On July 27, 2018 Hutchison China MediTech Limited ("Chi-Med") (AIM/Nasdaq: HCM) reported its unaudited financial results for the six months ended June 30, 2018 and updates shareholders on key clinical programs (Press release, Hutchison China MediTech, JUL 27, 2018, https://www.chi-med.com/interim-results-2018/ [SID1234527917]).
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Fruquintinib made substantial progress through China New Drug Application ("NDA") process, aiming for approval and launch for colorectal cancer ("CRC") this year; we also target to report Phase III top-line results for non-small cell lung cancer ("NSCLC") in Q4 2018;
Savolitinib has two registration studies underway, global Phase III in papillary renal cell carcinoma ("PRCC") and China registration intent Phase II in MET exon 14 mutation/deletion NSCLC; also Tagrisso/savolitinib combination studies in NSCLC indications are in planning, and set to start in late 2018 and early 2019;
Expansion of U.S. and international operations firmly underway, including recruitment of U.S. Chief Medical Officer and Head of International Operations; and
Video webcast presentation at 9:00 a.m. BST and additional conference call at 9:00 a.m. EDT.
Financial Highlights
The points below are selected financial data for the six months ended June 30, 2018. For more details, please refer to "Financial Review", "Operations Review" and "Unaudited Condensed Consolidated Financial Statements" below.
Overall Group
Group revenue of $102.2 million (H1 2017: $126.6m).
Net loss attributable to Chi‑Med of $32.7 million (H1 2017: net profit $1.7m).
Cash resources of $416.9 million at Group level as of June 30, 2018 ($479.6m as of December 31, 2017), including cash and cash equivalents, short-term investments and unutilized bank facilities.
Innovation Platform: increased investment in Research and Development ("R&D") driven by initiation of new trials and ongoing enrollment in existing Phase III programs
Consolidated revenue was $13.6 million mainly from service fee payments from AstraZeneca AB (publ) ("AstraZeneca"), Eli Lilly & Company ("Lilly") and Nutrition Science Partners Limited ("NSP"), our 50/50 joint venture with Nestlé Health Science S.A. ("Nestlé") (H1 2017: $22.7m, which included $9.5m in milestone payments from AstraZeneca and Lilly).
R&D expenses on an as adjusted (non-GAAP) basis increased to $66.7 million (H1 2017: $37.5m), primarily driven by rapid expansion of operations and increased clinical trial expenses on all eight clinical drug candidates.
Net loss attributable to Chi-Med of $52.9 million (H1 2017: -$14.8m).
Commercial Platform: strong net income growth amid shift in revenue model and over-the-counter ("OTC") logistics divestment
Total consolidated sales fell 15% to $88.6 million (H1 2017: $103.9m) due to the implementation of the Two-Invoice System ("TIS") in China, a new government policy that has led to a shift in our revenue recognition for certain third-party drugs from gross sales consolidation to a fee-for-service revenue model.
Total sales of non-consolidated joint ventures, on an as adjusted (non-GAAP) basis excluding the effects of the divestment of certain non-core operations, up 21% to $271.7 million (H1 2017: $224.2m). Strong growth across main product categories.
Total consolidated net income attributable to Chi-Med, unaffected by the TIS implementation, up 19% to $26.9 million (H1 2017: $22.7m), on an as adjusted (non-GAAP) basis which exclude one-time gains in H1 2017.
Innovation Platform — Operating Highlights
The points below summarize some of the pipeline development highlights so far this year. For more details, please refer to "Operations Review – Innovation Platform" below.
Fruquintinib – Highly selective tyrosine kinase inhibitor ("TKI") of vascular endothelial growth factor receptor ("VEGFR") 1/2/3:
FRESCO China Phase III in third-line CRC, potentially best-in-class in terms of both efficacy and safety:
China NDA – substantial progress towards approval: nearing the end of the pre-approval inspection of manufacturing facilities stage of the NDA process, one of the last stages of the NDA process, and aiming to receive an approval in the second half of 2018;
JAMA publication: in June 2018, the full results were published in the Journal of the American Medical Association ("JAMA"), which we believe to be the first China-based novel oncology therapy trial to be published in the JAMA, another landmark achievement.
Two further analyses of FRESCO data presented at the annual meeting of the American Society of Clinical Oncology (ASCO) (Free ASCO Whitepaper) ("ASCO") in June 2018: subgroup analysis by prior anti-VEGF or anti-EGFR target therapy showed that fruquintinib had clinically meaningful benefits regardless of prior target therapy ("PTT") without observed cumulative toxicity; ad-hoc analysis of quality-adjusted time without symptoms or toxicity ("Q-TWiST") showed relative improvement of Q-TWiST with fruquintinib, representing a potentially clinically important quality-of-life benefit for patients;
FALUCA China Phase III in third-line NSCLC: completed enrollment of 527 patients; expect to reach median overall survival ("OS") endpoint maturity and report top-line results in late 2018.
