Last close As at 05/08/2026
—
— 0.00 (0.00%)
Market capitalisation
—
Research: Healthcare
Notwithstanding the COVID-19 pandemic challenges, Hutchison China MediTech (HCM) remains on track for potential approval and launches of two additional assets (surufatinib and savolitinib) in China in 2020/21. HCM is actively engaging with regulators (including the China NMPA and US FDA) with regards to trial initiations and NDA submissions as it continues on its trajectory to a global innovative oncology company. Furthermore, given the broader pipeline progression, it has a high level of visibility on data submission to regulators and international scientific conferences this year, including ASCO, AACR and ESMO. Importantly, with the China COVID-19 experience under its belt, HCM is positioned to capitalise on its experience of conducting business in a COVID-19 environment. We expect 2022/23 to benefit from global drug launches providing continued pipeline progression.
Written by
Hutchison China MediTech |
Fortune favours the brave |
COVID-19 impact update |
Pharma & biotech |
22 April 2020 |
Share price performance
Business description
Next events
Analyst
Hutchison China MediTech is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||||||
Notwithstanding the COVID-19 pandemic challenges, Hutchison China MediTech (HCM) remains on track for potential approval and launches of two additional assets (surufatinib and savolitinib) in China in 2020/21. HCM is actively engaging with regulators (including the China NMPA and US FDA) with regards to trial initiations and NDA submissions as it continues on its trajectory to a global innovative oncology company. Furthermore, given the broader pipeline progression, it has a high level of visibility on data submission to regulators and international scientific conferences this year, including ASCO, AACR and ESMO. Importantly, with the China COVID-19 experience under its belt, HCM is positioned to capitalise on its experience of conducting business in a COVID-19 environment. We expect 2022/23 to benefit from global drug launches providing continued pipeline progression.
Year end |
Revenue (US$m) |
Net profit* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
214.1 |
(74.8) |
(11.3) |
0.0 |
N/A |
N/A |
12/19 |
204.9 |
(106.0) |
(15.9) |
0.0 |
N/A |
N/A |
12/20e |
216.8 |
(161.1) |
(23.3) |
0.0 |
N/A |
N/A |
12/21e |
287.9 |
(165.2) |
(23.9) |
0.0 |
N/A |
N/A |
Note: *Net profit and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Lessons learned from the China COVID-19 curve
HCM has been dealing with COVID-19 disruptions, which have affected China for months. It has navigated these unchartered waters and is applying lessons learnt to best practice in these challenging times. Its China commercial business and manufacturing operations have not been materially affected so far. China’s NMPA has been actively reviewing surufatinib (NDA under review) and HCM expects to file two further NDAs during the year (NDA submission pending for surufatinib in pNET and savolitinib in MET exon 14 deletion NSCLC). We also note that sales of Elunate (third-line CRC) in January/February grew significantly post NRDL inclusion vs FY19 despite deployment of clinical resource to COVID-19, which highlights the continuation of care in severe conditions such as cancer.
Well capitalised to weather the storm
Preparations to initiate global registration studies are expected to complete mid-year for fruquintinib in 3/4L CRC and surufatinib in NET (the US FDA has granted two fast track designations for pNET and epNET). Savolitinib could be the first of HCM’s innovation assets to launch globally in 2022 (for MET-positive EGFR refractory NSCLC in combination with Tagrisso, a blockbuster opportunity) through partner AZN. HCM is well funded with available cash resources of >$300m (at 31 December 2019) at group level and the recent capital raise of $110m (net proceeds) provides additional funding flexibility as R&D is set to increase to support global registration studies this year.
Valuation: $5.9bn (£6.55/share)
Our valuation is unchanged at $5.9bn (£6.55/share). Our valuation includes net cash of $190m at end December 2019 plus $110m net proceeds from the January 2020 capital raise.
Learning from COVID-19 impact in China
At its FY19 results, we note that management advised: ‘The outbreak is posing some challenges to our operations resulting from restrictions on movement in China. Reduced patient hospital visits for clinical assessment affected the conduct of certain clinical studies and commercial team activities. To-date, none of our manufacturing operations in China have been materially affected. Our teams have adapted quickly and effectively thus far across our businesses, and we will continue to closely monitor what is an evolving situation. At this stage we are unable to assess the long-term effect of the outbreak, if any. We assume at this stage that the financial impact of the recent COVID-19 outbreak will not be material to the Group. Since we cannot predict how the situation will evolve, we will monitor and adjust if new material information emerges.’
Following on from this, our observations are:
■
Eli Lilly (LLY) reported Elunate sales of $6.6m in January to February 2020 vs $17.6m in FY19 despite the challenges of COVID-19 (and Chinese New Year), which highlights its inclusion on the National Reimbursement Drug List (NRDL) and the continuation of care for severe conditions such as cancer in the face of healthcare resources deployed to treating COVID-19. Hospital visits are being deferred in some cases, so patients may be receiving prescription drugs in earlier lines of treatment. HCM’s China commercial business and manufacturing operations have not been materially affected so far.
