HONG KONG, CHINA—(Marketwired – Aug 2, 2016) – Hutchison China Meditech Limited (
NASDAQ
:
HCM
)
Nasdaq: HCM
Hutchison China MediTech Limited (“Chi–Med”) Reports Interim Results for the Six Months Ended June 30, 2016, Provides 2016 Financial Guidance and Updates Shareholders on Key Clinical Programs
Group revenue up 27% to $104.5 million (H1 2015: $82.5m) and net income attributable to Chi–Med of $0.5 million (H1 2015: $15.9m), reflecting a sharp increase in clinical investment.
Innovation Platform – Seven drug candidates in 25 clinical trials (H1 2015: 17) including four pivotal Phase III studies (H1 2015: 1). Planning to publish proof–of–concept or pivotal trial data on four drug candidates at scientific meetings through Q1 2017.
Commercial Platform – Total consolidated sales up 48% to $82.3 million (H1 2015: $55.6m); Total sales of non–consolidated joint ventures up 9% to $249.6 million (H1 2015: $229.8m); Total net income attributable to Chi–Med from our Commercial Platform up 12% to $22.1 million (H1 2015: $19.8m). Significant property–related payment expected to come in H2 2016.
Completed Nasdaq listing, raising net proceeds of $95.9 million. Available cash resources of $197.5 million at Group level as of June 30, 2016, which includes cash and cash equivalents, short–term investments and unutilized bank facilities.
Post–period Event: Amendment of collaboration with AstraZeneca AB (publ) (“AstraZeneca”) – Chi–Med investing $50 million, mainly over three years, to accelerate savolitinib global development in return for 5% point increase in tiered royalty range.
UK Analysts Meeting and Webcast Scheduled Today at 9:00 a.m. BST
U.S. Conference Call Scheduled Today at 9:00 a.m. EDT
London: Tuesday, August 2, 2016: Chi–Med (AIM/NASDAQ: HCM), the China–based biopharmaceutical company focused on discovering and developing targeted therapies for oncology and immunological diseases for the global market, today announces its unaudited financial results for the six months ended June 30, 2016.
Simon To, Chairman of Chi–Med, said: “Chi–Med has once again made very considerable progress at both the operating and strategic levels.
All aspects of our Innovation Platform's risk–balanced, innovative drug pipeline have moved forward, including progress in aligning with U.S. and European regulatory authorities in end–of–Phase II meetings on savolitinib and completing enrollment of our first Phase III study on fruquintinib. We have also made great progress in the clinic on sulfatinib, epitinib, HMPL–523, HMPL–689 and theliatinib, all of which are also potential global first–in–class or best–in–class drug candidates.
Once again, our Commercial Platform has generated increased cash flows helping fund our Innovation Platform activities as well as providing a first–class marketing and distribution channel in China for our drug candidates, if they are approved. Our partnerships with major global pharmaceutical companies, created when the global scope of our drug candidates began to emerge, continue to allow us to broaden development plans and represent important global marketing and distribution resources. In the first half, we completed our Nasdaq listing, which broadened our exposure to U.S. specialist investors and strengthened our cash position.
The progress of our drug pipeline and strong cash position, resulting from our increased commercial profits and recent Nasdaq listing, have enabled us to renegotiate our collaboration agreement with AstraZeneca to take a greater share in the potential long–term economic value of savolitinib in return for increasing our investment in savolitinib's development. We believe this benefits both Chi–Med and AstraZeneca as it allows us to accelerate and broaden savolitinib's late–stage development in multiple oncology indications.
Our pragmatic approach to finance and risk management has enabled us to build our drug pipeline over a dozen years. We now have multiple shots at success with four pivotal studies underway today, and three more likely to initiate by H1 2017, on a diversified group of drug candidates. The results of these pivotal studies will emerge during 2017–2019, and we believe that if they prove successful, substantial benefits can be created for patients and shareholders alike. Consequently, we view the future with great confidence.”
FINANCIAL HIGHLIGHTS:
Our consolidated financial results are reported under U.S. generally accepted accounting principles (“U.S. GAAP”) and in U.S. dollar currency unless otherwise stated. We also conduct our business through three non–consolidated joint ventures, which are accounted for under the equity accounting method as non–consolidated entities in our consolidated financial statements. Within this announcement, we refer to certain financial results reported by such non–consolidated joint ventures, which are based on figures reported in their respective consolidated financial statements prepared pursuant to International Financial Reporting Standards (as issued by the International Accounting Standards Board). Unless otherwise indicated, references to “subsidiaries” refer to our consolidated subsidiaries and joint ventures (excluding non–consolidated joint ventures).
Group Results
Consolidated revenue up 27% to $104.5 million (H1 2015: $82.5m).
Net income attributable to Chi–Med of $0.5 million (H1 2015: $15.9m).
Strengthened cash position: Available cash resources of $197.5 million as of June 30, 2016 (December 31, 2015: $38.8m) at the Chi–Med Group level, including cash and cash equivalents, short–term investments and unutilized banking facilities. Increase in cash primarily reflects $95.9 million net proceeds of our March 2016 Nasdaq listing.
Innovation Platform – a broad, risk–balanced, global oncology/immunology pipeline.
Consolidated revenue of $22.3 million (H1 2015: $26.9m) and net loss attributable to Chi–Med of $13.7 million (H1 2015: net income $2.0m) driven by $36.0 million (H1 2015: $24.9m) spending mainly for 25 clinical trials, four of which are pivotal Phase III studies on fruquintinib and sulfatinib, as well as the continued expansion of our scientific team, which now includes over 310 scientists and staff.
Amendment yesterday to our collaboration with AstraZeneca under which Chi–Med has agreed to provide up to $50 million for the joint–development costs of savolitinib in return for a 5 percentage point increase in the tiered royalty rates payable on savolitinib sales across all indications in all markets outside of China.
Commercial Platform – a deeply established, cash–generative, pharmaceutical business in China – a commercialization framework for our Innovation Platform candidate drugs.
Total consolidated sales up 48% to $82.3 million (H1 2015: $55.6m) mainly resulting from solid progress on Seroquel®.
