Telix Pharmaceuticals Ltd

ASX:TLX

Earnings Call Transcript 2023-Q1

[Kyahn Williamson, executive]

Good morning. Thanks, Ashley, and thank you, everybody, for joining our investor call today to discuss the Appendix 4C and cash flow statement activities report, which we lodged with the ASX aftermarket -- after the market closed yesterday.

As mentioned, I'm Kyahn Williamson, SVP of Investor Relations and Corporate Communications, and I'm joined today by Dr. Christian Behrenbruch, our Group CEO and Managing Director; Darren Smith, our Group CFO; and Colin Hayward, our Group Chief Medical Officer.

Today, we'll be taking you through the presentation that was lodged on the ASX and it's also displayed on the webcast for those joining by the phone. So those by phone, we'll give a verbal cue for each slide change, and then we'll go to Q&A at the end of the call.

So just advance being through the disclaimer and to Slide 3. So Slide 3, by way of summary, the milestones and achievements of Q1 2023 really demonstrate how we are delivering against our growth strategy and delivering in our mission of global leadership within the growing radiopharmaceutical sector.

We've had another excellent quarter of Illuccix sales in the U.S. and advancing our global rollout, and we had 27% growth Q-o-Q. Chris will take you through these results in more detail. We're in high gear in preparing to file for regulatory approval and commercialize 2 additional imaging agents in brain cancer and kidney cancer, which will ultimately layer in new revenue streams.

We're making good progress across all the clinical trials in our core therapy programs of prostate, kidney and brain cancer, and Colin will talk to these in more detail. We also announced yesterday the olaratumab antibody, which we in-licensed, has established a proof of concept as a radiopharmaceutical and will move into clinical trials. Chris will talk to a bit more about the importance of this research and innovation to build on our track record of identifying and successfully developing promising assets and expanding our pipeline.

Finally, the transform -- transition to a cash flow positive business has continued. We have -- importantly we've again demonstrated that with growing revenue and expenditure control, we can fund the pipeline while also improving the financial position of the company.

Next slide, please. So this slide just takes you through the key financial metrics, and Darren will walk you through this in more detail shortly. But to note, the key headlines we reported $100.1 million in total revenue, which includes our U.S. commercial sales and rest of world sales, including precommercial and commercial sales of Illuccix.

Net operating cash flow has improved again despite one-off costs impacting the quarter. Our gross margin remained stable at 63%, following a period of steady improvement over the previous half and customer receipts are growing in line with commercial sales.

The closing cash balance is $121.4 million, an increase of $5.1 million compared to the closing balance as of December 31, 2022.

I'll now hand over to Chris to talk about the Illuccix commercial update.

[Christian Behrenbruch, executive]

Thanks very much, Ky, and thank you for the opportunity to give you this update today. As Ky said, my name is Christian Behrenbruch. I'm the group CEO.

Moving over to Slide 6. I mean I think the numbers are fairly self-evident in terms of the trajectory of our sales. We've had a strong and consistent quarter of growth as we have seen since reimbursement began in 2022 -- middle of 2022. It's been a very stable growth pattern.

This growth comes across all segments and includes a mixture of new customer acquisition and conversion as well as procedure growth overall. So this is clearly a market opportunity and a clinical opportunity that's growing very rapidly. And so this is a combination of managing our existing customer base and driving procedure volume as well as acquiring new customers.

It's a great result that reflects the maturation of the U.S. sales and marketing team under our U.S. CEO, Kevin Richardson, and we've invested pretty significantly in building that commercial team, and this result is really reflective of the success in building and mobilizing that team.

We expect to see this growth to continue. We are actively working on label expansions as well for Illuccix, that will continue to help develop this exciting and dynamic market. So it's -- as we said, it's a really consistent performance quarter-on-quarter. We expect to see this trajectory to continue.

