Telix Pharmaceuticals Ltd

ASX:TLX

Earnings Call Transcript 2022-Q4

[Operator]

Thank you for standing by, and welcome to the Telix Pharmaceuticals Limited Q4 2022 Financial Results Presentation and Shareholder Update. [Operator Instructions] I would now like to hand the conference over to Ms. Kyahn Williamson, SVP of Investor Relations and Corporate Communications. Please go ahead.

[Kyahn Williamson, executive]

Well, good morning, everybody, and welcome to our investor call today. We appreciate you taking the time to tune in. We'll be discussing the appendix for free cash flow report and activities report lodged on the ASX today. I'm joined by Dr. Christian Behrenbruch, our Group CEO and Managing Director; and Darren Smith, our Group Chief Financial Officer.

We will be taking you through some slides today. For those who are on the webcast, they should be in full view. And for those on the phone, we'll give you a verbal queue to let you know which slide we're up to, and then we'll move to Q&A at the end.

So just starting from Slide 5. So before we kick off, I would like to note that as a once-off, we did release the Q4 U.S. sales revenue figure ahead of the -- this quarter. And I expect that probably took some of you by surprise, particularly given it's the heart of the holiday season here in Australia. But as you will be aware, we were invited to present at the JPMorgan conference, and that's a really important forum to engage with the global health care investment community and it was critical we could go into that event being able to convey the top line U.S. performance, particularly given the proximity to the release of our 4C.

It was really clear coming out of this event that radiopharmaceuticals is a sector of extremely high interest and that Telix is really well recognized for the strength of its commercial performance but also for the depth and the potential of our therapeutic pipeline.

As you can see, Q4 has been -- Q4 has really capped off a transformative year. We've achieved positive cash flow from operating activities and that's been really underpinned by the strong commercial performance of our launch of Illuccix in the U.S. We continue to see strong month-on-month growth, resulting in an increase of 43% in the fourth quarter to revenues of AUD 76.8 million and a total of $149 million since launch in April.

We have outlined four key catalysts and focus areas for the year ahead. And as you can see -- and this includes, of course, continued growth -- revenue growth in rollout of Illuccix, but also advance into having a multiple commercial diagnostic pipes, the diagnostic products in our portfolio and also delivery on clinical milestones across all of our therapeutic pipeline. In particular, this includes the first readout of data from our ProstACT SELECT trial this year and also advance through the ProstACT GLOBAL Phase III therapy study.

Just in terms of the key financial metrics, you'll see that we delivered $78.2 million of revenue from global sales of Illuccix. U.S. sales revenue continues to be the driving force for commercial performance in this quarter, but we really see the rest of the world opportunity starting to take shape throughout the year, and we'll talk more through that later in the year.

Receipts from customers were up $72.2 million, up 62% from the previous quarter. And this reflects not only increasing sales, but also improvement in collections.

Finally, the cash balance. We finished at $116.3 million, and that's only $800,000 less than we were in the previous quarter. And this is really a reflection of the strong financial stewardship that has been undertaken in the company as we continue to invest in the high-value and high-priority programs that will bring the pipeline forward.

I'd now like to hand over to Chris to talk in a little more detail about Illuccix and the Q4 performance before Darren will take you through some more details on the financial commentary.

[Christian Behrenbruch, executive]

Thanks very much, Kyahn. Look, it's been a great quarter. And for me personally, it's sort of the capstone on a very big year for the company with the Illuccix launch in the United States. We got our reimbursement for Illuccix on the 1st of July. And so what that means in practical terms was that Q3 was our sort of fully fledged commercial quarter where we had a very strong tailwind with reimbursement. And I think that reimbursement improvement continues as we start to really see rollout across the United States. To have delivered 40% growth quarter-on-quarter, I think it's an extraordinary outcome for the company.

And we don't see an abatement of that growth. Generally, an overall enlargement of the market and plenty of opportunities to grow the pie, so to speak, is really what we're seeing out there in the real world. And I think part of it is about the evolving patterns of -- referral patterns that we're seeing around the indications that are there as well as the realistic real-world growth of utility and prostate cancer imaging across multiple clinical applications. And I know specifically, we also have a label extension plan for the third week of March, which is the patient selection indication. And so, as we start to see therapy take hold, PSMA therapy start to really get traction in the United States, that also serves as a nice tailwind for the business.

So we've grown the team pretty significantly to meet the opportunity. We think that this is now a greater than USD 1.5 billion market opportunity based on, again, the type of referral patterns and adoptions that we're seeing. And we've risen to the challenge of that also by scaling our infrastructure and delivery network to now about 190 pharmacies in the U.S. market and really to make sure that we have that coverage, both in terms of customer base but also to meet the next sort of stage of commercialization, which is to be able to facilitate those group purchasing and IDN type of relationships where coverage is absolutely critical and expanding our network of delivery is really a requirement to be successful. So I think we've done a tremendous job of scaling up for that eventuality in the market this year.

On that note, maybe I'll move over to you, Darren, to sort of elaborate on financial performance.