Total sales of non–consolidated joint ventures up 9% to $249.6 million (H1 2015: $229.8m) due primarily to continued expansion of coronary artery disease prescription drug business.
Total net income attributable to Chi–Med from our Commercial Platform up 12% to $22.1 million (H1 2015: $19.8m).
Solid performance despite the weakening of the Chinese renminbi (“RMB”) over the last year which reduced both our top– and bottom–line growth rates, during the first half of 2016, by –6% in U.S. dollar terms.
Expect to receive about $70 million second installment of the total approximately $114 million land compensation and subsidies from the Shanghai government, leading to an estimated one–time gain to the Chi–Med Group of over $35 million in Q4 2016.
2016 FINANCIAL GUIDANCE: We provide full year 2016 financial guidance, as detailed below:
Group Level:
Consolidated revenue $190–205 million
Administrative, interest and income tax expenses $16–18 million
Net income attributable to Chi–Med $0–5 million
Innovation Platform:
Consolidated revenue $35–40 million
Research & development expenses $80–85 million
Commercial Platform:
Sales (consolidated) $155–165 million
Sales of non–consolidated joint ventures $430–440 million
One–time gain associated with property–related payments $35–37 million
Net income attributable to Chi–Med $63–66 million
KEY H1 2016 OPERATIONAL HIGHLIGHTS:
Innovation Platform: Multiple opportunities for success: four pivotal Phase III studies underway and three more fully funded and expected to begin by H1 2017. Each is expected to read–out over the next three years.
Savolitinib: Potential global first–in–class mesenchymal epithelial transition factor (“c–Met”) inhibitor currently in 12 main clinical studies worldwide in multiple tumor types including kidney, lung and gastric cancers as a monotherapy and in combination with other targeted and immunotherapy agents:
1. Kidney cancer:
a. Completed end–of–Phase II meetings with U.S. Food & Drug Administration (“FDA”) and European Medicines Agency (“EMA”); alignment on plans for global savolitinib monotherapy Phase III study in c–Met–driven papillary renal cell carcinoma (“PRCC”) patients.
b. Initiated global Phase Ib dose finding study of savolitinib in combination with anti–programmed death–1 receptor ligand (“PD–L1″) antibody, durvalumab, in clear cell renal cell carcinoma (“ccRCC”) patients.
2. Non–small cell lung cancer (“NSCLC”):
a. Initiated global Phase IIb study of savolitinib in combination with Tagrisso® (osimertinib) in second–line NSCLC patients with epidermal growth factor receptor (“EGFR”) mutations who have failed first–line EGFR tyrosine kinase inhibitor (“TKI”) therapy and harbor c–Met gene amplification. This triggered a $10 million milestone from AstraZeneca to Chi–Med in June 2016.
b. Initiated or continued four further Phase Ib/II studies in first–, second– and third–line NSCLC patients, including (i) as a monotherapy in NSCLC patients with c–Met mutations that result in Exon 14 skipping; (ii) as a monotherapy in pulmonary sarcomatoid carcinoma (“PSC”) patients with mutations that result in Exon 14 skipping; (iii) as a combination therapy with Iressa® (gefitinib) in NSCLC patients with EGFR mutations and who have failed first–line EGFR TKI therapy; and (iv) as a combination therapy with Tagrisso® in third–line NSCLC patients who have failed Tagrisso® therapy.
3. Gastric Cancer:
a. Proof–of–concept studies of savolitinib as a monotherapy in gastric cancer patients with c–Met gene amplification are ongoing in South Korea and China; promising response data, was published by Dr. Jeeyun Lee of Samsung Medical Center in April 2016 at the American Association of Cancer Research meeting.
b. A Phase Ib dose finding study of savolitinib in combination with Taxol® (docetaxel) in gastric cancer patients with c–Met over–expression is ongoing in South Korea.
Fruquintinib: Potential global best–in–class selective inhibitor of vascular endothelial growth factor receptor 1/2/3 (“VEGFR”):
1. Colorectal cancer (third–line or above): Completed enrollment of a Phase III study, named FRESCO, to test fruquintinib as a monotherapy among third–line metastatic colorectal cancer patients in China; top–line Phase III data expected to be reported in early 2017; plan to submit the China NDA, subject to positive FRESCO outcome, by mid–2017;
2. NSCLC (third–line): Began enrolling a Phase III study, named FALUCA, to test fruquintinib in third–line NSCLC patients in China, in late 2015 – now over 30 clinical centers are operational; expect to complete enrollment in H1 2017; top–line Phase III data expected to be reported in late 2017; plan to submit China NDA, subject to positive FALUCA outcome, during H1 2018.
3. Gastric cancer (second–line): Completed dose finding stage of fruquintinib Phase Ib study in combination with Taxotere® (paclitaxel). Continue to enroll patients in Phase Ib expansion stage.
4. NSCLC (first–line): Planning underway to start Phase Ib dose finding study of fruquintinib in combination with Iressa® in first–line EGFR–mutant NSCLC patients in China in late 2016.
5. Production facility in Suzhou, China, operational and ready to support fruquintinib's potential commercial launch.
Sulfatinib: Selective inhibitor of VEGFR/fibroblast growth factor receptor 1 (“FGFR1″) with strong efficacy in neuroendocrine tumors (“NET”) – enrolling two pivotal Phase III studies:
1. NET (first–line):
a. Completed enrollment of a Phase II study of sulfatinib in 81 broad–spectrum NET patients in China; median Progression Free Survival (“PFS”) not yet reached; now enrolling two Phase III studies, named SANET–p (in pancreatic NET patients) and SANET–ep (in extra–pancreatic NET patients), with primary endpoint median PFS; Phase III top–line data expected in 2018.
b. Initiated U.S. Phase I dose confirmation study in Caucasian patients – currently in 200mg cohort and closing in on China 300mg Phase III dose; expected to complete in H2 2016.
2. Thyroid cancer: Initiated Phase II proof–of–concept study in patients with locally advanced or metastatic radioactive iodine–refractory differentiated thyroid cancer or medullary thyroid cancer in China.
