A wealth of opportunity for surufatinib
Update | 18 February 2020
2020 will be a pivotal year for Hutchison China MediTech (Chi-Med), and surufatinib will play a key part. The potential China launch of this, Chi-Med’s first wholly owned drug, is now expected within the next 12 months. The new drug application (NDA) for surufatinib in epNET (extra-pancreatic neuroendocrine tumours) was accepted by the Chinese regulator in November 2019, and there is the prospect of a second NDA filing for pancreatic NET (pNET) in the coming months. Further news flow is expected with the China Phase IIb/III biliary tract carcinoma (BTC) interim analysis in mid-2020, and initiation of the US/Europe Phase III registration study for NET in a similar timeframe. Reviewing our surufatinib assumptions and updating our model following the c$118m ADS offering lifts our valuation to $5.21bn ($37.73/ADS) or £4.01bn (580p/share).
|Year-end: December 31||2017||2018||2019E||2020E|
|Adj. PBT (US$m)||(53.5)||(86.7)||(172.1)||(190.6)|
|Net Income (US$m)||(23.0)||(71.3)||(135.9)||(153.3)|
|Earnings per ADS (US$)||(0.22)||(0.57)||(1.05)||(1.13)|
|Adj. EBITDA (US$m)||(17.2)||(69.7)||(128.8)||(146.9)|
18 February 2020
|Price (US ADS) (UK share)||$28.29|
|Shares in issue (ADS)|
Hutchison China MediTech is a Hong Kong headquartered biopharma focused on discovering, developing and commercializing innovative targeted therapeutics and immunotherapies to treat cancer and autoimmune diseases. It has a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors in development for the China and global markets.
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Surufatinib is on track to become the first of Hutchison China MediTech’s (Chi-Med) wholly owned drugs to reach the market in China in late-2020. Both pivotal trials in neuroendocrine tumours (NET) were stopped early for efficacy at planned interim analyses having already met the mPFS (median progression free survival) primary endpoint. The China NDA for ep-NET (extra-pancreatic NET) has been accepted for review, while the SANET-p study outcome will be discussed at a pre-NDA meeting to determine next steps in pNET (pancreatic NET). Clinical data suggests that surufatinib has utility across the spectrum of NETs, which ultimately could result in a broad label encouraging its use in all patients irrespective of NET subtype. We have revisited our surufatinib assumptions, which, coupled to updating our model for the recent ADS offering, increases our valuation to $5.21bn ($37.73/ADS) or £4.01bn (580p/share).
Chi-Med’s most advanced unpartnered asset, surufatinib (formerly HMPL-012 or sulfatinib), has achieved several recent milestones in NET (Exhibit 1). Over the past nine months positive results from two China Phase III trials (SANET-ep in June 2019; SANET-p in January 2020) have reported, with acceptance of the first surufatinib NDA by the China NMPA (National Medical Products Administration) in November 2019 and subsequent grant of Priority Review status for ep-NET. Subject to regulatory approval, surufatinib will launch in its first indication in China in late-2020. This will mark a watershed for Chi-Med, as the first launch through its growing China Oncology commercial infrastructure, which is targeting 300-350 reps by the time of surufatinib launch.
Chi-Med will discuss the SANET-p data and the regulatory process for surufatinib in p-NET at a pre-NDA meeting with the Chinese regulator. Extrapolating from our assumed timelines for ep-NET and factoring in some common submission materials (ie CMC, preclinical data) with the surufatinib ep-NET NDA, we believe the China NDA for p-NET could be filed mid-2020. Given that the clinical data disclosed to date suggests that surufatinib is an effective therapy for all NET subtypes, we also believe there is potential for surufatinib to receive a broad label.
China NET is the first of multiple opportunities for surufatinib. The China and Global surufatinib development programme is focused on cancer indications with high unmet need and with potential for a rapid path to market given the relative rarity of the cancer types targeted and limited treatment options.
Chi-Med’s strategy across its TKI pipeline is to initially develop its programmes as monotherapies. However, as the pipeline consists of highly specific first- or best-in-class TKIs these offer advantages both in terms of targeted efficacy and cleaner toxicity profiles, making them ideal candidates for combination approaches.
As a novel selective oral small molecule TKI (tyrosine kinase inhibitor) with an angio-immuno kinase profile, surufatinib is differentiated from other VEGFR (vascular endothelial growth factor receptor) TKIs. In addition to VEGFR, surufatinib targets FGFR (fibroblast growth factor receptor) and CSF-1R (Colony stimulating factor-1 receptor). This profile supports development both as a multi-functional monotherapy agent and in combination with checkpoint inhibitors. Surufatinib has been dosed in c800 patients to date.
Key ongoing trials are shown in Exhibit 2.
News flow beyond China NET should be abundant in 2020. For China Oncology, a major catalyst will be the interim analysis of the China Phase IIb/III registration study in biliary tract carcinoma (BTC) in mid-2020. The Global Innovation pipeline should also deliver important events with the FDA end-of-Phase II meeting for NET targeted for H120, followed by the potential initiation of the US/Europe Phase III registration study in mid-2020. We highlight that surufatinib has recently been granted FDA Orphan Drug designation for pNET.
Evaluation of surufatinib as part of a combination approach is also progressing, particularly with its PD-1 monoclonal antibody collaborations. These include global partnerships with Shanghai Junshi for Tuoyi (toripalimab) and Innovent Biologics for Tyvvt (sintilimab). Surufatinib’s ability to inhibit tumour associated macrophage (TAM) production amplifies the PD-1 induced immune response, and thus the simultaneous targeting of multiple cell types and signalling pathways in the tumour microenvironment may elicit a potential synergistic anti-tumour effect.
