will give you a verbal queue of next slide so you know when to move along.

If we can move to the next slide, please. So just by way of introduction. It's been a really momentous start to 2022 for Telix, and the commercial launch of Illuccix has been a major area of focus for the company and for our investors, but we've also made progress right across the business. We've previously outlined our strategic road map for the company, and this consists of 4 key pillars: to successfully launch to Illuccix; to build on this foundation and follow on with a portfolio of high-value diagnostic tools, including follow-on products for the urologic oncology field; to unlock the value in our therapeutic programs as we advance multiple clinical studies; and to selectively expand the pipeline with new assets, targets and technologies that will add value to the company over time. So the milestones delivered in the first half demonstrate that we are delivering to these priorities.

The launch of Illuccix in the U.S. is off to a flying start, and Chris will talk to you in more detail about this shortly. The completion of the ZIRCON study, our kidney cancer imaging agent Phase III program was a really important milestone in the company's history, and it's proven our ability to complete a global Phase III study. We've also made meaningful progress across all of our core therapy programs, and Colin will be talking about the highlights and future plans for these programs. We're also investing selectively in the pipeline expansion, and Chris will take you through some of the key developments here and how these will further differentiate Telix.

We've also made some really important new leadership appointments during the half. Darren Smith on the call today joined the company in February and has now stepped into the role of Group CFO. Kevin Richardson has now been in the role of CEO of Telix Americas for a little over a month. And Tiffany Olson, who was previously Head of Nuclear Medicine at Cardinal Health and is a highly regarded leader in the U.S. industry has been a notable addition to the Board. These individuals have a really excellent track record themselves in leading and scaling up fast-growth companies and experience in translating radiopharmaceutical development into commercial outcomes and really reflects the type of caliber of talent we can attract to this really important transition stage in our company.

So just to move to the next slide, please. So I'll just touch very briefly on the headline financial metrics. Darren is going to take you through the key elements of the financial results later in the presentation. So the uplift in revenue result reflects our maiden commercial revenues from the U.S. sales of Illuccix delivered in Q2. We raised $175 million in January this year, and where we now have a balance sheet that puts us in a position of strength and provides us with sufficient funding to execute on our 3-year plan.

The increased investment in the business reflects the fact that we have operationalized a major product launch, and we've completed a Phase III study. The ongoing investment in R&D is now focused largely on our therapy programs, and we are taking a very well-planned and rational approach to investment, in line with the stated use of funds in our capital raise and in support of our goal to advance development of our core therapy programs into pivotal trials.

So with that brief introduction, I'd like to hand over to Chris to talk in more detail about our commercial activities.

Thank you very much, Kyahn. The next slide, please. Thank you very much, Kyahn. And good morning to everybody. Obviously, given the commercial transition in the company, the focus of my presentation today is really going to be on Illuccix and to really convey to you that the progress that we've made.

We had our first commercial dose sold around the middle of April, and we had really a spectacular launch into the U.S. market. This pictogram on the left actually kind of illustrates the fact that we are able, through the penetration model that we have for Illuccix, to really get broad customer coverage, and we are currently delivering Illuccix to 43 states and growing fast in the United States. And you can sort of see there we've broken out on a month-by-month basis really how this revenue ramp-up has transpired.

We also wanted to give a little bit of color to the reimbursement landscape in the sense that as of the first of July, Illuccix is a fully-reimbursed product in the United States. We had a very strong July, which clearly on an annualized basis puts us well north of USD 100 million in annual revenue and, as you can see, growing fast as we roll out our product. So this has been a very strong and a successful launch. We now have a geographic coverage by almost 150 pharmacies, and we expect to continue to add pharmacies where we have a market competitive need or where we're targeting a specific market opportunity.

So I also want to impress upon you, and again, sort of aided by this illustration, we are certainly active across the entire geography of the United States. We've been very strong in major metropolitan areas. Our largest markets include New York and Tri-state area. We're very dominant in Florida, where we've had a very successful launch. And so I just want to impart to you that the gallium model that we have for PSMA sets us up for success both in major markets as well as competitively in regions where only Illuccix can be successful.

Moving on to the next slide, please. The landscape for PSMA imaging is clearly growing fast, and there's no doubt that the 2 initial indications that we have for biochemical reoccurrence in high-risk men, this is the current label that we have on Illuccix, is driving the excitement and clearly the sales volumes. But we continue to see this market opportunity to grow and evolve. And actually I'll ask you, Colin, to chime in for a second, give your viewpoint on how we see the PSMA landscape continuing to evolve.

