Fruquintinib FRESCO meets its primary endpoints

Hutchison China MediTech 7 March 2017
Download PDF

Hutchison China MediTech

Fruquintinib FRESCO meets its primary endpoints

Corporate update

Pharma & biotech

7 March 2017

ADR research

Price

US$13.20

Market cap

US$1,602m

ADR/Ord conversion ratio 1:0.5

Net cash ($m) as at end June 2016

80.6

ADSs in issue

121.4m

ADS code

HCM

ADS exchange

NASDAQ

Underlying exchange

AIM

Depository

Deutsche Bank

ADR share price performance

52-week high/low

$14.95

$11.26

Business description

Hutchison China MediTech (Chi-Med; HCM) is an innovative China-based biopharmaceutical company targeting the global market for novel, highly selective oral oncology, and immunology drugs. Its established China Healthcare business is growing ahead of the market.

Next events

FY16 results

13 March 2017

R&D day (New York)

30 March 2017

Fruquintinib FRESCO full data in CRC

June 2017

Analysts

Dr Susie Jana

+44 (0)20 3077 5700

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Hutchison China MediTech is a research client of Edison Investment Research Limited

Hutchison (HCM) and partner Lilly announced positive, top-line pivotal phase III trial results for fruquintinib in 3rd line colorectal cancer. The China based FRESCO study evaluating 416 patients who had failed at least two prior chemotherapies in CRC demonstrated a clinically meaningful and statistically significant increase in both overall survival and progression-free survival compared to placebo. Consequently, HCM is preparing for a China NDA submission mid-2017; this represents the first China based oncology innovation to succeed at Phase III. We expect the full data to be presented at the 53rd American Society of Clinical Oncology Meeting (ASCO) 2 to 6 June 2017. Our valuation remains unchanged at $2.4bn.

Year
end

Revenue ($m)

Net profit
($m)

EPADS
($)

DPADS
($)

P/E
(x)

Gross Yield
(%)

12/14

87.3

(9.3)

(0.09)

0.0

N/A

N/A

12/15

178.2

8.0

0.07

0.0

189

N/A

12/16e

196.7

3.8

0.03

0.0

440

N/A

12/17e

226.0

(26.6)

(0.22)

0.0

N/A

N/A

Source: Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.

FRESCO underpins TKI selectivity hypothesis

Per the press release, the FRESCO trial met all primary and secondary endpoints of overall survival and progression-free survival. Furthermore, the trial did not identify any new or unexpected safety issues. The positive top-line phase III data set highlights the selectivity hypothesis of HCM’s TKI pipeline; this is immensely positive for sentiment and we look forward to the full data set being presented mid-year (we anticipate at ASCO 2017 given the timing and potentially the strength of data). Once presented, we will provide further commentary on the extent of fruquintinib efficacy in CRC. HCM will submit a new drug application for fruquintinib to China FDA mid-2017, paving the way for a potential 2018 launch in China.

2017: Defining year for Hutchison

HCM will hold a research and development day in New York on 30 March 2017 (29 March in London) to showcase its broad oncology and immunology pipeline. We expect material news flow over the forthcoming 18 months on savolitinib (data from both the NSCLC Phase IIb Tagrisso and Iressa combinations); fruquintinib (Phase III third-line NSCLC and CRC [full data at ASCO]); sulfatinib (Phase II in advanced NET tumors at ENETS conference in early March and Phase II in thyroid cancer potentially at ESMO in September 2017); and HMPL-523 (Phase I lymphoma data potentially at ASH in December 2017).

Valuation: $2.4bn ($20.1/ADS)

Our SOTP valuation remains unchanged at $2.4bn ($20.1/ADS). IP is valued at $1,789m and placing the commercial platform’s (CP) 2016e share of net profit on a 22.5x rating gives $657m ($5.4/ADS). Adding net cash at end June 2016 and netting out unallocated costs results in a value of $2.4bn. Approval(s), clinical data and/or deals should increase our risk-adjusted valuation.

Exhibit 3: Financial summary

US$'000s

2013

2014

2015

2016e

2017e

December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

36,547

87,329

178,203

196,737

225,967

Cost of Sales

(11,194)

(58,849)

(110,777)

(138,332)

(137,473)

Gross Profit

25,353

28,480

67,426

58,405

88,493

Research and development

(22,731)

(29,914)

(47,368)

(80,000)

(110,200)

Other overheads

(15,818)

(16,825)

(29,829)

(32,190)

(34,779)

EBITDA

 

(12,233)

(16,994)

(7,756)

(51,004)

(52,696)

Operating Profit (before amort. and except.)