[Darren Smith, executive]

Okay. Thanks, Chris. It's with great pleasure to present Telix' fourth quarter Appendix 4C financials. It's been a year of progress for Telix, transitioning in the first quarter from a biotech with a promising portfolio of diagnostic in therapeutic assets through a commercial phase organization in the second quarter to now when Telix has achieved major milestone of delivering its first quarter of positive cash flows from operating activities.

Three key items that helped facilitate this achievement. Firstly, the strong growth achieved revenue from Illuccix. Secondly, the continued focus on control of operating expenditure. And third, the improvement of management of customer receivables.

Turning to the graph on Slide 9. This highlight the key movements that have delivered the $1.6 million cash inflow in Q4 being a $6.9 million improvement on the previous quarter. As you can see, cash receipts improved 62% to $72.2 million. This was a $27.7 million improvement on the prior quarter as a result of management's focus on collections of receivables. With growth in revenue comes a corresponding growth in cost of goods. This increased $19.8 million to a total of $30.5 million for the quarter. The net of these two items delivered an additional $7.9 million in cash compared to the prior quarter.

The other cash items related to operating activities delivered a net difference of $1 million compared to the prior quarter. This reflected working capital management of SG&A, increasing investment in Telix' product development programs and the requirement to pay income tax installments in the U.S. and in Belgium.

So what does this mean for the profit and loss? I'll have you turn to Slide 10. As previously highlighted, Telix' global revenue grew 41% on the previous quarter to a total of $78.2 million. Telix is not only focused on the revenue new top line, we've also focused on controlling Telix' cost base. This can be seen both in cost of goods sold and the operating expenditure improved, and reduced as a percentage of sales with COGS reducing from 39% in the prior quarter to 37% and operating expenditure reducing from 37% to 28% this quarter. As a result, Telix' commercial margins after cost of goods and SG&A, but before R&D have improved from 24% last quarter to 35% on sales this quarter.

Telix is investing these funds into its product development programs with a focus on, firstly, commercializing late-stage assets, such as the 250-CDx; and two, progressing the development of its potential high-value therapeutic assets such as the ProstACT GLOBAL Phase III clinical trial.

So in summary, Telix has finished the year in a sound financial position with continued growth in revenue; two, controlling its operational expenditure, also improving the management of its working capital and a solid cash position of $116.3 million. Collectively, this puts Telix in a strong financial position to enter 2023.

I'll now hand back to Dr. Chris Behrenbruch to go through the year to come. Chris?

[Christian Behrenbruch, executive]

Thanks very much, Darren. So with our financial performance, which is at the moment in excess of AUD 300 million in annualized revenue and underwriting about $100 million of R&D from earnings, this really then enables us to deliver on our ongoing 3-year commercial strategy, which is these four key items.

So first of all, we will, in 2023, continue to build on Illuccix. Actually, about 20% of our R&D expenditure is still focused on building out -- growing out of Illuccix, expanding the indications for Illuccix, expanding the territories and doing product life cycle management. That includes building new features and capabilities into our products that we think are really going to excite the market. Telix has a very deep and over-the-horizon commitment to delivering excellence in prostate cancer imaging and you're going to really see the effect of that this year from that R&D investment.

And I will note, just on the topic of global rollout, we expect to be in a position to resubmit our European marketing authorization by the end of this quarter. That data collection has gone extremely well up until the end of last year, and we're just preparing the regulatory submission for that. We also expect in the next quarter, Brazil and Korea approvals. We also have a clear pathway to get a regulatory approval for Illuccix in Japan, and we've just had late last year, approval to do the Phase III bridging study in China with our partner, China Grand Pharma. So this sort of direction of growing the global opportunity for Illuccix is a very tangible and proximal activity for the company.

Second of all, we are not a diagnostic imaging company. We are a therapeutics company, really unlike our competition. And so the focus that we have on our therapy program, and the investment that we're making in our therapy programs is really critical. This year, you will see the ProstACT GLOBAL trial supercharged and launched in the United States and Europe, subject to regulatory approvals. We have two active clinical trials for the therapy agent recruiting, where we're getting -- we're recruiting patients every week, and we're getting lots of excellent data. And you will see clinical readouts this year for both ProstACT SELECT and ProstACT TARGET. We already had abstracts in submission and preparing to talk about some of the really exciting clinical data that we're getting from our therapy program for prostate cancer.

I also want to remind investors and shareholders that we actually have two product approvals to submit this year. We're making great progress towards our NDA submission for brain imaging. This is an opportunity that's more modest compared to the prostate cancer but still represent a total addressable market of $250 million to $300 million that we can layer in as a revenue stream on top of Illuccix under an orphan indication in the United States. And so we'll be talking more and more about the progress towards that NDA submission over the course of the year. I'll give a bit more color to that product in a minute because it's somewhat under the radar.

And then, of course, last and certainly not least, our excellent Phase III results that we obtained late last year forms the basis of our BLA submission. I think it's fair to say that our regulatory and manufacturing teams are head down and focused on getting that BLA submission in this year for a product launch in early next year in renal cancer. We love this product as a follow-on product. It's the same call point as Illuccix. It's an opportunity to deepen our traction with urology and urological oncology. Just the natural follow-on product to the success we've had with Illuccix. And frankly, it's going to impact our success in a positive way with Illuccix. This is a highly anticipated product that just generated a ton of interest based on the clinical data.