3. Biliary tract cancer: Planning underway to start a Phase II study in China in late 2016.
HMPL–523: Potential global first–in–class spleen tyrosine kinase (“Syk”) inhibitor – major potential in immunology and oncology:
1. Hematological cancer: Granted China FDA Phase I to Phase III clinical trial application clearance in H1 2016 – target to start China Phase I dose escalation in patients with hematologic malignancies in H2 2016; Australia Phase I dose escalation currently in second dose cohort (200mg) and expected to complete in H1 2017; U.S. hematological malignancy Investigational New Drug (“IND”) application submitted in June 2016.
2. Immunology: Australia Phase I study completed with no evidence of the hypertension/gastrointestinal toxicities encountered by the first–generation Syk inhibitor (fostamatinib); U.S. immunology IND application submitted in H1 2016 – U.S. FDA feedback received, now preparing to submit additional data; planning global rheumatoid arthritis Phase II study for 2017.
Epitinib: Highly differentiated inhibitor of the EGFR designed for optimal blood–brain barrier penetration:
1. NSCLC with brain metastasis: Phase Ib study in NSCLC patients with brain metastasis ongoing; granted China FDA Phase II/III clinical trial application clearance granted in July 2016; target to initiate pivotal registration study in H1 2017.
2. Glioblastoma: Planning underway to start a Phase II study in glioblastoma, a primary brain cancer with EGFR gene amplification, in early 2017.
HMPL–689: Potential global best–in–class, highly selective phosphoinositide 3–kinase delta (“PI3Kδ”) inhibitor, which is over five times more potent than Zydelig® (idelalisib):
Hematological cancer: Initiated Phase I study in healthy volunteers in Australia in H1 2016, now in fifth cohort and expected to complete Phase I dose escalation in H2 2016; plan to start Phase I dose escalation in patients with hematologic malignancies in Australia in H1 2017.
Theliatinib: EGFR inhibitor, over five times more potent than Tarceva® (erlotinib), with potential in patients with solid tumors presenting EGFR gene amplification:
Esophageal cancer/Head and Neck: Phase I dose escalation study ongoing in China; target to start Phase Ib proof–of–concept studies by the end of 2016.
Commercial Platform: Continued strong growth in cash flow and profit – representing a solid and stable financial base that underpins a significant portion of Chi–Med's current market value.
Prescription Drugs business performing very well – consolidated sales up 49% to $67.6 million (H1 2015: $45.4m); and total sales of non–consolidated Prescription Drugs joint venture up 22% to $126.8 million (H1 2015: $103.9m).
1. She Xiang Bao Xin (“SXBX”) pill – our most important commercial product, is a prescription vasodilator proprietary to our joint venture: Accounted for approximately 12% of China's over $1.5 billion botanical coronary artery disease prescription drug market, full patent protection through 2029; H1 2016 sales up 16% to $110.1 million (H1 2015: $94.9m); SXBX pill represents 87% of the sales of SHPL, our joint venture, which contributed 91% of our $16.3 million (H1 2015: $12.1m) consolidated Prescription Drugs operating profit in H1 2016.
2. Seroquel® – prescription antipsychotic under exclusive commercial license from AstraZeneca within China: Accounted for approximately 5% of China's antipsychotic prescription drug and 46% of the generic quetiapine market; Seroquel® is the only extended release (“XR”) quetiapine formulation approved in China; H1 2016 sales up 282% to $17.2 million (H1 2015: $4.5m); 2016 is the first full year of Seroquel® commercialization under Chi–Med.
Substantially completed move to new factory in Shanghai, almost tripling the manufacturing capacity of our Prescription Drugs joint venture. Triggering about $114 million total cash compensation and subsidies for the surrender of its land–use rights for its old factory site.
Consumer Health business stable despite over–the–counter (“OTC”) drug capacity constraints – consolidated sales up 44% to $14.6 million (H1 2015: $10.1m); and total sales of non–consolidated Consumer Health joint venture down 2% to $122.7 million (H1 2015: $125.9m). Sales in our OTC drug joint venture were down marginally due to tight manufacturing capacity resulting from the move to new factory in Bozhou, Anhui province; despite this, our OTC drug joint venture's portfolio of mature, market leading products, contributed 99% of our $8.6 million (H1 2015: $10.1m) consolidated Consumer Health operating profit in H1 2016.
EXPECTED MAJOR NEAR–TERM CATALYSTS: We target to publish data on four drug candidates in five Phase Ib–III studies before the end of Q1 2017, including:
Savolitinib Phase II data in PRCC patients;
Epitinib Phase Ib data in NSCLC patients with brain metastasis;
Fruquintinib Phase II data in third–line NSCLC patients;
Sulfatinib Phase II data in pancreatic and extra–pancreatic NET patients; and
Fruquintinib Phase III top–line data in third–line or above colorectal cancer patients.
We target to initiate pivotal registration trials on two further drug candidates before the end of H1 2017, including:
Savolitinib Phase III in c–Met–driven PRCC patients;
Epitinib Phase II/III in first–line patients with EGFR–mutant NSCLC patients with brain metastasis; and
Savolitinib Phase III in combination with Tagrisso® in second–line NSCLC (T790M–/c–Met+) patients.
POST PERIOD EVENT: Amendment of Co–Development Agreement with AstraZeneca on Savolitinib global development plan:
In order to accelerate savolitinib's global development, as announced yesterday, Chi–Med and AstraZeneca agreed to amend the 2011 global licensing, co–development and commercialization agreement regarding savolitinib. Under the amendment, Chi–Med will contribute up to $50 million, spread primarily over three years, to the joint–development costs of the global pivotal Phase III study in c–Met–driven PRCC. Subject to approval in the PRCC indication, Chi–Med will receive a 5 percentage point increase in the global (excluding China) tiered royalty rate payable on savolitinib sales across all indications, thereby increasing the tiered royalty to 14% to 18%. After total aggregate sales of savolitinib have reached $5 billion, the royalty will step down over a two year period, to an ongoing royalty rate of 10.5% to 14.5%. All other provisions of the 2011 Agreement will remain unchanged.
