Hutchison China MediTech

AACR 2019: Savolitinib in the spotlight in NSCLC

Update | 9 April 2019

Share this note

Data at AACR from two key non-small cell lung cancer (NSCLC) trials has shown that savolitinib has encouraging anti-tumour activity and an acceptable safety profile both as monotherapy in exon 14m/del NSCLC, and in combination with osimertinib in MET+ EGFR-TKI refractory NSCLC. These presentations increase our confidence in Hutchison China MediTech (Chi-Med) and partner AstraZeneca’s ability to launch savolitinib, as the first available selective c-Met inhibitor, in its respective NSCLC settings in 2021 (China: MET exon 14m/del) and 2022 (Global: in combination with osimertinib), subject to positive trial read outs and subsequent approvals. We upgrade our valuation to $35.57/ADS or £54.72/share.

Year-end: December 31201720182019E2020E
Sales (US$m)241.2214.1168.6207.6
Adj. PBT (US$m)(53.5)(86.7)(205.6)(204.5)
Net Income (US$m)(23.0)(71.3)(170.6)(166.9)
Earnings per ADS (US$)(0.22)(0.57)(1.31)(1.28)
Cash (US$m)358.3301.0150.811.3
Adj. EBITDA (US$m)(17.2)(69.7)(163.9)(159.5)
Source: Trinity Delta Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments, Adjusted EBITDA includes equity in earnings of equity investees.
  • TATTON B combo data shows acceptable risk-benefit profile Globally, MET+ EGFR TKI resistant NSCLC is savolitinib’s priority indication. MET amplification is a common resistance mechanism (20-30% of EGFRm NSCLC). TATTON B showed promising efficacy of the savolitinib/osimertinib combination in a heavily pre-treated population. For EGFR TKI T790M-/Met+ patients (post-gefitinib or erlotinib), the objective response rate (ORR) was 52% (24/46 partial responses) and 7.1 months duration of response (DoR). Osimertinib-resistant Met+ patients showed an 25% ORR (12/48 PRs) and median DoR of 9.7 months. Plans for further pivotal combination trials in NSCLC should be announced later in 2019. This is in addition to the ongoing SAVANNAH Phase II (c-Met+ 2L/3L EGFR/T790M refractory NSCLC), which is due to read out in 2021, and could support accelerated approval in the US.
  • China filing for 1L exon 14m/del NSCLC on track Initial mid-trial data from the first 34 patients in the China Phase II exon 14m/del NSCLC study delivered a 39% ORR (PR in 12/31 evaluable patients), with >34 weeks median treatment duration. Enrolment of the full 50+ patients should complete in mid-H219 and subject to positive trial read out, China NDA filing is targeted for 2020.
  • Biomarkers to identify MET-driven tumours Targeted therapies require patient selection. An AACR poster of the TATTON biomarker analysis highlighted challenges in defining MET selection criteria and assay reliability, and this combined with future clinical trials will help inform a new MET biomarker strategies.
  • We upgrade our valuation to $35.57/ADS or £54.72/share  We value Chi-Med using a DCF-based SOTP approach, which includes a clinical pipeline rNPV model, at $35.57/ADS or £54.72/share. This is an increase of $2.18/ADS or £3.20/share on our previous valuation and reflects Chi-Med’s progress this year, including the recent start of the surufatinib China Phase IIb/III study in biliary tract cancer. Savolitinib represents 17%: $6.18/ADS ($824m) or £9.51/share (£634m) of our valuation.

Update

9 April 2019

Price (US ADS)
(UK share)
$31.78
4,675p
Market Cap
 
$4.24bn
£3.12bn
Enterprise Value
 
$3.94bn
£2.89bn
Shares in issue (ADS)
(shares)
133.3m
66.7m
12-month range
 
$20.83-$39.68
3,180p-5,668p
Free float32%
Exchanges
 
NASDAQ
AIM
SectorHealthcare
Company Code
 
HCM
HCM.L
Corporate clientYes

Company description

Hutchison China MediTech is a Hong Kong headquartered biopharma with an established Commercial Platform in China, and a diverse pipeline of first-in-class/best-in-class selective oral tyrosine kinase inhibitors (Innovation Platform). Its pipeline, discovered in-house, is in development for the China and global oncology markets.