So I think for the average biotech company of our market cap, any one of these would be a great objective to have for the year. The fact that we have these four value creation drivers for the year means that we've just got a super exciting year ahead.

Moving on to the next slide. I thought I'd just give a little bit more color to each one of these. I mean, first of all, we're starting to talk more and more about our differentiation. We have a really solid strategy for capturing our fair share of the prostate cancer market from a therapeutic perspective. I'm not going to go through this line by line, but we have a very clear product differentiation. Key opinion leaders are starting to understand it. Medical oncologists understand what our differentiation is and what it means to patient management. And I think this differentiation aspect is just critically important.

We now see the approval and success of Pluvicto, the Novartis product in the market. But what we see is that the follow-on competition to that product is really undifferentiated. In fact, it may even be not only clinically undifferentiated, but less clinically beneficial to the patient.

And so we're really focused on demonstrating over the next 18 months, where does this asset lie in the landscape of prostate cancer therapy, both in the wider context, but specifically with respect to radioligand therapy.

If you move on to the next slide. I think this is a picture of what the ProstACT GLOBAL trial really looks like and is seeking to achieve. We have just finished manufacturing material for this study, which is just in the process of being released to be able to then complete the regulatory filings for the U.S. and Europe. For the total study, we're expecting to recruit 392 patients. We do have a run-in because we've got a new manufacturing scale-up method, is our commercial scale-up method, but that's included in the overall scope of the Phase III trial. And we expect this year to recruit that 100 to 120 patients to be able to then deliver an interim readout by around the middle of next year.

So this is not a wait forever type of clinical scenario. We've got ProstACT SELECT and TARGET data delivering plenty of opportunities to talk about asset performance over the course of the year and then really working towards that interim data point at some point in 2025. And this diagram really just shows the trial structure, the randomization scheme and the standard of care that we're still working towards with this opportunity.

And I think it's fair to acknowledge that the competitive momentum has really generated a ton of interest for this asset class. So we find that there's a high degree of investigator engagement around developing this asset and just no shortage of interest in participating in our clinical trials. So we expect this to be a pretty swiftly recruiting study.

Moving on to the next slide, please. The TLX101 program, this is a LAT-1 imaging agent for imaging brain cancer, specifically glioblastoma. This is a -- been a little bit of an out of the radar program over the last 12 months as we've focused on building out the manufacturing package and assembling the clinical arguments that we want to take to the agency. There's a clear unmet medical need. This is about bringing a well-established standard of care imaging agent into the U.S. market and commercializing it effectively. And so we really see a good understanding and an unmet need commercially and clinically to make this product available.

So we have a 505(b)(2) submission in progress for that. Our submission development and progress there. We have experience from the Illuccix program of the submission pathway. So we're trotting down a familiar pathway. And we have that pre-submission meeting in preparation for the agency. And I expect by the middle of the year that we're going to have some real momentum in this product.

Moving on to the next slide, please. Certainly, last but not least, the 250 program, 250-CDx. I think to say that we were delighted with the clinical results late last year would be an understatement. We have an incredibly accurate imaging agent that's exceeded our expectations in terms of the sensitivity and specificity. We have a product that we're confident can make an enormous difference to the diagnosis and staging of clear cell renal cancer. We believe that this is an asset that will change the standard of care for renal cancer globally.

We are gearing up for ASCO GU next month where we were able to get an oral presentation of the clinical results, which is just very gratifying for the clinical team to be able to perform at ASCO at that standard. So we're just delighted about that.

So this year, 2023 is about all the manufacturing, scale up and the package. We'll be doing a rolling BLA submission. We've had good engagement with the FDA on the process. We have a couple of key meetings in March and May planned with the agency. And I imagine by the middle of the year that our BLA submission will be well underway. And so this is, again, something that's going to move very fast for the company with a launch plan currently in early 2024.

So moving on to the next slide. Moving on to the opportunity for TLX250-CDx. The ZIRCON trial was really designed to elucidate two indications, and this is what we'll be taking to regulators -- to U.S. and European regulators. The opportunity to diagnose new incidental renal methods. Good proportion of renal cancer are discovered incidentally from other imaging. There's a major unmet need to characterize those lesions and provide both diagnostic and surveillance options for those patients.

We also see an opportunity for a more staging oriented indication. And conservatively, when you put those two together, acknowledging that our radiology colleagues do a pretty good job in some cases of diagnosing patients from CT and MRI, but for the really high unmet need patients, we see a conservative market opportunity of $500 million to $600 million in the U.S. alone. And as I stated before, this is just the ideal follow-on indication for Illuccix as they -- the relevant call point, the geo-oncology product. We get to build on the experience and contact points that our excellent sales team have developed for Illuccix. And that's going to be meaningful and instrumental to driving demand for this product.

And then, of course, just like prostate cancer, where today, the market size for prostate cancer is somewhere in the vicinity of -- maybe slightly higher, but certainly 300,000 scans a year over the next 2 to 3 years, indications like longitudinal and treatment response and surveillance. With good clinical data, there's a potential to grow that to 2x or 3x that market size.