Conference Call and Webcast Information:
An analyst presentation and webcast will be held today at 9:00 a.m. BST (4:00 p.m. HKT) at Citigate Dewe Rogerson, Third Floor, 3 London Wall Buildings, London, EC2M 5SY. Investors may participate in the call or access a live video webcast of the call via the Company's website at www.chi–med.com/investors/event–information/. A conference call for U.S. investors will also be held today at 9:00 a.m. EDT. To participate in the US call, please dial +1–212–999–6659. For all dial–in numbers please use conference ID “Chi–Med”.
Enquiries
Investor Enquiries
Christian Hogg, CEO
+852 2121 8200
International Media Enquiries
Anthony Carlisle,
Citigate Dewe Rogerson
+44 7973 611 888 (Mobile)
anthony.carlisle@cdrconsultancy.co.uk
U.S. Based Media Enquiries
Brad Miles, BMC Communications
+1 (917) 570 7340 (Mobile)
bmiles@bmccommunications.com
Susan Duffy, BMC Communications
+1 (917) 499 8887 (Mobile)
sduffy@bmccommunications.com
Investor Relations
Brian Korb, The Trout Group
+1 (917) 653 5122 (Mobile)
bkorb@troutgroup.com
David Dible,
Citigate Dewe Rogerson
+44 7967 566 919 (Mobile)
david.dible@citigatedr.co.uk
Panmure Gordon (UK) Limited
Richard Gray / Andrew Potts
+44 (20) 7886 2500
About Chi–Med
Chi–Med is an innovative China–based biopharmaceutical company which researches, develops, manufactures and sells pharmaceuticals and healthcare products. Its Innovation Platform, Hutchison MediPharma Limited, focuses on discovering and developing innovative therapeutics in oncology and autoimmune diseases for the global market. Its Commercial Platform manufactures, markets, and distributes prescription drugs and consumer health products in China.
Chi–Med is majority owned by the multinational conglomerate CK Hutchison Holdings Limited (“CK Hutchison”) (SEHK: 0001). For more information, please visit: www.chi–med.com.
References
Unless the context requires otherwise, references in this announcement to the “Group,” the “Company,” “Chi–Med,” “Chi–Med Group,” “we,” “us” and “our” refer to Chi–Med and its consolidated subsidiaries and joint ventures unless otherwise stated or indicated by context.
Forward–Looking Statements
This announcement contains forward–looking statements within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward–looking statements can be identified by words like “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “pipeline,” “could,” “potential,” “believe,” “first–in–class,” “best–in–class,” “designed to,” “objective,” “guidance,” “pursue,” or similar terms, or by express or implied discussions regarding potential drug candidates, potential indications for drug candidates or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward–looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward–looking statements. There can be no guarantee that any of our drug candidates will be approved for sale in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such drug candidates will achieve any particular revenue levels. In particular, management's expectations could be affected by, among other things: unexpected regulatory actions or delays or government regulation generally; the uncertainties inherent in research and development, including the inability to meet our key study assumptions regarding enrollment rates, timing and availability of subjects meeting a study's inclusion and exclusion criteria and funding requirements, changes to clinical protocols, unexpected adverse events or safety, quality or manufacturing issues; the inability of a drug candidate to meet the primary or secondary endpoint of a study; the inability of a drug candidate to obtain regulatory approval in different jurisdictions or gain commercial acceptance after obtaining regulatory approval; global trends toward health care cost containment, including ongoing pricing pressures; uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes, and government investigations generally; and general economic and industry conditions, including uncertainties regarding the effects of the persistently weak economic and financial environment in many countries and uncertainties regarding future global exchange rates. For further discussion of these and other risks, see Chi–Med's filings with the U.S. Securities and Exchange Commission and on AIM. Chi–Med is providing the information in this announcement as of this date and does not undertake any obligation to update any forward–looking statements as a result of new information, future events or otherwise.
In addition, this announcement contains statistical data and estimates that we obtained from industry publications and reports generated by third–party market research firms, including Frost & Sullivan, an independent market research firm, and publicly available data. All patient population, market size and market share estimates are based on Frost & Sullivan research, unless otherwise noted. Although we believe that the publications, reports and surveys are reliable, we have not independently verified the data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above.
Inside Information
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Ends
CHAIRMAN'S STATEMENT
Our aim is to become the first large–scale innovative global biopharmaceutical company to emerge from China.
If we are able to become the first China–based company to succeed in steering a novel drug from invention through global approvals, we will take a major step towards this aim. We believe our progress in advancing savolitinib and fruquintinib toward submissions for approval is particularly encouraging. Approval of these drug candidates, if successful, would propel us to a new era, in which we believe our five other clinical drug candidates, and the proven discovery capability of our scientific team, could take us to new heights.
For over a decade, we and our partners have invested almost $400 million in pursuit of our aim. Our over 310–person strong scientific team has created a broad portfolio of differentiated products in the global targeted therapy arena in oncology and immunology. We have focused on developing highly selective drug candidates against multiple novel and validated molecular targets, all of which have the potential to be global first–in–class or best–in–class. We believe that the use of these drug candidates as monotherapies or in combination treatments with other oncology and immunology therapies can significantly improve global patient outcomes and create substantial shareholder value.
The recent amendment of our global collaboration agreement on savolitinib with AstraZeneca evidences our belief in savolitinib's potential across multiple oncology indications.
Key elements of our strategy are:
To design novel drug candidates against well–characterized targets with global first–in–class potential – We believe our most significant market opportunity is developing innovative drug therapies that have global first–in–class potential in areas of high unmet needs. In order to limit our risk, we focus on novel tyrosine kinase targets, that have a deep body of evidence to support their role in cell signaling in cancer or inflammation, such as c–Met, Syk and FGFR.
