Hutchison China MediTech (HCM) continues to make progress towards its global strategic aspirations. The interim results highlight the opportunities for Elunate (fruquintinib) capsules in China, with potential inclusion in China’s exclusive NRDL list in Q419, and the breadth of clinical and regulatory catalysts that lie ahead for multiple R&D assets. Surufatinib’s China NDA submission is on track (Q419) and approval in NET would seal HCM’s position as a premier, innovative, China-based oncology company. The years 2021–22 are pivotal; partner AstraZeneca (AZN) could launch savolitinib in China for NSCLC (MET exon 14) and it could become HCM’s first asset to launch globally (2022) in combination with Tagrisso for NSCLC (c-Met +ve). Given the recent underperformance of the shares and the real potential for HCM to become a global oncology player, we believe it is appropriate to revisit the shares. We value HCM at $5.7bn.
Elunate is now being commercialized in China (third-line CRC) by partner Eli Lilly (Lilly), a major inflection point for HCM and validation of its R&D philosophy. While the early sales trajectory is notable (H119 in-market of sales of $11.4m), the most interesting opportunity lies in inclusion on China’s NRDL, as this would translate into automatic inclusion in all state-funded hospitals (more eligible patients) and automatic reimbursement (albeit it at a lower price). Next for potential launch in China is surufatinib (launch for treatment of NET expected early 2021). In addition, an interim analysis of the pivotal China Phase III study (SANET-p) in pancreatic NET is due in H120, which, if positive, could further widen its market potential in this area of unmet need.
HCM has reduced its FY19 R&D expense guidance to $130–170m (from $160– 200m), reflecting the depreciation of Chinese yuan versus the US dollar (China R&D) and the phasing of global surufatinib and fruquintinib Phase IIb/III trials. HCM reported available cash resources of $383.6m, which, combined with the net profit generation from the CP division, means it is well funded to key value inflection points (NDA submissions for savolitinib, surufatinib and fruquintinib in 2019–21).
We value HCM at $5.7bn ($42.62/ADS) vs $5.6bn previously. We make no changes to our product forecasts, but have trimmed R&D costs for 2019 (phasing costs into 2020) to reflect FY19 guidance, rolled forward our model, and updated for FX and net cash of $237.3m at 30 June 2019.