TIDMHCM
RNS Number : 5072M
Hutchison China Meditech Limited
31 July 2017
Chi-Med Reports 2017 Interim Results and Updates Shareholders on
Key Clinical Programs
London: Monday, July 31, 2017: Hutchison China MediTech Limited
("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, 2017.
Group: Record revenue; continued investment in clinical
pipeline
-- Group revenue up 21% to $126.6 million (H1 2016: $104.5m).
-- Net income attributable to Chi--Med of $1.7 million (H1 2016:
$0.5m), including $37.5 million in research and development
expenses on an as adjusted basis (H1 2016: $36.0m).
Innovation Platform: Submitted first China New Drug Application
("NDA") on fruquintinib; initiated first global Phase III
registration study on savolitinib; five other pivotal Phase III
studies underway or completing; three more preparing to start
-- Deep clinical pipeline of novel small molecule tyrosine kinase inhibitors ("TKIs"):
o Eight clinical drug candidates now in 31 active or completing
clinical trials (H1 2016: 25) around the world; over 3,100 subjects
dosed in our trials to date, with over 300 dosed in the first half
of 2017.
-- Fruquintinib - Highly selective TKI of vascular endothelial
growth factor receptor ("VEGFR")-1/2/3:
o Positive outcome in Phase III study, the FRESCO study, in
third-line colorectal cancer ("CRC") patients in China;
o Potentially best-in-class in terms of both efficacy and safety
relative to Stivarga(R) (regorafenib);
o 2017 American Society of Clinical Oncology ("ASCO") oral
presentation;
o NDA submitted in third-line CRC to the Center for Drug
Evaluation of the China Food and Drug Administration ("CFDA").
-- Savolitinib - Highly selective TKI of the mesenchymal
epithelial transition factor ("c-MET"):
o Presented positive Phase II data in c-MET-driven papillary
renal cell carcinoma ("PRCC") at the ASCO Genitourinary Cancers
Symposium;
o Initiated global Phase III study, the SAVOIR study, in
c-MET-driven PRCC in a head-to-head comparison with current
standard therapy Sutent(R) (sunitinib). The first Phase III study
ever conducted with molecularly selected patients in renal cell
carcinoma;
o Initiated a global epidemiology study in c-MET-driven PRCC to
demonstrate the importance of treatment with a c-MET inhibitor.
-- Presented positive proof-of-concept data on:
o Fruquintinib in gastric cancer in combination with Taxol(R)
(paclitaxel);
o Sulfatinib in neuroendocrine tumors ("NET") as well as
preliminary data in thyroid cancer.
-- Progressing multiple Phase I dose escalation studies in Australia and China on:
o HMPL-523 against spleen tyrosine kinase ("Syk");
o HMPL-453 against fibroblast growth factor receptor 1/2/3
("FGFR");
o HMPL-689 against phosphoinositide 3-kinase delta ("PI3K
");
o Theliatinib against epidermal growth factor receptor ("EGFR")
wild-type;
o Expect to complete dose escalation and initiate
proof-of-concept expansion trials on these drug candidates towards
end of 2017 or early 2018.
Commercial Platform: High-performance drug marketing and
distribution platform covers 300 cities/towns in China with
>3,300 sales people. High value products and household name
brands
-- Total consolidated sales up 26% to $103.9 million (H1 2016: $82.3m).
-- Total sales of non-consolidated joint ventures were $253.1
million (H1 2016: $249.6m) mainly due to a price increase on a key
product in late 2016; a relatively quiet influenza season; and -5%
currency effect. Dividends paid to Chi-Med Group level from
non-consolidated joint ventures totaled $42.6 million in first half
of 2017 (H1 2016: $15.9m).
-- Total consolidated net income attributable to Chi-Med up 14%
to $25.2 million (H1 2016: $22.1m).
Solid cash position:
-- Cash resources of $192.5 million at Chi-Med Group level as of
June 30, 2017 ($173.7m as of December 31, 2016), including cash and
cash equivalents, short-term investments and unutilized bank
facilities.
Potential major milestones targeted for rest of 2017 and into
2018
-- Savolitinib in non-small cell lung cancer ("NSCLC"):
o Data from Phase II studies to be presented later in 2017 at a
major scientific conference:
1) Savolitinib in combination with Tagrisso(R) (osimertinib) in
second- and third-line NSCLC;
2) Savolitinib in combination with Iressa(R) (gefitinib) in
second-line NSCLC;
o Subject to the strength of Phase II data, global Phase III
registration and potential Breakthrough Therapy strategy for NSCLC
will be determined.
-- Fruquintinib:
o Potential NDA approval and launch in China, via our partner
Eli Lilly and Company ("Lilly"), as the first approved treatment
for third-line CRC patients;
o Completion of enrollment in the FALUCA study, an approximately
520 patient Phase III registration study in third-line NSCLC in
China;
o Initiation of Phase III registration study of fruquintinib in
combination with Taxol(R) in second-line gastric cancer in
China.
-- Epitinib (EGFR): Initiation of Phase III registration study
in first-line NSCLC patients with EGFR activating mutations with
brain metastasis in China.
-- HMPL-523 (Syk): Potential presentation of preliminary
efficacy data from Phase I dose escalation study in hematological
cancer.
References in this announcement to adjusted research and
development expenses, consolidated net income attributable to
Chi-Med from our Commercial Platform and consolidated net income
attributable to Chi-Med from our Prescription Drugs business 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.
U.K. Analysts Meeting and Webcast Scheduled Today at 9:00 a.m.
BST (4:00 p.m. HKT) - at Panmure Gordon & Co, One New Change,
London EC4M 9AF, U.K.. Investors may participate in the call at +44
20 3003 2666 or access a live video webcast of the call via
Chi-Med's website at
www.chi-med.com/investors/event-information/.
U.S. Conference Call Scheduled Today at 9:00 a.m. EDT - to
participate in the call from the United States, please dial 1 866
966 5335.
Additional dial-in numbers are also available at Chi-Med's
website. For both calls and all dial-in numbers, please use
conference ID "Chi-Med."
Simon To, Chairman of Chi-Med, said: "Chi-Med's consistent
strategy over the past 16 years has generated considerable
shareholder value, and we believe it is now poised to deliver
substantially more.
In our Innovation Platform, we have progressed our deep
portfolio of eight clinical drug candidates, now in 31 active or
completing clinical trials around the world. In the process we have
achieved two particularly important milestones: the formal NDA
submission for fruquintinib in third-line CRC in China; and the
initiation of our first global Phase III registration study of
savolitinib in c-MET-driven metastatic PRCC. We also presented
positive Phase Ib/II data at major scientific conferences in early
2017 on savolitinib in PRCC, fruquintinib in gastric cancer, and
sulfatinib in NET and thyroid cancer.
Now, subject to approval, we expect to launch fruquintinib in
China in 2018 with our commercial partner, Lilly. Importantly also,
later in 2017, we will present eagerly-awaited Phase II clinical
trials data on savolitinib in combination with Tagrisso(R) and
Iressa(R) in NSCLC thereby allowing AstraZeneca AB (publ)
("AstraZeneca") to clarify their plans for potential global Phase
III registration. Furthermore, we are also now preparing to
initiate Phase III registration studies in China of fruquintinib in
gastric cancer and of epitinib in NSCLC patients with brain
metastasis. The progress of our pipeline is testament to the
quality of our in-house research organization, which has discovered
all eight of our clinical drug candidates. It also demonstrates
that global quality drug discovery is now very much possible in
China.
At the same time, regulatory reform is moving at speed in China,
improving transparency and raising the standards of clinical data
reliability. This helps us, since, at Chi-Med we have always run
all our clinical trials to global standards, be they inside or
outside China. Fruquintinib is now set to establish an important
new reference point, under the reformed regulatory framework in
China, for both quality and rigor of clinical trials and for speed
to approval. Change is also underway on the National Drug
Reimbursement List ("NDRL") in China, with the first steps having
been taken this month to include multiple innovative cancer drugs
for some level of reimbursement in a clear move to broaden
accessibility.
In parallel, our Commercial Platform continues to grow sales and
profits showing resilience against the normal pressures of dynamic
and competitive markets. During late 2016 and early 2017, we
increased prices in our Prescription Drugs business; and moved our
Consumer Health factory over 1,400 kilometers to a lower-cost,
larger capacity site in central China. Both had short-term effects;
but both are now set to benefit our businesses materially. There
were also market pressures on our Consumer Health business, with
rapid raw material price increases, a relatively quiet influenza
season and around a 5% fall in the Chinese RMB, which affected our
U.S. dollar stated financial results. Despite this, net income
attributable to Chi-Med from our Commercial Platform increased by
14% to $25.2 million, and we expect to meet full year guidance on
core operations. We see this as a measure of the strength of our
brands, teams and operations.
Our consistent commercial and scientific strategy, and our
pragmatic approach to managing finance and risk, have led to the
strength of both our position today and our prospects. The first of
our new drug candidates, led by fruquintinib, and including
savolitinib, sulfatinib and epitinib, are all progressing towards
potential registration and launch in major markets with the balance
of our pipeline of drug candidates including theliatinib, HMPL-523,
HMPL-689 and HMPL-453 now mostly in proof-of-concept studies.
In addition, our discovery platform is generating a third wave
of innovation with a strong focus on immunotherapy. Combining this
innovation pipeline with our China marketing and distribution
platform, our international partners and our financial stability,
all lead Chi-Med to view our future with great confidence."
FINANCIAL HIGHLIGHTS:
Consolidated financial results of the Group are reported under
U.S. generally accepted accounting principles ("U.S. GAAP") and in
U.S. dollar currency unless otherwise stated. Chi-Med also conducts
its 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, certain financial results reported by
such non-consolidated joint ventures are referred to, 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" mean the consolidated subsidiaries and joint
ventures (excluding non-consolidated joint ventures) of
Chi-Med.
Group Results
-- Consolidated revenue up 21% to $126.6 million (H1 2016: $104.5m).
-- Net income attributable to Chi-Med of $1.7 million (H1 2016: $0.5m).
-- Solid cash position: Available cash resources of $192.5
million as of June 30, 2017 (December 31, 2016: $173.7m) at the
Chi-Med Group level, including cash and cash equivalents,
short-term investments and unutilized banking facilities. During
the first half of 2017, Chi-Med received dividends from its
non-consolidated joint ventures of $42.6 million (H1 2016:
$15.9m).
Innovation Platform - a deep broad, risk-balanced global
oncology/immunology pipeline
-- Consolidated revenue of $22.7 million (H1 2016: $22.3m) from
milestone payments from Lilly ($4.5m, fruquintinib NDA filing) and
AstraZeneca ($5.0m, savolitinib Phase III initiation) and service
fee payments from Lilly, AstraZeneca and Nutrition Science Partners
Limited ("NSP"), our 50/50 joint venture with Nestlé Health Science
S.A. ("Nestlé").
-- Net loss attributable to Chi-Med of $14.8 million (H1 2016:
-$13.7m) driven by $31.6 million (H1 2016: $31.2m) in research and
development expenses, or $37.5 million (H1 2016: $36.0m) on an as
adjusted (non-GAAP) basis, spent on our 31 active or completing
clinical trials, five of which are pivotal Phase III studies on
fruquintinib, sulfatinib and savolitinib.
Commercial Platform - a deeply established, cash-generative,
pharmaceutical business in China - a platform to commercialize our
Innovation Platform candidate drugs
-- Total consolidated sales up 26% to $103.9 million (H1 2016:
$82.3m) mainly resulting from growth in our Prescription Drug
commercial services business.
-- Total sales of non-consolidated joint ventures were $253.1
million (H1 2016: $249.6m) resulting from flat sales on She Xiang
Bao Xin ("SXBX") pill due to a price increase that we implemented
in December 2016; and a relatively quiet influenza season on the
over-the-counter ("OTC") drug business.
-- Total consolidated net income attributable to Chi-Med up 14%
to $25.2 million (H1 2016: $22.1m) or up 2% to $22.7 million on an
adjusted basis to exclude $2.5 million one-time government
subsidies; strong Prescription Drug net income growth was offset by
short-term pressures in OTC drugs caused by our factory move and
certain raw material price increases.
-- Both top- and bottom-line growth were reduced by -5% in U.S.
dollar terms during the first half of 2017 as a result of the
weakening of the Chinese RMB as compared to the same period in
2016.
KEY H1 2017 OPERATIONAL HIGHLIGHTS:
Innovation Platform: In June this year, we both completed our
first NDA submission, for fruquintinib in third-line CRC, and
initiated our first global Phase III study in oncology, for
savolitinib in PRCC. Each triggered milestone payments from our
partners Lilly and AstraZeneca, and each represents major
achievements for Chi-Med and for the biotech industry in China.
-- Savolitinib: Potential first-in-class selective c-MET
inhibitor currently in 12 active clinical studies worldwide in
multiple tumor types including kidney, lung and gastric cancers as
a monotherapy or in combination with other targeted and
immunotherapy agents. Developing globally in partnership with
AstraZeneca:
1. Kidney cancer:
a. Presented Phase II global multicenter study in advanced PRCC
at the 2017 ASCO Genitourinary Cancers Symposium showing robust
efficacy with savolitinib monotherapy in c-MET-driven patients.