To use a chemistry–focused approach centered on kinase selectivity to create global best–in–class products – In addition to novel targets, we balance risk by also creating drug candidates against proven validated targets including VEGFR, EGFR and PI3Kδ. We believe that there is a lot of room to improve on the first generation of TKIs that have emerged over the last fifteen years. We work to develop differentiated next generation TKIs characterized by high selectivity and superior pharmacokinetic properties leading to improved patient tolerability.
To pursue a practical and efficient clinical and regulatory strategy – China's large patient population, combined with lower clinical trial costs, as compared to the West, allows for rapid and lower risk development through proof–of–concept on validated targets. On novel targets, we accept higher risk and pursue global clinical development from day one in order to maximize the chance of achieving a global first–in–class position.
A risk–balanced approach to financing long–term investment in innovation – Chi–Med has followed an unconventional path to reach its current stage of development. We have balanced risk in every manner possible, focusing on building a financially sustainable company with a low chance of negative binary outcome. Starting with the above risk–balanced portfolio approach to choosing the novel/validated kinase targets on which we base our research; to our partnerships with AstraZeneca and Eli Lilly and Company (“Lilly”) which have broadened our development plans, and provided technical support and global reach; to basing our operations in China where generally lower operating costs allow us to employ a scientific team large enough to manage development of such a broad pipeline; to building a powerful Commercial Platform which provides us steady cash flow; and finally, our relationship with our majority shareholder, CK Hutchison, who has had a long–term, practical, mind–set. These factors distinguish us from, and provide a competitive advantage over, the venture capital–backed path of evolution of most emerging global biotech companies.
We believe we are fast approaching the achievement of our aim, and view the future with great optimism. As always, I would like to express my deep appreciation for the support of our investors, directors and partners and for the commitment and dedication of all of Chi–Med's management and staff, without whom none of this would be possible.
Simon To
Chairman, August 1, 2016
FINANCIAL REVIEW
Chi–Med Group revenues for the six months ended June 30, 2016 increased 27% to $104.5 million (H1 2015: $82.5m), driven mainly by a full period of Seroquel® sales in China, which our consolidated joint venture Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited (“Hutchison Sinopharm”) began marketing under an exclusive license from AstraZeneca in Q2 2015. It should be noted that Group revenues do not include the revenues of our two large–scale, 50/50 joint ventures in China, Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) and Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”), since these are accounted for using the equity method.
Our Commercial Platform, which continues to be Chi–Med's primary profit and cash source, grew operating profit by 12% to $24.9 million (H1 2015: $22.2m) as a result of strong performance by SHPL's coronary artery disease Prescription Drug business. The Innovation Platform kept operating loss at $13.8 million (H1 2015: operating profit $2.0m) despite a major expansion of clinical activities, rapid organization growth to support these clinical activities and investment in the expansion of small molecule manufacturing operations.
Net corporate unallocated expenses, primarily Chi–Med Group overhead and operating costs, increased to $5.8 million (H1 2015: $4.3m) primarily due to our Nasdaq listing and the resulting increased organization and third–party advisor costs in the audit and compliance areas.
Consequently, Chi–Med Group operating profit was $5.3 million (H1 2015: $19.9m).
Total interest expense, tax and profits attributable to non–controlling interests during the period increased to $4.8 million (H1 2015: $4.0m) driven largely by 5% withholding taxes accrued on the net income of our Commercial Platform joint ventures during the period.
The resulting total Group net income attributable to Chi–Med was therefore $0.5 million (H1 2015: $15.9m).
In the first half of 2015, in accordance with U.S. GAAP, Chi–Med recorded a non–cash accretion charge of $42.0 million which was equivalent to the estimated value of redeemable preferred shares in our Innovation Platform subsidiary, Hutchison MediPharma Holdings Limited (“HMHL”), held by Mitsui & Co., Ltd. (“Mitsui”). In July 2015, we completed a transaction to roll–up Mitsui's preferred shares in HMHL into Chi–Med ordinary shares and thereby eliminated the chance that cash would be needed to redeem the preferred shares as well as the need for further future non–cash accretion charges.
As a result, Group net income attributable to ordinary shareholders of Chi–Med, for the first half of 2016, was $0.5 million, or $0.01 per ordinary share / $0.005 per American Depositary Share (“ADS”), compared to a net loss attributable to ordinary shareholders of Chi–Med of $26.1 million, or $0.49 per ordinary share / $0.245 per ADS, in the same period in 2015.
Cash and Financing
In the past five years, as our clinical spending has escalated, we endeavored to remain consistently cash–positive at the Chi–Med Group level. In the first half of 2016, we succeeded in generating $9.1 million (H1 2015: $0.4m) in net cash from operating activities. This was driven by increased dividends paid by our non–consolidated Commercial Platform joint ventures and payments received from AstraZeneca, Lilly, and Nutrition Science Partners Limited (“NSP”), our joint venture with Nestlé Health Science SA (“Nestlé”), which, in aggregate, more than offset the costs of our research and development programs.
In March 2016, we successfully completed our Nasdaq listing and were able to raise $110.2 million in new equity capital, or $95.9 million net of expenses incurred, to strengthen our balance sheet and support development plans, through to planned NDA submissions, for our lead drug candidates, savolitinib, fruquintinib, sulfatinib and epitinib.
As of June 30, 2016, we had available cash resources of $197.5 million (December 31, 2015: $38.8m) at the Chi–Med Group level including cash and cash equivalents and short–term investments of $122.5 million (December 31, 2015: $31.9m) and unutilized bank borrowing facilities of $75.0 million (December 31, 2015: $6.9m).
In addition, as of June 30, 2016, our non–consolidated joint ventures (SHPL, HBYS and NSP) held $72.2 million (December 31, 2015: $80.9m) available cash resources. In Q4 2016, our Prescription Drug joint venture, SHPL, expects to receive about $70 million of property compensation from the Shanghai government. This will lead to, at the Chi–Med Group level, an estimated one–time gain of over $35 million and a further dividend of about $40 million in H1 2017. We also expect to conclude negotiations for the return of land use rights for unused land under the HBYS joint venture in Guangzhou in 2017, thereby triggering further compensation.
