Hutchison China MediTech (Chi-Med) is, in our view, better positioned than many biopharma companies to weather the potential impact of the COVID-19 pandemic. Chi-Med’s response to operational challenges posed by restrictions on movement has limited the disruption to its China Commercial business, and recent completion of key China Phase III studies coupled with adjustments to ensure protocol compliance in ongoing trials means China Oncology remains broadly on track. As China was the first country to be materially affected by COVID-19, the experience gained there provides Chi-Med with valuable practical knowledge that can be applied to Global Innovation. While there is less visibility on COVID-19 repercussions for Chi-Med’s US/Europe clinical plans, fortunate phasing of clinical and regulatory activities in China suggests the latter will proceed to plan. Our Chi-Med valuation is £5.08/share or $32.99/ADS.
China Commercial not materially affected Despite reduced promotional efforts and spend (via e-detailing rather than hospital visits) China Commercial sales have remained resilient, with continued sales of proprietary prescription drugs for chronic conditions. Product shipments were maintained between provinces and given the quantities in the supply chain, with only a brief temporary closure in February, there has been no material effect on any of the China manufacturing operations.
Fortunate timings for China Oncology Data collation/analysis from Phase III trials that completed pre-China lockdown and regulatory interactions are the H120 focus. Two China NDA filings are expected by mid-year: savolitinib (MET ex14m/del NSCLC) and surufatinib (pancreatic NET). Surufatinib’s NDA in non-pancreatic NET is under active review, with potential for approval/launch in H220. After a slowdown in enrolment, ongoing studies are getting back on track. March initiation of the Phase II HMPL-453 mesothelioma study is another positive indicator.
Less visibility on Global Innovation The situation in US/Europe is less clear as COVID-19 is yet to peak in many regions; estimates put it 6-8 weeks behind China. Visibility on Global Innovation timelines will improve in the coming months as regulatory discussions conclude, and global registration trials are potentially initiated in H220 for fruquintinib (3L/4L CRC) and surufatinib (NET).
Well-funded and with valuation upside The $110m (net) raised in January coupled to >$300m in available cash resources at end-FY19 provides cash into 2021 and the means to invest in its pipeline. Any COVID-19 related delay to clinical trial starts could mean lower spend, further extending the current runway. We value Chi-Med at £5.08/share (£3.51bn) or $32.99/ADS ($4.56bn) using a DCF-based SOTP methodology. Our April 2020 Outlook details our valuation assumptions.