Median progression free survival ("PFS") of 6.2 months in patients
with c-MET-driven tumors as compared with 1.4 months (p<0.0001)
in c-MET-independent patients. Objective response rate ("ORR") was
18.2% in c-MET-driven patients vs. 0% (p=0.002) in c-MET
independent patients. Encouraging durable response and a tolerable
safety profile were reported in savolitinib treated patients. The
full article has now been published in the Journal of Clinical
Oncology.
b. A global Phase III study, the SAVOIR study, was initiated in
late June 2017. The SAVOIR study is an open-label, randomized,
controlled trial evaluating the efficacy and safety of savolitinib,
compared with Sutent(R) , in patients with c-MET-driven,
unresectable, locally advanced or metastatic PRCC. Approximately
180 patients will be randomized in the United States and Europe;
c-MET-driven PRCC patients will be selected through the use of a
companion diagnostic kit.
c. Confirmed combination dose of savolitinib in combination with
anti-programmed death-ligand 1 ("PD-L1") antibody, Imfinzi(R)
(durvalumab), via Phase Ib study in clear cell renal cell carcinoma
("ccRCC") patients. A ccRCC expansion phase is now underway.
2. Lung cancer:
a. Continued enrollment of Phase II studies in NSCLC patients
with EGFR mutations who have progressed following first-line EGFR
TKI therapy and harbor c-MET gene amplification. We are preparing
to present data on the following studies at major scientific
conferences later in 2017: (1) a Phase II study, the TATTON study
(Part B), of savolitinib in combination with Tagrisso(R) in
second-line or third-line EGFR TKI refractory NSCLC patients; and
(2) a Phase II study of savolitinib in combination with Iressa(R)
in second-line EGFR TKI refractory NSCLC patients.
-- Fruquintinib: Designed to be a best-in-class selective
inhibitor of VEGFR 1/2/3 - we are developing outside of China and
in partnership with Lilly within China:
1. CRC (third-line or above): Reported in March 2017 that
fruquintinib convincingly met the primary endpoint of median
overall survival ("OS"), 9.30 months versus 6.57 months
(p<0.001), and all secondary endpoints in the FRESCO Phase III
study as a monotherapy among third-line CRC patients in China;
further, that the adverse events ("AEs") demonstrated in FRESCO did
not identify any new or unexpected safety issues; then presented
the full FRESCO data-set in an oral presentation at ASCO and
completed submission of our China NDA in June 2017. Subject to CFDA
approval, fruquintinib is expected to launch in China in 2018.
Based on the patient population in third-line CRC in China, as well
as the sales performance of TKIs launched in recent years in China,
we estimate peak fruquintinib revenues, in third-line CRC alone,
could reach between $110-160 million annually resulting in peak net
income to Chi-Med of around $20-35 million.
2. NSCLC (third-line): Continue to enroll a Phase III study,
named FALUCA, with a primary endpoint of OS, to evaluate
fruquintinib in third-line NSCLC patients in China; expect to
complete enrollment in early 2018; top-line Phase III data expected
to be reported in late 2018; subject to positive FALUCA outcome, we
target to submit a second China NDA shortly thereafter.
3. Gastric cancer (second-line): Presented positive interim
results in the Phase I/Ib dose finding/expansion study in early
2017 at the ASCO Gastrointestinal Cancers Symposium. Established a
well-tolerated combination dose of 4mg fruquintinib with 80mg/m(2)
weekly of Taxol(R) with encouraging efficacy, including ORR of 36%;
Disease Control Rate ("DCR") of 68%; >=16 week PFS of 50% and
>=7 month OS of 50%. On track now to initiate a Phase III
registration study in China in 2017.
4. NSCLC (first-line): In January 2017, we initiated a Phase II
study of fruquintinib in combination with Iressa(R) in first-line
NSCLC patients with EGFR activating mutations in China.
5. Production facility in Suzhou, China operated by Chi-Med is
now ready to support commercial launch of fruquintinib in 2018.
6. Planning to initiate global development of fruquintinib in
2017, initially through a Phase I dose confirmation study in
Caucasian patients in the United States.
-- Sulfatinib: A unique angio-immuno TKI therapy with high
potency against VEGFR, FGFR1 and colony stimulating factor-receptor
1 ("CSF-1R") with emerging strong efficacy in multiple solid tumor
settings - enrolling two pivotal Phase III studies:
1. NET:
a. Presented positive Phase II study at the European
Neuroendocrine Tumor Society ("ENETS") conference in early 2017.
Established that sulfatinib was well tolerated with highly
encouraging efficacy in both pancreatic NET (ORR 17.1%; DCR 90.2%;
and median PFS 19.4 months) and non-pancreatic NET (ORR 15.0%; DCR
92.5%; and median PFS 13.4 months) with 100% DCR in twelve patients
who had disease progression on targeted therapies such as Sutent(R)
and Afinitor(R) (everolimus); now enrolling two Phase III studies
in China, named SANET-p (in pancreatic NET patients) and SANET-ep
(in non-pancreatic NET patients), with primary endpoint median
PFS.
b. U.S. Phase I dose confirmation study in Caucasian patients is
near completion, and a Phase II expansion study in the United
States is expected to be initiated in late 2017 or early 2018.
2. Thyroid cancer: Presented Phase II data at ASCO in June 2017
in patients with locally advanced or metastatic radioactive iodine
("RAI")-refractory differentiated thyroid cancer ("DTC") or
medullary thyroid cancer ("MTC") in China. Preliminary data in 18
patients showing an ORR of 25% in RAI-DTC and an ORR of 17% in MTC
patients, with all other patients reporting stable disease
("SD").
3. Biliary tract cancer: Initiated a Phase II proof-of-concept
study in China in January 2017.
-- Epitinib: Highly differentiated EGFR TKI designed for optimal
blood-brain barrier penetration allowing for higher drug exposure
in the brain than currently marketed first generation EGFR
TKIs:
1. NSCLC with brain metastasis: Epitinib has been shown to be
well tolerated with encouraging efficacy with an overall ORR (lung
and brain) of 62% in all EGFR TKI naïve NSCLC patients (those
patients not previously treated with an EGFR TKI) and an ORR of
70%, including both confirmed and unconfirmed partial responses
("PRs"), in EGFR TKI naïve NSCLC patients who also had measurable
brain metastasis and were c-MET negative. Based on these data we
are preparing to initiate a Phase III registration study in China
in late 2017 or early 2018.
2. Glioblastoma: Planning underway to start a Phase II study in
glioblastoma, a primary brain cancer that harbors high levels of
EGFR gene amplification, in 2017.
-- HMPL-523: Potential first-in-class Syk inhibitor in oncology and immunology:
Hematological cancer: Currently enrolling Phase I dose
escalation studies in Australia and China in patients with
hematologic malignancies. Dose escalation continues to evaluate
both once daily ("QD") and twice daily regimes and will begin dose
expansion with single agent HMPL-523 in due course. We target to
present proof-of-concept data in 2018.
-- HMPL-689: Potential best-in-class, highly selective PI3K
inhibitor, which we believe should have meaningful safety and
tolerability advantages over Zydelig(R) (idelalisib):
Hematological cancer: Completed Phase I study in healthy
volunteers in Australia, now preparing to start Phase I in patients
with lymphomas in China where we received IND clearance in early
2017.
-- Theliatinib: EGFR inhibitor, with high binding affinity to
wild-type EGFR protein, with potential in patients with solid
tumors presenting EGFR gene amplification or protein
over-expression:
Esophageal cancer: Phase I dose escalation study is continuing
and a Phase II expansion in esophageal cancer patients with a high
level of EGFR activation, including gene amplification and protein
over-expression was initiated in early 2017.
-- HMPL-453: Potential first-in-class and/or best-in-class selective FGFR 1/2/3 inhibitor:
Solid tumors: During the first half of 2017, we initiated Phase
I dose escalation studies in both Australia and China.
Commercial Platform: Net profit increased 14% to $25.2 million
(H1 2016: $22.1m) with strong Prescription Drugs growth and $2.5
million in one-time government subsidies more than offsetting the
effect of challenging conditions in the OTC business; as well as
the -5% weakening of the Chinese RMB.
-- Prescription Drugs business continuing profit growth -
consolidated sales up 27% to $85.8 million (H1 2016: $67.6m); total
sales of non-consolidated Prescription Drugs joint venture flat at
$129.7 million (H1 2016: $126.8m); and total consolidated net
income attributable to Chi-Med up 27% to $19.4 million (H1 2016:
$15.3m).
1. Shanghai Hutchison Pharmaceuticals Limited ("SHPL") - our
large-scale non-consolidated Prescription Drugs joint venture -
Continued progress on SXBX pill, our most important commercial
product, a prescription vasodilator that accounts for about 12% of
China's over $1.5 billion botanical coronary artery disease
prescription drug market. SXBX pill is a proprietary product with
full patent protection through 2029. During late 2016 and early
2017, we have been able to effectively implement a pricing strategy
that provides an important foundation for future margin improvement
and profit growth.
2. Shanghai government subsidy - SHPL was awarded a significant
one-time increase in its regular government research and
development subsidies. This totaled $5.9 million, equivalent to
$2.5 million in net income attributable to Chi-Med.
3. Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai)
Limited ("Hutchison Sinopharm") - our Prescription Drugs commercial
services business - Continued commercial success in the first half
of 2017 on Seroquel(R) (bi-polar disorder/schizophrenia), which
grew sales by 10% to $18.9 million (H1 2016: 17.2m), and Concor(R)
(hypertension/high blood pressure) where strong results, 75%
year-on-year growth, recently led Merck Serono to expand Hutchison
Sinopharm's exclusive territory by over 70% to now cover a total of
six provinces/municipalities with a population of over 360 million
people.
-- Consumer Health business stable despite challenging
conditions - consolidated sales up 24% to $18.1 million (H1 2016:
$14.6m); total sales of non-consolidated Consumer Health joint
venture flat at $123.4 million (H1 2016: $122.7m); and total
consolidated net income attributable to Chi-Med down 16% to $5.8
million (H1 2016: $6.8m).
Short-term OTC profit pressure - capacity constraint and
depreciation costs - caused by regulatory hiatus before the start
of production at our new factory; an increase in certain key raw
material prices; and the quietest influenza season since 2014.
2017 AND EARLY 2018 MILESTONES: We target to present multiple
clinical data updates during the balance of 2017 and early 2018,
including:
-- Savolitinib:
1. Phase II data in second- and third-line NSCLC in combination
with Tagrisso(R) ;
2. Phase II data in second-line NSCLC in combination with
Iressa(R) ;
3. Molecular epidemiology study (n >300) in PRCC.
-- Fruquintinib: Phase III FRESCO study full data sub-group analysis in third-line CRC.
-- HMPL-523 (Syk): Preliminary efficacy data from Phase I dose
escalation study in hematological cancer.
-- HMPL-689 (PI3K ): Phase I dose escalation data in healthy volunteers.
We hope to achieve multiple clinical and regulatory milestones
during 2017 and early 2018, including:
-- Savolitinib: Potential decision on Phase III registration and
potential Breakthrough Therapy strategy in NSCLC in combination
with Tagrisso(R) /Iressa(R) .
-- Fruquintinib:
1. Potential NDA approval and launch in third-line CRC in
China;
2. Complete enrollment of Phase III FALUCA study in third-line
NSCLC;
3. Initiate China Phase III study in second-line gastric
cancer;
4. Initiate U.S. Phase I dose confirmation study in Caucasian
patients.
-- Epitinib:
1. Initiate China Phase III study in first-line EGFR-mutant
NSCLC patients with brain metastasis;
2. Initiate China Phase II study in glioblastoma (primary brain
cancer).
-- Sulfatinib: Initiate Phase II expansion study in NET patients in the United States.
-- HMPL-523 (Syk): Initiate Australia and China dose expansion
proof-of-concept studies in hematological cancer.
-- HMPL-689 (PI3K ): Initiate Phase I dose escalation study in
China in hematological cancer patients.
FINANCIAL GUIDANCE: Our updated guidance for 2017, compared to
the most recent guidance in our full year results announcement for
the year ended December 31, 2016 dated March 13, 2017, reflects no
overall change to estimated net income/(loss) for the Chi-Med
Group. The only adjustment that we would highlight is the potential
for deferral, into 2018, of the one-time property gains resulting
from Guangzhou government policy. Full year 2017 financial guidance
is detailed below:
Group Level: 2017 Previous 2017 Current Adjustment
Guidance([1]) Guidance
$225-240 $225-240
* Consolidated revenue million million none
$(18)-(19) $(18)-(19) none
* Admin., interest & tax million million
$(13)-(28) $(13)-(28) none
* Net income/(loss)([2]) million million
Innovation Platform:
$35-40 $35-40
* Consolidated revenue million million none
$(85)-(90) $(85)-(90) none
* Adjusted R&D expenses million million
Commercial Platform:
$190-200 $190-200
* Sales (consolidated) million million none
$480-500 $480-500
* Sales of non-consol. JVs([3]) million million none
$14-16 $3-16 million([4]) $0-11 million
* One-time property/R&D gains([2]) million([4]) less([4])
$46-50 $35-50 $0-11 million
* Net income([2]) million million less
Notes: [1] Company Guidance March 13, 2017; [2] Attributable to
Chi-Med; [3] Joint ventures; [4] timing subject to Guangzhou
government policy.
CONTACTS:
Investor Enquiries
Mark Lee,
SVP Corporate Finance & Development +852 2121 8200
U.K. & 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
Matt Beck, The Trout Group +1 (917) 415 1750 (Mobile) mbeck@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 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" mean Hutchison China MediTech Limited
and its consolidated subsidiaries and joint ventures unless
otherwise stated or indicated by context.