FRUTIGA China Phase III in second-line gastric cancer: recruiting for clinical study in combination with Taxol (paclitaxel) proceeding as planned, with an interim analysis intended in 2019.
U.S. Phase I trial: enrolling as planned and intending to complete at the end of 2018, which would allow us to explore multiple innovative combination studies of fruquintinib and other TKIs, chemotherapy and immunotherapy agents in the U.S.
Savolitinib – Highly selective TKI of mesenchymal epithelial transition factor ("c-MET") – Global Phase III studies underway or in planning:
In MET Exon 14 mutation/deletion first-line NSCLC: while continuing to enroll patients in Phase II in China, we have reached an agreement with regulators regarding the conditions under which the existing trial could be sufficient for an NDA submission in China.
In EGFR mutation-positive NSCLC, following ongoing encouraging data in the TATTON Phase Ib/II trials of combinations with Tagrisso, AstraZeneca is proceeding to:
In third-generation EGFR TKI-refractory (principally second-line and third-line after Tagrisso) NSCLC: initiate the next stage of global clinical trials around the end of 2018;
In first-/second-generation EGFR TKI-refractory (principally second-line after Iressa/ Tarceva) NSCLC: initiate the next stage of global clinical trials in early 2019.
SAVOIR global Phase III study in c-MET-driven PRCC enrolling patients at all sites now following its initiation in June 2017.
PRCC molecular epidemiology study ("MES") progressing: 200+ patient tissue-sample diagnostic analysis likely to yield data by end of 2018, which we hope will highlight for regulatory authorities an unmet medical need in c-MET-driven PRCC.
CALYPSO Phase II combinations with Imfinzi programmed death-ligand 1 ("PD-L1") inhibitor: enrolled rapidly in H1 2018 and may complete enrollment in late 2018 and in mid-2019 in PRCC and clear cell renal cell carcinoma ("ccRCC") patients, respectively.
Sulfatinib – Unique angio-immuno kinase inhibitor of VEGFR, fibroblast growth factor receptor ("FGFR") 1, and colony stimulating factor-1 receptor ("CSF-1R"):
Phase IIIs in neuroendocrine tumor ("NET"): enrollment continuing in the two Phase III studies in NET patients in China, with interim analysis expected for 2019; if results are positive, this could potentially be our first novel drug candidate to be launched by our own commercial team.
U.S. Phase Ib/IIa expansion: enrolling pancreatic NET and biliary tract cancer ("BTC") patients, following the completion of the U.S. dose escalation stage and based on preliminary efficacy and safety data observed in these two indications in China.
Further progress in early/proof-of-concept clinical trials, including:
Epitinib Phase Ib/II in EGFR gene amplified glioblastoma: trial initiated in China in the first quarter of 2018 with epitinib, our unique EGFR inhibitor that has demonstrated the ability to penetrate the blood-brain barrier.
HMPL-523 U.S. investigational new drug ("IND") clearance: The U.S. Food and Drug Administration ("FDA") approved our highly selective spleen TKI ("Syk") to progress into clinical trials in June 2018, which we plan to initiate in early 2019.
HMPL004-6599 Australia Phase I initiated: proprietary botanical drug being developed by our 50/50 joint venture with Nestlé initiated and completed the single ascending dose study in the first half of 2018. Phase II enabling non-clinical studies are being initiated.
Expansion of U.S. and international operations, and recruitment of key personnel:
New office in New Jersey: U.S./ex-Asia operations expanded to support our unpartnered compounds through proof-of-concept, registration trials, and market launch in territories outside of Asia.
Key personnel recruited, including the U.S. Chief Medical Officer and Head of International Operations.
Key potential pipeline milestones anticipated in the next 6-12 months
Savolitinib:
Third-generation (Tagrisso) EGFR-TKI refractory, c-MET gene amplified, NSCLC (both second-line and third-line): initiation of global study of savolitinib in combination with Tagrisso in this rapidly growing patient population.
First-/second-generation (Iressa/Tarceva) EGFR-TKI refractory, c-MET gene amplified, T790M negative NSCLC (second-line): initiation of a global randomized, controlled study of savolitinib in combination with Tagrisso along with multiple supporting clinical studies.
Presentation of preliminary Phase II data for savolitinib monotherapy in c-MET gene amplified gastric cancer and first-line MET Exon 14 mutation/deletion NSCLC.
Release of results of global PRCC MES and review of the potential Breakthrough Therapy opportunity in c-MET-driven PRCC.
Fruquintinib:
Aim to receive NDA approval in advanced CRC and launch in China, with our partner Lilly.
Release of top-line results for the FALUCA Phase III study in third-line NSCLC.
Epitinib: initiation of Phase III China registration study in first-line NSCLC patients with EGFR activating mutations and brain metastasis.
HMPL-523: presentation of preliminary safety and efficacy data from Phase I dose escalation study in hematological cancer in Australia and China.
Immunotherapy combinations: aim to take first steps to develop our VEGFR inhibitors, fruquintinib and sulfatinib, in combination with various programmed cell death protein-1 ("PD-1") antibodies in several solid tumor settings.