Moving on to the next slide, Slide 7. Clearly, the majority of our revenue is still focused on the U.S. today, but geographic diversification is an important objective. We -- as Telix almost uniquely in this space remained committed to the global development of these products, and we continue to make significant progress. We launched Illuccix in Canada this last quarter. As we've previously disclosed, we've refiled our submission in the U.K. and Europe and have made significant strides in progressing Illuccix in APAC and Latin America.

For the EU resubmission, we chose to continue and complete the decentralized process that we began. But we've taken on board some lessons and -- some lessons learned and elected to, well, how do I say this, work with a bigger league competent authority in the form of BfArM, which is the German competent authority. And I think we have a clear pathway forward. We understood very clearly some of the pitfalls of our prior submission. And I think the resubmission is in very nice shape.

I also note that after a bit of a soft launch, we are making solid inroads for Illuccix in the home turf of Australia, New Zealand, and it's great to see local customers starting to clearly understand the differentiation and ease-of-use of our product. So that's very gratifying.

So just to summarize, progress on all fronts, in terms of global rollout of Illuccix and getting traction in other key markets.

I'll now hand over to Darren Smith, Chief Financial Officer, for an update on how this commercial and operational progress has translated into our financial trajectory.

[Darren Smith, executive]

Thank you, Chris. Turning to Slide 9. This quarter 1, 4C presents Telix's second consecutive quarter of positive cash flow. It clearly demonstrates that Telix has transformed to a cash-generative business following growing commercial revenue base while controlling investment into operations.

The continued growth in sales of Illuccix drove customer receipts higher by $11 million to $83.2 million, a 15% increase on the prior quarter. These additional funds were invested back into the business to, one, build out Telix commercial capability to support further revenue growth; two, make an annual payment of $4.3 million for last year's short-term incentives to staff. And three, to fund the investment into the development of Telix's product pipeline, including delayed payments from 2022.

Now turning to Slide 10. Here, we provide insight into Telix's financial performance in terms of sales and expenditure items. As previously discussed, revenue from Illuccix continues to grow through the acquisition of new customers and improving volumes through existing site.

Gross margin as a percentage of sales during the first quarter has remained consistent with the prior quarter at 63%, which reflects stable distribution costs and normalized manufacturing activity. Telix continues to invest in its commercial infrastructure and resources to ensure it has the capacity to manage future growth and maximize the Illuccix opportunity and to prepare for the launch of the 2 diagnostic products.

As a result, operational investment during Q1 in absolute terms have increased. However, as a percentage of sales, this expenditure when compared to the prior quarter, has reduced thus improving profitability. Investment into R&D has been funded through our commercial performance. This investment has been focused on to our late-stage diagnostic assets to bring them to market in priority therapeutic programs such as the ProstACT GLOBAL studies.

Now turning to Slide 11. Clearly -- this clearly shows that 2023 is off to a great financial start for Telix. This is evidenced by: one, that the total revenue in quarter 1 improved 27% on the prior quarter to be Telix first quarter over $100 million. Obviously, 4 quarters at this level would annualize to over $400 million.

Two, operational cash flow was positive for the second consecutive quarter, demonstrating Telix can fund its product development activities through its commercial operations. Three, adjusted EBITDAR for the third consecutive quarter is positive and growing, having improved 66% to $36.7 million compared to the previous quarter of $22 million. This has been driven by continued growth -- growing sales and costs being controlled as percentage of revenue. Finally, Telix maintained a healthy cash balance of $121 million, up $5.1 million from December 31 balance.

Together, these financial metrics place Telix in a sound financial position to take advantage of the opportunities that lie ahead.

I will now hand you over to our Chief Medical Officer, Dr. Colin Hayward, to take you through these product development opportunities.

[Colin Hayward, executive]

Thank you, Darren. So moving on from Slide 12 to Slide 13 now. This is our core pipeline, which you are very familiar with. It's deep and unparalleled in urological oncology as well as in brain cancer and in hematological malignancies in the rare disease space.

