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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 $35.57/ADS or £54.72/share.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (US$m) | 241.2 | 214.1 | 168.6 | 207.6 |
| 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) | 358.3 | 301.0 | 150.8 | 11.3 |
| Adj. EBITDA (US$m) | (17.2) | (69.7) | (163.9) | (159.5) |
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 float | 32% |
| Exchanges | NASDAQ AIM |
| Sector | Healthcare |
| Company Code | HCM HCM.L |
| Corporate client | Yes |
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
Table of Contents
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.
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.
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.
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.
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.
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.
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.
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