Outstanding bank loans as of June 30, 2016 amounted to $41.9 million (December 31, 2015: $49.8m) at the Chi–Med Group level, of which $26.8 million is guaranteed by a wholly–owned subsidiary of CK Hutchison. Our total Chi–Med Group weighted average cost of borrowing in H1 2016 on both unsecured and guaranteed loans, including all interest and guarantees fees, was 2.6%. As of June 30, 2016, our non–consolidated joint ventures had outstanding bank loans of $31.5 million (December 31, 2015: $26.5m) as they approached completion of construction of the two new Commercial Platform factories. These new factories will almost triple our joint ventures' manufacturing capacity and are enabling them to move out of central Shanghai and Guangzhou thereby unlocking the significant land–value of their old sites.
In summary, we believe that the cash currently held are sufficient to fund all our near–term activities, including the increased cash requirements resulting from the recent amendment to the savolitinib collaboration with AstraZeneca.
OPERATIONS REVIEW
INNOVATION PLATFORM
The Chi–Med pipeline of drug candidates has been created and developed by the in–house research and development operation which was started in 2002. Since then, we have assembled a large team of over 310 scientists and staff (June 30, 2015: 251) based in China and operating a fully–integrated drug discovery and development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls for clinical and commercial supply, clinical and regulatory and other functions. Looking ahead, we plan to continue to leverage this platform, as we have in the past decade, to produce novel drug candidates with global potential.
Innovation Platform revenue in the first half of 2016 remained largely flat at $22.3 million (H1 2015: $26.9m) reflecting a combination of milestone payments, service fees and clinical cost reimbursements received from AstraZeneca, Lilly and NSP. Net loss attributable to Chi–Med increased to $13.7 million (H1 2015: net profit $2.0m) driven by $36.0 million (H1 2015: $24.9m) in research and development spending on our pipeline of seven oncology and immunology drug candidates.
Product Pipeline Progress
Savolitinib (AZD6094): Savolitinib is a potential global first–in–class inhibitor of c–Met, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib to be a potent and highly selective oral inhibitor, which through chemical structure modification addressed human metabolite–related renal toxicity, the primary issue that halted development on several other selective c–Met inhibitors. In clinical studies to–date, in over 370 patients, savolitinib has exhibited no renal toxicity as well as promising signs of clinical efficacy in patients with c–Met gene alterations in PRCC, NSCLC, colorectal cancer and gastric cancer. We are currently testing savolitinib in partnership with AstraZeneca in multiple Phase Ib/II studies, both as a monotherapy and in combination with other targeted therapies.
AstraZeneca collaboration amendment: On August 1, 2016, Chi–Med agreed to contribute up to $50 million, spread primarily over three years, to the joint development costs of the global pivotal Phase III study in c–Met–driven PRCC. Subject to approval in the PRCC indication, Chi–Med will receive a 5 percentage point increase in the global (excluding China) tiered royalty rate payable on savolitinib sales across all indications, thereby increasing the tiered royalty to 14% to 18%. After total aggregate sales of savolitinib have reached $5 billion, the royalty will step down over a two year period, to an ongoing royalty rate of 10.5% to 14.5%. All other provisions of the 2011 agreement will remain unchanged.
Savolitinib – Kidney Cancer: High proportion of MET–driven patients. Four studies underway.
Study 1 – Enrollment complete – Phase II PRCC savolitinib 600mg monotherapy (U.S., Canada, U.K. and Spain) – We completed enrollment of this 109 patient study in October 2015. We plan to report the results of this study at a future scientific conference in early 2017. We have observed in this open–label Phase II study, as we did in the Australia Phase I study, clear efficacy among patients with c–Met–driven disease. We remain of the view that PRCC represents a clear unmet medical need. We have completed end of Phase II meetings with the U.S. FDA and EMA and planning for a pivotal Phase III study, targeting c–Met–driven PRCC patients, is underway. We expect to initiate the global Phase III study in late 2016 or early 2017. PRCC represents approximately 10–15% of kidney cancer, with about half of all PRCC patients harboring c–Met–driven disease.
Study 2, Study 3 and Study 4 – Enrolling – Phase Ib study of savolitinib (600mg daily) monotherapy and in combination with durvalumab (anti–PD–L1) in both PRCC and ccRCC patients (U.K.) – A Phase Ib dose finding study began in H1 2016, named the CALYPSO study, at Bart's Hospital in London, to assess safety/tolerability of savolitinib and durvalumab combination therapy as well as preliminary efficacy of the savolitinib as a monotherapy or combination therapy in several c–Met–driven kidney cancer patient populations.
Savolitinib – Lung Cancer: Savolitinib's largest market opportunity. Four studies underway.
Study 5 – Enrolling – Phase IIb expansion NSCLC (second–line), EGFR TKI refractory, savolitinib (600mg daily) in combination with Tagrisso® (Global) – In June 2015, we published the TATTON Phase I dose finding study at the American Society of Clinical Oncology (“ASCO”) meeting, reporting a 55% objective response rate (“ORR”) and 100% disease control rate (“DCR”) among Iressa® or Tarceva® refractory T790M+/– patients, meaning that the patient's T790M status was known. Since then we have continued to enroll patients to confirm safety and efficacy and to further define the molecular types that benefit from the combination therapy. We have now initiated a global Phase IIb expansion study in second–line NSCLC, for which AstraZeneca paid Chi–Med a $10 million milestone, aiming to recruit 25 further c–Met gene amplified and T790M– patients. We target to complete this Phase IIb expansion study by the end of 2016, and if ORR and duration of response are in line with what we have seen to–date, we will consider moving directly to a pivotal global Phase III study and seeking potential U.S. FDA Breakthrough Therapy designation. In this second–line NSCLC population, c–Met–driven disease exists in 15–20% of patients.
Study 6 – Enrolling – Phase II NSCLC (third–line), EGFR/T790M TKI–refractory, savolitinib (600mg daily) in combination with Tagrisso® (Global) – Our second study arm has begun enrollment for a Phase II trial to evaluate the use of savolitinib in combination with Tagrisso® in patients with c–Met gene amplification who have progressed following treatment with Tagrisso® (i.e. T790M+/c–Met+). Data presented in June 2016 at ASCO (rociletinib) suggested that in this third–line EGFR/T790M TKI–resistant NSCLC population about 18% of patients harbor c–Met gene amplification.