Sure. Thanks, Chris. Well, look. I mean, as you said, we recognize that utility with the great demand that we've seen at launch in those approved indications. But what we're hearing from sites, from patients alike and from essentially pharma partners as well is that we want to be making management decisions based on PSMA imaging throughout a patient's journey of prostate cancer and throughout their continuum. They could be up to 5-plus scans for a patient over their lifetime, and we're certainly looking to expand those indications from helping in terms of making management decisions and having metastases-directed therapy later on.

Yes. Thanks, Colin. So you'll be aware from our half year report or from our [4Qs] as well that we've now filed a supplementary NDA with the FDA for the use of Illuccix for patient selection for PSMA therapy, and we continue to explore a number of exciting label indications for Illuccix and really engaging effectively with key opinion leaders to expand the utility of PSMA in prostate cancer and in other malignancies as well.

Moving on to the next slide, please. I thought I'd give a little bit more color around distribution. And our success has been both through the well-understood clinical utility of PSMA. We've been part of the very effective market education process. As you may recall, we were very active in making Illuccix available under expanded access and can [pass in] these programs prior to approval. And I think that, that was important to educating the physician base around how -- particularly referral urology around how PSMA imaging can play an important role.

But we've also been subjected to a fair bit of competitive misinformation about our rollout strategy. And I think the purpose of this slide is really to convey to you that whilst we've chosen to very much localize our production into the backyard of our customers, and this map actually shows how our nuclear pharmacy coverage and transport time to nuclear pharmacy just literally peppers the entire map.

There isn't a market that we can't reach through this model. It's a highly penetrative model. We are very much in our customers' backyard and leveraging the tight relationship between the nuclear pharmacy and the customer. But we're also following the well-trodden pathway. And actually F-18 based PSMA products and the use the cyclotron networking, it's actually a minority strategy for delivering nuclear medicine. And of the over 65 million procedures delivered every year globally, more than 80% of those procedures are delivered through a nuclear pharmacy distribution model.

The fact that PET products are relatively novel to this approach is somewhat incidental. So it's really important for shareholders to understand that whilst this model is novel from a PET perspective, it is the absolutely the well-established pathway for nuclear medicine, and we're following a really well understood commercial paradigm for nuclear medicine products. We have the coverage. We have the capacity. There isn't a customer demand issue that we can't deliver through this model. And as we continue to expand our network, we're also expanding the capability of access to gallium both from higher capacity generators and cyclotron-based production. And uniquely, our product is able to be used both in a cyclotron and a gallium generator nuclear pharmacy environment. So you'll expect to see that scalability.

Moving on to the next slide, please. One of the things that I also want to kind of impart to you, which I think is a really unique part of the Telix opportunity is we are delivering PSMA globally. When we started the company and we decided to pursue the opportunity of Illuccix, we had a clear ambition to deliver just some really important clinical capability globally. We are doing that, prosecuting that very effectively. At the moment, competing products are not available outside the United States. That's on an ad hoc or a compassionate use basis. And while we see clinical trials delivering these data that may lead to future regulatory approvals for competing products. As of today, the global standard is gallium PSMA, and we are a key deliverer of that global standard.

And what this means, and Colin alluded to it before, is when we look at the clinical trials that are important, the clinical trials that are delivering globally meaningful data, there's really only one solution that's going to deliver that and that's gallium PSMA. That will change in the future. But today, that's the standard, and we are very much delivering that standard to pharma partners globally. And of course, we're expanding our product portfolio to consider other markets where head imaging may not be so prevalent. So our success with the noble registry for test imaging with PSMA is also something that's garnered a lot of attention and appreciation from the field.

So I think what you're seeing here, just to summarize, it's a global commitment to this very important development in medicine, and Telix is very much front and center of that momentum.

I think on that note, Kyahn, I'll hand it back over to you.

Thank you. We'll now spend a few minutes on the financial results themselves, and I'd like to invite Darren Smith to take you through this.

Thank you, Kyahn. Turning to Slide 13. These interim results represent the transition of Telix from a product development company to a commercial phase enterprise. The results represent primarily the post-commercial sales of Illuccix. We are off to a great start. It's worth noting that the $19.3 million of revenue represents both [prepared] for patients and thus inventory build at distributors. Additionally, our European pre-commercial sales continue to increase, reflecting growing awareness of Illuccix in preparation for the European approval.