Analysts

Franc Gregori
fgregori@trinitydelta.org
+44 (0) 20 3637 5041

Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042

Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043

Hutchison China MediTech (Chi-Med) remains on track for near-term filings of savolitinib in China and globally in non-small cell lung cancer (NSCLC). Savolitinib has the potential to be the first approved selective cMet inhibitor in its respective NSCLC settings. Data from two key trials presented at AACR increase our confidence that anticipated filing and approval time lines for savolitinib will be met. We also upgrade our Chi-Med valuation to  $4.742bn ($35.57/ADS) or £3.648bn (£54.72/share), previously $4.456bn ($33.49/ADS) or £3.428bn (£51.52/share). Of this, savolitinib represents 17% or $6.18/ADS ($824m) or £9.51/share (£634m). With rich news flow for 2019 and beyond, we anticipate future clinical, regulatory, and commercial catalysts will unlock further value.

Initial data from the China Phase II exon 14m/del NSCLC study of savolitinib monotherapy, and mature data from the savolitinib plus osimertinib combination in the ‘B cohort’ of the global Phase Ib/II TATTON trial were presented at AACR in a plenary session entitled ‘Can the challenge of NSCLC resistance be MET or will we not MEK it?’.  The following sections provide an overview of the data.

To recap, Chi-Med and partner AstraZeneca intend to file a China NDA in 2020, assuming that data from the ongoing China >50-pt single arm Phase II study of savolitinib monotherapy in MET exon 14m/del NSCLC meets an agreed efficacy threshold. Initial data from the first 41 patients treated (31 of which were efficacy evaluable) was presented at AACR. As per the abstract, at December 2018, 12/31 patients evaluated had partial responses (39% objective response rate, ORR), with a median treatment duration of 34+ weeks. However, data presented had a later cut off (February 2019), with 16/31 PR (ORR of 51.6%), and a disease control rate of 93.5% (29/31).

Outside of China, data review from the dose expansion parts of the Phase Ib/II TATTON study (TATTON B and D) coupled to the outcome of regulatory discussions will determine pivotal trial design, dosing, and target patient populations for global savolitinib + osimertinib combination studies.

A potentially pivotal global Phase II study, SAVANNAH, evaluating savolitinib + osimertinib in c-Met+ 2L/3L EGFR/T790M refractory NSCLC is already underway, and due to read out in 2021. TATTON B data at AACR in a similar albeit not identical patient population (osimertinib approval in the 1L setting occurred after TATTON has initiated), showed a 25% ORR (12/48 partial responses) and a median duration of response of 9.7 months. Additional potentially pivotal NSCLC combination trials should be announced later in 2019.

TATTON (Part B): savolitinib/osimertinib combination

Preliminary findings from the expansion phase (TATTON B) of the open-label, multi -centre Phase Ib TATTON study demonstrated that the combination of savolitinib (600mg QD) and osimertinib (80mg QD) in patients with EGFR-mutant, MET-amplified NSCLC has an acceptable safety/tolerability profile (primary objective) with preliminary anti-tumour activity (secondary objective).

TATTON B data from two distinct patient populations that had failed prior EGFR TKI therapy were presented and are summarised in Exhibits 1 and 2. This efficacy data (ORR, PR) is broadly comparable with initial TATTON B data presented at WCLC 2017 (Exhibit 3), but includes more patients and the disclosure of duration of response data for both patient groups.

Exhibit 1: Preliminary anti-tumour activity and safety profile of savolitinib as shown by TATTON B data
Source: Trinity Delta, Hutchison China MediTech. Note: Data cut off February 2018. IQ range = interquartile range. Stable disease includes: 1  4 patients and 2  5 patients with unconfirmed Partial Responses.
Exhibit 2: Waterfall plots of TATTON B data
Source: AACR 2019
Exhibit 3: Comparison of TATTON B efficacy data presented at WCLC 2017 and AACR 2019
Source: Trinity Delta, Hutchison China MediTech. Note: WCLC data only includes patients with centrally confirmed cMet status. WCLC 2017 data cut off August 2017; AACR data cut off February 2018.