Study 7 – Planned for H2 2016 – Phase II NSCLC (second–line), EGFR TKI–refractory, savolitinib (600mg daily) in combination with Iressa® (China) – We have completed a Phase Ib dose finding study of savolitinib in combination with Iressa® in c–Met gene amplified patients. We believe savolitinib in combination with Iressa® could provide a lower–cost treatment option, as compared to savolitinib in combination with Tagrisso® (Study 5 and Study 6), which could benefit uninsured, second–line NSCLC patients in both developed and emerging markets, given recent patent expiry of Iressa®.
Study 8 – Enrolling – Phase II c–Met–driven NSCLC (first–line) savolitinib (600mg daily) monotherapy (China) – A Phase II study of savolitinib in ongoing in first–line NSCLC and PSC patients, focusing on two main patient populations: (1) the 3–4% of patients with c–Met Exon–14 skipping; and (2) the 1–2% of patients with c–Met gene amplification.
Savolitinib – Gastric Cancer: Four Phase Ib gastric cancer clinical studies in China and a Phase Ib study, named the VIKTORY study, being run at Samsung Medical Center in South Korea:
Study 9 – Enrolling – Phase Ib gastric cancer, savolitinib monotherapy, patients with c–Met gene amplification (South Korea/China) – Phase Ib studies of savolitinib are ongoing, and to date we have seen promising preliminary clinical efficacy in the roughly 10% of gastric cancer patients that harbor c–Met gene amplification.
Study 10, Study 11 and Study 12 – Enrolling – Phase Ib studies of savolitinib (600mg daily) monotherapy and in combination with Taxotere® in c–Met over–expression gastric cancer (South Korea/China) – Phase Ib dose finding studies are underway to assess safety/tolerability of savolitinib and Taxotere® combination as well as preliminary efficacy of the savolitinib monotherapy and combination therapy in the approximately 40% of gastric cancer patients harboring c–Met over–expression.
HMPL–523: HMPL–523 is a potential global first–in–class oral inhibitor targeting Syk, a key protein involved in B–cell signaling. Modulation of the B–cell signaling system has proven significant potential for the treatment of certain chronic autoimmune diseases, such as rheumatoid arthritis as well as hematological cancers. We believe HMPL–523, as an oral drug candidate, has important advantages over intravenous monoclonal antibody immune modulators in rheumatoid arthritis in that small molecule compounds clear the system faster, thereby reducing the risk of infections from sustained suppression of the immune system.
Study 20 – Complete – Phase I study (healthy volunteers) (Australia) – In June 2014, we began a Phase I dose escalation study among healthy individuals to ascertain the maximum tolerated dose of HMPL–523. We successfully completed ten single dose cohorts, from 5mg once daily through to 800mg once daily; and three multiple dose cohorts, from 200mg once daily through 400mg once daily for 14 days. We determined that the 400mg multiple dose is well above our expected efficacious dose in humans. Consequently, we have no intention to escalate the dose further in healthy volunteers. The preliminary safety profile of HMPL–523 is in–line with expectations. Off–target toxicities such as diarrhea and hypertension, which led to the failure of first–generation Syk inhibitor fostamatinib, were not observed with HMPL–523 in Phase I. Furthermore, HMPL–523 demonstrated a dose–dependent suppression of B–cell activation. We have submitted our U.S. immunology IND application and engaged with the U.S. FDA around our plan for a global Phase II study in rheumatoid arthritis; we are currently preparing for submission of additional data to the U.S. FDA after which we target to initiate the Phase II study in 2017.
Study 21 – Enrolling – Phase I study of HMPL–523 in hematological cancer (second/third–line) (Australia/China) – In January 2016, we initiated a Phase I dose escalation study of HMPL–523 in Australia in patients with relapsed and/or refractory B–cell non–Hodgkin's lymphoma or chronic lymphocytic leukemia for whom there is no standard therapy. We are planning two stages for this study, dose escalation and dose expansion. We have completed the 100mg daily cohort and are now mid–way through the 200mg cohort. In Q2 2016, we received clearance from the China FDA on our hematological cancer IND application, meaning that, for the first time, we were granted clearance to progress a drug candidate from Phase I through Phase III in China without further formal submissions being required. We intend to initiate a Phase I dose escalation in B–cell non–Hodgkin's lymphoma or chronic lymphocytic leukemia patients in China during H2 2016. In addition, we also target to submit a U.S. hematological cancer IND application during Q3 2016 and accelerate U.S. development. We believe that these Australia, China and U.S. studies can rapidly provide proof–of–concept on HMPL–523, consistent with the strong efficacy of Gilead's Syk inhibitor entospletinib.
Fruquintinib (HMPL–013): Fruquintinib is a highly selective and potent oral inhibitor of VEGFR 1/2/3 that we believe has the potential to be a global best–in–class VEGFR inhibitor for many types of solid tumors. Fruquintinib's unique kinase selectivity has been shown to reduce off–target toxicity thereby allowing for full VEGFR inhibition 24–hours a day, as well as possible use in combination with other TKIs and chemotherapy in earlier lines of treatment. We believe these are major points of differentiation compared to other approved small molecule VEGFR inhibitors, such as Sutent® (sunitinib), Nexavar® (sorafenib) and Stivarga® (regorafenib). In partnership with Lilly, we are running pivotal Phase III studies of fruquintinib in China in colorectal cancer and NSCLC while also exploring fruquintinib combinations with Taxotere® in gastric cancer and Iressa® in NSCLC.