Turning to Slide 14. And it's worth noting that this is the last time that Telix will be reported in the receipt of an Australian R&D tax incentives as we now have revenues of over $20 million. Going forward, Telix will fund this business through its commercial activities. While supporting the commercial build-out of the business, these funds will be reinvested with a primary focus on developing our therapeutic assets. During the half, Telix secured an in-license with Eli Lilly consummating the therapeutic program. Colin will talk to our plan to develop this product later in the presentation.

Telix also invested $4.5 million in the build-out of our state-of-the-art radiopharmaceutical production facility in South Brussels as announced on the 22nd of March. Telix secured a EUR 12.1 million debt financing package to fund the development of these assets.

Turning to Slide 15. Going to make some comments on the specific expenditure. The uplift in COGS in the third half is obviously driven by the commercial launch. We project the second half of the year to see the gross margin improve and normalize. The first half was impacted by the typical start-up costs and inefficiencies due to lower volumes. As previously stated, our R&D expenditure directly -- is directed towards progressing our therapeutical development programs. Sales and marketing [expenses itself] was driven by the costs associated with the preparation for and the launch of this, including one-off costs. Finally, Telix continues to recruit and secure talented employees to grow the capability to deliver on the optimization of the commercial value of Illuccix and to progress our therapeutic programs so that we will realize Telix' future.

I'll now hand back to you, Kyahn.

Thanks, Darren. You've highlighted that the investment the therapy program and it will start to define the company even more. I'd like to now hand over to Colin to really give a highlight on the clinical program achievement in the last half and some big plans for a couple of the key focus programs.

Thanks, Kyahn. And if we could move on to the next slide. This is the core pipeline graphic that I'm sure many of you are familiar with right now. And as Darren was mentioning, well, clearly, it's very important that we become a true theranostic company evolving from diagnostics to really growing those therapeutics as we go forward.

So what I want to show you with this slide is really continue to emphasize our unprecedented depth in urology here, focusing really on those big indications of prostate cancer and renal cancer and making Illuccix central to that long-term engagement, that long-term vision to be with patients in urologic oncology. But ultimately, we're a small company right now. We can't just have big major indications, and that's why I want very much to have rare disease in small orphan indications as part of our development portfolio. And you can see that with GBM and TLX101 and TLX66 and not even mentioning the Lilly asset that Chris is going to speak about later.

And if we can go on to the next slide, please. This gives us the key highlights, in my opinion, for this year. Of course, as was mentioned earlier, ZIRCON has completely recruitment, and I'm going to be extremely excited to give you the results of that very shortly. With prostate cancer therapy, we're making progress and building momentum in terms of delivering 591 to patients. And as I mentioned, glioblastoma, that's a rare disease itself and with imaging and therapy. Firstly, I'll be presenting IPAC data very soon with the results of that with some potential activity seen there and as we plan that basis for our future development in glioblastoma. And of course, the rare disease portfolio as well with TLX66.

And if we can go to our next slide. I want to start by focusing on -- and this is very selfish of me because this is an area that I was extremely interested in when I first joined Telix, the CA9 as a target. From my own perspective, I think it's a really interesting target, and girentuximab is a great antibody for this target. Yes, in clear cell renal cancer, it's almost ubiquitous. But our research really reflects this as a potential prime cancer opportunity beyond clear cell renal cancer alone, and we'll be having some interesting data if you want to -- on our collaborations for you to look out for at the EANM Conference in Barcelona in October around triple-negative breast cancer.

And if we can go to the next slide, please. Yes. Well, we mentioned ZIRCON, and I'm not -- I'm going to be mentioning again now because 250-CDx is really a follow-on from Illuccix. I'm a pretty simple oncology drug development physician, but you don't have to be an expert radiologist to look at those images on your right. Look at that top one, and I think most of you there can identify the clear cell renal cancer on that image compared to the conventional structural imaging line below. This is our follow-on to Illuccix, and we've established those relationships with the GU community. And physicians are already coming to me describing this as a potential PSMA for renal cancer.

And what's the medical need? Well, the patient volume is not going to be dissimilar to Illuccix. We think the total addressable market is 100,000-plus in the U.S., confirming histology of clear cell renal cancer and being able to effectively manage and stage those patients.

We going to the next slide. I want to just touch on TLX250 therapy. As I mentioned, I believe same line is a really interesting therapeutic target, clear cell renal cancer and beyond. For me, it's important that all of our activity -- that we're integrating our products within mainstream oncology treatment and diagnostic paradigms, and that is reflected within our therapeutic program with TLX250 and using that to combine with checkpoint inhibitors and with other oncology agents, such as DNA damage repair agents with the Merck collaboration.