And I'll go into some of this a little bit more depth to show our clear progress in diagnostics and progress in our therapeutics as well. If we go to the next slide, Slide 14. This also shows you our research pipeline.

Our research pipeline, which really focuses in these core areas of immuno-oncology, targeted alpha therapy, the tumor microenvironment, which includes that olaratumab data that Chris is going to touch on a little bit more later on this presentation, but also integrating with existing oncology pathways such as surgery, but including technetium PSMA, to expand the life cycle of our PSMA portfolio as well.

And if we move on to the next slide, Slide 15, I want to talk about some of those milestones that we've had recently, notably renal cancer imaging with the continuation and the high momentum of the ZIRCON study going into high gear for the BLA submission.

The R&D has been approved for one of the studies that's going to look at expanding the indication, both in the diagnostic setting, but also potentially in the therapeutic setting as we look to see how CA9 is expressed in other cancers. And one of the combination studies, STARLITE 2, in combination with nivolumab in the second-line setting of renal cancer is recruiting nicely.

If we look at prostate cancer therapy, then it's the prostate program studies, ProstACT SELECT, which is this study in radiogenomics. It's going well with completion of the initial cohorts and ProstACT GLOBAL preparing to recruit in the U.S. ProstACT TARGET is this early therapy study, looking at this early biochemical recurrence in combination with external radiation, and that continues to recruit in Australia.

Going to glioma, both imaging and therapy. And we've had a recent positive consultation with the FDA highlighting a pathway forward for FET-PET, which I'll talk about in more detail. But in addition, we have the therapeutic and the IPAX-2 study moving TLX101 into that frontline newly diagnosed, newly operated setting. And we also have approval to commence the Phase I therapy study in China.

And rare disease, as I mentioned, olaratumab, the PDGFR alpha therapy, and TLX66 of manufacturing scale, so we can get ready to support a clinical trial in a bone marrow transplant indication.

Next slide. So on Slide 16, I just want to spend a little bit more time talking about the ZIRCON results. These have been featured in a lot of medical congresses as we really drill down into the data. And the data really is spectacular in terms of a very high sensitivity and a very high specificity. And what does that mean? That really means that people can use this to identify that clear cell renal cancer in a noninvasive way.

And as the data sinks in, we're really seeing the urologist and nuclear medicine community understanding the vast clinical utility of this agent in terms of planning for surgery, for example, diagnosing whether patients have clear cell renal cancer or not and looking at the extent and location of that cancer.

As I mentioned before, the BLA submission is progressing well. And we have an expanded access program being rolled out firstly, in the U.S. and then into other countries and regions as well.

I just want to go on to Slide 17 and just talk about a little bit more the 101-CDx or fluoro-ethyl-tyrosine, which is our diagnostic for glioma. Clearly, there is a high unmet need for further imaging of glioma like we've seen now with prostate cancer. We're seeing with clear cell renal cancer with the to 250-CDx.

Here, there's a number of opportunities for FET in terms of demarcating tumor margins, understanding grade better to help guide biopsies, but really the initial indication we're going to pursue is that in terms of the recurrence looking for diagnosing treatment-related change here.

MRI doesn't do a great job in terms of understanding whether a patient has true progression or what we call pseudoprogression. We understand this is a market of around about 40,000 patients diagnosed with glioma every year and yes, that we feel is going to be around $90 million. Now that is, of course, an orphan indication and a potential another orphan indication would be with PDGFR alpha, which I'll hand over to Chris to just talk about the olaratumab data.

[Christian Behrenbruch, executive]

Thanks very much, Colin. And look, just to sort of pick up on the 101 program. Clearly, the initial indication that we are pursuing is a modest number of patients, but there is a huge opportunity to expand the label. And I think that, that's a reoccurring theme across the pipeline. Colin's team is very much working on label expansion for Illuccix.

We see other really important and unmet medical needs on the carbonic anhydrase IX 250 space. And then clearly, there is scope to expand into other CNS malignancy applications for the brain imaging program. So just lots of room to grow across all of those programs.