■
In terms of how HCM has managed disruptions to clinical trial sites, the company has been performing remote follow-ups with patients where possible, clinical protocols have not been compromised. We would anticipate some delays in patient recruitment in the global registration studies, but this will vary from country to country depending on factors such as individual healthcare systems. FDA has given guidance on dealing with the impacts of COVID-19 and maintaining clinical trial data integrity. We note that the company has successfully initiated a Phase II trial of HMPL-453 (pan-FGFR inhibitor) in China in patients with advanced mesothelioma.
■
HCM is maintaining active dialogue with China’s National Medical Products Administration (NMPA) which has been reviewing the NDA filing for surufatinib (accepted for non-pancreatic neuroendocrine tumours [NET]), and we still expect potential approval and launch in late 2020. HCM is on track for two further China NDA submissions (savolitinib in MET exon 14 deletion NSCLC and surufatinib in pancreatic NET) this year. In the US, the FDA recently (17 April 2020) granted two fast track designations for surufatinib in pNET and epNET, highlighting the unmet need in the treatment of neuroendocrine tumours.
■
HCM is in a strong financial position after ADS issuance on 21 January 2020 (the underwriters also exercised an over-allotment option). The recent capital raise of $110m (net proceeds) provides additional funding flexibility as R&D is set to increase to support global registration studies. HCM reported available cash resources of more than $300m (at 31 December 2019) at group level (cash and cash equivalents including short-term investments of $217.2m, and unutilised bank borrowing facilities of $119.3m).
We believe the long-term investment case is underpinned by multiple near-term catalysts that demonstrate HCM’s ability to discover and develop drugs, and its success rate as defined by drug approvals and launches. The launch of Elunate in China with partner LLY and subsequent inclusion on China’s exclusive NRDL are significant milestones, giving us confidence in HCM’s ability to execute on its R&D philosophy of building first- or best-in-class molecules with lower toxicity profiles to enable combination-based strategies for the treatment of cancers. Despite the challenges faced by COVID-19, 2020 is a golden year for HCM: it is scaling up its China oncology commercial presence ahead of surufatinib expected launch in late 2020 and the expected NDA submissions for surufatinib in pancreatic NET and savolitinib in MET exon 14 deletion NSCLC (anticipated 2021 launch). Clinical and regulatory teams are now fully operational in the US and EU. HCM’s first global approval (we forecast launch in 2022) in the US/EU could be for a savolitinib combination with AstraZeneca’s (AZN) Tagrisso in MET-positive EGFRm NSCLC. Global registration studies planned (no change) to start in 2020 include fruquintinib in 3/4L colorectal cancer (CRC) and surufatinib in NET. For further details, see our note From innovation to oncology commercialisation published in March 2020.
Exhibit 1: Financial summary
US$'000s |
|
2017 |
2018 |
2019 |
2020e |
2021e |
|
Year end December |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
US GAAP |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
241,203 |
214,109 |
204,890 |
216,750 |
287,863 |
Cost of Sales |
(175,820) |
(143,944) |
(160,152) |
(175,913) |
(196,289) |
||
Gross Profit |
65,383 |
70,165 |
44,738 |
40,836 |
91,574 |
||
Research and development |
(75,523) |
(114,161) |
(138,191) |
(184,000) |
(210,500) |
||
Other overheads |
(43,277) |
(48,645) |
(52,934) |
(54,521) |
(76,679) |
||
EBITDA |
|
|
(50,692) |
(88,975) |
(141,250) |
(191,948) |
(183,546) |
Operating Profit (before amort. and except.) |
|
|
(53,417) |
(92,641) |
(146,387) |
(197,684) |
(195,605) |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(53,417) |
(92,641) |
(146,387) |
(197,684) |
(195,605) |
||
Net Interest |
(235) |
4,969 |
3,914 |
2,129 |
(2,991) |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(53,536) |
(86,655) |
(141,106) |
(195,555) |