So our next slide, I'll touch on the PSMA program. Look, clearly, PSMA is becoming established as a class of asset, both in -- obviously in diagnostics, but now in therapeutics as well with the first radioligand therapies approved. But with TLX591, what are we doing this different? Well, we're delivering radiation differently with antibodies. So we're delivering precision delivery of radiation with high tumor retention for [beta emitters]. But then, of course, we also have our own planned alpha-emitter program with TLX592.

And if we go to the next slide, I just want to go into some of those differences again a little bit more. The landscape is a number of small molecules are under development. But we were coming on the back of the pandemic, and that's really emphasized to the world that we don't want to have unnecessary visits to a hospital. You don't want to be traveling -- more than 50% of patients live more than 2 hours from a hospital in the U.S. You don't want to be traveling all that time for a lot of visits. I think fewer visits are better. And I think with an antibody, you have that potential and also delivering a different side effect profile with none of that quality of life affecting dry mouth. And I'll show you a nice image from one of our ProstACT studies in a few moments.

And if we go to our next slide, this gives you an overview of our ProstACT program from ProstACT SELECT, ProstACT TARGET examining the potential. And as I said earlier, we want to integrate within existing oncology modalities, this combined with external radiation. In those patients with new biochemical recurrence, of course, ProstACT GLOBAL, which is the large Phase III program, where we're getting our plans in place and our logistics in place for delivery at 80 sites around the world, delivering into 2023 there. And we're collecting data in a number of settings. And as I mentioned, ProstACT Select, very similar, looking at the tumor targeting for the agent. And that -- go and show you some exciting data from that in a minute.

So let me just go to my penultimate slide, which is the next slide is really showing this PSA journey. The PSA rise over time is really a reflection of that patient's journey from their newly diagnosed prostate cancer potentially end-stage disease. Now we want to be with that patient and with his health care professionals throughout that journey. And we want to be there in diagnostics, therapeutics and of course, potentially surgery as well. And we want to, as Chris said, be not only with the patient journey throughout their prostate cancer, but also with patients all around the world as well.

And as I try to tease you with my last slide, I wanted to give you this recent example from the SELECT study. You can see the Illuccix image on the far left. This is the gallium PSMA agent showing clearly prostate capsid metastases in the bone there. In this patient, this is an image using lutetium 591. If we go to that first -- the furthest image on the right, you can see the retention of the antitumor activity over time that has the potential to produce a sustained benefit, and this is that rationale behind

(technical difficulty)

in a just small molecule. Two visits is important. And I can tell you as a medic that my clinical colleagues don't really like sending their patients away to other specialties if they can help them.

So that's all for me, but I'll be looking forward to hearing from your questions a little bit later on. Thank you.

I'll just hand back over to Chris just to share a few highlights in the pipeline, the innovation and research is certainly something that [we're excited for]. We're fortunate to have a lot of interesting technologies come our way, but we would like to share just 3 of the key highlights for the last half in terms of the pipeline expansion. Over to you, Chris.

Thanks very much, Kyahn. Yes, thanks. So we move on to the next slide, Slide 28. So this is my opportunity to be a little bit nerdy for a few slides. Just something I don't often get to do these days with the launch of Illuccix. But the first one that is a really major development for the company is our in-licensing deal with Eli Lilly. The opportunity to develop a product in sarcoma is something that I've personally always wanted to do, and we think that this is an asset that's going to deliver a lot of potential in that space.

It was originally developed and approved that in fact is as a drug to treat sarcoma. However, it had a speed bump in late-stage commercialization for a variety of reasons that I think we understand pretty well. And so there's an opportunity here to leverage a well-identified target that has shown some utility in sarcoma and to pivot that asset into a radiopharmaceutical. There's a lot of nuanced aspects to our deal with Lilly that includes the opportunity to make the imaging agents that we're developing available to Lilly as well as part of their ongoing development, but we see this as a really high potential opportunity in a patient population where there's just a major unmet medical need.

And because this program builds on top of the prior commercial product, we believe that this is an asset that we can develop, demonstrate utility in patients and develop very, very quickly. So this is the sort of deal that I'd really like to show you as a benchmark deal for Telix and very much indicative of the way that we intend to continue to develop our pipeline.