Past Performance and Forward-Looking Statements
The performance and results of operations of the Group contained
within this announcement are historical in nature, and past
performance is no guarantee of future results of the Group. 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 or net income 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 Chi-Med obtained from industry publications and
reports generated by third-party market research firms, including
Frost & Sullivan and QuintilesIMS, independent market research
firms, and publicly available data. All patient population, market
size and market share estimates are based on Frost & Sullivan
or QuintilesIMS research, unless otherwise noted. Although Chi-Med
believes that the publications, reports and surveys are reliable,
Chi-Med has 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
Chi-Med's aim remains to become an innovative global
biopharmaceutical company based in China, and we keep making
significant progress towards this aim.
Our recent progress in advancing fruquintinib through NDA with
the CFDA as well as starting our first global Phase III study in
oncology with savolitinib have been particularly important. We are
making progress step-by-step on all eight of our clinical drug
candidates, and we believe that we are very well positioned to
create substantial shareholder value. Our confidence in doing so
stems from the following factors.
The inevitability of China oncology - In 2016, global market
sales of oncology drugs grew by 11% to $175.7 billion making it the
largest treatment area in the global pharmaceutical market, with a
17% market share. In China, despite being the home to 8.1 million
cancer patients, or about 20-30% of those in the world, 2016 market
sales of oncology drugs were just $7.3 billion, or about 4% of the
global market. In our view, it is inevitable that the China
oncology market is set to emerge over the coming decade as an area
of major opportunity, spurred by China's increasing emphasis on
innovation combined with its rapidly improving regulatory
environment.
Global innovation out of China - For sixteen years, Chi-Med and
its partners have invested about $480 million in building an engine
of global oncology innovation in China. Our approximately
330-person strong scientific team has created, and progressed into
development, a portfolio of eight differentiated targeted
therapies, primarily in the field of oncology. We have used our
fully integrated discovery platform, with its particularly deep
competence in chemistry, to create highly selective drug candidates
against multiple novel and validated molecular targets, many with
the potential to be first-in-class or best-in-class. Global quality
innovation, out of China, positions us very well to address the
major unmet medical needs in China oncology as well as to identify
opportunities for our differentiated assets in the global
market.
China regulatory reforms - Probably the most exciting
development in the context of our ambitions is the transformation
that is occurring in the regulatory environment in China. In the
clinical and regulatory arena, dozens of policy documents have been
published by the State Council and CFDA, aiming to strengthen and
speed up China's drug trial and approvals process. These include
new standards, supervision and accountability mechanisms that are
helping to clear China's drug registration backlog, with the number
of applications awaiting CFDA review dropping from 22,000 in 2015
to the current 6,000. Also, the new Priority Review and Market
Authorization Holder ("MAH") systems are both clearly helping to
speed approval of innovative therapies that meet major unmet
medical needs in China.
In the commercial arena, the publication, this month, of the
agreed NDRL prices on 36 novel drugs is the first step away from
the 100% self-pay system. Many targeted therapies in oncology such
as Avastin(R) , Herceptin(R) , Tarceva(R) , Nexavar(R) , Rituxan(R)
, Afinitor(R) and Revlimid(R) , among others are now set to be at
least partially reimbursed. While prices have been negotiated down
to between about one-third and one-half of global prices, both
patients and innovative biopharmaceutical companies in China are
set to benefit from broadening of access to these important
therapies.
Our first wave of innovation is benefiting from regulatory
reforms - Fruquintinib is the first drug out of the Chi-Med
innovation engine to take advantage of the above factors. It has
shown that a potential best-in-class asset can be discovered and
developed in China. We expect fruquintinib to be granted Priority
Review and, upon approval, is likely to be the first MAH designated
drug ever to reach the market in China. The interaction with the
CFDA in our local region, Shanghai, as well as centrally in
Beijing, has been highly collaborative because fruquintinib is a
test case for the new system. We hope that time from NDA submission
to approval could be rapid and help to establish a new standard. We
believe that the balance of our first wave of innovation -
sulfatinib, epitinib, and theliatinib - will also all benefit from
these important regulatory reforms.
Our second wave of innovation is on its way - Chi-Med's second
wave of innovation is focused on more novel, potential
first-in-class targets such as c-MET, Syk, and FGFR, as well as a
potential best-in-class PI3K inhibitor. All of these programs are
in clinical trials and we are moving as fast as we can to reach
proof-of-concept in as many indications as possible, looking to
build robust data sets that will allow for pivotal trial
decisions.
Even greater innovation in the third wave - For the past five
years, our discovery platform has been working on our third wave of
drug candidates, with an emphasis on second-generation
immunotherapy targets. The first of these assets should start
reaching the clinic in the coming year or so, and we are most
excited about the opportunities that will emerge for innovative
combination regimes with our first and second wave therapies.
For all these reasons, combined with the financial strength of
Chi-Med, the cash being generated by our Commercial Platform and
our consistent commercial and scientific strategies, we are highly
optimistic about Chi-Med's long-term prospects. As always, the
success and prospects of Chi-Med are the result of the commitment
and dedication of our people, and I would like to express my deep
appreciation to all our management and staff and for the support of
the investors, directors and partners of Chi-Med.
Simon To
Chairman, July 31, 2017
FINANCIAL REVIEW
Chi-Med Group revenues for the six months ended June 30, 2017
increased by 21% to $126.6 million (H1 2016: $104.5m), due to a 26%
increase in revenue generated by the Commercial Platform to $103.9
million (H1 2016: $82.3m) and our consolidated joint venture,
Hutchison Sinopharm. Revenues from our Innovation Platform were
flat at $22.7 million (H1 2016: $22.3m), reflecting similar levels
of milestone payments, service fees and clinical cost
reimbursements received from AstraZeneca, Lilly and NSP compared to
the prior period. It should be noted that Group revenues do not
include the sales of our two large-scale, 50/50 joint ventures in
China, SHPL and Hutchison Whampoa Guangzhou Baiyunshan Chinese
Medicine Company Limited ("HBYS"), since these are accounted for
using the equity method.
Our Commercial Platform, which for the time being is Chi-Med's
primary profit and cash source, grew operating profit by 12% to
$27.8 million (H1 2016: $24.9m) as a result of improved profit
margins in SHPL's coronary artery disease Prescription Drug
business and a one-time Shanghai government subsidy. The Innovation
Platform incurred an operating loss of $14.8 million (H1 2016:
-$13.8m) as a result of expansion of clinical development
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 $6.7 million (H1 2016:
$5.8m) principally due to our Nasdaq listing and the resulting
increase in organization and third-party advisor costs in the audit
and compliance areas.
Consequently, Chi-Med Group operating profit was $6.3 million
(H1 2016: $5.3m).
The aggregate of interest and income tax expenses of the Chi-Med
Group, as well as net income attributable to non-controlling
interests during the period, was $4.6 million (H1 2016: $4.8m)
mainly driven down by reduced share of net income attributable to a
non-controlling interest from non-consolidated joint venture under
Consumer Health business.
The resulting total Group net income attributable to Chi-Med was
therefore $1.7 million (H1 2016: $0.5m).
As a result, Group net income attributable to ordinary
shareholders of Chi-Med in the first half of 2017 was $0.03 per
ordinary share / $0.015 per American depositary share ("ADS"),
compared to a net income attributable to ordinary shareholders of
Chi-Med of $0.01 per ordinary share / $0.005 per ADS, in the first
half of 2016.
Cash and Financing
In the past five years, as our clinical spending has escalated,
we have endeavored to remain cash-positive at the Chi-Med Group
level, and in the first half of 2017, we generated $19.4 million
(H1 2016: $9.1m) in net cash from our operating activities. This
was driven by significantly increased dividends paid by our
non-consolidated Commercial Platform joint ventures which resulted
from one-time property compensation and subsidies last year from
the Shanghai government as well as growth in the profit of our core
operations. These dividends, along with payments received from
AstraZeneca, Lilly, and NSP, in their aggregate, more than offset
our research and development expenses which were $31.6 million (H1
2016: $31.2m), or $37.5 million (H1 2016: $36.0m) on an as adjusted
(non-GAAP) basis.
As of June 30, 2017, we had available cash resources of $192.5
million (December 31, 2016: $173.7m) at the Chi-Med Group level
including cash and cash equivalents and short-term investments of
$112.5 million (December 31, 2016: $103.7m) and unutilized bank
borrowing facilities of $80 million (December 31, 2016: $70m).
Aggregate borrowing facilities of $70 million, with an average 18
month term, were renewed in February 2017. In addition, as of June
30, 2017, our non-consolidated joint ventures (SHPL, HBYS and NSP)
held $88.8 million (December 31, 2016: $91.0m) in available cash
resources.
Outstanding bank loans as of June 30, 2017 amounted to $46.9
million (December 31, 2016: $46.8m) at the Chi-Med Group level, of
which $26.9 million is guaranteed by a wholly-owned subsidiary of
CK Hutchison, our 60% shareholder. Our total Chi-Med Group weighted
average annual interest rate for bank borrowings outstanding as of
June 30, 2017 was 1.8% (H1 2016: 1.5%). In addition, we paid a
guarantee fee which added about 1.0% to our weighted average annual
cost of borrowings in the first half of 2017 (H1 2016: 0.9%). As of
June 30, 2017, our non-consolidated joint ventures had no
outstanding bank loans (December 31, 2016: nil).
In summary, we believe that the cash resources that we currently
hold are sufficient to fund all our near-term activities.
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
about 330 scientists and staff 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 had in the past decade,
to produce a stream of novel drug candidates with global
potential.
Since inception, the Innovation Platform has dosed over 3,100
patients/subjects in clinical trials of our drug candidates with
over 300 dosed in the first half of 2017 primarily driven by the
enrollment of the Phase III studies that we currently have
underway.
Product Pipeline Progress
Savolitinib (AZD6094): Savolitinib is a potential 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, addresses human metabolite-related
renal toxicity, the primary issue that halted development of
several other selective c-MET inhibitors. In clinical studies to
date, involving over 500 patients, savolitinib has shown promising
signs of clinical efficacy in patients with c-MET gene alterations
in PRCC, NSCLC, CRC and gastric cancer with an acceptable safety
profile.
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, and in June 2017,
we initiated our first global Phase III registration study in PRCC.
Later in 2017, we plan to present Phase II data at a major
scientific conference on savolitinib in combination with
Tagrisso(R) and Iressa(R) , in both second- and third-line
NSCLC.
Savolitinib - Kidney cancer: High proportion of MET-driven
patients.
Study 1 - Enrolling - Phase III PRCC savolitinib 600mg QD
monotherapy (Global) - PRCC is the most common of the non-clear
cell renal cell carcinomas ("RCCs") representing about 14% of
kidney cancer. Approximately 366,000 new cases of kidney cancer
were diagnosed globally in 2015, equating to about 50,000 cases of
PRCC, with approximately half harboring c-MET-driven disease. No
systemic therapies/TKIs have been approved in PRCC, and to date
only modest efficacy in non-ccRCC has been reported in sub-group
analyses of broader RCC studies of VEGFR (e.g. Sutent(R) ) and
mammalian target of rapamycin (mTOR) (e.g. Afinitor(R) ) TKIs, with
ORRs of <10% and median PFS in first-line setting of 4-6 months
and second-line setting of only 1-3 months (ESPN study, Tannir N.
M. et al.).
During the first half of 2017, we presented the results of our
109 patient global Phase II study in PRCC at the ASCO Genitourinary
Cancers Symposium, as well as in the Journal of Clinical Oncology
as a Rapid Communication Manuscript. This Phase II study was the
largest and most comprehensive clinical study in PRCC ever
conducted. Of 109 patients treated with savolitinib, PRCC was
c-MET-driven in 44 patients (40%), c-MET-independent in 46 (42%)
and MET status unknown in 19 (17%). c-MET-driven PRCC was strongly
associated with encouragingly durable response to savolitinib with
ORR in the c-MET-driven group of 18.2% (8/44) as compared to 0%
(0/46) in the c-MET-independent group (p=0.002). Median PFS for
patients with c-MET-driven and c-MET-independent PRCC was 6.2
months (95% CI: 4.1-7.0) and 1.4 months (95% CI: 1.4-2.7),
respectively (hazard ratio=0.33; 95% CI: 0.20-0.52; log-rank
p<0.0001). Savolitinib was well tolerated, with no reported
treatment related Grade >=3 AEs with >5% incidence. Total
aggregate savolitinib treatment related Grade >=3 AEs occurred
in just 19% of patients comparing very well to the 70-75% Grade
>=3 AE level recorded in VEGFR inhibitors such as Sutent(R) and
Votrient(R) (pazopanib) in multiple RCC studies (N Eng J Med 369;8,
R J Motzer et al).
A global Phase III registration study, the SAVOIR study, of
savolitinib versus Sutent(R) in c-MET-driven metastatic PRCC
patients was initiated in June 2017 and expects to enroll 180
patients. The primary endpoint for efficacy in the SAVOIR study is
median PFS, with secondary endpoints of OS, ORR, Duration of
Response ("DoR") and DCR. We expect to complete enrollment in late
2019.
Study 2 - Enrolling - Phase II study of multiple TKIs in
metastatic PRCC (U.S.) - A Phase II study, sponsored by the U.S.
National Cancer Institute, and named the PAPMET study, to assess
the efficacy of multiple TKIs in metastatic PRCC including
Sutent(R) ; Cabometyx(R) (cabozantinib); Xalkori(R) (crizotinib)
and savolitinib. PAPMET, began enrolling patients in 2016 and had
registered 26 patients by January 2017. PAPMET is expected to
enroll about 275 patients in over 70 locations in the United States
with top line data targeted for reporting in 2019.