We see the same dynamic with renal cancer with active surveillance and treatment monitoring indications. And we already have some really compelling data in the treatment monitoring and treatment prognosis area. We think that they're, again, subject to building those formal label claims. We see a very, very bright future for this asset, frankly, in a low competitive landscape from Telix' perspective. So we're really excited about the future potential of this asset. And it's just great clinical data to support the market launch of this product.

So moving on to the next slide. Just to kind of wrap up, I talked about those four key catalysts, growing Illuccix, our two further follow-on product submissions and of course, that all important therapeutic study from a ProstACT GLOBAL perspective. But next -- over the course of the 12 months, we just have so many additional milestones that we're going to be able to talk to shareholders about. I know there's been patience on the European submission. We're very close to making that a reality for the company. We've got plenty of data coming out of our renal cancer and prostate cancer therapy programs. We've got global expansion for Illuccix. We've got pharma collaborations. We've got all kinds of interesting technologies that are directly related to our core pipeline, getting out into the hands of key opinion leaders and generating traction.

And of course, we've got our research pipeline, which is we don't often get a chance to go into deep dive so you can expect over the course of the year that we'll be running some very interactive science days where we'll get a chance to explain to investors all of the great stuff that's coming behind the core pipeline. And in fact, if you look at our JPMorgan presentation, we're really starting to bifurcate that core and extended research pipeline. So people can get a little bit more focus on all the innovation. What does Illuccix look like 5 years now -- from now? 7 years from now? So that's just a really exciting development for the company.

So I'll wrap it up there. Thanks very much for the opportunity to give you this comprehensive update, and you can just move to the final title slide. But I'll hand it over now to the floor for any questions and comments we may have.

[Operator]

[Operator Instructions] Your first question comes from David Stanton with Jefferies.

[David Stanton, analyst]

Look, I just -- first question is around U.S. growth rates that we might expect into calendar year '23 for Illuccix. We saw fourth quarter volume of around the 11,000 scans for the quarter. What level of growth on this can we expect into calendar '23 please?

[Christian Behrenbruch, executive]

Well, I think December is always a little bit of a -- sort of a lazy month in terms of taking volume, not so much happens between Thanksgiving and Christmas. So we did see growth but it's a little bit of a slowdown. And we also have fewer scanning days in December as well. So I think that going into Q1 and Q2, I don't really expect to see our growth abate all that much.

So I think the good news is we will continue to see healthy growth in our top line over the course of 2023. We aren't yet, David, as you know, in the stage where we're forecasting that. But I would imagine with sort of 2 to 3 more quarters of sales under our belt as we see the reimbursement landscape kind of fleshing out in the United States, we're going to be able to give a lot more color to that.

Our expectation, frankly, David, is by sort of Q4 of this year that we'll start to see a penetrated market. And so what that means is a commercial dynamic over the next few quarters is going to shift from individual account acquisition, individual customer acquisition to more of a group purchasing national account type of dynamic. And that's also a place where very large tracks of customer base can move around.

I think it's also fair to say, David, when we launched Illuccix, we focused on guideline equivalency. We were -- our main message was -- because we were #2 out to market, our main message was we're available. We have great availability, access, scheduling, flexibility. Now we're really starting to focus on from a selling perspective, the clear clinical messaging that we have, you just have a better product. We have better sensitivity and specificity in our product. We have better clinical utility. We're able to detect very, very low -- detect lesions with patients in very, very low PSA scores. So you're going to see a lot more clinically directed marketing over the next couple of quarters. And I think that's going to have a big impact on our market share, at least that's what our advisory boards are telling us.

[David Stanton, analyst]

And as a follow-up to that, do you think you saw an impact from LOCAMETZ in the fourth quarter?

[Christian Behrenbruch, executive]

Yes, it's a great question. So generally speaking, across their radiopharmaceutical pipeline, Novartis has been -- have been difficulty delivering. We don't see LOCAMETZ as a material player in the market, and that's consistent with Novartis' own guidance. There are certainly delivery challenges with Pluvicto. And so, where that happens, obviously, the imaging -- sites are getting imaging in place, and we're getting plenty of customer engagement around using Illuccix for patient selection because of the fact that it's indicated in the Novartis label.

I think what's going to happen is on the back of the PSMA 4 study, which was an excellent outcome, I think everybody is expecting to see that sort of second line indication move in this year. That's got the potential to add another 20 to 30 scans on an incidence basis. Remember, in the package insert right now, it only indicates a sort of a single scan. It's not repeat scanning. So I think to model faithfully to the indication, it's one scan per patient, not multiple scans per course of therapy.

Of course, we know that key opinion leaders are imaging patients as they go along because it's very instructive to therapy management. But assuming one scan per patient, the progression of Novartis' business, assuming they sort out their supply issues, that could add another 30,000 scans, 35,000 scans to the U.S. market, and we would expect to pick up probably 80% of that business.