So turning to the next slide. I just want to have a brief conversation about the olaratumab program. As Ky noted yesterday, we put out a progress update on this program. We have now managed to transition that asset into a -- or completed the preclinical development and transitioned that asset into a clinical stage program. Really, this now denoted TLX300 program. So when it gets to a certain level of development inside the company, it gets a TLX number.

This program reflects really the kind of pipeline expansion activity that we'd like to do a lot more of. This program is based on a drug and a target that showed a lot of potential in another form as a naked antibody and had some really promising biology behind it for a range of cancers, particularly soft tissue sarcoma. And there's a little bit of a summary here in terms of the opportunity for STS and why it's important.

I'm not going to go through this opportunity line by line, but as an orphan disease indication, there's just a lot of potential in the radiopharmaceutical approach. I think the other thing that's important to note is the target PDGFR alpha is it's a target that's expressed in the tumor microenvironment.

It has a lot of interesting biological applications, but it's also fundamentally a fibroblast target. And this is -- as a target space is generating a lot of interest in radiopharmaceuticals right now particularly through the development of agents targeting FAPI. So what we see is relatively little therapeutic index in targeting FAPI with radiation at least to date, but a lot of potential with this particular target as an alternative approach. So it's just really a very topical area right now of research. And that's why we were so keen to pursue this asset as a development process.

Just to kind of give you a sense of what this looks like. If you move on to the next slide, you can see this is Slide 19. You can see some beautiful examples. These are PET scans of a mouse model with an STS xenograft. And we have now a radiopharmaceutical candidate that looks very promising, and we are progressing this to early clinical studies in the form of imaging and dosimetry in humans, and that's planned for the second part of this year.

It is already factored into our budgetary expenditure for the year. So this is not a incremental out-of-budget expense. This is a planned investment. And you can see these images are really gorgeous and show how well the asset localizes a radioactive payload. We are obviously exploring a number of different therapeutic radionuclides in this application because the biology of sarcoma is quite complicated.

But like the rest of our antibody-based therapy candidates, an antibody-based approach delivers really excellent localization, selectivity and retention of the radiation. And we're optimistic that this approach, including in combination with other therapeutic modalities, can lead to new patient outcomes in this very difficult-to-treat cancer.

So this is a target and an asset that's generating a lot of interest in the community, and it's great to be able to transition it now to clinical stage activity. So Colin's team's got another really interesting clinical candidate to work with.

So maybe I'll just wrap up now with the last slide, Slide 20. So I regularly refer back to the 4 key catalysts of the company for the year, which, as you can see, is that top line of balloons there. And I'd like to reiterate the key objectives for the year that we are making great progress on. So as is demonstrated by our growth in revenue and geographic diversification.

We continue to march forward with Illuccix with a lot of positive outcomes for shareholders and patients. We continue to make great progress on our key therapy program, and I want to emphasize that getting across that global study moving into high gear this year as well as some of the ancillary studies around it is really the key investment priority for the team and Colin's key focus.

We are making excellent progress towards our BLA submission in terms of formalized meetings established with the FDA for the pre-BLA meeting. Those are already locked and loaded. We've had an excellent pre-NDA meeting with the FDA to review our total submission strategy for the brain cancer asset and so we remain at this point in time, confident that we can submit those 2 assets to the FDA this year with the launch of those products in 2024.

So that will, of course, significantly diversify our revenue stream beyond Illuccix. Of course, the geographic expansion of Illuccix will continue to be an important part of the strategy. But bringing on follow-on assets that have significant revenue potential frankly, between renal and brain cancer, we should be able to more than mirror the revenue streams that we see coming from Illuccix and we have some significant competitive advantages that I think we can take advantage of in the launch of those products.

In terms of additional milestones, whilst the smaller balloons are not the priority areas, we continue to tick them off. These do represent important milestones in terms of patient information and patient application development, but it also gives us an opportunity to more round out the pipeline and expand the core capabilities of the business. So we are ticking those off as well. And so an exciting year ahead.