Moving on to the next slide, please. The opportunity for us to recognize that when we do theranostics, and we have a diagnostic imaging agent there, there's a real depth of information that is incredibly valuable to the entire care team. In our view of how software and artificial intelligence and machine learning can play a role, it's really about linking the diagnostics and the therapy together. We're sort of less interested, frankly, from a competitive perspective and just highlighting reasons of interest. We think that if we can explain to a physician how the imaging is going to change care and how it links to a therapeutic strategy, that's going to be something very powerful.

So we've developed an AI platform, which we demonstrated at the Society of Nuclear Minister Meeting in Vancouver with a tremendous amount of key opinion leader interest. This is a platform technology. So it will it will be applicable to our prostate cancer, renal cancer and brain imaging near term and, of course, longer term other products, and we are planning for an FDA approval for this product next year as a platform for the company's theranostic program.

Last of all, Darren mentioned earlier our South Brussels or what we formerly referred to Seneffe site. The build-out of the site is going extremely well. This is an absolute jewel in the crown of Telix's capability. It's not only necessary for our product launches in Europe that are planned for TLX250-CDx for renal cancer imaging and beyond, but it provides us with an amazing development capability for new products, including state-of-the-art altimeter development lab. So we're really excited about this. It's a huge production capability for the company and, [Lilly] steered us, frankly, as a [senior] for collaboration with a lot of key partners in the radiopharmaceutical field. I do know we're very grateful to the regional and the [Lolodian] development agencies for their support and partnership and making this making the financing package available to the company to support the development of this asset. So to say, it's been a very successful initiative.

Those are the 3 major initiatives for me. And I'll now hand it back over to you, Kyahn, to wrap up.

Thank you. Just on the next slide, please. So look, suffice say, it's been a huge half year. We're really proud of what we've achieved. We're energized, but we're also really focused on the next goals, and there's a lot of points here on this slide. I'm not going to read them out to you, but I think the message there is the second half is shaping up to be just as, if not, busier than our first half.

We'll be focused on continuing momentum of Illuccix globally with further regulatory approval decisions [coming]. We already have filed supplementary NDA for label expansion. We expect a decision on that in March next year.

I'd like to point ahead in the readout of our third Phase III study. So the key characteristic of the coming 12 months will be the focus on the therapy programs, and that's going to create multiple and significant opportunities for news flow as we initiate and progress our studies and also deliver some clinical readouts.

So as always, we're really appreciate support of our investors, and thank you for taking the time to listen in. I'd now like to open the call up to your questions. I'll hand back over to Harmony.

(Operator Instructions) Your first question comes from David Stanton from Jefferies.

So 2 for me. I wonder if you could give us an update on formal approval time lines for Illuccix in the EU, please. I see the second half. Any further color on that would be great.

Yes. Thanks, David. Per our prior disclosures, we have submitted the final package, and we are expecting a response from the DKMA at the latest by the end of September, and that will be a definitive response. We were able to satisfy all of the information requests from the various [compliant] authorities. As you recall, we've made a hybrid submission. So it's a multi-jurisdiction submission, and we feel like the package is in really good shape and look forward to reporting on that outcome shortly.

And second and final question from me. What's the likely time line for top line results from ProstACT GLOBAL, which I presume will be sort of a major announcement in that space with those 3 clinical trials, please?

Yes, David, we're expecting to have that trial fully operationalized by the end of this year or early next year in terms of all of the international jurisdictions that we're aiming to include, with the possible exception of China. That's going to take a little bit longer, and we've talked a little bit about that in the past. But that's also not on the critical path right now for recruiting that study.

We expect that given the interest in PSMA imaging in [lutetium PSMA] therapy and the momentum that, that has that we're looking at as sort of an 18- to 24-month recruitment period. But I will note, we are planning an interim readout for the study. We haven't finalized what the patient count is going to be for that yet because different regulatory jurisdictions have a varying viewpoint on how the statistical plan for that should be managed. But we're very shortly going to be giving a more fulsome update on the ProstACT GLOBAL time lines. And that will include an indication of when we would expect to share an interim readout, which I think is -- from the shareholder, but also key opinion leader perspective, it's going to be really important for us given the competitive landscape for PSMA to be able to show an early dataset from that study that demonstrates clearly that we're on track from an efficacy perspective, and that there is engagement from practitioners around our dosing strategy.

Your next question comes from Shane Storey from Wilsons.

Two questions from me as well. The first, Chris, just trying to understand a little bit more about the PSMA volume that you've seen sort of emerge over the last 9 to 12 months. Just trying to disaggregate that between sort of how much pent-up demand there may have been ahead of the availability of PSMA and then how you think the industry is going as far as, I guess, the organic piece of how a new modality rolls into life.