[David Stanton, analyst]

Okay. And my final question, then I'll jump back in the queue is on for Darren, please. So steady state gross margins for Illuccix. You've talked to low 60s percent in this quarter. Your competitors are more at the 70% number. What should we be thinking longer term in terms of gross margin from Illuccix, please?

[Darren Smith, executive]

It's a good question, David. We don't typically give guidance, but there's probably a couple of things I can point to. We have spoken in the past about the fact that we would see some continuing improvements in our gross margin moving up to probably around more of that traditional 65%. When we start talking about the margins, it becomes more about a question of selling price than it is in regard -- than it is around the cost of the goods sold and the delivery of those.

So what we'll see is that we've got a fairly pretty steady state in regards to costs. The pricing levels will probably be more of a function of as we move into more penetrated market, and we get to a stage of how would you say, a more competitive pricing perspective to attain a better share or appropriate share of the market. So I'd suggest that what we'll see is the margins start to kind of flatten out around that 65%. Obviously, there'll be a couple of percentage points variations around that on a quarter-by-quarter basis.

[Christian Behrenbruch, executive]

Yes. I mean, if I could just add to that, I think Darren's perspective from an SG&A is spot on. We will -- we are -- so our competitor needs to invest in glycotron networks to add -- basically, to capture additional markets. And we don't have that. We have this very scalable pharmacy model but the trade-off there is that we have to manufacture a viable product, right, with the shelf life that sits there in the nuclear pharmacy. But -- however, this year, we will be scaling up our manufacturing one more notch. And that production scale up in terms of kit production will also produce a few percentage points of COGS improvement as well.

So -- I mean, certainly, both from an SG&A and a manufacturing perspective, David, there is still is a bit of headroom. And I think Darren's advice to you is prudent, but I think we'll start to drift towards that 70% as we scale up manufacturing.

[Operator]

Your next question comes from Shane Storey with Wilsons.

[Shane Storey, analyst]

I'm going to return to David's question, please, just around the outlook for growth for this year. It's an important question because as you know, I mean, the sales for the PSMA market are already way ahead of the indicative TAM that Telix put out a year ago. So maybe I'm going to ask a different way. And Chris, I'll ask you on how you think each of the two major settings, the PSMA imaging, so hospitals, freestanding imaging centers, how both of those are tracking towards their target levels of awareness? I mean, intuitively, I'd expect that the freestanding radiology segment has a long way to go. Would that be accurate?

[Christian Behrenbruch, executive]

No, I don't think so. I think proportionately -- I mean there's three markets, right? There's hospital base, there's VA and then there's IDTF. And I think proportionately, they're tracking just exactly how we said we would. And I mean we haven't been conservative -- so we've been conservative in our TAMs, but we haven't been particularly singling out any one segment where we're going to be excellent. And I mean, we've grown in all three.

I think what we're seeing in terms of -- I mean, our competitor, every time they have a great quarter, they -- there's magically more prostate cancer patients available to treat. And whilst there's a degree of truth in that, I think part of it comes from some unexpected elements. I mean, just to give you one example of that, what we're seeing in terms of referral patterns on the high-risk men indication is some degree of rescanning. You may have a scan in one setting on a referral basis but then when you go in and have your prostatectomy, you may get rescanned again in an institutional setting. So obviously, that's kind of a different -- that's a different clinical environment or can be a different clinical environment. So we're seeing a bit of repeat standing.

We're also seeing patients that are probably from a guideline perspective, not strictly biochemical reoccurrence but are sort of proximal to biochemical reoccurrence what would have been traditionally characterized as an M0 patient in the hormone-sensitive setting. So I think that's a little bit of a market enlargement opportunity as well. And then our competition is starting to talk more and more about technically, the label is sort of really medium to high risk in, what does that medium really mean? And does that extend deeper from a Gleason score perspective.

So I think that's where some of the upside can come as well is there's clear patient unmet need that's proximal to that label. And I think that we'll start to see a little bit more push into that earlier patient setting as well. So -- but remember, if you can visualize in your minds, and we used to put out a slide all the time that was like -- in fact, you can see it in the JPMorgan vector, that's the PSA kind of wiggle slide. And we're just -- over the life of that prostate journey, you see all the troughs and valleys of -- peaks and valleys of PSA levels. And we're just -- today, with those two indications, we're just treating those two -- that first hump. Like we're just on either side of that first hump.

And so what we're starting to see is just more and more utility, follow-up scanning, PSA levels rising through a PSMA scan. Put a patient on Pluvicto, do a PSMA scan. Do a patient after their third dose of Pluvicto, do a PSMA scan. And so we're just starting to see the potential of where PSMA imaging is going to fit all the way along that patient continuum.

So I guess the way to condense that is to say, look, today, we're doing, I don't know, 1.2 scans per patient on an incidence basis, right? If you look at the -- if you go to the American Cancer Association guidelines sort of roughly 1.2 scans per patient. And I think that as the field expands and the understanding of how this new modality impacts patient care, there's a clear pathway to get to 4 to 5 scans per patient. We've just got to do the clinical work and build out those label claims to support that broader utility.

