Which drug company could pile on almost 30% in gains according to RBC Capital?

Shareholders in Telix Pharmaceuticals Ltd (ASX: TLX) have had a rough year if they bought near the company's 12-month highs, but the good news is one broker at least thinks they'll deliver significant gains over the coming year.

RBC Capital Markets has just initiated coverage of Telix shares and has a "sector perform" rating on the company.

Strong development pipeline

The RBC analysts say that at the current share price, there's a lot to like about the biotechnology company, which has more than one iron in the fire.

As the analysts wrote in a note to clients:

Telix is a radiopharmaceutical company that has successfully commercialised two diagnostic assets in prostate cancer and there are significant opportunities to expand indications. Telix also has a large portfolio of pipeline assets across urology, neurology, musculoskeletal and hematologic oncology that it is working to commercialise.

That's the good news, but the RBC team said shareholders might have to wait some time for earnings and free cash flow to tick up, with the company investing in its research and development pipeline.

As the RBC team said:

While we are forecasting a record level of sales and cash receipts from FY25-FY27, we expect EBIT and free cash flow to remain broadly flat due to an increase in R&D costs to commercialise Telix's pipeline. We anticipate Telix will only become EBIT and FCF positive in FY28.  

On the upside, RBC said Telix has a large portfolio in its development pipeline.

Telix has a large pipeline portfolio. In our view, the most promising candidates are TLX591 as its phase two data showed a significant improvement in median overall survival (OS) of 23.6 months, TLX250 given early clinical data (phase two showed 57% disease stabilisation), TLX101-CDx given its higher sensitivity and specificity, and TLX101 given its phase 2 data showed a favourable improvement in OS of 12.4 months.

Potential to expand scope

RBC said Telix was also working to expand the utility of its prostate cancer imaging agents, which would extend them for use in early diagnosis and other monitoring indications, and which could expand the addressable market in the US from 645,000 scans per year to about 1.7 million.

RBC has a price target of $17 on Telix shares, compared with the price of $13.15 on Monday. If the shares were to reach this level it would constitute a gain of 29.3%.

The company has traded as high as $31.97 over the past 12 months and as low as $13.04.

Telix was valued at $4.65 billion at the close of trade on Friday.  

The post Which drug company could pile on almost 30% in gains according to RBC Capital? appeared first on The Motley Fool Australia.

Motley Fool contributor Cameron England has positions in Telix Pharmaceuticals. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Telix Pharmaceuticals. The Motley Fool Australia has recommended Telix Pharmaceuticals. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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