Study 3, Study 4 and Study 5 - Enrolling - Phase Ib study of
savolitinib (600mg daily) monotherapy and in combination with
Imfinzi(R) (anti-PD-L1) in both PRCC and ccRCC patients (U.K.) - A
Phase Ib dose finding study began in 2016, named the CALYPSO study,
at St. Bartholomew's Hospital in London, to assess
safety/tolerability of savolitinib and Imfinzi(R) combination
therapy as well as preliminary efficacy of savolitinib as a
monotherapy or combination therapy in several c-MET-driven kidney
cancer patient populations. During 2016, the dose-finding section
of the CALYPSO study successfully established the combination dose
of savolitinib and Imfinzi(R) and the study has now moved on to the
expansion stage in ccRCC patients to further explore efficacy.
Savolitinib - Lung cancer: Savolitinib's largest market
opportunity.
Study 6 - Enrolling - Phase II expansion NSCLC (second-line),
EGFR TKI refractory, savolitinib (600mg QD) in combination with
Tagrisso(R) (Global) - In October 2016, at the European Society for
Medical Oncology meeting, AstraZeneca presented preliminary Phase
Ib/IIa data, the TATTON study (Part A), on 17 evaluable
first-generation EGFR TKI (Iressa(R) /Tarceva(R) ) refractory
second-line NSCLC patients who had no prior exposure to
third-generation EGFR TKIs (Tagrisso(R) /rocelitinib). Molecular
analysis of both c-MET and T790M status was completed for patients
with sufficient available tumor tissue. Of patients treated with
the savolitinib and Tagrisso(R) combination, confirmed PRs were
reported in 4/5 (80% ORR) of c-MET positive/T790M negative patients
and in 6/10 (60% ORR) of c-MET positive patients regardless of
T790M status.
In June 2016, we initiated a global Phase II expansion study in
second-line NSCLC, the TATTON study (Part B), aiming to recruit
sufficient c-MET positive patients to support a decision on whether
or not to proceed to global Phase III registration studies. We
believe that we are on-track to meet this aim and expect to present
preliminary TATTON (Part B) data at a major scientific conference
later in 2017. We hope that if the ORR and DoR data from TATTON
(Part B) meets the requirements, we would consider seeking
potential U.S. Food and Drug Administration ("FDA") Breakthrough
Therapy designation in parallel with Phase III initiation. In this
second-line EGFR TKI refractory NSCLC population, c-MET-driven
disease exists in 15-20% of patients or approximately 35,000-40,000
new patients per year globally.
Study 7 - Enrolling - Phase II NSCLC (third-line), EGFR/T790M
TKI-refractory, savolitinib (600mg QD) in combination with
Tagrisso(R) (Global) - The TATTON study (Part B) is also enrolling
third-line NSCLC patients that have progressed after treatment with
Tagrisso(R) in the second-line setting as a result of c-MET-driven
acquired resistance. Data presented in June 2017 at ASCO, by
Harvard Medical School and Massachusetts General Hospital Cancer
Center, showed that about 30% (7/23 patients) of Tagrisso(R)
resistant third-line NSCLC patients harbor c-MET gene
amplification. Furthermore, in the three Tagrisso(R) resistant,
c-MET gene amplified, third-line NSCLC patients that were then
exposed to savolitinib, all three were reported to have confirmed
PRs. We also intend to present preliminary TATTON (Part B) data in
this third-line NSCLC population at a major scientific conference
later in 2017. Tagrisso(R) sales in the first half of 2017, just
over 18 months since its launch, were $403 million, indicating that
the market potential for savolitinib in third-line, Tagrisso(R)
resistant, NSCLC is material.
Study 8 - Enrolling - Phase II NSCLC (second-line), EGFR
TKI-refractory, savolitinib (600mg QD) in combination with
Iressa(R) (China) - In the subset of EGFR-TKI refractory
second-line NSCLC patients, who are c-MET positive but do not
harbor T790M mutation, a combination regimen of savolitinib and
Iressa(R) could be appropriate. In late 2015, we began a Phase II
study comprised of a dose-finding stage, to establish a safe
combination dose of savolitinib and Iressa(R) , followed by an
expansion stage to enroll sufficient patients in order to support a
decision on whether or not to proceed to a Phase III registration
study of the combination. We intend to present the complete results
of this Phase II study at a major scientific conference later in
2017. The launch of multiple lower-priced, and reimbursed, generic
first-generation EGFR TKIs in China this year, combined with the
very high 50% proportion of NSCLC patients who harbor the EGFR
activating mutation, leads us to believe there may be a surge in
c-MET positive second-line NSCLC patients in China over the coming
years that could total approximately 20,000 new patients per
year.
Study 9 and Study 10 - Enrolling - Phase II c-MET-driven NSCLC
(first-line) savolitinib (600mg QD) monotherapy (China) - Phase II
studies of savolitinib are also ongoing in first-line NSCLC and
other lung cancer patient populations, focusing on those with
c-MET-driven disease.
Savolitinib - Gastric cancer: Multiple active exploratory Phase
Ib gastric cancer clinical studies are ongoing in China and a
multi-arm Phase Ib study, named the VIKTORY study, being run at
Samsung Medical Center in South Korea. As of January 2017, a total
of 432 metastatic gastric cancer patients had been enrolled in
VIKTORY with 5.3% (23/432) being patients with c-MET-driven (gene
amplification or over-expression) disease, which is consistent with
prior scientific publications. These patients with c-MET-driven
disease are being guided to the following three studies:
Study 11 - Enrolling - Phase Ib gastric cancer, savolitinib
monotherapy, patients with c-MET gene amplification (South
Korea/China) - Phase Ib study of savolitinib is ongoing, and to
date we have observed preliminary efficacy in gastric cancer
patients that harbor c-MET gene amplification.
Study 12 and Study 13 - Enrolling - Phase Ib studies of
savolitinib (600mg QD) in combination with Taxotere(R) in c-MET
over-expression or c-MET gene amplification gastric cancer (South
Korea) - Phase Ib dose finding studies are underway to assess
safety/tolerability of savolitinib and Taxotere(R) 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.
Fruquintinib (HMPL-013): Fruquintinib is a highly selective and
potent oral inhibitor of VEGFR 1/2/3 that was designed to be, and
we believe has now been shown to be, a best-in-class VEGFR
inhibitor for solid tumors. Fruquintinib's unique kinase
selectivity has been shown to reduce off-target toxicity, in
particular hepatotoxicity (liver toxicity), thereby allowing for
better target coverage at the recommended dose, and allows for
possible use in combination with other targeted or immunotherapy
agents and chemotherapy. We believe these are points of meaningful
differentiation compared to other approved small molecule VEGFR
inhibitors, such as Sutent(R) , Nexavar(R) (sorafenib) and
Stivarga(R) (regorafenib). In addition to the FRESCO study in
third-line CRC in China, we are also enrolling FALUCA, a pivotal
Phase III study of fruquintinib in third-line NSCLC, and are in
final planning of a Phase III study of fruquintinib in combination
with Taxol(R) in the second-line setting for gastric cancer.
Furthermore, a Phase II study of fruquintinib in combination with
Iressa(R) in first-line EGFR-mutant NSCLC began in early 2017 and a
Phase I study of fruquintinib in the United States is set to start
this year.
Study 14 - NDA submitted June 2017 - Phase III study in CRC
(third-line or above), fruquintinib monotherapy (China) - The
FRESCO study, is a pivotal Phase III study in 416 patients with
locally advanced or metastatic CRC disease that progressed
following at least two prior systemic chemotherapies. Patients were
randomized in a 2:1 ratio to receive either 5mg of fruquintinib QD
orally, on a 3 weeks on/1 week off cycle, plus best supportive care
or placebo plus best supportive care. The primary endpoint of
median OS was 9.30 months [95% CI: 8.18-10.45] in the fruquintinib
group vs. 6.57 months [95% CI: 5.88-8.11] in the placebo group,
with a hazard ratio of 0.65 [95% CI: 0.51-0.83; two-sided
p<0.001]. The secondary endpoint of median PFS was 3.71 months
[95% CI: 3.65-4.63] in the fruquintinib group vs. 1.84 months [95%
CI: 1.81-1.84] in the placebo group, with a hazard ratio of 0.26
[95% CI: 0.21-0.34; two-sided p<0.001]. Significant benefits
were also seen in other secondary endpoints. The fruquintinib group
DCR was 62.2% vs. 12.3% for placebo (p<0.001), while the ORR was
4.7% vs. 0% for placebo (p=0.012).
In terms of safety, results showed that fruquintinib had a
manageable safety profile with lower off-target toxicities compared
to other targeted therapies, and did not demonstrate the sometimes
severe and fatal hepatotoxicity observed with other therapies in
this disease setting. The most frequently reported
fruquintinib-related grade >=3 AEs included hypertension
(21.2%), hand-foot skin reaction (10.8%), proteinuria (3.2%) and
diarrhea (2.9%), all associated with VEGFR inhibition. No other
grade >=3 AEs exceeded 1.4% in the fruquintinib population,
including hepatic function AEs such as elevations in bilirubin
(1.4%), alanine aminotransferase (ALT) (0.7%) or aspartate
aminotransferase (AST) (0.4%). In terms of tolerability, dose
interruptions or reductions occurred in only 35.3% and 24.1% of
patients in the fruquintinib arm, respectively, a far lower level
than other small molecule VEGFR TKIs, and only 15.1% of patients
discontinued treatment of fruquintinib due to intolerable
toxicities vs. 5.8% for placebo.
We completed submission of the NDA to the CFDA in early June
2017, approximately two months after receiving the full FRESCO data
set in late March. Subject to approvals, we expect fruquintinib
will launch in China in 2018 thereby benefiting a conservative
estimation of 50,000-60,000 new third-line CRC patients per year
across China and currently without a standard therapy. We believe
that fruquintinib in third-line CRC has approximately $110-160
million peak sales potential, and this could equate to about $20-35
million in incremental net income to Chi-Med. The basis of these
estimates are Phase II level median PFS; wholesaler acquisition
cost similar to that of TKIs in China; the above estimated
incidence of third-line CRC; and estimated eventual penetration to
20-25% of these patients.
Study 15 - Enrolling - Phase III NSCLC third-line fruquintinib
monotherapy (China) - In December 2016, at the World Conference on
Lung Cancer ("WCLC"), we presented positive Phase II results in
third-line NSCLC patients, which showed median PFS of 3.8 months
for the fruquintinib group compared to 1.1 months for the placebo
group (hazard ratio=0.27, p<0.001); an ORR of 16.4% for the
fruquintinib group compared to 0% for the placebo group (p=0.02); a
DCR of the fruquintinib group significantly higher than that of the
placebo group with a difference of 53.8% (36.3, 71.4; 95% CI,
p<0.001). Fruquintinib was well tolerated with the only
treatment related Grade >=3 AEs, with >5% incidence, being
hypertension (8.2%). In December 2015, we initiated the FALUCA
study in China, which is a pivotal Phase III study in advanced
non-squamous NSCLC patients who had disease progression following
two prior systemic chemotherapies. Patients are randomized in 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 OS, with
secondary endpoints including PFS, ORR, DCR and DoR. We expect to
complete FALUCA enrollment in early 2018 and report top-line
results when we reach OS maturity in late 2018.
Study 16 - Enrolling - Phase II study of fruquintinib in
combination with Iressa(R) in first-line NSCLC (China) - In January
2017, we initiated a multi-center, single-arm, open-label Phase II
study of fruquintinib in combination with Iressa(R) in the
first-line setting for patients with advanced or metastatic NSCLC
with EGFR activating mutations. The objectives of the Phase II
study are to evaluate the safety and tolerability as well as
preliminary efficacy of the combination therapy.
Study 17 - Planning - Phase I fruquintinib monotherapy in
advanced solid tumors (U.S.) - Our U.S. FDA IND application for
fruquintinib was cleared in late 2016. A Phase I study in Caucasian
cancer patients is now set to begin in the United States in
2017.
Study 18 - Completed (now progressing to Phase III) - Phase Ib
study of fruquintinib in combination with Taxol(R) in gastric
cancer (second-line) (China) - In early 2017, at the ASCO
Gastrointestinal Cancers Symposium, we presented results of an open
label, multi-center Phase Ib dose finding/expansion study of
fruquintinib in combination with Taxol(R) in second-line gastric
cancer. A total of 32 patients were enrolled in the study and 28 of
32 patients were efficacy evaluable with an ORR of 36% and a DCR of
68%. At fruquintinib recommended Phase II dose ("RP2D"), >=16
week PFS was 50% and >=7 month OS was 50%. Tolerability of the
RP2D combination was as expected with common treatment related
Grade >=3 AEs being neutropenia (41%), leukopenia (28%),
decreased hemoglobin (6%), and hand-foot syndrome (6%). Based on
Phase Ib data, we plan to move directly into a Phase III
registration trial in China in 2017.
Sulfatinib (HMPL-012): Sulfatinib is an oral drug candidate with
a unique angio-immuno kinase profile which provides both
anti-angiogenesis effect and, we believe, activates and effectively
enhances the body's immune system, specifically T-cells.