[Shane Storey, analyst]

That's very helpful detail. The second question and last question I've got is in the clinical update, I noticed the inclusion of the interim analysis for ProstACT GLOBAL. I know this isn't a technical session, but maybe if you could describe that in a bit more detail and perhaps the effect size you have in mind there? And how it impacts the overall stats plan?

[Christian Behrenbruch, executive]

Could you be a little bit more specific?

[Shane Storey, analyst]

Sure. Just -- I mean, are you looking for just the 120 patients, just how you came to that number and the effect size that you had in sizing that interim pool?

[Christian Behrenbruch, executive]

Yes. So while we haven't put out a full statistical plan, but yes, that's based on the target confidence that we're looking for in the study and what we think that the interval separation is going to be in the study. And there's an alignment between that interim analysis and also a futility analysis. So it's about making sure that we're not plowing ahead with a trial that isn't going to yield differentiation. Does that make sense?

So yes, there's a number of touch points that feed into that number, but it's -- yes, it will be a statistically significant readout, but it's something that we think is good for -- both for the field to understand where we fit in, but also for investors to understand whether we are or are not on track from an expenditure perspective for the study.

[Operator]

Your next question comes from Andrew Paine with CLSA.

[Andrew Paine, analyst]

Just trying to understand the R&D spend going forward. I think, Chris, you mentioned $100 million a bit earlier. I'm not sure if that's the -- what we should be expecting in the next few years. But yes, if you can provide any indication there that would be great.

[Christian Behrenbruch, executive]

I mean I think that's -- so Andrew, thanks for your question. I think it's an implied and manifest in our burn rate. So if you look at our -- I mean, obviously, the cash flow is a little bit of an abstraction of the P&L, but I think it clearly indicates that we're doing of the order of -- and it fluctuates up and down a little bit, but of the order of 20 to 25 a quarter on R&D expenditure. So that's $100 million on an annualized basis.

And it jumps around a bit of what the pass-through costs are on the trial. But I think the really important thing to demonstrate is we've been underpinning that expenditure. This is the second quarter that would underpin that expenditure from revenue.

So -- and I don't expect that it's going to -- I mean you're not going to see -- we had a little sticker shock in the middle of the year because we were heavily focused on our top line and commercial launch and I think people were unaware what our R&D expenditure creep was. And so, now we've had 2 quarters where there's been a consistent and very level expenditure. We expect to see that -- I mean it will increase slightly, but -- or it increased moderately, but it's going to be there's not going to be any great surprises from an R&D expenditure in 2023.

And again, to reiterate, the important thing about it is that, that investment in our R&D is coming strictly from earnings. Or let me put that another way, our planned R&D expenditure for 2023 is financed by our earnings. It's not going to be financed by shareholder capital or new shareholder capital.

[Andrew Paine, analyst]

Sure. And that includes entering a Phase III for TLX591?

[Christian Behrenbruch, executive]

Correct. So our -- again, I'll reiterate. Our planned R&D expenditure for 2023 includes full speed on our Phase III trial.

[Andrew Paine, analyst]

Okay. Great. And just sticking on the 591...

[Christian Behrenbruch, executive]

I just want to emphasize that because there's a lot of speculation out in the market, I don't know why that we're out to raise capital, we have no intention of doing that, just to be clear.

[Andrew Paine, analyst]

Sure. And just staying on TLX591. Just the time line here, including when we could expect a potential Phase III readout, assuming we can get some FX approval?

[Christian Behrenbruch, executive]

Well, so we're not really focusing on giving guidance for the readout. Where -- we'll recruit most, if not all, of that interim readout by the end of this year. I mean, the corporate objective is to have that interim readout recruited by the end of the year. And then there's about a 6-month delay to get into that top line PFS data.

So we're focused right now on, obviously, operationalizing the study, getting all the global sites online, getting the regulatory pieces in place. We already have [indiscernible] approval, of course, for that study in Australia, but getting U.S. and Europe online and getting to that interim readout, that's our priority right now.

[Operator]

Next question comes from Dennis Hulme with Taylor Collison.

[Dennis Hulme, analyst]

My first is in relation to the renal cancer imaging. On your slide on the market opportunity, you talk about incidental renal matters and also rental cancer diagnosis. Can you just give a little more color about what you mean there by it's used for renal cancer diagnosis? And would that differ from the use that was made in the Phase III trial?

[Christian Behrenbruch, executive]

Yes. So thanks, Dennis. Nice to hear your voice. Look, basically, we designed the ZIRCON trial really for two indications. So the first is because patients were going into the operating theater to have a kidney section. The goal was to evaluate ground truth of clear cell renal cancer from a histologic collection. So the way in which we did the data capture enables us to go back and use that data for a surgical staging indication from a primary staging perspective. So that was kind of the crux of the study, so to speak.

But what we also agreed with the FDA was that we would enrich the study, and we set specifications in this study for the so-called T1a lesions, which are lesions below 4 centimeters in size. And the reason why we do that is because that's the lesion size classification that's most typically apparent in an incidental finding. So an incidental finding is a patient that's had an abdominal scan for some other purpose other than a renal scan.