The primary objective of TATTON B was safety/tolerability; the data supports an acceptable risk-benefit profile in what is a late-stage and heavily pre-treated patient population. The savolitinib + osimertinib combination did generate some additive toxicity, resulting in several treatment discontinuations. In addition, one of the two deaths (due to acute kidney injury) in the T790M-/MET+ cohort was possibly treatment related, although the principal investigator stated that it was ‘difficult to evaluate’. Overall, the most frequent adverse events were nausea, vomiting, diarrhoea, and lowered leukocyte and platelet counts.

We note that there is potential to manage this side-effect profile and reduce the 20-35% discontinuations due to adverse events, with a lower savolitinib dose. TATTON A, the dose-finding part of the study, established the 600mg savolitinib qd + 80mg osimertinib qd dose regime. The optimal dose may be lower. TATTON D is evaluating a meaningfully lower savolitinib dose of 300mg qd + 80mg osimertinib qd, and the Phase II SAVANNAH study has two dose levels: either savolitinib 300mg or 600mg qd in combination with 80mg osimertinib qd.

Efficacy as measured by RECIST criteria was the secondary object of the study. TATTON B yielded an ITT (intent to treat) ORR of 52% (24/46) for EGFR TKI T790M-/Met+ patients (post-gefitinib or erlotinib), with an efficacy evaluable ORR of 58% (24/42), with a median DoR of 7.1 months. In osimertinib-resistant Met+ patients the ORR for the ITT population was 25% (12/48), and the ORR for the efficacy evaluable population was 28% (12/43) as 5 patients were enrolled less than 8 weeks prior to cut off, with a median DoR of 9.7 months.

TATTON B data suggests that the savolitinib/osimertinib combination could offer an additional survival benefit as an effective targeted treatment option which can  overcome MET-driven resistance mechanisms irrespective of prior EGFR-TKI therapy. Osimertinib was designed to provide a treatment option for EGFR T790M+ patients who have progressed after EGFR TKI therapy, but, as Exhibit 4 overleaf illustrates, c-met amplification is one of the most frequent acquired resistance mechanisms to osimertinib with 20-30% frequency (depending on whether is based analysis of circulating tumour cells or from tumour biopsy).

Osimertinib was approved in the 1L setting for EGFRm NSCLC after initiation of the TATTON study, thus only a subset of patients in the TATTON B cohorts received prior 1L osimertinib and developed MET-driven resistance. Increased 1L use of osimertinib will likely increase the addressable pool of c-Met+ patients.

A key challenge is developing a prospective MET biomarker strategy, with standardised MET patient selection criteria, and robust assays techniques. A poster at AACR summarising the TATTON biomarker analysis highlighted these issues, and concluded that this data could be combined with future clinical efficacy data to inform a prospective biomarker strategy to detect MET-driven EGFR-TKI resistance in NSCLC.

Exhibit 4: Mechanisms of resistance to osimertinib
Source: AACR 2019

TATTON is an exploratory study. Randomised confirmatory trials would quantify the potential benefit and support a regulatory filing; however, they may not be necessary for an accelerated approval. The first potentially registrational trial, the 172-pt SAVANNAH Phase II, initiated in December 2018 and is investigating the savolitinib/osimertinib combination in EGFRm MET+ NSCLC patients who have progressed on osimertininb. This is evaluating a similar, albeit not identical population, to one of the cohorts in the TATTON study. Data is anticipated in 2021, which may be sufficient for a filing for accelerated approval.

China exon 14 m/del NSCLC: savolitinib monotherapy

Promising anti-tumour activity (including in brain metastases) and a tolerable side-effect profile was also confirmed by preliminary efficacy and safety data (abstract CT031) from the first 34 patients treated with savolitinib monotherapy in the China >50-pt single arm Phase II study in MET exon 14m/del NSCLC.

Of the first 34 patients treated (with a 17 December 2018 cut off), 17 were treatment-naïve, 13 were 2L, and 4 had ≥2 prior regimens. 31 patients were evaluated for efficacy. Tumour responses were rapid and durable, with 12/31 confirmed partial responses (PR), a 39% objective response rate (ORR). A further 4 PRs were yet to be confirmed; including these, the ORR rises to 52%. Of the remaining patients, 10 had stable disease, 2 showed disease progression, and 3 patients were unevaluable due to early discontinuation. Median treatment duration for confirmed PR was >34 weeks (16-96+ weeks).

Data presented at AACR had a later cut-off of 26 February 2019. This updated information showed 16/31 PR (ORR of 51.6%), with one unconfirmed response, and a disease control rate of 93.5% (29/31).

