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.
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Hutchison China MediTech |
Fruquintinib FRESCO meets its primary endpoints |
Corporate update |
Pharma & biotech |
6 March 2017 |
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Business description
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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 $2.4bn.
Year |
Revenue (US$m) |
Net profit* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
87.3 |
(9.3) |
(17.8) |
0.0 |
N/A |
N/A |
12/15 |
178.2 |
8.0 |
14.6 |
0.0 |
195 |
N/A |
12/16e |
196.7 |
3.8 |
6.3 |
0.0 |
453 |
N/A |
12/17e |
226.0 |
(26.6) |
(43.9) |
0.0 |
N/A |
N/A |
Note: *Net profit and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
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 London on 29 March 2017 (30 March in New York) 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 tumours 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 Dec 2017).
Valuation: $2.4bn (£32.2/share, $20.1/ADS)
Our SOTP valuation remains unchanged at $2.4bn (£32.2/share). 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 (867p/share). Adding net cash at end June 2016 and netting out unallocated costs results in a value of $2.4bn. Approval(s), clinical data and/or deals should increase our risk-adjusted valuation.
Exhibit 1: Financial summary
US$'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 Amortisation |
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 |
|
Profit Before Tax (norm) |
|
(13,078) |
(19,957) |
(10,540) |
(55,085) |
(57,985) |
Profit Before Tax (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 - normalised (c) |
|
(7.8) |
(17.8) |
14.6 |
6.3 |
(43.9) |
EPS - normalised 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 - normalised ($) |
|
(0.04) |
(0.09) |
0.07 |
0.03 |
(0.22) |
Earnings per ADS ($) |
|
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.
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