The radiologist will always do a fly-through of the major organs. It's estimated that 1 in every 2 adults above the age of 55 has some sort of a renal mass. And we can radiographically resolve a good proportion of those but about half of renal cancer -- new incidences of renal cancer, so confirmed diagnosis of renal cancer come through from incidental findings. And that's how we get to that second indication.

So to conclude, conservatively, there's about 150,000 patients a year in the United States that have an incidental finding. Of course, a proportion of those are able to be radiographically resolved, and we've sort of given credence to that in our TAM assessment. And then there's, in total, about 79,000 to 80,000 patients where you would then want to do a surgical stage and work up. That's a different -- that has a different clinical -- has a different kind of imaging purpose. And it's really the conflation of those two indications that get us to that addressable market that we've talked about.

It's a very conservative number. I mean, because of the excellent sensitivity and specificity that we've got, there's a pretty compelling clinical read to that. If you have a mass, you're going to want to go and get it checked out. But we do have to acknowledge that right now, the standard of care includes clinical modalities that for some types of pathology you could do a reasonable job with a CT scan. Does that answer your question? Does that make sense?

[Dennis Hulme, analyst]

Yes, that certainly makes sense. And just a little follow on in relation to that, you're talking about the surgical staging. Does that mean that [indiscernible] are being used in people with larger renal matters that are more at risk but to check whether they're -- whether they have metastases before they undergo surgery. Is that what you're dealing with the...

[Christian Behrenbruch, executive]

Absolutely, yes. Yes, that's right. So based on all the data that we've seen so far, including investigator-led trials and work that we've done in Europe, we sort of -- we estimate that about 45% of patients that have a CA9-scan prior to surgery have a change in staging. So that means that a single focal lesion becomes multifocal or multifocal lesion becomes a proximal metastasis, say, to an adrenal gland. So we definitely -- we have some really compelling data that suggests that approximately 1 out of 2 patients going in for renal cancer surgery benefit from having a CA9-scan, having a 250 CDx scan. So yes, this is going to be a pretty important thing to do for a patient before they go in the OR.

[Dennis Hulme, analyst]

Great. And my second question is just on ProstACT GLOBAL. On the slide there, you talk about the running phase. Can you talk a little bit about that, whether the patients will be randomized and that...

[Christian Behrenbruch, executive]

Yes. So it's -- it makes no difference from the trial perspective. It's just about whenever we do a new manufacturing process, and as you're aware, Dennis, particularly in the United States, when you go into a Phase III trial with a biologic, you really need to be using the manufacturing -- a more growing manufacturing method. So what we did in -- what we spent our time and energy in 2022 doing was beefing up that manufacturing process so that we're in good shape on the back end of the ProstACT GLOBAL trial to get that asset to the stage where it really passes -- muster with both regulators and diligence partners.

And so, I think we have that now. We've done a ton of work on the manufacturing package. And what it means is that for a proportion of the patients going into that study, we'll use the new manufacturing method to be able to compare to the old data that we have or the preexisting data that we have and it's just about providing regulatory continuity for the asset. So -- but yes, those patients will be randomized, et cetera, just as they are for the remainder of the study.

[Dennis Hulme, analyst]

I'll step back in the queue.

[Christian Behrenbruch, executive]

Back into the queue? It means you're going to ask more questions. I'm joking, Dennis. John Hester, I think you're up next.

[John Hester, analyst]

Just a quick one for Darren. Darren, back of the envelope sort of numbers on your receivables. It looks like it's about 30 days. Is that the number that we should expect going forward? Helping to forecast balance sheets.

[Darren Smith, executive]

John, I actually just looked at that this morning, just to make sure that was across it. It's interesting. I looked at the end of September, and we're at about 49 days for the end of December, and there's probably some stuff in there, but it's sitting around 41 days. The normal terms that we put in place are probably more around the 35 to 40 days. So it depends on the customer. So we're running fairly close to that. The three that you beat the actual general terms and additions that you've put in place, but we're fairly close, yes.

[John Hester, analyst]

Just to round that out, was there any element of one-off in those collections for the period? Or is that just we can expect going forward now?

[Darren Smith, executive]

Look, there's always going to be some variation depending on the timing of payments from customers, but we'll try -- or we won't try. We'll be doing what we need to do to contain debt within a reasonable limit. But at this point in time, there's been no one-offs that is kind of very better performance either way.

[John Hester, analyst]

And Christian, just moving on there. Just looking at [ Lance's ] presentation from JPMorgan. There's another key points. There was -- there's literally hundreds -- 145, I think, I counted assets, in development in diagnostic assets, radio pharmaceutical diagnostics in development around the world. Where do you stand on M&A now? Is there -- would you look at opportunities if one presents itself in an area where you're not -- where you don't have a presence? And any sort of reasonable -- that you may look at for further growth?

[Christian Behrenbruch, executive]

Look, it's a fair question. I mean, Andrew, it's all -- it's -- John, it's a slightly loaded question, and you realize that we built the company through M&A. So we're always looking at the opportunities that are out there. We also -- frankly, we're one of the few freestanding companies that has this kind of platform agnostic viewpoint of the world. We do antibodies, we do peptides, we do small molecules. We don't care. We haven't sort of made F-18 a hill to die on. And so I think because we're targeting agent agnostic, we're isotope agnostic and we have a pipeline that goes from early stage to commercial and a fair bit of credibility now in commercialization, we're really a go to.