Importantly, in 2016 we presented pre-clinical data for the first
time that show sulfatinib, in addition to inhibiting VEGFR and
FGFR1, is a potent inhibitor of CSF-1R, a signaling pathway
involved in blocking the activation of tumor-associated
macrophages, which cloak cancer cells from attack from T-cells. Our
Phase I clinical data in 21 NET patients reported strong efficacy
in terms of ORR (>30%) and PFS (>18 months) across a broad
spectrum of NET sub-types. These Phase I data compared favorably to
the less than 10% ORR and 11.4 month median PFS for Sutent(R) and
Afinitor(R) , 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 United States. We are currently
conducting six clinical studies and retain all rights to sulfatinib
worldwide.
In early 2017, at the ENETS conference, we presented the results
of an open-label, single-arm Phase II study in China to assess the
efficacy and safety of sulfatinib 300mg QD monotherapy in patients
with advanced grade 1 or 2 NETs. A total of 81 patients (41
pancreatic NET and 40 extra-pancreatic NET) were enrolled. The
majority of patients had grade 2 disease (79%) and had failed
previous systemic treatments (69%). As of January 2017, 13 patients
had confirmed PR and 61 patients had SD, corresponding to an
overall ORR of 16.0% (13/81), with 17.1% (7/41) in pancreatic NET
and 15.0% (6/40) in extra-pancreatic NET, and an overall DCR of
91.4%. PFS not being mature, median overall PFS was estimated to be
16.6 months (95% CI: 13.4, 19.4) with longer median PFS in
pancreatic NET estimated at 19.4 months and shorter median PFS in
extra-pancreatic NET estimated at 13.4 months. Importantly, there
were twelve patients who had progressed after treatment with
targeted therapies (e.g. Sutent(R) and Afinitor(R) ) and all
benefited from sulfatinib treatment (3 PRs and 9 SDs). Sulfatinib
was well tolerated with Grade >=3 AEs, with >5% incidence,
regardless of causality of hypertension (31%), proteinuria (14%),
hyperuricemia (10%), hypertriglyceridemia (9%), diarrhea (7%) and
ALT increase (6%). Based on the above promising Phase I and Phase
II efficacy data and tolerability in patients with advanced NETs,
we initiated two randomized Phase III trials (Studies 19 and 20
below) in China along with U.S. development (Study 21 below).
Study 19 - 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 in a 2:1 ratio to receive either 300mg of sulfatinib
orally QD, or placebo, on a 28-day treatment cycle. The primary
endpoint is PFS, with secondary endpoints including ORR, DCR, time
to response, DoR, safety and tolerability. We expect to complete
enrollment in 2018 and present top-line results in 2019.
Study 20 - Enrolling - Phase III extra-pancreatic NET sulfatinib
monotherapy (China) - In December 2015, we initiated the SANET-ep
study, which is a pivotal Phase III study in patients with low or
intermediate grade advanced extra-pancreatic NET. Patients are
randomized in a 2:1 ratio to receive either 300mg of sulfatinib
orally QD, or placebo, on a 28-day treatment cycle. The primary
endpoint is PFS, with secondary endpoints including ORR, DCR, time
to response, DoR, safety and tolerability. We expect to complete
enrollment in 2018 and present top-line results in 2019.
Study 21 - Enrolling - Phase I sulfatinib monotherapy in
advanced solid tumors (U.S.) - A Phase I study in Caucasian cancer
patients began in the United States in November 2015. We are
currently in the final 300mg QD expansion cohort and expect to
complete dose escalation shortly.
Study 22 and Study 23 - Enrolling - Phase II study in
recurrent/refractory thyroid cancer patients (China) - In 2016, we
began an open label Phase II proof-of-concept study in patients
with recurrent/refractory MTC or RAI-refractory DTC in China where
there are few safe and effective treatment options. In June 2017,
we presented preliminary Phase II data at ASCO showing that as at
December 31, 2016 a total of 18 patients had been enrolled, and
treated with sulfatinib, with preliminary data showing that 3/12
(25% ORR) RAI-refractory DTC and 1/6 (17% ORR) MTC patients
reported confirmed PRs, and all other patients reported SD.
Study 24 - Enrolling - Phase II study in chemotherapy refractory
biliary tract cancer patients (China) - In January 2017, we began a
Phase II proof-of-concept study in patients with biliary tract
cancer, a heterogeneous group of rare, but fatal, malignancies
arising from the biliary tract epithelia. We see a major unmet
medical need for patients who have progressed on chemotherapy, and
sulfatinib may offer a new targeted treatment option in this tumor
type.
Epitinib (HMPL-813): A significant portion of NSCLC patients,
estimated at approximately 10-15%, have developed brain metastasis
by the time of first diagnosis and eventually approximately 50% of
NSCLC patients go on to develop brain metastasis. Patients with
brain metastasis have a dismal prognosis with a median OS of less
than 6 months and a poor quality of life with limited treatment
options. Epitinib is a potent and highly selective oral EGFR
inhibitor which has demonstrated brain penetration and efficacy in
pre-clinical, and now, clinical studies. EGFR inhibitors have
revolutionized the treatment of NSCLC with EGFR activating
mutations. However, approved EGFR inhibitors such as Iressa(R) and
Tarceva(R) 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 25 - Continues to enroll (now progressing to Phase III) -
Phase Ib epitinib monotherapy in NSCLC patients with activating
EGFR-mutation positive with brain metastasis (China) - In December
2016 at the WCLC, we presented the results of an open label,
multi-center Phase I dose expansion study. A total of 34 patients
(13 EGFR TKI pretreated and 21 EGFR TKI treatment naïve) were
efficacy evaluable with an ORR of 38% (13/34), including 3
unconfirmed PRs. All confirmed and unconfirmed PRs occurred in EGFR
TKI treatment naïve patients resulting in an ORR of 62% (13/21) and
in the 11 EGFR TKI naïve patients who also had measurable brain
metastasis (lesion diameter >10 mm per RECIST 1.1), the ORR was
64% (7/11). Furthermore, when the two patients with c-MET gene
amplification were excluded, epitinib ORR increased to 68% (13/19)
in EGFR TKI treatment naïve patients and 70% (7/10) of those
patients who also had measurable brain metastasis. Based on these
encouraging data, and driven by the major unmet medical need, we
are now planning to start a Phase III pivotal study of epitinib in
EGFR mutant NSCLC patients with brain metastasis in China in late
2017 or early 2018.
Study 26 - Phase II study in glioblastoma - Glioblastoma is a
primary brain cancer that harbors high levels of EGFR gene
amplification. Planning is underway to start a Phase II study in
China during 2017.
Theliatinib (HMPL-309): Theliatinib is a novel molecule EGFR
inhibitor under investigation for the treatment of solid tumors.
Tumors with wild-type EGFR activation, for instance, through gene
amplification or protein over-expression, are less sensitive to
current EGFR TKIs, Iressa(R) and Tarceva(R) , due to their
sub-optimal binding affinity. Theliatinib has been designed with
strong affinity to the wild-type EGFR kinase and has been shown to
be five to ten times more potent than Tarceva(R) . Consequently, we
believe that theliatinib could benefit patients with esophageal and
head and neck cancer, tumor-types with a high incidence of
wild-type EGFR activation. We currently retain all rights to
theliatinib worldwide.
Study 27 - Enrolling - Phase I study of theliatinib monotherapy
in wild-type EGFR NSCLC (China) - We are conducting an open-label
Phase I dose escalation study that is close to completion.
Study 28 - Enrolling - Phase Ib expansion theliatinib
monotherapy in esophageal cancer (China) - In January 2017, we
began a Phase Ib proof-of-concept expansion study of theliatinib in
esophageal cancer patients with EGFR protein over-expression or
gene amplification.
HMPL-523: HMPL-523 is a potential first/best-in-class oral
inhibitor targeting Syk, a key protein involved in B-cell
signaling. Modulation of the B-cell signaling system has proven a
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 can be taken orally and have shorter half-lives,
thereby reducing the risk of infections from sustained suppression
of the immune system. We currently retain all rights to HMPL-523
worldwide.
Study 29 and Study 30 - Complete (Phase II in planning) - Phase
I study (healthy volunteers) (Australia/China) - In November 2016,
we presented results of our Phase I dose escalation study on
HMPL-523 in healthy volunteers. A total of 118 adult male healthy
subjects were enrolled at baseline and 114 (96.6%) subjects
completed the study. A total of 83 treatment emergent AEs were
reported with 38.9% in the HMPL-523 groups, and 32.1% in the
placebo groups. Two serious AEs were reported in the Phase I study
and when HMPL-523 was discontinued in those subjects the serious
AEs were resolved. Off-target toxicities such as diarrhea and
hypertension, which led to the failure of the first-generation Syk
inhibitor fostamatinib, were not observed.
In addition to safety, this Phase I dose escalation study
evaluated the pharmacokinetic ("PK") and pharmacodynamic ("PD")
profile of HMPL-523. We have submitted IND applications for
autoimmune diseases and are currently engaged with the U.S. FDA
around our plan for development in rheumatoid arthritis; we
continue to prepare for the submission of additional data to the
U.S. FDA after which we will consider our U.S. development strategy
in immunology. In parallel, dose escalation studies of HMPL-523 in
hematologic cancer patients are ongoing in Australia and China.
Study 31 and Study 32 - Enrolling - Phase I study of HMPL-523 in
hematological cancers (Australia/China) - In early 2016, we
initiated a Phase I dose escalation study of HMPL-523 in Australia
in hematological cancer patients. In mid-2016, we received
clearance from the CFDA on our IND application and as a result, in
January 2017, we also started Phase I dose escalation in China.
Once our maximum tolerated dose or RP2D is reached, we intend to
expand into proof-of-concept Phase Ib/II study with several cohorts
of tumor sub-types aiming to explore clinical efficacy of HMPL-523
in hematological malignancies both as a monotherapy and in
combination with other targeted therapies.
HMPL-689: HMPL-689 is a novel, potential best-in-class, highly
selective and potent small molecule inhibitor targeting the isoform
PI3K , a key component in the B-cell receptor signaling pathway. We
have designed HMPL-689 with superior PI3K isoform selectivity, in
particular to not inhibit PI3K (gamma), to minimize the risk of
serious infection caused by immune suppression. HMPL-689's PK
properties have been found to be favorable with expected good oral
absorption, moderate tissue distribution and low clearance in
preclinical PK studies. We also expect HMPL-689 will have low risk
of drug accumulation and drug-to-drug interaction. We currently
retain all rights to HMPL-689 worldwide.
Study 33 and Study 34 - Complete - Phase I dose escalation study
in healthy volunteers (Australia) - In 2016, we completed a Phase I
dose escalation study in healthy adult volunteers to evaluate
HMPL-689's PK and safety profile following single oral dosing.
Results were as expected with linear PK properties and good safety
profile. Detailed Phase I data will be presented at a scientific
conference in 2017. We have now received IND clearance in China and
plan to initiate a Phase I dose escalation and expansion study in
patients with hematologic malignancies later in 2017.
HMPL-453: HMPL-453 is a novel, potentially first-in-class,
highly selective and potent small molecule inhibitor that targets
FGFR 1/2/3, a sub-family of receptor tyrosine kinases. Aberrant
FGFR signaling has been found to be a driving force in tumor
growth, promotion of angiogenesis and resistance to anti-tumor
therapies. To date, there are no approved therapies specifically
targeting the FGFR signaling pathway. In pre-clinical studies,
HMPL-453 demonstrated excellent kinase selectivity as well as
strong anti-tumor potency in preclinical evaluations. Abnormal FGFR
gene alterations are believed to be the drivers of tumor cell
proliferation in several solid tumor settings. We currently retain
all rights to HMPL-453 worldwide.
Study 35 and Study 36 - Enrolling - Phase I dose escalation
(Australia/China) - In the first half of 2017, we initiated
first-in-human Phase I dose escalation studies in both Australia
and China to evaluate safety, tolerability, PK, PD and preliminary
anti-tumor activity in patients with advanced or metastatic solid
tumors.
HM004-6599: HMPL-004 is a proprietary botanical drug for the
treatment of inflammatory bowel diseases, which we are developing
through NSP. We have worked with Nestlé to prepare an IND
application for HM004-6599, which was submitted in China in March
2017. HM004-6599 is an enriched/purified re-formulation of
HMPL-004, our drug candidate that reported positive Phase II
results in ulcerative colitis in 2010 but then went on to prove
futile in an interim analysis of the subsequent Phase III study in
2014. HM004-6599 has a higher level of biologically active
components and improved manufacturing control, as compared to
HMPL-004.
COMMERCIAL PLATFORM
The Commercial Platform has grown rapidly since its inception in
2001. It is focused on two business areas. First is our core
Prescription Drugs business, a high margin/profit business operated
through our joint ventures SHPL and Hutchison Sinopharm, in which
we nominate management and run the day-to-day operations. Our
Prescription Drugs business is a platform that we plan to use to
launch our Innovation Platform drugs once approved in China. Second
is our Consumer Health business, which is a profitable and cash
flow generating business selling primarily market-leading
household-name OTC pharmaceutical products through our
non-consolidated joint venture HBYS.
During the first half of 2017, consolidated sales of our
Commercial Platform's subsidiaries grew by 26% to $103.9 million
(H1 2016: $82.3m). Sales of our Commercial Platform's
non-consolidated joint ventures, SHPL and HBYS, were largely flat
at $253.1 million (H1 2016: $249.6m) as a result of mainly short
term factors including, flat sales of SXBX pill due to a late 2016
price increase; some capacity constraints resulting from the move
to the new factory in Bozhou; a relatively quiet OTC influenza
season in China; and the currency effects explained below.
