Hutchison China MediTech |
Elunate receives China NRDL inclusion |
Corporate update |
Pharma & biotech |
28 November 2019 |
Share price performance
Business description
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Analysts
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Hutchison China MediTech (HCM) has announced that Elunate (fruquintinib capsules) have been included in China’s National Reimbursement Drug List (NRDL) by the National Healthcare Security Administration (NHSA). Although expected, this is a huge positive as from 1 January 2020 Elunate will be available in all state-run hospital pharmacies and patients on NHSA insurance schemes will be reimbursed. HCM’s innovative oncology assets are making significant progress in China. It has now submitted the China NDA for surufatinib for treating non-pancreatic NET tumours, a large unmet clinical need. Surufatinib is likely to be the first of HCM’s non-partnered assets to reach the China market (late 2020). We value HCM at $5.7bn.
Year end |
Revenue (US$m) |
Net profit* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
241.2 |
(26.7) |
(4.3) |
0.0 |
N/A |
N/A |
12/18 |
214.1 |
(74.8) |
(11.3) |
0.0 |
N/A |
N/A |
12/19e |
182.9 |
(117.8) |
(17.7) |
0.0 |
N/A |
N/A |
12/20e |
194.6 |
(164.8) |
(24.7) |
0.0 |
N/A |
N/A |
Note: *Net profit and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Elunate NRDL inclusion is key
Elunate is now being commercialised in China (third-line colorectal cancer, CRC) by partner Eli Lilly (Lilly). The early sales trajectory is notable (H119 in-market of sales of $11.4m); however, the most interesting opportunity is inclusion on China’s NRDL, as this means automatic inclusion in all state-funded hospitals (more eligible patients) and automatic reimbursement (albeit it at a lower price) for patients with NHSA insurance. In its 2019 update NHSA added over 20 Category B oncology drugs (including Elunate) to the NRDL; reimbursement of Category B drugs requires varying degrees of co-payment from patients depending on their province of residence and type of NHSA insurance scheme enrolment. We forecast $211m peak sales for China’s CRC indication.
NET and BTC represents ~$1bn global opportunity
Surufatinib’s China NDA was accepted on November 11, based on data from Phase III SANET-ep for advanced non-pancreatic NET. Also, in the US the FDA has granted surufatinib orphan drug designation for pancreatic NET. The global (US and Europe) registration Phase III study is planned for H120. NET tumours are highly prevalent, fragmented in primary origin and are an unmet medical need. Surufatinib could be the first universal drug to treat NET in all patients regardless of tumour subtype. We continue to forecast global peak sales for surufatinib of $953m across the NET and biliary tract cancer (BTC) indications. We forecast China launch in late 2020 and US/EU launch in 2024.
Valuation: $5.7bn or £7.01/share or $42.78/ADS
Our valuation of HCM is unchanged at $5.7bn (£7.01/share) and make no changes to our forecasts. We use a risk-adjusted net present value method to discount future cash flows for the innovation platform (savolitinib, fruquintinib, surufatinib, epitinib, HMPL-523 and HMPL-689) valuation of $4,131.4m.