Commercial Platform — Operating Highlights
The points below summarize some of the operational and financial highlights of our Commercial Platform in the first half of 2018. For more details, please refer to "Operations Review — Commercial Platform" below.
Scaled, high-performance drug marketing and distribution platform covering ~300 cites/towns in China with approximately 3,400 sales personnel. Targeting multiple indications with many household-name brands:
Sales of our non-consolidated Prescription Drugs joint venture, Shanghai Hutchison Pharmaceuticals Limited ("SHPL") grew by 18% to $152.7 million (H1 2017: $129.7m). SHPL’s main product, She Xiang Bao Xin ("SXBX") pill, an oral vasodilator and pro-angiogenesis prescription therapy approved to treat coronary artery disease, saw sales increase by 18% to $129.8 million.
Our consolidated Prescription Drugs business, operated through Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited ("Hutchison Sinopharm"), saw sales decrease by 21% to $68.0 million (H1 2017: $85.8m) as a result of the Chinese government’s implementation of the new TIS, pursuant to which we had converted to earning service fees from the commercialization of certain third-party products instead of recognizing the gross sales from these products in our revenue as we had done prior to implementation of TIS in October 2017; despite the TIS change, service fees earned from key third-party products, such as anti-psychotic Seroquel, grew rapidly, up 75% to $9.6 million (H1 2017: $5.5m).
Sales of our non-consolidated Consumer Health joint venture, Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ("HBYS"), grew by 26% to $119.0m (H1 2017: $94.4m, excluding divested operations), driven by the elimination of production capacity constraints.
Our consolidated Consumer Health sales increased by 14% to $20.6 million (H1 2017: $18.1m), resulting from higher volume in infant nutrition products.
Simon To, Chairman of Chi-Med, said: "Chi-Med continues to deliver on its clear strategy of developing its broad pipeline and cultivating and growing its capabilities in global drug discovery and development, while maintaining an over a decade-and-a-half long track record of earnings growth in its Commercial Platform.
During the first half of 2018, we have focused on navigating the China NDA process for fruquintinib, which we believe is now nearing completion. We are optimistic that we will see fruquintinib approved and launched by year end. We also look forward, around year end, to reporting the top-line results for the pivotal Phase III, the FALUCA study, of fruquintinib in third-line NSCLC in China.
Our collaboration with AstraZeneca continues to gather momentum, and we are currently enrolling registration studies in both kidney and lung cancer indications for savolitinib monotherapy. We are also in the process of planning and preparing to initiate multiple additional studies in lung and gastric cancers, which we believe may ultimately serve as registration studies.
Our un-partnered assets have also made good progress, with sulfatinib in two Phase III studies in China that could produce readout next year in NETs. In addition, we have worked with key opinion leaders and the regulatory authorities in China to agree on a Phase III pathway for epitinib and aim to initiate a pivotal study around year end. On our Syk, phosphoinositide 3-kinase delta ("PI3Kδ") and FGFR compounds, all of which are in proof-of-concept, we have made meaningful progress in enrollment thereby acquiring a preliminary understanding of efficacy and safety for each compound. We expect to present some of these data at scientific conferences over the next twelve months.
We are now looking closely into multiple opportunities to combine our highly selective TKIs with both PD-1 and PD-L1 immunotherapy agents and will strive to make progress during the second half of 2018, via collaboration, in this very high potential arena.
We have expanded our U.S./ex-Asia operations, including our office in New Jersey, and continue to recruit seasoned talent to manage the progress of our unpartnered compounds through proof-of-concept, registration trials, and market launch in territories outside of Asia.
Chi-Med has a clear and ambitious aim to bring three of our drugs through approval over the next approximately three years. We believe we are adequately structured and resourced to support this aim. In the longer term, we intend to continue to emerge as a world-class innovator based in China, bringing our assets to both the China and global markets. We have confidence in our ability to achieve these aims."
Use of Non-GAAP Financial Measures – References in this announcement to adjusted R&D expenses, adjusted consolidated net income attributable to Chi-Med from our Commercial Platform, adjusted consolidated operating profit from our Commercial Platform, adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business and adjusted revenue of HBYS and non-consolidated joint ventures are based on non-GAAP financial measures. Please see the "Use of Non-GAAP Financial Measures and Reconciliation" below for further information relevant to the interpretation of these financial measures and reconciliations of these financial measures to the most comparable GAAP measures, respectively.
FINANCIAL GUIDANCE:
Our updated guidance for 2018, compared to the most recent guidance in our full year results announcement for the year ended December 31, 2017 dated March 12, 2018, includes a $20 million increase in expected full year Innovation Platform R&D expense to $130-140 million. This increase reflects a rise in clinical trial spending as well as broadening of organizational scale and new middle management share-based incentive grants. These costs are all driven by the heightened competitive environment in China biotech, resulting from the step-change increase interest and investment in the sector over the past two years.