The resulting consolidated net income attributable to Chi-Med
from our Commercial Platform increased by 14% to $25.2 million (H1
2016: $22.1m). During the first half of 2017, Chi-Med booked a
one-time gain of $2.5 million resulting from an increased level of
R&D related subsidies from the Shanghai government to SHPL. As
a result, adjusted consolidated net income attributable to Chi-Med
from our Commercial Platform grew by 2% to $22.7 million (H1 2016:
$22.1m) excluding this one-time Shanghai government subsidy
gain.
Both top- and bottom-line growth rates were reduced by 5% in
U.S. dollar terms during the first half of 2017 as a result of the
weakening of the Chinese RMB against the U.S. dollar compared to
the same period in 2016.
Prescription Drugs business:
In the first half of 2017, sales of our Prescription Drugs
subsidiaries grew by 27% to $85.8 million (H1 2016: $67.6m), and
sales of our non-consolidated Prescription Drugs joint venture
(SHPL) was flat at $129.7 million (H1 2016: $126.8m). The
consolidated net income attributable to Chi-Med from our
Prescription Drugs business increased by 27% to $19.4 million (H1
2016: $15.3m). Adjusted consolidated net income attributable to
Chi-Med, which excludes the $2.5 million one-time Shanghai
government subsidy gain, grew by 11% to $16.9 million (H1 2016:
$15.3m). The Prescription Drugs business represented 77% of our
overall Commercial Platform net income in the first half of
2017.
SHPL: Our own-brand Prescription Drugs business, operated
through our non-consolidated joint venture SHPL, is a
well-established and stable growth business. SHPL delivered
dramatic sales growth of 23% to $222.4 million, or 29% in local
currency terms, during 2016. Approximately a fifth of this growth,
equal to about 5-6 percentage points, was fueled by customer
pre-ordering in the fourth quarter ahead of an 11% price increase
on our main product SXBX pill which occurred in early December
2016. As a result, trade inventories in the first quarter of 2017
were higher than normal and took a few months to be sold down to
more customary levels. As expected, SHPL sales growth for the
second quarter of 2017, in local currency terms, returned to the
mid-teen percentage level and gross margins have materially
improved.
SHPL was awarded a one-time research and development subsidy of
$5.9 million during the first half of 2017, equivalent to a $2.5
million net income attributable to Chi-Med. While government
research subsidies to help support innovation are common in the
pharmaceutical industry in China, the annual level of subsidies to
SHPL has historically been no more than one-fifth of this
amount.
SXBX pill: SHPL's key product is SXBX pill, an oral vasodilator
and pro-angiogenesis prescription therapy approved to treat
coronary artery disease, which includes stable/unstable angina,
myocardial infarction and sudden cardiac death. There are over 1
million deaths due to coronary artery disease per year in China,
with this number set to rise due to an aging population with high
levels of smoking (34% of adults), increasing levels of obesity
(28% of adults overweight) and hypertension (26% of adults). SXBX
pill is the third largest botanical prescription drug in this
indication in China, with a 12% national market share. Sales of
SXBX pill have grown more than twenty-fold since 2001 due to
continued geographical expansion of sales coverage, albeit flat at
$110.4 million in the first half of 2017 due to the aforementioned
late 2016 price increase and currency effects.
SXBX pill is protected by a formulation patent that expires in
2029 and is one of less than two dozen proprietary prescription
drugs represented on China's National Essential Medicines List,
which means that all Chinese state-owned health care institutions
are required to carry the drug. SXBX pill is a low-cost drug, fully
reimbursed in all provinces in China, listed on China's Low Price
Drug List with an average daily cost of Chinese RMB4.10, or
approximately $0.60 (H1 2016: Chinese RMB3.30). In the coming
years, we anticipate stable growth in sales and profit for SXBX
pill given the strength of its proposition and the expected
expansion of the coronary artery disease market in China driven by
an aging population and trends in diet leading to increasing
obesity.
The SHPL operation is large-scale in both the commercial and
manufacturing areas. The commercial team now has about 2,200
medical sales representatives which allows for the promotion and
scientific detailing of our prescription drug products not just in
hospitals in provincial capitals and medium-sized cities, but also
in the majority of county-level hospitals in China. In late 2016,
SHPL transitioned to a new, GMP-certified factory located 40
kilometers south of Shanghai in Fengpu district, which holds 74
drug product manufacturing licenses and is operated by over 500
manufacturing staff. The move to this new factory, a three-fold
increase in design capacity versus the old factory, positions SHPL
well for continued long term growth.
Hutchison Sinopharm: Our Prescription Drugs commercial services
business, which is operated through Hutchison Sinopharm, focuses on
providing logistics services to, and distributing and marketing
prescription drugs manufactured by, third-party pharmaceutical
companies in China. In the first half of 2017, Hutchison Sinopharm
made good progress with sales up 27% to $85.8 million (H1 2016:
$67.6m) as a result of growth in the third-party drug distribution
businesses and Seroquel(R) .
Seroquel(R) : Seroquel(R) (quetiapine tablets) is an
anti-psychotic therapy approved for bi-polar disorder and
schizophrenia, conditions that are under-diagnosed in China.
Seroquel(R) holds an approximately 6% market share in China's
anti-psychotic prescription drug market, up 23% versus year ago,
and 46% of China's generic quetiapine market, primarily as a result
of being the first-mover and original patent holder on quetiapine.
Seroquel(R) is the only brand in China to have an XR formulation,
which provides it with competitive advantage over quetiapine
generics. Hutchison Sinopharm is the exclusive first-tier
distributor of Seroquel(R) tablets in China and through a team of
about 120 dedicated medical sales representatives grew sales in the
first half of 2017 by 10% to $18.9 million (H1 2016: $17.2m).
Seroquel(R) is expected to continue double-digit growth over the
next several years due to the XR formulation and its recent
inclusion in the NDRL, as well as expected expansion in diagnosis
and treatment of anti-psychotic diseases in China.
Concor(R) : Concor(R) (Bisoprolol tablets) is a cardiac
beta1-receptor blocker, relieving hypertension and reducing high
blood pressure. Concor(R) is the number two beta-blocker in China
with an approximately 19% national market share. Hutchison
Sinopharm is the exclusive marketing agent in Shanghai, Shandong
and Henan provinces, markets with over 210 million people. We have
created synergy with our existing cardiovascular medical sales team
by detailing Concor(R) alongside the SXBX pill on a fee for service
basis. In the first half of 2017, we grew Concor(R) sales by 75%,
resulting in service fees of $1.1 million (H1 2016: $0.6m). In June
2017, we agreed to expand our collaboration on Concor(R) to cover
Tianjin, Jiangsu and Anhui provinces, which have a total population
of over 150 million people. We expect growth in these fees will
continue to be driven by cardiovascular market expansion as well as
potential further territorial expansion of Hutchison Sinopharm's
activities.
Regulatory reform in the China pharmaceutical distribution
system - The new Two-invoice System ("TIS") has now begun being
rolled-out across China on a province-by-province basis. In
principle, the purpose of the TIS is to restrict the number of
layers in the drug distribution system in China, in order to
improve transparency, compliant business conduct, and efficiency
and thereby the cost of drugs. The impact to us is that, by the end
of 2018, the current Seroquel(R) model, in which our consolidated
revenues reflect total gross sales of Seroquel(R) , will shift to a
fee-for-service model similar to that used today on Concor(R) . We
expect that this change will reduce the top-line revenues Hutchison
Sinopharm records from sales of Seroquel(R) in future periods; but
it will have no impact on profitability or commercial team
operations and expansion plans.
Consumer Health business:
During the first half of 2017, sales of our Consumer Health
subsidiaries increased by 24% to $18.1 million (H1 2016: $14.6m)
and sales of our non-consolidated Consumer Health joint venture
(HBYS) were $123.4 million (H1 2016: $122.7m). Consolidated net
income attributable to Chi-Med from our Consumer Health business
fell by 16% to $5.8 million (H1 2016: $6.8m) as a result of several
factors that are detailed below. The Consumer Heath business
represented 23% of our overall Commercial Platform net income in
the first half of 2017.
HBYS: Our OTC business operated through our non-consolidated
joint venture HBYS focuses on the manufacture, marketing and
distribution of OTC pharmaceutical products. Its Bai Yun Shan brand
is a market-leading household-name, established over 40 years ago,
and is known by the majority of Chinese consumers. In addition to
over 730 manufacturing staff, in Guangzhou and Bozhou, and 178 drug
product licenses, HBYS has a commercial team of about 1,200 sales
staff that covers the national retail pharmacy channel in
China.
HBYS sales have grown over five-fold since its establishment in
2005 and, during this period, HBYS has used third-party contract
manufacturers to support expansion, a strategy no longer possible
in the long term under CFDA policy. In early 2017, we secured
GMP-certification of our new approximately $43 million factory in
Bozhou, Anhui province. However, since that time, we have been
waiting for final clearance to formally begin production from the
local Guangdong and Anhui province FDAs. This regulatory pause has
led HBYS to have to continue to use contract manufacturers during
the first half of 2017 while at the same time having to start
recording depreciation charges for our new factory. The delay also
led to some short-term production capacity constraints on certain
HBYS products. We anticipate that formal clearance to start
production at Bozhou will be granted in the very near future and
these incremental costs and capacity constraints will abate.
Fu Fang Dan Shen ("FFDS") tablets and Banlangen granules: FFDS
tablets (angina) and Banlangen granules (anti-viral cold/flu), the
two main products of HBYS, are generic OTC drugs with leadership
national market share in China of 32% and 51%, respectively.
Profitability of both products was affected by external factors
during the first half of 2017. In the case of FFDS tablets, sales
decreased slightly to $36.1 million (H1 2016: $37.7m) however, the
price of Sanqi, a key raw material that has suffered major price
volatility in past years, more than doubled, thereby reducing FFDS
gross margin. Also, Banlangen granules sales declined by 12% to
$28.3 million (H1 2016: $32.3m) due to a relatively quiet influenza
season. As a reliable and relevant point of reference, severe
influenza-like illness cases were at their lowest level since 2014
and declined by 55% versus last year as reported by the Hong Kong
Department of Health.
In the mid to longer-term, while profitability of both FFDS
tablets and Banlangen granules in any given year will vary based on
the severity of the climate/influenza season, we anticipate that
cost efficiencies in the new Bozhou factory will enhance gross
margins. Furthermore, we expect to benefit from the underlying
general OTC market expansion and the low risk of price erosion due
to our focus on the retail pharmacy channel.
HBYS property update - HBYS's vacant Plot 2 (26,700 sqm.) in
Guangzhou has been listed for sale as part of the Guangzhou
municipal government's urban redevelopment scheme plan since 2016.
The date of this public auction will be determined by the Guangzhou
government, and the latest indication is that this is more likely
to occur in 2018 than 2017. Land prices continue to rise in
Guangzhou, and based on precedent land transactions in the
vicinity, we expect the auction value for Plot 2 to be well over
$100 million of which 40 to 50% would be paid to HBYS as
compensation for return of the land use rights. In addition, the
move away from HBYS's larger Plot 1 (59,400 sqm.) will be
contingent on how the Bozhou factory develops, but, when auctioned,
Plot 1 could bring HBYS compensation per square meter comparable to
Plot 2.
Hutchison Healthcare Limited ("HHL") and Hutchison Hain Organic
Holdings Limited ("HHOH"): HHL and HHOH are subsidiaries involved
in the commercialization of health related consumer products. Sales
in the first half of 2017 on HHL, HHOH and other minor entities
grew by 24% to $18.1 million (H1 2016: $14.6m) driven by progress
on the Zhi Ling Tong infant nutrition business.
Commercial Platform dividends: The profits of the Commercial
Platform continue to pass on to the Chi-Med Group through dividend
payments from our non-consolidated joint ventures, SHPL and HBYS.
Dividends of $42.6 million (H1 2016: $15.9m) were paid from these
joint ventures to the Chi-Med Group level during the first half of
2017. Net income from SHPL and HBYS have totaled $467 million since
2005, of which a total of $290 million has been paid in dividends
to Chi-Med and its partners, with the balance retained by the joint
ventures as cash or used primarily to fund factory upgrades and
expansion. As of June 30, 2017, SHPL and HBYS held in aggregate
$75.2 million in cash and cash equivalents and short term
investments with no outstanding bank borrowing.
Christian Hogg
Chief Executive Officer, July 31, 2017
Use of Non-GAAP Financial Measures and Reconciliation: In
addition to financial information prepared in accordance with U.S.
GAAP, this announcement also contains certain non-GAAP financial
measures based on management's view of performance including:
-- Adjusted research and development expenses;
-- Adjusted consolidated net income attributable to Chi-Med from our Commercial Platform; and
-- Adjusted consolidated net income attributable to Chi-Med from
our Prescription Drugs business.
Management uses such measures internally for planning and
forecasting purposes and to measure the Chi-Med Group's overall
performance. We believe these adjusted financial measures provide
useful and meaningful information to us and investors because they
enhance investors' understanding of the continuing operating
performance of our business and facilitate the comparison of
performance between past and future periods. These adjusted
financial measures are non-GAAP measures and should be considered
in addition to, but not as a substitute for, the information
prepared in accordance with U.S. GAAP. Other companies may define
these measures in different ways. The following items are adjusted
financial measures:
Adjusted research and development expenses: Our presentation of
adjusted research and development expenses serves to illustrate the
total amount of corporate resources spent on our Innovation
Platform operating segment. As such, it includes certain
administrative and other expenses incurred by, and interest income
earned by our Innovation Platform. It also includes our share of
the net losses of NSP, our equity investee principally engaged in
the research and development of pharmaceutical products.