Yes. Look, I'd say it's definitely a complex landscape, Shane. I mean on an incident basis depending on how -- sort of how [catholic] you want to be about the guidelines. There's somewhere between maybe 250,000 patients on an incidence basis. But we've got a couple of -- there is a couple of factors which give tailwind to the patient volume. The first one is, as you know with COVID, we've got a backlog of prostatectomies, and so there's a sort of a larger prevalence pool of men that will benefit from PSMA imaging prior to surgery. And then, of course, you have to remember that because of the nature of prostate cancer and the survival duration, there's 3.5 million men living with prostate cancer in the U.S.. And about 450,000 to 500,000 of those men have radiographically a cult disease and have -- and may even have a benefit, frankly, in terms of treatment options by having a PSMA scan.

So we are seeing very broad uptake of PSMA, and I think that those 2 pools of patients really expand the market opportunity probably for the next 2 years. And we also have to remember as well that there are plenty of other utilities for PSMA imaging beyond just the 2 main labeled indications right now. So I think that as the field gets experienced with this modality, you're going to see plenty of other opportunities to use it. So it's an evolving field.

And then last of all perhaps to note Colin's comment. Global pharma now understands that if you're developing or you're delivering an antiandrogen therapy or second-generation androgen therapy or a PARP inhibitor that you've got the opportunity to optimize that patient management by how you track disease progression. And we see a clear role for PSMA imaging to get into that multi-dose per patient opportunity, and that's going to considerably expand the opportunity for PSMA imaging and obviously for Illuccix by extension.

Great. My final question, maybe just a couple on the financials please. Just around working capital, just sort of as you sort of move into the, I guess, the more fulsome stage of the Illuccix launch, maybe some help as to how to think about the working capital investment that that's going to require. And then just on the SG&A, I know that, that was sort of ahead of our model. So just how to think about maybe over the next few periods as a function of revenue.

I'll maybe make a preliminary comment and then I'll invite Darren to add anything. We had a launch cost because we needed to build inventory for launch and to make sure that we've got the necessary inventory to deliver on those opportunities. So that is a front-ended investment. That's clearly an investment that is effectively amortized over the -- over a fairly extended period.

We also -- SG&A is one of those things that's a fairly fixed cost for us. We really -- we do intend to expand the sales team as a function of need, but I'd say it's a pretty modest cost right now. So there has been a bump-up in cost, but that's something that we view over -- as an expenditure over the total annual period of that revenue stream. And I think our gross margin for these products are very compelling. We'll be at some future point in time reporting a bit more clearly on what they are. But this is a highly cash generative product for us, and that inventory investment and our SG&A today doesn't detract for that cash generation. Darren, do you want to add anything?

Yes. I think from a working capital perspective, what we're seeing at the moment is clearly a demand for the product. We're not seeing any real increase in our stock levels. So basically, our production is picking up as the demand increases. I mean that building to -- from a receivables perspective, however, obviously, we do have debtors days that are building quite quickly. So that will be a little bit of a focus for us going forward. But in the end, that's really just a timing difference of the 45 days average or maybe up to 60 days that we see. That is quite typical in the commercial environment. That's definitely probably really the receivables management, that's going to be the key thing for us from a cash perspective.

Your next question comes from Andrew Paine from CLSA.

Congratulations on the launch. Just looking at the sales ramp-up for Illuccix over the next 12 months and beyond and really thinking about this in unison with the increasing TAM estimates and your ability to ramp up market share towards that 40%. Do you think that market share is still achievable given the expanding TAM? And what time frame do you expect for this given that there seems to be a significant demand for these types of products in the market?

Yes. Thanks, Andrew. We haven't given a forecast either on revenue or market share.

Okay. So look in -- so kind of leading into the back end of this year, are you considering similar growth profile that what you're seeing in July? Or you can't talk about that?

Well, it's something we can't talk about it, but we've had now 4 months or 3.5 months of sales. So I think it's beholden upon us to -- we're 1 month now or 6 weeks post reimbursement. And now obviously, we've seen a significant bump-up in sales. Reimbursement doesn't result in an overnight change. So it's something that will continue to grow, and we see that order appetite. And I think by the end of the year, analysts will be in a good position to understand what our ramp-up looks like and what our market share is.