Study 14 – Enrollment complete – Phase III study in colorectal cancer (third–line or above), fruquintinib monotherapy (China) – In December 2014, following positive Phase II results which were published at the 2015 European Society for Medical Oncology conference, we initiated the FRESCO study, which is a pivotal Phase III study in patients with locally advanced or metastatic colorectal cancer who have failed at least two prior systemic chemotherapies. Patients are randomized at a 2:1 ratio to receive either 5mg of fruquintinib orally once per day, on a 3 weeks on/1 week off cycle, plus best supportive care or placebo plus best supportive care. The primary endpoint is overall survival, with secondary endpoints including PFS, ORR, DCR and duration of response. Enrollment was completed in April 2016. Once FRESCO hits a predetermined number of overall survival events, currently expected in Q1 2017, we will un–blind the study. Subject to a positive outcome, we intend to submit fruquintinib's NDA to the China FDA by mid–2017.
Study 15 – Enrolling – Phase III NSCLC third–line fruquintinib monotherapy (China) – In December 2015, following positive Phase II results, which will be presented in a scientific conference in late 2016, we initiated the FALUCA study, which is a pivotal Phase III study in advanced non–squamous NSCLC patients in China who have failed two prior systemic chemotherapies. Patients are randomized at a 2:1 ratio to receive either 5mg of fruquintinib orally once per day, on a 3 weeks on/1 week off cycle plus best supportive care, or placebo plus best supportive care. The primary endpoint is overall survival, with secondary endpoints including PFS, ORR, DCR and duration of response. We expect to complete FALUCA enrollment in early 2017 and reach overall survival endpoint maturity in late 2017.
Study 16 – Enrollment expanded – Phase Ib study of fruquintinib in combination with Taxotere® in gastric cancer (second–line) (China) – In early 2015, we began a Phase Ib dose finding study of fruquintinib in combination with Taxotere®. We have now completed the study and have established what we believe is a safe and effective combination regimen, in which the combination is well tolerated and the fruquintinib dose is expected to provide full VEGFR inhibition 24–hours a day. This is an outcome that has not been achieved before with a small molecule VEGFR TKI. We continue to enroll patients in this Phase Ib, in order to expand the data–set.
Sulfatinib (HMPL–012): Sulfatinib is an oral drug candidate that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR1, a receptor which also plays a role in tumor growth. Our published Phase I clinical data show that sulfatinib has the highest ORR and PFS, albeit in a small base study, in NET patients for a TKI reported to date. Sulfatinib's ORR of 38.1% and 18.3 month median PFS in the intent–to–treat population (n=21), across a broad spectrum of NET sub–types, compares favorably to the less than 10% ORR and 11.4 month median PFS for Sutent® and Afinitor® (everolimus), the two approved single agent therapies for pancreatic NET. Sulfatinib is the first oncology candidate that we have taken through proof–of–concept in China and subsequently started clinical development in the U.S. We retain all rights to sulfatinib worldwide and are currently conducting five clinical studies, and planning to initiate a sixth, a Phase II study in biliary tract cancer in late 2016:
Study 17 – Enrollment complete – Phase II open–label study in NET (first–line) of sulfatinib monotherapy (China) – In early 2015, we began a Phase Ib study in China in broad–spectrum NET patients (pancreatic, gastrointestinal tract, liver, lymph and lung, among others) which was transitioned into an open–label, Phase II study for which enrollment of 81 patients was completed in December 2015. We expect to reach median PFS in the second half of 2016 and present data at a scientific conference shortly thereafter.
Study 17.a. – Enrolling – Phase III pancreatic NET sulfatinib monotherapy (China) – In March 2016, we initiated the SANET–p study, which is a pivotal Phase III study in patients with low– or intermediate–grade, advanced pancreatic NET. Patients are randomized at a 2:1 ratio to receive either 300mg of sulfatinib orally once per day, or placebo, on a 28–day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time to response, duration of response, overall survival, safety and tolerability. We expect to complete enrollment in H2 2017 and publish top–line results in 2018.
Study 17.b. – Enrolling – Phase III extra–pancreatic NET sulfatinib monotherapy (China) – In December 2015, we initiated the SANET–ep study, which is pivotal Phase III study in patients with low or intermediate grade advanced extra–pancreatic NET. Patients are randomized at a 2:1 ratio to receive either 300mg of sulfatinib orally once per day, or placebo, on a 28–day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time to response, duration of response, overall survival, safety and tolerability. We expect to complete enrollment in H2 2017 and publish top–line results in 2018.
Study 18 – Enrolling – Phase I sulfatinib monotherapy in advanced solid tumors (U.S.) – A Phase I study Caucasian cancer patients began in the U.S. in November 2015. We are currently in the 200mg cohort and expect to complete dose escalation in H2 2016. Once the Phase II dose among Caucasian patients is established, we intend to begin a U.S. Phase II study in broad–spectrum NET patients in 2017.
Study 19 – Enrolling – Phase II study in recurrent/refractory thyroid cancer patients (China) – In March 2016, we began a Phase II study in patients with recurrent/refractory medullary or differentiated thyroid cancer. We believe that sulfatinib's VEGFR/FGFR1 inhibition profile has strong potential in this second–line patient population, particularly in China, where there are few safe and effective treatment options.
Epitinib (HMPL–813): Epitinib is a potent and highly selective and potent oral EGFR inhibitor designed to optimize brain penetration and has demonstrated brain penetration and efficacy in pre–clinical studies. EGFR inhibitors have revolutionized the treatment of NSCLC with EGFR activating mutations. However, existing EGFR inhibitors such as Iressa® and Tarceva® cannot penetrate the blood–brain barrier effectively, leaving the majority of patients with brain metastasis without an effective targeted therapy. We currently retain all rights to epitinib worldwide.
Study 22 – Enrolling – Phase Ib epitinib monotherapy in NSCLC (first–line), EGFR–mutation positive with brain metastasis (China) – We are conducting a Phase Ib proof–of–concept study of epitinib to establish activity in EGFR–mutant NSCLC patients with tumors metastasized to the brain. The preliminary clinical results have been encouraging, showing clear efficacy in both the lung and brain. We plan to present ongoing Phase Ib results at a scientific conference in late 2016. In July 2016, we were granted China FDA Phase II/III clinical trial application clearance thereby allowing us, subject to Phase