Hutchison China MediTech — Update 27 February 2017

Savolitinib is in 12 active clinical trials for renal cell carcinomas, NSCLC and gastric cancer. It is most advanced in its PRCC and NSCLC indications. Data from multiple Phase I/II studies support savolitinib’s clinical benefit as a highly selective c-Met inhibitor in a number of cancer types. Given that savolitinib has demonstrated responses in several solid tumours, it is conceivable that it could be the first global, first-in-class c-Met inhibitor to reach the market.

HCM and partner AstraZeneca (AZN) presented positive preliminary data from the ongoing Phase II trial evaluating savolitinib in PRCC at the ASCO GU symposium (16-18 February). Data demonstrated savolitinib’s strong anti-tumour activity in MET-driven patients; importantly OS data are expected later this year. HCM and AZN have agreed to advance savolitinib into its Phase III global pivotal study for PRCC and have also been conducting a molecular epidemiology study that is profiling patient samples from across the US, Europe and Asia to try to determine if any correlations between MET alterations and patient outcomes exist. Data that demonstrate negative patient outcomes for MET-dependent PRCC patients, in addition to both the positive PFS data observed to date (in Phase II PRCC trial) and overall survival data later in the year, could form part of a US NDA under breakthrough therapy designation (for the PRCC indication). The final design of the pivotal Phase III trial has been agreed with international health authorities. Importantly, this trial will be aligned with a companion diagnostic for c-Met-driven PRCC and the Phase III diagnostic will be similar in other indications.

The single-arm Phase II study of savolitinib in patients with advanced PRCC demonstrated that patients with MET-driven PRCC had a median PFS (Exhibit 1) of 6.2 months (95% confidence interval [CI]; 4.1-7.0) vs 1.4 months (95% CI; 1.4-2.7) for MET-independent patients (hazard ratio = 0.33 [95% CI; 0.20-0.52], p<0.0001). While 18% (n=8/44) of MET-driven patients had a partial response compared with 0% in the MET- independent and MET-unknown patient groups (MET status was determined by Next Generation Sequencing). Of the eight MET-driven patients who exhibited a partial response, six were still responding to treatment at data cut off, with duration of responses between 2.4 and 16.4 months. Stable disease was observed in 50% (22/44) of MET-driven patients, comparing favourably with 24% (11/46) and 26% (5/19) for MET-independent and MET-unknown patients respectively.

There were serious AEs in 23/109 (21%) patients; however, only three of these (four serious AEs in three patients) were considered treatment related. One treatment-related death due to hepatic encephalopathy was reported. Drug discontinuations and dose reductions remained low at 8% (n=9/109) and 13% (n=14/109) respectively. Based on this Phase II PRCC data, savolitinib demonstrates an improved safety profile over other multi-kinase inhibitors in patients with renal cell carcinoma.

As demonstrated by the Phase II PRCC data, the level of response to savolitinib by each patient correlated closely with the level of MET amplification. Prognosis remains poor for patients with advanced PRCC due to limited efficacious treatment options; as such, savolitinib is well placed to capitalise on this unmet need.

The positive data from the Phase II trial in PRCC, along with data from the molecular epidemiology study, could enable a US NDA submission (under the breakthrough therapy designation), with potential US launch for the PRCC indication in early 2018. Additionally, a global, pivotal Phase II/II trial is evaluating the combination of savolitinib and Tagrisso for the second-line treatment of patients with c-Met-driven NSCLC (T790m-/c-Met+) as part of the TATTON study. Data are expected from the Phase IIb expansion part and, if positive, these could lead to the initiation of a global Phase III programme in 2017. Importantly, overwhelmingly positive data could support a US NDA under breakthrough therapy designation for the NSCLC indication (second-line in combination with Tagrisso).

The planned pivotal Phase III study in PRCC represents the first molecularly selected trial in renal cell carcinoma globally. Partner AZN entered an agreement with US-based Foundation Medicine to develop a companion diagnostic test (tissue biopsy) to identify patients with c-Met-driven cancers; the test has been developed in parallel with savolitinib’s clinical trial programme as part of a co-ordinated regulatory strategy and we anticipate it will form part of the regulatory filing with the FDA. We highlight HCM’s comments that the PRCC Phase III companion diagnostic platform will be largely similar for other indications such as NSCLC and gastric cancer. Currently there is no standard method for testing for aberrations; methods include gene sequencing, mass spectrometry and fluorescence in situ hybridisation (FISH).

In 2011, HCM granted AZN co-exclusive rights to develop, manufacture and commercialise savolitinib globally. HCM received an initial $20m non-refundable licence fee with up to a further $120m in clinical development and early sales milestones payable (as of June 2016 HCM had received $20m of those milestones), in addition to significant further milestone payments based on sales. This is in addition to a 30% royalty rate payable on China sales and originally tiered royalties of 9-13% of sales outside China. Under the terms of the 2011 deal AZN would pay 100% of the development costs ex-China and 75% of the costs for development in the China market (with HCM funding the remaining 25%). Under the 2016 amendment, HCM will contribute an additional $50m to accelerate the PRCC programme over a three-year period and in return will receive an additional 5% of royalty on sales on all indications ex-China, effectively taking the tiered royalty rate to 14-18%.

Importantly the collaboration with AZN has resulted in the addition of savolitinib to AZN’s Tagrisso and Iressa in two separate Phase Ib/II trials to address the opportunity for combination therapy as second-line and third-line treatment for NSCLC. Further combination studies include a Phase I/II study with savolitinib plus AZN’s PD-L1 inhibitor durvalumab.

Our SOTP valuation remains unchanged at $2.4bn (£32.2/share). IP is valued at $1,789m and placing the CP’s 2016e share of net profit on a 22.5x rating gives $657m (867p/share). Adding in end-June 2016 net cash and netting out unallocated costs results in a value of $2.4bn (£32.2/share).

For more details on our valuation, including a breakdown of contribution from products by indication, see our note WCLC: Positive data highlights NSCLC pipeline dated 9 December 2016.

We forecast global peak sales for savolitinib of $3.4bn across the potential PRCC, CRCC, NSCLC and gastric cancer indications. Exhibit 2 details savolitinib’s peak sales potential by indication, incident rates and penetration assumptions. We assume pricing of $10,000 per month in the US and RoW ex-China, with a treatment course duration of 12 months and China priced at a 50% discount. We believe this is conservative given that AZN’s Tagrisso, a third-generation TKI, is priced at $12,750 per month, which is in line with the pricing being attached to most new lung cancer drugs, including ALK (anaplastic lymphoma kinase) inhibitors such as Pfizer's Xalkori and Novartis's Zykadia (source: Reuters). Furthermore, savolitinib could be moved into earlier lines of therapy as part of combination treatments, increasing the market opportunity, depending on the results of ongoing trials. Our model assumes a 30% royalty on China sales and 14-18% tiered royalty on RoW sales payable to HCM from AZN and up to $100m more in milestone payments. We have not included milestone payments on further sales after initial launch, which would significantly enhance our valuation. We note that under the terms of the agreement with AZN, the royalty rate is expected to step down to 10.5-15.5% on reaching aggregate savolitinib sales of $5bn.

We have assumed higher overall penetration rates for PRCC given the 40-70% MET amplification and NSCLC 79% c-Met over-expression rates. Our China penetration rates for NSCLC and gastric cancer err on conservatism. While we expect initial launch in 2017 for PRCC in China and the US, it follows that NSCLC and gastric cancer are larger opportunities given the patient populations. Note that we forecast peak sales in China as seven to eight years from launch, and five years from launch in the rest of the world.