Sure. That's great. And just thinking about the sales splits between different groups of customers, so hospitals, community clinics, imaging centers and things like that. Are you able to give any details on what that looks like? I know it's still early, but any insights there?

Yes. We haven't given guidance on how the customer list breaks down. Obviously, prior to reimbursement, most of that would have been out of pocket with perhaps a little bit of VA. So again, given that we're 6 weeks into reimbursement, we'll be looking to a future point in time to provide that breakdown.

Sure. Sorry, I was just thinking any specific areas that you're targeting in those groups? Or it's a pretty broad stroke that you're looking for?

We're definitely positioned to cover all of it.

Your next question comes from Dennis Hulme from Taylor Collison.

Congratulations on the results. My first question is on the financials. You've given some good info there on SG&A. But if we're looking to R&D spend, what should we be expecting, I guess, in the second half of the year and also for FY '23 for R&D spend?

Yes, Dennis, we haven't given guidance on R&D because we've got an internal target on what we want to retain as a safe balance sheet to make sure that we have the necessary firepower to give effect to our commercialization activity, and so our R&D spend is going to vary a little bit according to that success. Although I am bound to say that we're tracking well ahead of plan internally.

Our R&D budget for the year, if you take -- you can extrapolate from previous years, our R&D budget will be in the vicinity of $100 million for the year. That includes obviously external R&D and internal headcount costs. Again, the exact sort of timing and dollar number, that depends a little bit on how well Illuccix plays out. But again, we're well ahead of plan there.

So if you recall back, Dennis, to our capital raise debt, we talked about what the market opportunity was. We raised a certain quantum of capital that will enable us to meet a 3-year development plan for our key assets, and that financing plan is largely based on cash generation from Illuccix, and I think we're in good shape to deliver on that.

Yes. Okay. Well, that all makes sense. And secondly, just on the ZIRCON trial. Can you give guidance about when -- whether you expect the readout of top line results to come in the current quarter? Or is it likely to be in the final quarter of the year?

It's a little bit in the gray area right now. We have a lot of patients. And Colin, correct me if I'm wrong, we have our last patient that's just awaiting their surgery, and that will enable us to close out the study. And of course, we've had the joy of that then landing right in the middle of the European vacation period. So I would imagine that the database will walk out in the next couple of weeks. And then typically, you'd expect to see some results sort of -- within sort of 60 days of that event. So it'll be right on the cuff one way or another of this quarter or next quarter. But good news, Dennis, it's not long to wait.

Okay. Great. Yes. No, we're keenly awaiting that news. And just finally, just change tack to brain imaging with the [18 FET] opportunity. Have you got any update of your thinking there about how or whether you're likely to push forward with that as a commercial opportunity?

We're making great progress with that program. It's been really a key focus area for the last few months. We do -- as we've discussed in the past, we do intend to file a new drug application for that asset early next year, and I think we're making great progress towards that objective. So again, it's definitely -- with the launch of Illuccix now behind us, it's definitely proven for us to focus on explaining to the market where the other programs are going to start to land commercially. That will happen in the first instance with ZIRCON on the -- or the 250-CDx on the back of the ZIRCON trial, but also per Kyahn's time lines, expect to get a more fulsome update on time lines for NDA submission before the end of the year. We've got some key regulatory consultations coming up in the latter part of this year that will really nail down the time line for that product, but it's looking good. And we are expecting to have the FET/PET program contribute to Telix's revenue stream within that 3-year planning horizon of our capital [raise].

Your next question comes from Steve Wheen from Jarden.

I just wanted to touch on -- and apologies if I missed this, but you were talking about expanding indications for Illuccix. Does that include PSMA-targeted radioligand therapy, which is one of the ones that has been talked about before? I just wanted to get an understanding of where you're up to, if at all, on pursuing that label.

Yes. So we -- per our half year report, we have filed a supplementary NDA. So that indication expansion has already been submitted to the FDA.

Okay. Great. And then just a few more on the operational side of things or the financials. The COGS was referring to some one-off launch-related costs. I wonder if you could help quantify those just so we can get a bit of an underlying indication as to what your gross margin is starting to look like.

We haven't given any guidance on gross margin, and we won't because the eventual gross margin depends on the production scale that we'll land at over the next sort of quarter or so. So you'll have to stand by on that one. But mainly, it relates to building and releasing manufactured inventory to support the launch.

Okay. But you can't quote the amount that is one-off in the half? I'm not after guidance, just what actually happens that far.

Well, we're going to have to look at the total cost of that over an annualized basis. So I think by the end of the year, you'll have the ability to make that calculation yourself.

