Chi-Med: a second product on the cusp of launch

Hutchison China MediTech (Chi-Med) has achieved a major milestone with the China approval of surufatinib (branded as Sulanda) in epNET (non-pancreatic neuroendocrine tumours). Surufatinib is the second of its internally discovered oncology drugs to be approved by the NMPA (National Medical Products Administration) but the first to be wholly internally developed and the first to be self-commercialised, with launch in early 2021. Approval of a label extension, to include pancreatic NET (pNET), is expected in 2021. Chi-Med holds global rights to surufatinib and has also progressed the asset for the ex-China market with the December 2020 initiation of a rolling NDA submission with the FDA. The NDA submission is expected to be completed in H121; FDA acceptance is subject to review of the entire dossier. Surufatinib regulatory developments in China and the US bring Chi-Med a step closer to its goal of becoming a global biopharmaceutical company with a portfolio of innovative targeted oncology drugs marketed to patients worldwide. Our revised valuation is £4.7bn (equivalent to £6.45/share) or $6.1bn ($41.94/ADS) vs £4.25bn (£5.84/share) or $5.52bn ($37.95/ADS) previously.

Chi-Med continues to make progress on multiple fronts despite the COVID-19 pandemic. Two of the company’s first-in-class and/or best-in-class tyrosine kinase inhibitors have now been approved in China, evidencing the strength and relevance of Chi-Med’s in-house R&D capabilities. The execution of its plans to self-commercialize these, and other assets in the future, will exploit the local knowledge built up since inception over 20 years ago. The current clinical pipeline is advancing, both for China and the Global market, with the recent initiation of the pivotal fruquintinib FRESCO-2 study in metastatic colorectal cancer (mCRC) indicative of this progress. We expect Chi-Med’s three lead assets (fruquintinib, surufatinib, savolitinib) to deliver key clinical and regulatory news flow, both in China and globally, over the coming 24 months. In addition, the next wave of product candidates, likely to be developed in parallel in both regions, is increasing in visibility and will, over time, make a growing contribution to the pipeline.

Commercial traction in China is translating into meaningful revenues, with further product approvals/launches (eg surufatinib in pNET; savolitinib in MET exon 14 skipping non-small cell lung cancer, NSCLC, subject to approval) expected in the near-term. Future Global launches should enhance medium-term earnings potential, with the first US approvals/launches possible in 2022 for surufatinib (as a monotherapy for advanced NET) and savolitinib (in combination with osimertinib [Tagrisso] in MET positive osimertinib refractory NSCLC).

The c $318m of funds raised in 2020 ($200m from two PIPEs, with the residual from the January 2020 ADR offering) have strengthened Chi-Med’s balance sheet and brought new investors to the shareholder register. Our end-FY20 net cash forecast of c $380m provides the resources to maintain momentum and fund necessary investments in infrastructure to support the development pipeline. This includes the ongoing clinical development of the three leading assets and the next wave of product candidates, expansion of the China Oncology Commercial footprint and US infrastructure, and increased manufacturing capacity in Shanghai to support upcoming launches as new approvals come through.

Surufatinib: from the clinic to commercialisation

Surufatinib’s profile suggests that it has the potential to become a new standard of care across the NET spectrum, with its clinical benefit confirmed in two pivotal Phase III trials (SANET-ep and SANET-p). These trials supported China NDA filings for epNET (approval granted in December 2020) and pNET (NDA acceptance in September 2020, with a potential approval decision expected in 2021). Several of our earlier reports explore in depth the SANET-ep data presented at ESMO 2019 (October 2019 Update), SANET-p data at ESMO 2020 (September 2020 Update), and the wider surufatinib NET opportunity (February 2020 Update).

Outside of China, the FDA and EMA have confirmed that data from both SANET studies, as well as a separate bridging study with US epNET and pNET patients, would be sufficient to support NDA and MAA submissions for the broader NET indication. Chi-Med recently initiated a rolling NDA filing with the FDA, which should complete in H121. An MAA is expected to be filed in 2021. These timelines point towards a potential late-2021/early-2022 approval decision. In the US, Fast Track Designation has been granted for surufatinib for both epNET and pNET, with Orphan Drug Designation in the latter. Chi-Med also plans to begin enrolling a US Expanded Access Protocol in Q121, subject to FDA clearance.

In China, Sulanda will be Chi-Med’s first wholly self-commercialized asset, with management having expanded its China Oncology Commercial team in preparation for launch. The 400-strong commercial team (including sales reps, marketing managers, medical liaison etc) covers more than 2,000 hospitals across China, and is targeting further expansion, to over 900 providing full coverage of all provinces in mainland China by end-2023. Since October 1, following a July 2020 amendment to the 2013 agreement with Eli Lilly, Chi-Med’s commercial team has had a more extensive role in Elunate commercialization. With potential for label extensions for both products (Sulanda in pNET in 2021; Elunate for 2L gastric cancer in 2022), there is further leverage potential.

Chi-Med has provided little detail on its commercial strategy for Sulanda at this point; however, we expect that this will be similar to that employed with Elunate following its approval for 3L mCRC in 2018. Sulanda pricing is not yet confirmed, but we would anticipate that launch would be associated with a Patient Access Programme that would limit out of pocket costs while inclusion on the NRDL (National Reimbursement Drug List) is pursued. Should Sulanda be included on the NRDL, potentially in 2022, any pricing discount granted would be more than offset by greater volumes resulting from improved market access.

We note that surufatinib is also being evaluated outside of NET. China trials are ongoing in 2L biliary tract cancer (China Phase IIb/III) and in combination with PD-1 inhibitors for solid tumours. Chi-Med has several surufatinib collaborations evaluating PD-1 combinations with Shanghai Junshi for toripalimab (Tuoyi), BeiGene (tislelizumab), and Innovent Biologics (sintilimab, Tyvyt). Global combination studies are in planning. Surufatinib’s dual mechanism of action (angio-immuno kinase inhibition) could have synergistic anti-tumour effects with PD-1 inhibitors, facilitated by its favourable safety profile. The Tuoyi collaboration is the most clinically advanced: a Phase II study initiated in January 2020, and first promising combination data, while preliminary, from the completed China Phase I dose-finding study was presented at AACR 2020 (April 2020 Update).

Exhibit 1: Summary of financials

Source: Company, Trinity Delta  Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments, Adjusted EBITDA includes equity in earnings of equity investees. *2021E cash figure includes assumed receipt of $100m in new funds from warrant exercise