 

(13,196)

(18,259)

(9,771)

(53,785)

(56,485)

Intangible Amortization

0

0

0

0

0

Operating Profit

(13,196)

(18,259)

(9,771)

(53,785)

(56,485)

Net Interest

(1,034)

(957)

(953)

(1,300)

(1,500)

Exceptionals

30,000

0

0

0

0

Pre-tax Profit (norm)

 

(13,078)

(19,957)

(10,540)

(55,085)

(57,985)

Pre-tax Profit (reported)

 

16,922

(19,957)

(10,540)

(55,085)

(57,985)

Tax

(1,050)

(1,343)

(1,605)

(4,131)

(6,958)

Equity investments, after tax

11,031

15,180

22,572

65,809

42,802

Profit After Tax (norm)

(3,097)

(6,120)

10,427

6,593

(22,141)

Profit After Tax (reported)

26,903

(6,120)

10,427

6,593

(22,141)

Minority

(983)

(3,220)

(2,434)

(2,800)

(4,500)

Discontinued operations

(1,978)

2,034

0

0

0

Net profit (norm)

(4,080)

(9,340)

7,993

3,793

(26,641)

Net profit (reported)

23,942

(7,306)

7,993

3,793

(26,641)

Average Number of Shares Outstanding (m)

52.1

52.6

54.7

60.6

60.6

EPS - normalized (c)

 

(7.8)

(17.8)

14.6

6.3

(43.9)

EPS - normalized and fully diluted (c)

 

(7.8)

(17.8)

14.6

6.3

(43.9)

EPS - (reported) (c)

 

46.0

(13.9)

14.6

6.3

(43.9)

Average number of ADS outstanding (m)

104.1

105.1

109.3

121.3

121.3

Earnings per ADS - normalized ($)

 

(0.04)

(0.09)

0.07

0.03

(0.22)

Earnings per ADS ($)

 

0.23

(0.07)

0.07

0.03

(0.22)

BALANCE SHEET

Fixed Assets

 

118,239

120,992

140,087

183,615

190,128

Intangible Assets

407

4,096

3,903

3,903

3,903

Tangible Assets

5,028

7,482

8,507

13,226

19,436

Investments

112,804

109,414

127,677

166,486

166,789

Current Assets

 

67,164

89,842

89,667

153,533

128,179

Stocks

1,420

4,405

9,555

10,000

12,000

Debtors

17,497

27,924

38,628

43,000

45,000

Cash

46,863

38,941

31,941

90,990

61,636

Other

1,384

18,572

9,543

9,543

9,543

Current Liabilities

 

(79,463)

(75,299)

(81,062)

(84,976)

(88,976)

Creditors

(4,163)

(20,427)

(24,086)

(28,000)

(32,000)

Short term borrowings

(51,508)

(26,282)

(23,077)

(23,077)

(23,077)

Other

(23,792)

(28,590)

(33,899)

(33,899)

(33,899)

Long Term Liabilities

 

(15,366)

(37,584)

(46,415)

(46,415)

(46,415)

Long term borrowings

0

(26,923)

(26,923)

(26,923)

(26,923)

Other long term liabilities

(15,366)

(10,661)

(19,492)

(19,492)

(19,492)

Net Assets

 

90,574

97,951

102,277

205,757

182,916

Minority

(6,960)

(17,764)

(18,921)

(21,721)

(26,221)

Shareholder equity

 

83,614

80,187

83,356

184,036

156,695

CASH FLOW

Operating Cash Flow

 

5,028

8,359

(9,393)

(25,338)

(18,654)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

(2,500)

(3,729)

(3,324)

(7,500)

(10,000)

Acquisitions/disposals

0

689

0

0

0

Financing

7

2,801

(355)

0

0

Dividends

(577)

(1,179)

(590)

(700)

(700)

Equity financing

0

0

0

92,600

0

Other

0

(9,120)

10,858

0

0

Net Cash Flow

1,958

(2,179)

(2,804)

59,062

(29,354)

Opening net debt/(cash)

 

6,603

4,645

14,264

18,059

(40,990)

HP finance leases initiated

0

0

0

0

0

Other

0

(7,440)

(991)

(13)

0

Closing net debt/(cash)

 

4,645

14,264

18,059

(40,990)

(11,636)

Source: Hutchison China MediTech reports, Edison Investment Research. Note: Equity investments after tax include the net profit contribution from JVs.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Hutchison China MediTech and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Hutchison China MediTech and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Share this with friends and colleagues