Yes. Okay. All right. Just the comments around the Veterans Affairs. Clearly, the -- I note your comments about the incidence rate being much more pronounced in that category. Can you talk to when you were able to get access to that patient group maybe -- or when you're put on their formulary? And who else may well be on that formulary competing with -- for patients within that category?

Well, there's only 2 approved products in the United States right now that are sort of actively pushing a product out there. We have had -- we've disclosed back in March that we received a temporary VA contract, which has now been converted to a 5-year permanent contract. So yes, we've been able to deliver doses since March, although obviously, our first commercial sale was in mid-April just because of the way in which our pharmacy network [multi] plans were executed. So yes, from the beginning of from the beginning of our commercial period, we've had access to the VA network.

I will note that VA contracting is a fairly long process. And then of course, once you've got your master agreement, then there's the process of the purchasing cycle of each individual VA group or VA hospital. But we're making really great progress there. We've got some of the leading VA groups in the U.S. using the product already on a routine basis, and I expect that over the course of the year that it will make up a meaningful component of our sales.

Excellent. And is the pricing of the VA sales, is that something that you can talk to?

Yes, it's not about talking, it's a predefined discount to the red -- to the CMS price. So it's at 24% discount to the CMS price.

Yes, and that's pretty standard across anyone supplying product into the VA?

Yes, it's legislated, it's not negotiated.

There are no further phone questions at this time. I'll now hand back to Kyahn Williamson to address your webcast questions.

Thank you. So I'll just read out a few of the webcast questions. We've only got a minute or 2 left. So if we don't get to your question on the line, we'll respond to you individually. So I'll just start with a question with the prospective sell-down of China -- Grand China pharma. Are you confident that Telix IP is protected? Over to you, Chris.

We absolutely are. I mean there's been a lot of speculation about what happens with Grand Pharma and is based -- there's absolutely no basis for a nefarious interpretation. Grand Pharma made a lot of money out of their investment. You'll note that Grand Pharma has a similar market cap to Telix. Part of the cash demands that they have is actually to finance our clinical activity in China. So I can confirm the relationship with Grand Pharma is excellent. We continue to make really superb progress on all of our clinical trials, and even strategic investors take profit.

Thank you. Our next question is, can you talk to the status of current penetration of Illuccix in the Western states, particularly California?

Yes, we're making good progress in all states. The payer sort of dynamics of each state is a little bit different, but PSMA imaging has been very well established in California post pass-through. We're seeing really great uptake in the Western space and expect that trend to continue over the course of the next couple of quarters.

Great. And just our final question, another one for you, Chris. Is -- what agent are you intending to use to label olaratumab? And second follow-on question to that, is soft tissue sarcomas are a diverse group of tumors? Clarify the histologic subtype you're aiming to image, which is that more or less a [response].

Yes. So we're getting ready to do a fairly open assessment with imaging first to have a look at what the expression level of the target are like in different subtypes. That's going to be our first step. We likely expect that, that program will be an alpha-based program, but we are doing the nonclinical work right now, is to look at a variety of isotope approaches. But certainly, for sarcoma in alpha, it's a really exciting proposition, and that's the likely pathway forward to that asset.

I know there's one other question, which I think you may have missed that came in from John Hester. And Darren, it's a question for you. The $18 million in R&D cash received, where is this reflected in the income statement?

Yes. Well, on [beyond the] credit was actually recognized as income on last year's account. And so the only place you see showing up is a receipt in the cash flow statement, the [receivable] receivable. So that's where it is.

Thanks, Darren. Kyahn, have we missed anybody? I think we've got everybody.

I just had one more question on the slide about the cost of Illuccix. Could you just tell us specifically what the unit cost is -- the cost per unit is and if it's profitable per unit basis? Which I think we -- I'll let you take that one, Chris. I think we've sort of ran about, that you had said previously.

Yes. I mean we haven't disclosed what our actual unit cost is for a kit. But certainly, I mean this is a highly cash-generative product for us. And as we hit a more sort of steady state commercial model, I think it will become clear what our gross margins are. But yes, I can confirm that it's a profitable cash-generative business for us. Otherwise, we obviously -- we wouldn't be in it..

Okay. With that, we've answered all the questions. I'd like to thank everybody for listening in today. And with that, I'll draw the call to a close. I'm sure that some of you we'll be catching up with over the next few days and the coming weeks. Thank you again.

Thanks very much, everyone.

Thanks, all. Bye now.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.