(198,596) |
Profit Before Tax (reported) |
|
|
(53,536) |
(86,655) |
(141,106) |
(195,555) |
(198,596) |
Tax |
(3,080) |
(3,964) |
(3,274) |
(3,300) |
(5,000) |
||
Equity investments, after tax |
33,653 |
19,333 |
40,700 |
42,769 |
43,418 |
||
Profit After Tax (norm) |
(22,963) |
(71,286) |
(103,680) |
(156,086) |
(160,178) |
||
Profit After Tax (reported) |
(22,963) |
(71,286) |
(103,680) |
(156,086) |
(160,178) |
||
Minority |
(3,774) |
(3,519) |
(2,345) |
(5,000) |
(5,000) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net profit (norm) |
(26,737) |
(74,805) |
(106,025) |
(161,086) |
(165,178) |
||
Net profit (reported) |
(26,737) |
(74,805) |
(106,025) |
(161,086) |
(165,178) |
||
Average Number of Shares Outstanding (m) |
617.2 |
664.3 |
665.7 |
690.7 |
690.7 |
||
EPS - normalised (c) |
|
|
(4.3) |
(11.3) |
(15.9) |
(23.3) |
(23.9) |
EPS - normalised and fully diluted (c) |
|
|
(4.3) |
(11.3) |
(15.9) |
(23.3) |
(23.9) |
EPS - (reported) (c) |
|
|
(4.3) |
(11.3) |
(15.9) |
(23.3) |
(23.9) |
Average number of ADS outstanding (m) |
123.4 |
132.9 |
133.1 |
138.1 |
138.1 |
||
Earnings per ADS - normalised ($) |
|
|
(0.02) |
(0.06) |
(0.08) |
(0.12) |
(0.12) |
Earnings per ADS ($) |
|
|
(0.02) |
(0.06) |
(0.08) |
(0.12) |
(0.12) |
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
165,737 |
161,577 |
148,100 |
163,759 |
206,624 |
Intangible Assets |
3,738 |
3,533 |
3,387 |
3,100 |
2,497 |
||
Tangible Assets |
14,220 |
16,616 |
20,855 |
23,970 |
54,412 |
||
Investments |
147,779 |
141,428 |
123,858 |
136,689 |
149,714 |
||
Current Assets |
|
|
432,195 |
370,541 |
317,022 |
266,040 |
270,085 |
Stocks |
11,789 |
12,309 |
16,208 |
14,459 |
16,133 |
||
Debtors |
53,566 |
56,392 |
59,023 |
53,445 |
23,660 |
||
Cash |
85,265 |
86,036 |
121,157 |
173,513 |
205,669 |
||
St investments |
273,031 |
214,915 |
96,011 |
0 |
0 |
||
Other |
8,544 |
889 |
24,623 |
24,623 |
24,623 |
||
Current Liabilities |
|
|
(104,600) |
(85,479) |
(113,101) |
(125,868) |
(124,956) |
Creditors |
(25,344) |
(26,180) |
(25,789) |
(38,556) |
(37,644) |
||
Short term borrowings |
(29,987) |
0 |
0 |
0 |
0 |
||
Other |
(49,269) |
(59,299) |
(87,312) |
(87,312) |
(87,312) |
||
Long Term Liabilities |
|
|
(8,366) |
(34,383) |
(39,118) |
(39,118) |
(249,118) |
Long term borrowings |
0 |
(26,739) |
(26,818) |
(26,818) |
(236,818) |
||
Other long term liabilities |
(8,366) |
(7,644) |
(12,300) |
(12,300) |
(12,300) |
||
Net Assets |
|
|
484,966 |
412,256 |
312,903 |
264,813 |
102,635 |
Minority |
(23,233) |
(23,259) |
(24,891) |
(29,891) |
(34,891) |
||
Shareholder equity |
|
|
461,733 |
388,997 |
288,012 |
234,922 |
67,744 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(8,943) |
(32,847) |
(80,912) |
(143,085) |
(133,945) |
Net Interest |
0 |
0 |
0 |
0 |
0 |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(5,019) |
(6,364) |
(8,565) |
(8,565) |
(41,898) |
||
Acquisitions/disposals |
0 |
0 |
8,689 |
0 |
0 |
||
Dividends |
(1,594) |
(1,282) |
(1,282) |
(2,000) |
(2,000) |
||
Equity financing and capital movements |
291,737 |
(2,322) |
(95) |
110,000 |
0 |
||
Other |
(255,761) |
50,116 |
118,904 |
96,006 |
0 |
||
Net Cash Flow |
20,420 |
7,301 |
36,739 |
52,356 |
(177,844) |
||
Opening net debt/(cash) |
|
|
(56,914) |
(328,309) |
(274,212) |
(190,350) |
(146,695) |
Increase/(decrease) in ST investments |
248,761 |
(58,116) |
(118,904) |
(96,011) |
0 |
||
Other |
2,214 |
(3,282) |
(1,697) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(328,309) |
(274,212) |
(190,350) |
(146,695) |
31,149 |
Source: Company accounts, Edison Investment Research
|
|
Auris has announced that final data from its 80-subject AM-201 Phase Ib trial for olanzapine-induced weight gain and somnolence should be available in early May. The key component of this release will be the data from the final dose level of 30mg in 30 healthy volunteers (we had previously only seen data in patients dosed up to 20mg). Due to the coronavirus, enrolment has been paused in the Phase II TRAVERS trial of 118 patients with surgically induced acute vertigo. Interim data from Part A of that trial now will likely not be available until Q320 at the earliest.