Adjusted consolidated net income attributable to Chi-Med from
our Commercial Platform and adjusted consolidated net income
attributable to Chi-Med from our Prescription Drugs business: We
exclude the impact of a $2.5 million one-time gain which was
R&D related subsidies from the Shanghai government to SHPL.
Reconciliation of GAAP to adjusted research and development
expenses:
$'000 For the six For the six
months ended months ended
June 30, June 30,
2017 2016
------------------------------------ -------------- --------------
Research and development expenses (31,566) (31,184)
Plus: Innovation Platform -
administrative and other expenses (3,627) (2,782)
Plus: Equity in earnings of
equity investees - NSP and
other (2,363) (2,096)
Plus: Innovation Platform -
interest income 19 25
------------------------------------ -------------- --------------
Adjusted research and development
expenses (37,537) (36,037)
------------------------------------ -------------- --------------
Reconciliation of GAAP to adjusted consolidated net income
attributable to Chi-Med from our Commercial Platform:
$'000 For the six For the six
months ended months ended
June 30, June 30,
2017 2016
--------------------------------------- -------------- --------------
Consolidated net income attributable
to Chi-Med - Commercial Platform 25,158 22,147
Less: One-time gain associated (2,494) -
with R&D related subsidies
--------------------------------------- -------------- --------------
Adjusted consolidated net income
attributable to Chi-Med - Commercial
Platform 22,664 22,147
--------------------------------------- -------------- --------------
Reconciliation of GAAP to adjusted consolidated net income
attributable to Chi-Med from our Prescription Drugs business:
$'000 For the six For the six
months ended months ended
June 30, June 30,
2017 2016
----------------------------------------- -------------- --------------
Consolidated net income attributable
to Chi-Med - Prescription Drugs
business 19,421 15,313
Less: One-time gain associated (2,494) -
with R&D related subsidies
----------------------------------------- -------------- --------------
Adjusted consolidated net income
attributable to Chi-Med - Prescription
Drugs business 16,927 15,313
----------------------------------------- -------------- --------------
Hutchison China MediTech Limited
Condensed Consolidated Balance Sheets
(in US$'000)
June 30, December 31,
Note 2017 2016
-------- ----------- ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents 3 112,532 79,431
Short-term investments - 24,270
Accounts receivable-third parties 4 43,512 40,812
Accounts receivable-related parties 18 (ii) 2,419 4,223
Other receivables, prepayments and deposits 5 7,762 4,314
Inventories 6 10,687 12,822
Other current assets 1,065 1,508
----------- ------------
Total current assets 177,977 167,380
Property, plant and equipment 7 11,924 9,954
Investments in equity investees 8 147,824 158,506
Other assets 6,975 6,597
----------- ------------
Total assets 344,700 342,437
=========== ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable-third parties 27,262 30,383
Accounts payable-related parties 18 (ii) 5,401 5,155
Other payables, accruals and advance receipts 9 27,651 31,716
Amounts due to related parties 18 (ii) 8,152 5,308
Short-term bank borrowings 10 26,861 19,957
Other current liabilities 1,515 2,600
----------- ------------
Total current liabilities 96,842 95,119
Long-term bank borrowings 10 19,990 26,830
Other liabilities 11 16,367 16,428
----------- ------------
Total liabilities 133,199 138,377
Commitments and contingencies 12
Company's shareholders' equity
Ordinary shares; $1.00 par value; 75,000,000 shares authorized;
60,737,204 and 60,705,823
shares issued at June 30, 2017 and December 31, 2016 respectively 13 60,737 60,706
Additional paid-in capital 208,658 208,196
Accumulated losses (78,685) (80,357)
Accumulated other comprehensive loss (1,331) (4,275)
----------- ------------
Total Company's shareholders' equity 189,379 184,270
Non-controlling interests 22,122 19,790
----------- ------------
Total shareholders' equity 211,501 204,060
----------- ------------
Total liabilities and shareholders' equity 344,700 342,437
=========== ============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Hutchison China MediTech Limited
Condensed Consolidated Statements of Operations
(Unaudited, in US$'000 except share and per share data)
Six Months Ended June 30,
---------------------------
Note 2017 2016
------- ------------- ------------
Revenues
Sales of goods-third parties 99,950 76,861
Sales of goods-related parties 18 (i) 3,908 5,398
Revenue from license and collaboration agreements-third parties 15 17,843 18,088
Revenue from research and development services-third parties - 355
Revenue from research and development services-related parties 18 (i) 4,883 3,815
------------- ------------
Total revenues 126,584 104,517
------------- ------------
Operating expenses
Costs of sales of goods-third parties (86,528) (66,445)
Costs of sales of goods-related parties (2,859) (4,041)
Research and development expenses 16 (31,566) (31,184)
Selling expenses (9,681) (8,846)
Administrative expenses 17 (12,015) (9,958)
------------- ------------
Total operating expenses (142,649) (120,474)
------------- ------------
Loss from operations (16,065) (15,957)
Other income/(expense)
Interest income 21 251 189
Other income 797 138
Interest expense 21 (817) (811)
Other expense (904) (329)
------------- ------------
Total other income/(expense) (673) (813)
------------- ------------
Loss before income taxes and equity in earnings of equity investees (16,738) (16,770)
Income tax expense 19 (i) (1,846) (1,687)
Equity in earnings of equity investees, net of tax 8 22,269 21,251
------------- ------------
Net income 3,685 2,794
Less: Net income attributable to non-controlling interests (2,003) (2,257)
------------- ------------
Net income attributable to ordinary shareholders of the Company 1,682 537
============= ============
Earnings per share attributable to ordinary shareholders of the
Company-basic (US$ per share) 20 0.03 0.01
Earnings per share attributable to ordinary shareholders of the
Company-diluted (US$ per share) 20 0.03 0.01
Number of shares used in per share calculation-basic 20 60,660,846 58,822,425
Number of shares used in per share calculation-diluted 20 61,134,539 59,126,085
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Hutchison China MediTech Limited
Condensed Consolidated Statements of Comprehensive
Income/(Loss)
(Unaudited, in US$'000)
Six Months Ended June 30,
---------------------------
2017 2016
------------- ------------
Net income 3,685 2,794
Other comprehensive income/(loss)
Foreign currency translation gain/(loss) 3,308 (3,151)
------------- ------------
Total comprehensive income/(loss) 6,993 (357)
Less: Comprehensive income attributable to non-controlling interests (2,367) (1,794)
------------- ------------
Total comprehensive income/(loss) attributable to ordinary shareholders of the
Company 4,626 (2,151)
============= ============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Hutchison China MediTech Limited
Condensed Consolidated Statements of Changes in Shareholders'
Equity
(Unaudited, in US$'000 except share data in '000)
Accumulated Total
Ordinary Ordinary Additional Other Company's Non-
Shares Shares Paid-in Accumulated Comprehensive Shareholders' controlling Total
Number Value Capital Losses Income/(Loss) Equity Interests Equity
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
As at January 1,
2016 56,533 56,533 113,848 (92,040) 5,015 83,356 18,921 102,277
Net income - - - 537 - 537 2,257 2,794
New ordinary
shares issued 4,080 4,080 106,080 - - 110,160 - 110,160
Issuances in
relation to
exercise of
share options 36 36 109 - - 145 - 145
Issuance costs - - (14,227) - - (14,227) - (14,227)
Share-based
compensation
Share options - - 1,088 - - 1,088 - 1,088
Long-term
incentive plan - - 684 - - 684 - 684
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
- - 1,772 - - 1,772 - 1,772
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
Long-term
incentive
plan-treasury
shares acquired
and held by
Trustee - - (604) - - (604) - (604)
Transfer between
reserve - - 7 (7) - - - -
Foreign currency
translation
adjustments - - - - (2,688) (2,688) (463) (3,151)
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
As at June 30,
2016 60,649 60,649 206,985 (91,510) 2,327 178,451 20,715 199,166
======== ======== ========== =========== ============= ============= =========== ========
As at January 1,
2017 60,706 60,706 208,196 (80,357) (4,275) 184,270 19,790 204,060
Net income - - - 1,682 - 1,682 2,003 3,685
Issuances in
relation to
exercise of
share options 31 31 143 - - 174 - 174
Share-based
compensation
Share options - - 551 - - 551 1 552
Long-term
incentive plan - - 1,125 - - 1,125 1 1,126
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
- - 1,676 - - 1,676 2 1,678
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
Dividend paid to
a
non-controlling
shareholder of a
subsidiary - - - - - - (37) (37)
Long-term
incentive
plan-treasury
shares acquired
and held by
Trustee - - (1,367) - - (1,367) - (1,367)
Transfer between
reserves - - 10 (10) - - - -
Foreign currency
translation
adjustments - - - - 2,944 2,944 364 3,308
-------- -------- ---------- ----------- ------------- ------------- ----------- --------
As at June 30,
2017 60,737 60,737 208,658 (78,685) (1,331) 189,379 22,122 211,501
======== ======== ========== =========== ============= ============= =========== ========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Hutchison China MediTech Limited
Condensed Consolidated Statements of Cash Flows
(Unaudited, in US$'000)
Six Months Ended June 30,
---------------------------
Note 2017 2016
--------- ------------- ------------
Net cash generated from operating activities 22 19,422 9,055
------------- ------------
Investing activities
Purchases of property, plant and equipment 7 (3,045) (1,570)
Deposits in short-term investments (16,000) (46,587)
Proceeds from short-term investments 40,270 -
Investment in an equity investee 8 (7,000) (5,000)
------------- ------------
Net cash generated from/(used in) investing activities 14,225 (53,157)
------------- ------------
Financing activities
Proceeds from issuance of ordinary shares 174 110,305
Purchases of treasury shares 14 (iii) (1,367) (604)
Dividends paid to a non-controlling shareholder of a subsidiary 18 (i) (37) -
Proceeds from bank borrowings 10 22,551 5,128
Repayment of bank borrowings 10 (22,564) (13,128)
Payment of issuance costs - (12,721)
------------- ------------
Net cash (used in)/generated from financing activities (1,243) 88,980
------------- ------------
Net increase in cash and cash equivalents 32,404 44,878
Effect of exchange rate changes on cash and cash equivalents 697 (867)
------------- ------------
33,101 44,011
Cash and cash equivalents
Cash and cash equivalents at beginning of period 3 79,431 31,941
------------- ------------
Cash and cash equivalents at end of period 3 112,532 75,952
============= ============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Hutchison China MediTech Limited
Notes to Unaudited Condensed Consolidated Financial
Statements
1. Organization and Nature of Business
Hutchison China MediTech Limited (the "Company") and its
subsidiaries (together the "Group") are principally engaged in
researching, developing, manufacturing and selling pharmaceuticals
and healthcare products. The Group and its equity investees have
research and development facilities and manufacturing plants in the
People's Republic of China (the "PRC") and sell their products
mainly in the PRC and Hong Kong.
Liquidity
As of June 30, 2017, the Group had accumulated losses of
US$78,685,000, primarily due to its significant spending in
research and development activities. The Group regularly monitors
current and expected liquidity requirements to ensure that it
maintains sufficient cash balances and adequate credit facilities
to meet its liquidity requirements in the short and long term. As
of June 30, 2017, the Group had cash and cash equivalents of
US$112,532,000, and unutilized bank borrowing facilities of
US$80,000,000. As of December 31, 2016, the Group had cash and cash
equivalents of US$79,431,000, short-term investments of
US$24,270,000 and unutilized bank borrowing facilities of
US$70,000,000. Short-term investments comprised of bank deposits
maturing over 3 months. The Group's operating plan includes the
continued receipt of dividends from certain of its equity
investees. Dividends received from equity investees for the six
months ended June 30, 2017 and 2016 was US$42,617,000 and
US$15,917,000 respectively. However, there can be no assurances
that these entities will continue to declare and pay dividends to
their shareholders.
Based on the Group's operating plan, the existing cash and cash
equivalents and unutilized bank borrowing facilities are considered
to be sufficient to meet the cash requirements to fund planned
operations and other commitments for at least the next twelve
months (the look-forward period used).
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim unaudited condensed consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America ("U.S. GAAP") for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements.
The interim unaudited condensed consolidated financial statements
have been prepared on the same basis as the annual audited
consolidated financial statements, except for the adoption of
Accounting Standards Update ("ASU") 2015-17, Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes ("ASU
2015-17") as described below. In the opinion of management, all
adjustments, consisting of normal recurring adjustments necessary
for the fair statement of results for the periods presented, have
been included. The results of operations of any interim period are
not necessarily indicative of the results of operations for the
full year or any other interim period.
The comparative year-end condensed balance sheet data was
derived from the annual audited consolidated financial statements,
but does not include all disclosures required by U.S. GAAP.
The interim condensed consolidated financial statements and
related disclosures have been prepared with the presumption that
users have read or have access to the audited consolidated
financial statements for the preceding fiscal year.
The Group has adopted ASU 2015-17 on January 1, 2017. This
guidance requires that all deferred tax assets and liabilities,
along with any related valuation allowance, be classified as
non-current on the balance sheet. The Group has not applied the
guidance retrospectively as permitted by ASU 2015-17. Accordingly,
all deferred tax assets and liabilities classified as non-current
in the consolidated balance sheet as of June 30, 2017.
The preparation of condensed consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Estimates are
used in determining items such as useful lives of property, plant
and equipment, write-down of inventories, allowance for doubtful
accounts, share-based compensation, impairments of long-lived
assets, impairment of other intangible asset and goodwill, income
tax expense, tax valuation allowances and revenues from research
and development projects. Actual results could differ from those
estimates.