Savolitinib was generally well tolerated, with adverse events (AEs) mainly Grade 1/2, and most frequently nausea, peripheral oedema, increased liver enzymes, and vomiting. 12/34 (35%) of patients had Grade ≥3 AEs, with 5 (15%) discontinuing due to AEs, most commonly due to liver toxicity (6%).

This study continues to enrol, with recruitment expected to complete in mid-H219. The primary endpoint is ORR, and should an agreed efficacy threshold be met, a China NDA will be filed in 2020 seeking accelerated approval.

 

Valuation

We value Chi-Med using a sum-of-the-parts model, incorporating an earnings-based multiple for the Commercial Platform and an rNPV analysis of the late-stage clinical pipeline for the Innovation Platform. The progress being seen across the businesses means we have raised our valuation to $4,742m (£3,638m), which is equivalent to $35.57 per ADS and £54.72 per share. For comparison, our previous valuation was $4,456m (equivalent to $33.49 per ADS) or £3,428m (£51.52 per share).

Exhibit 5 shows an overview of the relative importance of the various assets to the valuation; a description of our valuation methodology and a detailed breakdown its components can be found in our February 2019 initiation. Our valuation is split between the Innovation Platform, which contributes $3,394m or £2,610m, and the Commercial Platform, which adds $1,134m or £872m.

Exhibit 5: Relative contributions of Chi-Med programmes to valuation
Source: Trinity Delta

It is worth stressing that we employ conservative assumptions throughout our modelling; hence any number of incremental improvements on our base case scenarios (notably with the Innovation Platform) could result in sizeable uplifts in our valuation. It is also worth noting that this is a current valuation, based on the situation as we see it now, and not a price target for some time in the future. Often such price targets are expectations of what the share price should be, typically, in 12 months’ time as various value inflection points are achieved. Such price targets run counter to our conservative approach; we strive to ensure our risk-adjusted models capture the various possible scenarios, relative to both upside and downside, and then we will update our valuations as the key points are reached. Although resulting in less dramatic upside potential, we believe our valuations are more realistic, attainable and, ultimately, credible.

Exhibit 6: Summary of financials
Source: Company, Trinity Delta  Note: Adjusted numbers exclude exceptionals

 

 

Disclaimer

Trinity Delta Research Limited (“TDRL”; firm reference number: 725161), which trades as Trinity Delta, is an appointed representative of Equity Development Limited (“ED”). The contents of this report, which has been prepared by and is the sole responsibility of TDRL, have been reviewed, but not independently verified, by ED which is authorised and regulated by the FCA, and whose reference number is 185325.

ED is acting for TDRL and not for any other person and will not be responsible for providing the protections provided to clients of TDRL nor for advising any other person in connection with the contents of this report and, except to the extent required by applicable law, including the rules of the FCA, owes no duty of care to any other such person. No reliance may be placed on ED for advice or recommendations with respect to the contents of this report and, to the extent it may do so under applicable law, ED makes no representation or warranty to the persons reading this report with regards to the information contained in it.

In the preparation of this report TDRL has used publically available sources and taken reasonable efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee or warranty as to the accuracy or completeness of the information or opinions contained herein, nor to provide updates should fresh information become available or opinions change.

Any person who is not a relevant person under section of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom should not act or rely on this document or any of its contents. Research on its client companies produced by TDRL is normally commissioned and paid for by those companies themselves (‘issuer financed research’) and as such is not deemed to be independent, as defined by the FCA, but is ‘objective’ in that the authors are stating their own opinions. The report should be considered a marketing communication for purposes of the FCA rules. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. TDRL does not hold any positions in any of the companies mentioned in the report, although directors, employees or consultants of TDRL may hold positions in the companies mentioned. TDRL does impose restrictions on personal dealings. TDRL might also provide services to companies mentioned or solicit business from them.

This report is being provided to relevant persons to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information that we provide is not intended to be, and should not in any manner whatsoever be, construed as personalised advice. Self-certification by investors can be completed free of charge at www.fisma.org. TDRL, its affiliates, officers, directors and employees, and ED will not be liable for any loss or damage arising from any use of this document, to the maximum extent that the law permits.

Copyright 2019 Trinity Delta Research Limited. All rights reserved.