Hutchison China MediTech

Carrying momentum into H219

Update | 13 August 2019

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Hutchison China MediTech (Chi-Med) H119 results highlight ongoing financial and operational progress. First China NDA filings for surufatinib and savolitinib are on track for H219 and H120 respectively, following in the footsteps of Elunate’s November 2018 launch. Global registration studies of surufatinib and fruquintinib will also initiate in H120. Investment into the maturing China Oncology and Global Innovation pipelines means future R&D spend will continue to grow, but Chi-Med is well-funded with flexibility surrounding future funding options. These are not limited to a future Hong Kong IPO, but include prospects of enhanced revenues from Elunate (post potential NRDL inclusion in Q4) and near-term China approvals/launches, plus possible non-dilutive finance from non-core asset divestment (eg OTC). Our valuation remains $38.55/ADS ($5.14bn) or £5.93/share (£3.95bn).

Year-end: December 31201720182019E2020E
Sales (US$m)241.2214.1168.6207.6
Adj. PBT (US$m)(53.5)(86.7)(205.6)(202.0)
Net Income (US$m)(23.0)(71.3)(170.6)(164.4)
Earnings per ADS (US$)(0.22)(0.57)(1.31)(1.26)
Cash (US$m)358.3301.0285.9*233.8
Adj. EBITDA (US$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. *2020E cash figure includes assumed raise of $250m.
  • Near-term filings for second and third China Oncology products Surufatinib’s China NDA in non-pancreatic NET will be filed by year-end, with potential for 2020 approval/launch. Savolitinib NDA filing is not far behind; enrolment is complete in the ex14 del NSCLC China registration study. Fruquintinib (Elunate), Chi-Med’s first launched product in China, generated $4.7m of royalty/manufacturing revenues in H119 on $11.4m of in-market sales by partner Eli Lilly. Potential NRDL inclusion in Q419 should significantly boost market penetration and future Elunate revenues.
  • Further Global Innovation registration studies pending Savolitinib (partnered with AstraZeneca) is likely to be the first drug approved for the global market. Read out of the SAVANNAH NSCLC Phase II (savolitinib + osimertinib) in 2021 could support accelerated FDA approval. Unpartnered assets surufatinib (pancreatic NET) and fruquintinib (3L/4L CRC) are poised to start global registration studies in H120.
  • Flexibility on funding options Ongoing pipeline investment will be partially offset by growing China Oncology revenues; other options (eg non-core asset disposals) mean Chi-Med is not dependent on the proposed Hong Kong IPO and global raise. RMB/USD weakening benefits China R&D and with 2020 starts for Global Phase IIb/III studies, FY19 guidance is updated to R&D spend of $130-170m (vs $160-200m) and adj. non-GAAP group net cash outflows of $90-120m (vs $120-150m).
  • Valuation maintained at £5.93/share and $38.55/ADS Our DCF-based SOTP model includes an rNPV of the clinical pipeline. Our pre-money remains $5.14bn ($38.55/ADS) or £3.95bn (£5.93/share), and we continue to anticipate multiple clinical, regulatory, and commercial catalysts that will unlock further value over the next 12 months.


13 August 2019

Price (US ADS)
(UK share)
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Enterprise Value
Shares in issue (ADS)
12-month range
Free float40%
Company Code
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.


Franc Gregori
+44 (0) 20 3637 5041

Mick Cooper PhD
+44 (0) 20 3637 5042

Lala Gregorek
+44 (0) 20 3637 5043

Chi-Med: pipeline to deliver near-term catalysts

Hutchison China MediTech (Chi-Med) has made significant progress over H119 in advancing its proprietary Global Innovation and China Oncology pipelines.  In China, NDAs for the first indications for surufatinib and savolitinib will be filed with the NMPA within the next 12 months. Potential NRDL inclusion of Elunate in Q419 should increase market penetration and catalyse revenue generation potential from the China Oncology franchise. Chi-Med’s Global Innovation ambitions are also progressing. The most advanced asset, savolitinib is currently enrolling in the registration-intent SAVANNAH trial for the global market; results from an interim analysis in H120 will determine whether conditional approval could be sought. Two other assets, surufatinib and fruquintinib are also on the cusp of initiating US/EU Phase IIb/III studies (H120). Near-term, these, clinical, regulatory, and commercial catalysts will unlock further pipeline value.

Anticipating pipeline progress

Continued pipeline progress (Exhibit 1) is expected over the coming 12 months as various clinical trials initiate and ongoing studies render data. In total eight assets are under evaluation in over 30 clinical trials, not including a newly disclosed China IND filing (IDH 1/2 inhibitor HMPL-306). An overview of anticipated news is shown in Exhibit 2, and we highlight the following as key catalysts:

  • Elunate (fruquintinib) potential NRDL inclusion (Q419): NRDL (National Reimbursement Drug List) inclusion would increase Elunate penetration as it automatically grants access and distribution to all hospital pharmacies across China. Listing is associated with a yet-to-be-negotiated discount to the launch price (US$3.26k/cycle, or a total out of pocket cost of US$9.8k under the patient assistance programme) but this will be more than compensated by greater volumes. Elunate H119 in-market sales were $11.4m; we forecast a $122m peak sales opportunity in China 3L CRC, and a potential $500m-1bn China sales opportunity across multiple indications, with Chi-Med eligible for minimum royalties of 15%.
  • Surufatinib China NDA filing in non-pancreatic NET (H219): The positive outcome of the interim analysis of the SANETep trial enables China NDA filing earlier than anticipated (see June Update; full data will be presented at a forthcoming conference). If approved, surufatinib should be launched in 2020, targeting an indication with major unmet medical need and limited treatment options. Surufatinib will be the first self-commercialised product by Chi-Med’s growing China Oncology commercial organisation (currently 60-strong but expected to expand to 200+ by end-2020).
  • Savolitinib China NDA filing in MET exon 14m/del 1L NSCLC (H120): The Phase II registration study completed enrolment in July. Initial data was presented at AACR 2019 (see April Update). If the mature data meets an agreed efficacy threshold, the China NDA will be filed in H120. Assuming a successful clinical and regulatory outcome, China would be the first market in which savolitinib would be launched. While AstraZeneca has commercialisation rights, Chi-Med is eligible for royalties of 30% on China sales, plus a potential approval milestone.
  • Savolitinib SAVANNAH interim analysis (H120): SAVANNAH, a Phase II with registration intent, is evaluating savolitinib + osimertinib combination in cMet+ 2L/3L EGFR/T790M refractory NSCLC. Interim analysis in H120 will define whether efficacy data generated by that point would support filing for conditional approval. We note that AstraZeneca and Chi-Med should articulate plans for further lung cancer studies by early-2020.
Exhibit 1: Chi-Med pipeline status
Source: Hutchison China MediTech   Notes: [1] in planning/imminent, [2] proof of concept in Australia, [3] SXBX = She Xiang Bao Xin.
Exhibit 2: Hutchison China MediTech news flow to mid-2020
Source: Trinity Delta, Hutchison China MediTech  Note: WCLC = World Congress on Lung Cancer; NSCLC = non-small cell lung cancer; CRC = colorectal cancer; RCC = renal cell carcinoma; NET = neuroendocrine tumours; BTC = biliary tract cancer; NHL = non-Hodgkin’s lymphoma


Financials and valuation

In H119, reported group revenues were flat at $102.2m compared to H118, or grew at 5% at constant exchange rates (CER) due to weakening of the renminbi against the US dollar.

Underlying sales growth was driven by the continued strong performance of the Commercial Platform, which grew at 2% on a reported basis or 7% at CER to $90.2m. Non-consolidated JVs performed similarly with reported sales increasing by 2% or 8% at CER to $276.9m. Total revenues from the Commercial Platform and non-consolidated JVs on a non-GAAP basis was $367m during the period, generating $28m in net income.

The sales contribution from the Innovation Platform, Hutchison Medipharma, fell by $1.6m to $12.0m due to reduced fee-for-service revenues, largely because of the renegotiation of the Eli Lilly fruquintinib collaboration in December 2018. The impact of lower research fees was offset by Elunate royalties of $1.7m and manufacturing revenues of $3.0m, which mark the start of the transition towards higher quality and more predictable sales for the Innovation Platform.

Investment in R&D grew by 15% to $69.3m to support the broadening pipeline. The increase was moderated slightly by the weaker renminbi, and, together with the start of the global registration studies with surufatinib and fruquintinib being delayed from H219 to H120, has led Chi-Med to reduce its guidance for R&D expenses for FY19 to $130m-170m as indicated in Exhibit 3.

Overall, group net loss during H119 increased by 39% (48% at CER) to $45.4m, reflecting the increase in R&D. In line with the revised R&D guidance, Chi-Med has also reduced its guidance for group net cash outflows to $90m-120m. The company remains very well-funded with a cash position of $237.3m: in addition to $146.3m in unutilised banking facilities and $64m in cash within the JVs.

A summary of the changes in our estimates is shown in Exhibit 4, and financial forecasts are shown overleaf in Exhibit 6.

Exhibit 3: Chi-Med FY19 guidance (US$m)
Source: Hutchison China MediTech  Note: * excludes potential financing activities
Exhibit 4: Summary of changes to estimates
Source: Trinity Delta

Ongoing investment is required to maximise Chi-Med’s pipeline opportunities. The proposed Hong Kong IPO and associated global raise is one such mechanism to boost the company’s resources. Since the intention to list was announced in April, market conditions have deteriorated which, coupled with an underwriter mandated 90 day lock-in period and a lower share price in connection with CK Hutchison’s discounted secondary placement (see June Lighthouse), means timing is uncertain. Management’s view is that market conditions are a critical factor in determining transaction success. We believe that various other options are also available to finance Chi-Med’s pipeline.

Historically, profits from the Commercial Platform provided funding for the drug development activities of the Innovation Platform. In addition to these cash flows, divestment of non-core assets (such as the China OTC business) could generate further cash. Chi-Med is also going through a transition where the Innovation Platform, specifically the China Oncology business is starting to generate revenues. China Oncology will require significant near-term investment in both R&D and expanding its sales capabilities ahead of upcoming launches; however, over time, revenues from Elunate, surufatinib, and savolitinib will become material and increasingly contribute to profits, helping to fund the later-stage development of the Global Innovation pipeline.

We maintain our valuation at $38.55/ADS ($5.14bn) or £5.93/share (£3.95bn), which remains a pre-money valuation that does not include any assumed proceeds from the proposed Hong Kong IPO and global placement. Various upcoming catalysts highlighted in this note could prompt us to revisit our assumptions in future. Our valuation methodology is outline in our February 2019 Initiation report, and we provide a summary in Exhibit 5 below.

Exhibit 5: Relative contributions of Chi-Med programmes to valuation
Source: Trinity Delta
Exhibit 6: Summary of financials
Source: Company, Trinity Delta  Note: Adjusted numbers exclude exceptionals. Historic and forecast EPS are adjusted for one-to-ten ordinary share split, with new ADS ratio of 1:5 shares. Our estimate of $250m proceeds from the proposed equity raise are shown as short-term debt in FY20e, until transaction size, structure, and terms are confirmed.




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