Hutchison China MediTech

WCLC 2019: detailed FALUCA data disclosed

Update | 11 September 2019

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Top-line data from the pivotal China Phase III FALUCA fruquintinib monotherapy trial in 3L NSCLC (third-line non-small cell lung cancer), released November 2018, indicated the study missed its overall survival (OS) endpoint but met all secondary endpoints. Full data presented at the 2019 World Congress on Lung Cancer revealed median OS of 8.94 months for fruquintinib vs 10.38 months for placebo (p=0.0841). A post hoc sensitivity analysis suggested use of subsequent anti-tumour therapies following disease progression was likely to have contributed to this result. FALUCA data coupled to the rapidly evolving treatment landscape in NSCLC supports Chi-Med’s decision to focus on development of fruquintinib in combination with PD-(L)1 checkpoint inhibitors; China Phase I combination studies have begun. However, the major near-term catalyst for fruquintinib remains commercial: potential NRDL inclusion in Q419 would provide strong impetus to China revenues.

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.
  • Primary endpoint missed but no other surprises Full FALUCA data showed median OS for fruqunitinib monotherapy was 8.94 months vs 10.38 months for placebo (hazard ratio 1.02, p=0.841). However, all secondary endpoints were met (p<0.001), including progression free survival (PFS: 3.68 months vs 0.99 months), objective response rate (ORR: 13.8% vs 0.6%), disease control rate (DCR: 66.7% vs 24.9%), and duration of response. Fruquintinib’s safety profile was consistent with Phase II.
  • Post-hoc analysis indicates role of newer therapies Since FALUCA initiation in December 2015, several new drugs have been approved in China for use in NSCLC (ie osimertinib, anlotinib); their availability may have influenced the study result. For context, median OS was 6.3 months for placebo vs 9.6 months for anlotinib in the Phase III ALTER 0303 study in a similar NSCLC patient population. Subsequent therapies provided OS benefit to patients in both FALUCA arms but were received by a higher percentage of placebo patients. Post hoc sensitivity analysis showed that fruquintinib prolonged median OS vs placebo (7.00 months vs 5.06 months, HR 0.64, p=0.010) in patients who did not receive subsequent therapy.
  • China reimbursement to catalyse sales Potential NRDL (National Reimbursement Drug List) inclusion in Q419 would significantly boost Elunate (fruquintinib) market penetration and future revenues. Over H218/H119, the drug generated $8.3m in royalty/manufacturing revenue for Chi-Med on c$13.1m of in-market China sales.
  • Valuation remains £5.93/share and $38.55/ADS Our DCF-based SOTP model includes an rNPV of the clinical pipeline and generates a valuation of $5.14bn ($38.55/ADS) or £3.95bn (£5.93/share). We anticipate multiple clinical, regulatory, and commercial catalysts will unlock further value over the next 12 months.

Update

11 September 2019

Price (US ADS)
(UK share)
$21.72
361p
Market Cap
 
$2.90bn
£2.41bn
Enterprise Value
 
$2.66bn
£2.21bn
Shares in issue (ADS)
(shares)
133.3m
666.6m
12-month range
 
$19.20-$39.68
312p-567p
Free float40%
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

Exhibit 1: 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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