I think at that point in time, I'll just summarize by saying we continue to make great progress. We're kicking goals on all of our clinical and development activities around the globe, including I'll note with our partners such as Grand Pharma. And if you didn't see it, we have a joint upcoming investor webinar with Grand Pharma to really provide some insights into that partnership and the great progress we're making in China. So superb progress across the bat. I'm now happy to open it up to questions from the floor.

[Operator]

[Operator Instructions] Your first question comes from Shane Storey with Wilsons.

[Shane Storey, analyst]

Chris, I'm going to start with you, please. It looks like -- just on Illuccix, my only question on Illuccix will be, it looks like average scans per week probably increased from the 900 to the 1,200 when we sort of look at the 2 last sequential quarters.

You mentioned an idea that the trajectory might continue. I guess anything you can help to help us disaggregate between what's happening organically with prescribers being activated and market share opportunities that would be -- that would basically start.

[Christian Behrenbruch, executive]

Well, I mean, obviously, there's -- we're reporting our numbers and the competition as well. So I think you can sort of glean what the current active market share is from that. We're picking up roughly 1/3 of the market at the moment. So if you consider that we launched the product in the middle of last year from a reimbursement perspective, it's been a pretty quick launch.

The market opportunity continues to grow in terms of the number of scans on an incidence basis. Part of that is based on broader use application beyond just the kind of narrow initial indications for Illuccix. It also relates to prescriber behavior. We're seeing some repeat imaging as patients go from, say, being scanned at a community setting to go into a tertiary referral environment to have an intervention.

So yes, there's lots of places where the utilization of Illuccix is growing. And then as we've talked about in the past, there is that patient reservoir of proximal to biochemical reoccurrence where arguably a patient gets a lot of benefit from localizing disease. So these are all tailwinds to procedure growth volume. We still see white space in the market. There's a well quantified number of accounts still to pick up.

We are also successfully making some account conversions. Label expansion has helped with that, but also the fact that the company's overall profile in urology is -- it's very visible right now. We've got -- between our clinical and our commercial team, we've got a lot of opportunities to engage with the industry. And I think our activity around key conferences has been really supportive of that trajectory. So yes, there's a lot of momentum.

I think that it's fair to say that overall, the PSMA imaging opportunity was probably underestimated. But it's going to continue to grow. And clearly, label expansion is a key focus to continue to expand it into other new indications.

[Shane Storey, analyst]

That's helpful, Chris. I'm going to move on the second question to Dan. Look, I guess, given the way things are developing, I'm starting to invest tax planning and effective tax rate moves into positive impact. Are there just any tips and tricks that you can offer to help us get that right and a forecast would be very helpful.

[Darren Smith, executive]

Thanks, Shane. I think from a tax issue -- sorry, from a tax perspective, obviously, Telix is still in the growth and development stage. So we've brought 1 asset to market and it's predominantly being sold in the U.S., that product was originally well -- sorry, was developed in Europe. So there will be some balancing of where the money deserves to belong.

And -- but through that process, there are opportunities around we call them patent box type arrangements that will be -- that we will some form with -- so that's probably where we're at. Obviously, we'll be working with our -- we have worked with our advisers to putting a structure that's appropriate for the organization and we will replicate that as we bring new assets to the market, the balance of the global position for the organization. Sorry, I'm not giving you the fine number, but roughly that's probably...

[Shane Storey, analyst]

No, no, no. You've told me where to look, which is enough. My last question is really for Colin. We noticed that the U.S. component of global is in the second half of this year. So just wondering if you could please just run us through what's left to do there before filing an R&D. And as part of that, I'm wondering whether there's any intention to include the SELECT data in that filing, please?

[Colin Hayward, executive]

So yes, just to get the question, is there an intent to include the SELECT data in terms of the filing? Well, all information that we've got in terms of PSMA program and our PSMA antibody is going to go into R&D to show that, so for sure. So yes, I mean, the R&D includes all the normal components of the R&D, including all of that clinical data that we have that will inform the FDA so we can move forward.