The combination of surufatinib with a PD-1 inhibitor has the potential to unlock wider opportunities in multiple cancer indications, provided that clinical data supports the tolerability and effectiveness of the combination(s). Since signing its first PD-1 collaborations in November 2018, Chi-Med and its partners have made steady progress towards and into the clinic with the first combinations.
The Shanghai Junshi global collaboration is the most clinically advanced. The China Phase I dose-finding study of surufatinib and toripalimab completed last year; preliminary safety and efficacy data is expected to be presented at an upcoming scientific conference. A Phase II combination trial in advanced solid tumours was initiated in January 2020. Global combination studies of surufatinib with toripalimab, and with sintilimab are in planning.
NET is an umbrella term for tumours that develop from cells in the endocrine and nervous systems, most commonly in the digestive and respiratory tracts. It can be split into two distinct populations based on molecular genetics and treatment options. Non-(extra)-pancreatic NET (epNET) is the more common representing c90% of NETs; the remainder are pancreatic NET (pNET).
epNET is typically treated with somatostatin analogues (lancreotide, octreotide) which inhibit release of various hormones. The global standard of care for advanced (unresectable or metastatic) pNET is targeted therapy: approved drugs include Sutent (sunitinib, Pfizer), a multi-kinase TKI (targeting VEGFR, PDGR, c-kit, Flt3, Ret), and mTOR inhibitor Afinitor (everolimus, Novartis). Sunitinib approval validates targeting VEGF pathways in pNET, and surufatinib data to date has shown anti-tumour activity in heavily pre-treated patients and across multiple tumour types, supporting the rationale for development in both NET populations.
As a recap, both pivotal studies of surufatinib for NET (the 198-pt SANET-ep trial and the 195-pt SANET-p study) were stopped early stop at the interim analysis as the pre-specified PFS primary endpoint had been met. Full SANET-ep data was presented at ESMO 2019 (see our October 2019 Update); the investigator assessed PFS was 9.2 months for surufatinib vs 3.8 months for placebo (hazard ratio = 0.334, p<0.0001). The mPFS achieved at the SANET-p interim analysis has not yet been disclosed but will presented at a future scientific conference.
Data from the Phase II China NET trial reported 16.6 month mPFS for the overall patient population (n=81), with 19.4 month mPFS seen in pNET patients (n=41) and 13.4 month mPFS for epNET (n=40). This may suggest that SANET-p mPFS could be greater than in SANET-ep; however, this may depend on patient baseline characteristics. For example, SANET-ep had a higher proportion of G2 patients with aggressive disease than in the Phase II epNET subgroup.
Importantly, analysis of SANET-ep data showed that all subgroups favoured surufatinib, and all secondary endpoints were consistent with a treatment benefit. The totality of the SANET-ep data combined with a positive, albeit undisclosed, result in SANET-p provides a wide clinical evidence base across NETs by site of origin. Of the globally approved therapies for NETs, everolimus has the most comprehensive clinical dataset, although, as shown in Exhibit 3, there remains a significant opportunity in lung and other NETs. Thus, there is a potential role for surufatinib as either a 1L therapy, or as a 2L treatment option for NET patients who progress on everolimus.
The potential China NET opportunity could be significant (Exhibit 4), and there are several features of the NET market that could enlarge the opportunity further.
Estimated prevalence of NET in China is c 300k patients, but unlike many cancers, there is higher prevalence than incidence as NETs are typically slow growing compared with other tumour types. This means that NETs are associated with a relatively long duration of survival, and NET patients are typically on drug therapy for longer. At present, these patients have limited treatment options, with standard treatment protocols used despite the heterogeneity of the disease; hence a potentially universal treatment option should have good uptake. In addition, diagnostic improvements coupled with more treatment options could increase the recognition of NETs and raise current incidence.
The impressive outcome of the SANET-p trial prompts us to update our valuation assumptions for Chi-Med; we have increased our success probability for surufatinib in pNET (from 65% as a Phase III programme to the 90% we typically employ for pre-approval stages). Additionally, we have fine-tuned our model to include the impact of the $118.3m (gross) ADS offering.
These updates to our assumptions increase our valuation on a whole company basis, but the per share/per ADS valuation is impacted by dilution. We now value Chi-Med at $5.21bn ($37.73/ADS) or £4.01bn (580p/share) up from $5.14bn ($38.55/ADS) or £3.95bn (593p/share) previously.
Our valuation methodology, detailed in our February 2019 Initiation, employs conservative assumptions throughout. Upside to our current surufatinib valuation could come from a variety of sources, including: the potential for off-label use in pNET following approval in epNET; the impact of potential NRDL (National Reimbursement Drug List) inclusion on the price/volume dynamics; and potential for a swifter approval in pNET given data overlap with the epNET NDA.
Our new valuation reflects the 22m new shares (4.44m ADS, given the 5 shares:1 ADS ratio) issued in connection with the $110m (gross) ADS raise in January, and the additional 1.67m new shares (333.7k new ADS) issued in the February over-allotment. In total, gross proceeds from this raise stand at c $118.3m (we estimate $106.5m net). We assume pro forma net cash of £258.7m in our valuation.
Net funds raised will be used to progress Chi-Med’s extensive clinical pipeline and build up its commercialisation infrastructure during 2020, while also removing any perceived overhang on cash runway in 2020. Our January 2020 Update highlights many of the upcoming pipeline opportunities, and valuation inflection points for Chi-Med.
We also highlight that Chi-Med’s largest shareholder, CK Hutchison did not take part in the ADS offer which, coupled with its secondary offerings in June and September 2019, has reduced its holding to 48.15%.
Aside from updating the number of shares/ADSs and the new capital raised, there are no changes to our estimates, which are shown in Exhibit 5. We anticipate reviewing our financial forecasts following the release of FY19 results on March 3, 2020.
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