No one's going to go to Novartis anymore to like offload an asset. They really want to go to a kind of more dynamic environment. So I think we see a lot. I mean our business development team sees -- I mean, I wouldn't be exaggerating five new things a week. And so we obviously -- we do a lot of diligence. We look at a lot of these opportunities in depth. Some of them are really exciting. We have a big pipeline. I mean there's no doubt that some of our shareholders would say that we've got enough to chew on. But if something really exciting comes along, particularly something that's later stage where we can see that it can generate revenue for the company and the sort of, I'd say, 3-year horizon, I think that, that's something we would take a very serious look at.

[John Hester, analyst]

And just moving along. On the renal cancer presentation at ASCO next month, should we be expecting a general publication fairly shortly thereafter? Second part? Yes?

[Christian Behrenbruch, executive]

Yes. So unequivocally, yes.

[John Hester, analyst]

Okay. And a quick -- just a final question for me. One of the reasons for Illuccix is rapid market uptake has been the NCCN guidelines. Where do you stand on that now with renal? Do you think that this data is going to be sufficiently strong to support a similar sort of recommendation?

[Christian Behrenbruch, executive]

Well, we -- I mean, the NCCN guidelines didn't happen sort of accidentally. There were a lot of -- there are a lot of academic and commercial actors that contributed to that process, including us. We've been very careful about our KOL engagement and our site selection and who we have been working with to generate the evidence for 250-CDx.

We also -- we've talked about previously, and I certainly touched on JPMorgan that we'll be launching very shortly our expanded access program, which is a requirement to breakthrough designation. The purpose of that EAP is to really -- to build experience and to reinforce the clinical understanding of the utility of the product.

So I think between peer review of the results -- publication of the results and then starting to work with the KOLs that drive practice guidelines over the course of the next 12 months, I think we're going to be in a really good position. And you're starting to see already some of the collaboration that we've done around building papers that look at the meta-analysis of the renal cancer imaging space and what works and what doesn't work. And I think you can expect to see more of that clinical positioning over the next 12 months.

So it's a path -- again, across the whole aspect of the commercial launch from supply chain to guidelines to reimbursement. We've been down the pathway before. We know what we need to do. And I'm confident that we can make the renal cancer program as successful as the prostate cancer space has been.

[John Hester, analyst]

Good news.

[Operator]

Your next question comes from David Stanton with Jefferies.

[David Stanton, analyst]

Sorry, just had a follow-up, if that's okay. And just one for me. I'm interested in understanding your near-term views in terms of Illuccix pricing in the U.S., as I said, over the near term. And again, what should we be thinking in terms of pricing or manufacturer pricing at the end of the pass-through period 3 years from -- or 2.5 years from now?

[Christian Behrenbruch, executive]

Well, first of all, I mean, we're not giving guidance on what it's going to look like over the next 12 months. But as you can imagine, when we get into a fully penetrated market, pricing is an important tool for market capture right now. I can guarantee there isn't going to be a race to the bottom, but we are going to see the possibility of some volume incentive pricing. But that's not monster price erosion. I mean that's single-digit change, right?

I think in terms of the end of pass-through, I think, look, honestly, investors have forgotten about the entire point of pass-through. The entire point of pass-through was to take away the bureaucratic obstacle of waiting 18 months for a CPT code and to enable some market pricing to take place. So if you compare -- and the price where an imaging agent is going to land, I mean, there's no magic formula that says at the end of pass-through that the pricing falls into an abyss. It's going to be a function of clinical demand, and it's going to be a function of competitive landscape, and it's going to be a function, I think, most importantly, of clinical evidence.

So if you look at, for example, NETSPOT when it went off pass-through, it dropped by about 15%. That's because it was a highly adopted, high clinical evidence agent whereas if you look at Axumin, the drop was very significant. It was 40% and beyond post pass-through because there was no clinical evidence or very limited clinical evidence to support it. I mean the FDA basically approves the product on the basis of a bundle of investigator-led studies.

So really, it's going to be adoption, procedure volume and clinical evidence that's going to largely, not solely, but largely influence that price change after pass-through. But you all have to remember, David, that economics underpins procedure utilization. So the flip side to it is, is that when you have a lower bundle procedure costs for something that's important to the PSMA scan, it's going to drive clinical adoption. So what's really critically important for Telix and other companies over the next 3 years is to build out those indications to properly life cycle manage our products. We've got Illuccix 2.0 and Illuccix 3.0 in our development pipeline, which can garner distinct codes.

So I think the reality of it is that there's going to be multiple waves of products that are going to come through, and that's going to continue to build value and continue to drive the top line of this business.

[Operator]

There are no further questions at this time. I'll now hand back to Ms. Williamson.

[Kyahn Williamson, executive]

Yes. Thank you. Look, we've come to the end of the allotted time for the call. Really appreciate everyone dialing in and the thoughtful questions. We'll be releasing our full year results on February 27 and look forward to giving you an update there in that.

[Operator]

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