Exhibit 1: Financial summary
US$000s |
|
2017 |
2018 |
2019e |
2020e |
|
Year end 31 December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
241,203 |
214,109 |
182,885 |
194,589 |
Cost of Sales |
(175,820) |
(143,944) |
(128,232) |
(129,503) |
||
Gross Profit |
65,383 |
70,165 |
54,653 |
65,085 |
||
Research and development |
(75,523) |
(114,161) |
(152,500) |
(207,000) |
||
Other overheads |
(43,277) |
(48,645) |
(51,604) |
(52,752) |
||
EBITDA |
|
|
(50,692) |
(88,975) |
(144,811) |
(189,201) |
Operating Profit (before amort. and except.) |
|
|
(53,417) |
(92,641) |
(149,452) |
(194,667) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
||
Operating Profit |
(53,417) |
(92,641) |
(149,452) |
(194,667) |
||
Net Interest |
(235) |
4,969 |
2,458 |
(726) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(53,536) |
(86,655) |
(146,994) |
(195,393) |
Profit Before Tax (reported) |
|
|
(53,536) |
(86,655) |
(146,994) |
(195,393) |
Tax |
(3,080) |
(3,964) |
(5,004) |
(5,200) |
||
Equity investments, after tax |
33,653 |
19,333 |
39,233 |
40,813 |
||
Profit After Tax (norm) |
(22,963) |
(71,286) |
(112,765) |
(159,780) |
||
Profit After Tax (reported) |
(22,963) |
(71,286) |
(112,765) |
(159,780) |
||
Minority |
(3,774) |
(3,519) |
(5,000) |
(5,000) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net profit (norm) |
(26,737) |
(74,805) |
(117,765) |
(164,780) |
||
Net profit (reported) |
(26,737) |
(74,805) |
(117,765) |
(164,780) |
||
Average Number of Shares Outstanding (m) |
617.2 |
664.3 |
666.6 |
666.6 |
||
EPS - normalised (c) |
|
|
(4.3) |
(11.3) |
(17.7) |
(24.7) |
EPS - normalised and fully diluted (c) |
|
|
(4.3) |
(11.3) |
(17.7) |
(24.7) |
EPS - (reported) (c) |
|
|
(4.3) |
(11.3) |
(17.7) |
(24.7) |
Average number of ADS outstanding (m) |
123.4 |
132.9 |
133.3 |
133.3 |
||
Earnings per ADS - normalised ($) |
|
|
(0.02) |
(0.06) |
(0.09) |
(0.12) |
Earnings per ADS ($) |
|
|
(0.02) |
(0.06) |
(0.09) |
(0.12) |
BALANCE SHEET |
||||||
Fixed Assets |
|
|
165,737 |
161,577 |
176,169 |
192,947 |
Intangible Assets |
3,738 |
3,533 |
3,301 |
3,028 |
||
Tangible Assets |
14,220 |
16,616 |
22,207 |
27,014 |
||
Investments |
147,779 |
141,428 |
150,661 |
162,905 |
||
Current Assets |
|
|
432,195 |
370,541 |
257,157 |
71,922 |
Stocks |
11,789 |
12,309 |
10,540 |
10,644 |
||
Debtors |
53,566 |
56,392 |
56,000 |
29,855 |
||
Cash |
85,265 |
86,036 |
64,729 |
30,534 |
||
St investments |
273,031 |
214,915 |
125,000 |
0 |
||
Other |
8,544 |
889 |
889 |
889 |
||
Current Liabilities |
|
|
(104,600) |
(85,479) |
(101,457) |
(94,779) |
Creditors |
(25,344) |
(26,180) |
(42,158) |
(35,480) |
||
Short term borrowings |
(29,987) |
0 |
0 |
0 |
||
Other |
(49,269) |
(59,299) |
(59,299) |
(59,299) |
||
Long Term Liabilities |
|
|
(8,366) |
(34,384) |
(34,384) |
(34,384) |
Long term borrowings |
0 |
(26,739) |
(26,739) |
(26,739) |
||
Other long-term liabilities |
(8,366) |
(7,645) |
(7,645) |
(7,645) |
||
Net Assets |
|
|
484,966 |
412,255 |
297,485 |
135,705 |
Minority |
(23,233) |
(23,259) |
(28,259) |
(33,259) |
||
Shareholder equity |
|
|
461,733 |
388,996 |
269,226 |
102,446 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(8,943) |
(32,847) |
(99,217) |
(147,195) |
Net Interest |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
||
Capex |
(5,019) |
(6,364) |
(10,000) |
(10,000) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
||
Dividends |
(1,594) |
(1,282) |
(2,000) |
(2,000) |
||
Equity financing and capital movements |
291,737 |
(2,322) |
0 |
0 |
||
Other |
(255,761) |
50,116 |
89,910 |
125,000 |
||
Net Cash Flow |
20,420 |
7,301 |
(21,307) |
(34,195) |
||
Opening net debt/(cash) |
|
|
(56,914) |
(328,309) |
(274,212) |
(162,990) |
Increase/(decrease) in ST investments |
248,761 |
(58,116) |
(89,915) |
(125,000) |
||
Other |
2,214 |
(3,282) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(328,309) |
(274,212) |
(162,990) |
(3,795) |
Source: Hutchison China Meditech accounts, Edison Investment Research
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