[Shane Storey, analyst]

And the rate determining step you are seeing?

[Colin Hayward, executive]

Sorry, the rate determining step. Getting the sites up and running...

[Christian Behrenbruch, executive]

Maybe if I can just speak and help Shane, we've not told you, but it's not a -- I mean it's not a material delay. So it is a small delay.

[Operator]

Next question comes from David Stanton with Jefferies.

[David Stanton, analyst]

I guess, we've seen a very strong growth trajectory in the U.S. for Illuccix in this quarter. And sorry to start with a Illuccix question. But can you give us sort of an idea of just broad brush, it's kind of level of trajectory in terms of volume for the rest of calendar '23. Is that what should we be thinking for the U.S. for '23, please?

[Christian Behrenbruch, executive]

I mean we haven't given forecast yet. So I mean, I suppose every quarter, we end up reiterating that there will come a point later in the year, David, where we'll go into more of a forecast mode. But obviously, it's the early stage launch of a product. So I think we'd like to get a couple of more quarters of sales under our belt.

But I think the cleanest and most appropriate way for me to answer is we don't see any abatement of opportunity. We're picking up a lot of new customers every month. We are making some customer conversions. We are working with customers to look at how we drive volume. We're clearly engaging with referral physician base as well.

And I think over the course of the year, the impact of our marketing strategy will really become apparent. I think that the strong quarter that we've just had does reflect that. And that's really a pivot towards articulating our clinical differentiation. When we launched Illuccix, we were second to market, and so we had to focus really on product availability and guideline equivalency.

And over the last 12 months, we've sculpted a very compelling clinical differentiation approach, which is gallium PSMA. There's significant evidence to support the statement that gallium PSMA has the best sensitivity and specificity, particularly at low PSA levels has a significantly lower false positive rate than competing fluorinated products.

And so we are able to explain with reference to the clinical literature that there is a difference between the two. And we don't have to go out and explicitly make that education. There's a wealth of literature out there and our customer base is well versed and they approach us to discuss why gallium PSMA-11 has advantages for them, and we're pleased to be able to provide that product.

So I think it's -- I think that talking about clinical differentiation is obviously a positive direction for the company in terms of how we position the Illuccix in the field.

[David Stanton, analyst]

Understood. And if I could change track to 250-CDx, you mentioned you've got an upcoming meeting with the FDA and you talked to revenues -- you just talked to revenues in calendar '24 potentially from that product in the U.S.? Would it be fair to say that it's going to probably take about 6 months to get reimbursement approval as it did with Illuccix, and therefore, we should be thinking probably third or fourth quarter calendar '24 before we see significant revenues out of that product in the U.S.

[Christian Behrenbruch, executive]

Well, I think there's a lot of understanding now in the urology community at what PET imaging -- what molecular you can do for urology. And the pharmacoeconomic benefit of the 250 -- the renal imaging program is really even more profound than that of the prostate cancer program.

I mean it addresses a much more immediate and pressing medical need. So I think we've done through the clinical trials and the outreach and the conferences and the patient advocacy groups have done a good job of educating the customer base -- or potential customer base about what the prospects are. I mean I think we've gotten great coverage in key academic environments.

And, one, from a launch perspective, the customer -- the referral customer for the 250 program is very much overlapping with the Illuccix. So the investment that we've made in the sales team is an investment we expect to be able to repurpose once the renal cancer program launches. So I think the ramp-up can be quite fast.

Obviously, yes, to your point, reimbursement makes a difference. But there's a great opportunity to start generating revenue coming out of the gate. The reimbursement process, you may or may not recall, but it's actually quite compact. There's clear entry points 4x a year for the pass-through approval. The approval process takes roughly a quarter. So there's not a huge -- assuming that we meet all the criteria for reimbursement, which -- based on the clinical data we would expect to. There's not a great impediment to the reimbursement process moving ahead.

It's a pathway we've gone down before. We have a fairly good understanding of it. We think that we're engaging effectively from a guidelines perspective starting to build that clinical case of why it should be included in practice guidelines. And there's a lot of momentum for that. So I don't think we need to be too pessimistic about the proximity to reimbursement once the product has a license.

[David Stanton, analyst]

Understood. And final question from me for Darren, actually. So I know, Darren, the company is starting to talk about adjusted EBITDAR and it's got a very impressive trajectory, as you can see on Slide 11 here.

I'd just like to sort of understand a little bit more about potential costs or expenses for F'23 in terms of what should we be thinking? Should we be thinking that it's basically a reasonably fixed cost in terms of management and admin and employment costs and potentially for R&D costs for the rest of calendar '23, should it increase in line with revenue growth? Or is it reasonably fixed?

[Darren Smith, executive]

It's a good question, David. And it probably depends on the category that we're talking about. So just taking in R&D, like, obviously, we've got a plan there that we're progressing towards in the amount of work that we need to do over the coming 12 months. So you could probably almost put that in that relatively fixed basis.

And obviously, there's some discretion around time frames and what we progress at what point. So obviously, there's a focus on the core group of activities, which we've already spoken about in that last slide. So that's R&D.

In regards to admin and sales, typically, you'd say that it was more of a fixed level and you build that to manage your organization at a certain level. But obviously, when you have a reasonably rapid trajectory, there is a need to be constantly reviewing that and building to ensure that you don't disadvantage that growth trajectory.

And I think the other item that you need to overlay on that is the fact that we've got 2 diagnostic assets that we're in the process of going to the regulatory authorities or the FDA to get approval for. And we need to start to prepare to have the capacity within the business to be able to manage that commercial launch and be successful with that. So there's no point jumping on your year cost to -- at the risk of damaging your future revenue streams.

So -- but having said that, obviously, we're still focused on making sure that we can continue to fund the business sustainably. And we'll invest at an appropriate level to achieve all the objectives that we have.

[David Stanton, analyst]

Understood. So just to paraphrase quickly before I jump off. So management and admin reasonably fixed, R&D reasonably fixed, but employee costs in line with a new -- potential new drug coming to market maybe somewhat more variable.

[Darren Smith, executive]

Yes. Some of those costs are admin -- not very much are admin, but from a sales and marketing perspective, we still need to invest to get that traction in the market. It's not just employment costs.

[Christian Behrenbruch, executive]

But it is incremental -- I mean, it is incremental expenditure, David, it's not doubling the cost of our SG&A. It is incremental.

[Operator]

Your next question comes from Yuan Zhi with B. Riley.

[Brandon Carney, analyst]

This is Brandon Carney on for Yuan. Congratulations on a successful quarter. Just one from us. And just to kind of expand on some of the things you've mentioned already, answering the first question. I was just wondering if you could give us any more color on the breakdown of different types of patients currently getting scanned with Illuccix and if you see that changing as sales continue to ramp, basically, how many are initial staging versus recurrence versus patient selection for radioligand therapy?

[Christian Behrenbruch, executive]

Yes. We haven't given that breakdown, and probably at this point in time, there is a ton of value in putting that information out there because, obviously, it defines the competitive segments that we operate in.

There's a pretty good delineation between the different hospital segments and those different indications or at least on a sort of predominance basis. The radioligand therapy, I can comment on. We were pleased to have the label expansion and to be able to support patients to the extent that gallium PSMA is required, but you'd be aware that there are some supply chain limitations right now.

And so I think that that's an indication that will likely ramp up over the latter part of the year, doesn't represent a major component of sales at the moment, but we certainly see that there is some momentum that's starting to build there. It will have a more meaningful impact towards the back end of the year.

[Operator]

Your next question comes from Dennis Hulme with Taylor Collision.

[Dennis Hulme, analyst]

Chris, congratulations on the result. Just one question from me. You've previously commented that you expect to see the PSMA PET market in the U.S. largely fully penetrated by the end of the year. Can you give us a little color around that? And does that have implications for potential sales growth over the next 2 years -- next couple of years after you get to the end of this year.

[Christian Behrenbruch, executive]

No, I think we -- I mean, we talked about the sort of the 3 major kind of commercial inflection points that we have coming up. So clearly, on a growth trajectory that we and others have at some point in time, we're going to hit that kind of theoretical market size.

And clearly, patient referral patterns and some off-label use and some clinical trial use is obviously driving volumes beyond that. But at some point in time, it's going to taper off. That's just on a strict account-by-account basis. Then the sort of second phase that we see coming in now is more around national accounts and group purchasing organizations where there's some opportunities there to move larger amounts of customer around. So that's kind of going to be a second phase, and it absolutely represents -- if we execute on that well, that represents a growth strategy, and that's clearly something that we and others are focused on making it happen.

And then the third -- the third stage is really the label expansion going into the end of pass-through. So the 2 or, in our case, 3 indications that we have for Illuccix, is not the end of the story. We see that there's value in PSMA imaging along the entire continuum of patient care. And so on a strict incidence basis right now, we're somewhere between, 1.3 and 1.5 scans per patient.

But there's the clear potential, there's clear clinical rationale for that to go up to 5, 6, 7 scans per patient over the life of the journey, and that's going to drive volume. And one can see the potential or even a multiple of scans where we're at right now in terms of the current label scope.

The flip side to that is that the economics of the imaging agent will have to change to accommodate that. So at the end of '25, we're going to have -- in the current regulatory legislative environment, we're going to have the end of pass-through, which means that it goes away from being reimbursed as a stand-alone radiopharmaceutical to a bundled procedure.

And we've seen in cases where there's solid clinical evidence that the price erosion that results is modest. We've seen in cases where there isn't a great deal of clinical evidence that has been a deeper price erosion. But fundamentally, there will be a trade-off at that point in time between procedure volume and product economics.

And I think it's going to be broadly positive. It's interesting to me how misconstrued pass-throughs. The pass-through is not the business case for an imaging agent. Pass-through is an accelerant or a buffer from an NPV perspective to make the investment case easier for a diagnostic imaging agent because it enables us to recoup some of the investment costs upfront.

And obviously, the investment cost in the Illuccix was very modest. I mean, the ROI on Illuccix is a spectacular ROI. But clearly, for some of the follow-on products, like the 250 program where there's a higher investment because we've had to do things like run a Phase III trial. Pass-through is a great tool for accelerating the IRR on that investment.

So I'm very optimistic about where the field is going to go. There's plenty of scope for expansion and what it's going to come down to is an ongoing commitment to customers, making sure that we're servicing our customer base flawlessly and I think Telix has a massive advantage there through our partner pharmacy networks in terms of product availability.

We continue to collect excellent clinical data that shows our differentiation and the utility of the product and all kinds of new application areas. And then the third is really that long-term understanding of how well Illuccix aligned with that continuum of cancer care beyond just the very early in the disease journey utilization. So I think there's plenty of room to grow and maneuver.

And this is -- as this becomes a mainstream modality and gets entrenched into clinical care, we're going to see lots of new opportunities.

I see that, that cleans off the list of questions online, unless there's -- unless the moderator has some other questions that have come in.

[Operator]

No, we're [indiscernible].

[Christian Behrenbruch, executive]

Okay. Well, look, I'll just -- I think I'll just wrap up then and just say thanks very much for the attendance. And so we'd foresee the focus is primarily on the financial results, but we'll continue to provide shareholder updates on our progress for the programs. It's a -- so this is really an exciting year for the company, and it's great to be able to show the progress.

So I'd like to thank my colleagues for joining me and wish everybody a terrific remainder of their day in the U.S. and the beginning of the day here in the Southern Hemisphere. Thank you.