Recent Accounting Pronouncements
Refer to the recent accounting pronouncements in the annual
audited consolidated financial statements for the preceding fiscal
year. The following includes updates and new accounting
pronouncements since the issuance of the annual audited
consolidated financial statements.
In May 2014, the Financial Accounting Standards Board ("FASB")
issued ASU 2014--09, Revenue from Contracts with Customers (Topic
606) ("ASU 2014-09"), to clarify the principles of recognizing
revenue and create common revenue recognition guidance between U.S.
GAAP and International Financial Reporting Standards. In 2016, the
FASB further issued ASU 2016-08 Principal versus Agent
Considerations, ASU 2016-10 Identifying Performance Obligations and
Licensing and ASU 2016-12 Narrow-Scope Improvements and Practical
Expedients to amend the new revenue standard and address
implementation issues of ASU 2014-09. An entity has the option to
apply the provisions of ASU 2014--09 either retrospectively to each
prior reporting period presented or retrospectively with the
cumulative effect of initially applying this standard recognized at
the date of initial application. ASU 2014--09 is effective for
fiscal years and interim periods within those years beginning after
December 15, 2017, and early adoption is permitted but not earlier
than the original effective date of December 15, 2016. The new
standard supersedes U.S. GAAP guidance on revenue recognition and
requires the use of more estimates and judgements than the current
standards. It also requires additional disclosures.
The Group expects to adopt the new standard using the modified
retrospective method on January 1, 2018 and has made further
progress in its ongoing assessment of the potential impact of the
new guidance on revenue from customers. Refer to the previous
disclosures in Note 3 to the Group's consolidated financial
statements on Form 20-F for the year ended December 31, 2016 for
key areas of potential differences between the new and current
guidance. The Group's revenue from contracts with customers
comprises research and development projects in its Innovation
Platform and sales of goods in its Commercial Platform operating
segments. Based on its ongoing assessment, it expects the changes
from applying the new guidance will primarily impact the Innovation
Platform.
Innovation Platform - The Group has reviewed its research and
development contracts and identified 2 contracts related to the
Group's license and collaboration arrangements that may potentially
be impacted by the application of ASU 2014-09. Under these
arrangements, the Group has granted the customer a license to the
Group's drug compound in specified territories and research and
development services to design and perform clinical trials for
regulatory approval.
One of the key judgments will be to determine the number of
performance obligations. This assessment may significantly impact
the timing or amount of milestone revenues recognized as of the
date of adoption. In its ongoing assessment of performance
obligations, the Group has currently identified 2 views that will
be further evaluated under the new guidance. Additional evaluation
may identify other possible views.
(i) The first view is that the license and the research and
development services are a single performance obligation
transferred over time.
(ii) The second view is that the license is a separate
performance obligation delivered at a point in time and the
research and development services are a separate performance
obligation delivered over time.
The Group has also evaluated the accounting treatment for the
following transaction price elements and currently has the
following views:
(i) Upfront revenues are likely to be allocated to the
identified performance obligations with some amounts recognized
over time based on a measure of progress.
(ii) Milestone revenues are considered variable consideration
and allocated to and recognized based on the identified performance
obligations.
(iii) Cost reimbursements are considered variable consideration
and are likely to be recognized over time based on a measure of
progress.
(iv) Royalty revenues may meet the requirements for the
sales-usage based royalty exception which would allow recognition
as future sales occur.
Commercial Platform - For sales of goods, the Group has applied
a portfolio approach to aggregate contracts into portfolios whose
performance obligations would not differ materially from each
other. In its ongoing assessment of each portfolio, the Group is
assessing contracts under the new five-step model and does not
expect a significant impact to the timing or amount of revenue
recognition under the new guidance.
The Group is continuing to evaluate the impact of the new
guidance and further development or changes in views may result. In
addition to its own assessment, the Group will also take into
consideration how peers within their industry would apply the new
guidance.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842) ("ASU 2016-02"). The core principle of ASU 2016-02 is that a
lessee should recognize the assets and liabilities that arise from
leases. A lessee should recognize in the balance sheet a liability
to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the
lease term. For leases with a term of 12 months or less, a lessee
is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease
liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis
over the lease term. ASU 2016-02 is effective for fiscal years and
interim periods within those years beginning after December 15,
2018. The Group is currently evaluating the method of adoption and
determining the potential impact ASU 2016-02 will have on the
Group's consolidated financial statements. While early adoption is
permitted, the Group does not expect to early adopt.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification
Accounting (Topic 718) ("ASU 2017-09"), which provides guidance on
the types of changes to the terms or conditions of share-based
payment awards to which an entity would be required to apply
modification accounting under share-based payment accounting. The
guidance clarifies that no new measurement date will be required if
there is no change to the fair value, vesting conditions, and
classification, and in effect simplifies the accounting for
non-substantive changes to share-based payment awards. ASU 2017-09
is effective for fiscal years and interim periods within those
years beginning after December 15, 2017. The Group shall apply the
guidance upon adoption to share-based payment modifications, if
any.
Other amendments that have been issued by the FASB or other
standards--setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
Group's consolidated financial statements upon adoption.
3. Cash and Cash Equivalents
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Cash at bank and on hand 93,538 31,218
Bank deposits maturing in three months or less 18,994 48,213
-------- ------------
112,532 79,431
======== ============
Denominated in:
United States dollar ("US$") 71,276 65,509
Renminbi ("RMB") 17,595 9,505
UK Pound Sterling ("GBP") 209 408
Hong Kong dollar ("HK$") 23,452 4,009
-------- ------------
112,532 79,431
======== ============
The weighted average effective interest rate on bank deposits,
with maturity ranging from 7 to 90 days for the six months ended
June 30, 2017 was 0.89% per annum. Certain cash and bank balances
denominated in RMB and US$ were deposited with banks in the PRC.
The conversion of these RMB and US$ denominated balances into
foreign currencies is subject to the rules and regulations of
foreign exchange control promulgated by the PRC government.
4. Accounts Receivable-Third Parties
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Accounts receivable, gross 46,279 43,532
Allowance for doubtful accounts (2,767) (2,720)
-------- ------------
Accounts receivable, net 43,512 40,812
======== ============
Substantially all the accounts receivable are denominated in
RMB, US$ and HK$ and are due within one year from the end of the
reporting periods. The carrying value of accounts receivable
approximates their fair values.
Movements on the allowance for doubtful accounts, which are only
in respect of accounts receivable-third parties, are as
follows:
2017 2016
------ ------
(in US$'000)
As at January 1 2,720 3,127
Allowance for doubtful accounts 6 55
Decrease due to collection or write-off (7) -
Exchange difference 48 (79)
------ ------
As at June 30 2,767 3,103
====== ======
As at June 30, 2017 and December 31, 2016, accounts receivable
of approximately US$242,000 and US$26,000 respectively were past
due but not impaired. These are in respect of a number of
independent customers for whom there is no recent history of
default. The ageing analysis of these accounts receivable is as
follows:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Within 1 month 109 -
1 to 3 months 18 -
3 to 6 months 115 -
Over 6 months - 26
-------- ------------
242 26
======== ============
5. Other Receivables, Prepayments and Deposits
Other receivables, prepayments and deposits consisted of the
following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Prepayments 2,909 699
Purchase rebates 183 238
Other service receivables 437 756
Deposits 680 620
Value-added tax receivables 2,838 1,380
Others 715 621
-------- ------------
7,762 4,314
======== ============
6. Inventories
Inventories, net of provision for excess and obsolete
inventories, consisted of the following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Raw materials 432 660
Finished goods 10,255 12,162
-------- ------------
10,687 12,822
======== ============
Movements on the provision for excess and obsolete inventories
are as follows:
2017 2016
------ ------
(in US$'000)
As at January 1 160 25
Decrease due to sale or write-off (13) (20)
Exchange difference 3 (1)
------ ------
As at June 30 150 4
====== ======
7. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Furniture
and
fixtures,
other
Plant equipment
Leasehold and and motor Construction
Buildings improvements equipment vehicles in progress Total
--------- ------------ --------- --------- ------------ ------
(in US$'000)
Cost
As at January 1, 2017 2,232 6,296 86 13,976 1,760 24,350
Additions - 228 39 509 2,269 3,045
Disposals - - - (12) - (12)
Transfers - 128 1,300 (847) (581) -
Exchange differences 40 113 3 247 44 447
--------- ------------ --------- --------- ------------ ------
As at June 30, 2017 2,272 6,765 1,428 13,873 3,492 27,830
--------- ------------ --------- --------- ------------ ------
Accumulated depreciation
As at January 1, 2017 971 4,249 71 9,105 - 14,396
Depreciation 52 410 55 746 - 1,263
Disposals - - - (11) - (11)
Transfers - - 239 (239) - -
Exchange differences 18 77 1 162 - 258
--------- ------------ --------- --------- ------------ ------
As at June 30, 2017 1,041 4,736 366 9,763 - 15,906
--------- ------------ --------- --------- ------------ ------
Net book value
As at June 30, 2017 1,231 2,029 1,062 4,110 3,492 11,924
========= ============ ========= ========= ============ ======
Furniture
and
fixtures,
other
Plant equipment
Leasehold and and motor Construction
Buildings improvements equipment vehicles in progress Total
--------- ------------ --------- --------- ------------ ------
(in US$'000)
Cost
As at January 1, 2016 2,392 5,989 88 12,806 567 21,842
Additions - 326 - 1,118 126 1,570
Disposals - - - (54) - (54)
Transfers - - - 275 (275) -
Exchange differences (60) (153) (2) (331) (12) (558)
--------- ------------ --------- --------- ------------ ------
As at June 30, 2016 2,332 6,162 86 13,814 406 22,800
--------- ------------ --------- --------- ------------ ------
Accumulated depreciation
As at January 1, 2016 1,036 3,445 70 8,784 - 13,335
Depreciation 60 469 4 549 - 1,082
Disposals - - - (49) - (49)
Exchange differences (27) (91) (2) (221) - (341)
--------- ------------ --------- --------- ------------ ------
As at June 30, 2016 1,069 3,823 72 9,063 - 14,027
--------- ------------ --------- --------- ------------ ------
Net book value
As at June 30, 2016 1,263 2,339 14 4,751 406 8,773
========= ============ ========= ========= ============ ======
8. Investments in Equity Investees
Investments in equity investees consisted of the following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ("HBYS") 63,154 63,536
Shanghai Hutchison Pharmaceuticals Limited ("SHPL") 62,997 77,939
Nutrition Science Partners Limited ("NSPL") 21,431 16,806
Other 242 225
-------- ------------
147,824 158,506
======== ============
Summarized financial information for the significant equity
investees are as follows:
(i) Summarized balance sheets
Commercial Platform Innovation Platform
--------------------------------------------- ----------------------
Consumer Health Prescription Drugs Drug R&D
HBYS SHPL NSPL
--------------------- ---------------------- ----------------------
December December December
June 30, 31, June 30, 31, June 30, 31,
2017 2016 2017 2016 2017 2016
--------- ---------- ---------- ---------- ---------- ----------
(in US$'000)
Current assets 142,890 123,181 139,064 146,350 13,609 5,393
Non-current
assets 103,307 98,554 99,833 97,656 30,000 30,000
Current
liabilities (95,199) (70,218) (112,094) (86,946) (747) (1,782)
Non-current
liabilities (18,214) (18,148) (6,656) (6,926) - -
--------- ---------- ---------- ---------- ---------- ----------
Net assets 132,784 133,369 120,147 150,134 42,862 33,611
Non-controlling
interests (6,475) (6,297) - - - -
--------- ---------- ---------- ---------- ---------- ----------
126,309 127,072 120,147 150,134 42,862 33,611
========= ========== ========== ========== ========== ==========
(ii) Summarized statements of operations
Commercial Platform Innovation Platform
---------------------------------------- ---------------------
Consumer Health Prescription Drugs Drug R&D(a)
HBYS SHPL NSPL
------------------ -------------------- ---------------------
Six Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30,
------------------ -------------------- ---------------------
2017 2016 2017 2016 2017 2016
-------- -------- --------- --------- ---------- ---------
(in US$'000)
Revenue 123,408 122,746 129,718 126,846 - -
Gross profit 45,933 54,873 94,964 90,743 - -
Depreciation and amortization (2,291) (1,506) (3,382) (541) - -
Interest income 79 124 498 385 - -
Finance cost (58) (87) - - - -
Income/(loss) before taxes 13,525 20,494 43,727 35,482 (4,749) (4,184)
Income tax expense (1,942) (3,320) (5,984) (5,925) - -
-------- -------- --------- --------- ---------- ---------
Net income/(loss) 11,583 17,174 37,743 29,557 (4,749) (4,184)
Non-controlling interests (61) (37) - - - -
-------- -------- --------- --------- ---------- ---------
Net income/(loss) attributable to the
shareholders of equity investee 11,522 17,137 37,743 29,557 (4,749) (4,184)
======== ======== ========= ========= ========== =========
Notes:
(a) NSPL primarily incurred research and development expenses
for the six months ended June 30, 2017 and 2016.
(b) For the six months ended June 30, 2017, other immaterial
equity investees had net income of approximately US$22,000 while
the six months ended June 30, 2016 had net loss of US$8,000.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented
to the carrying amount of investments in equity investees is as
follows:
Commercial Platform Innovation Platform
--------------------------------------- ---------------------
Consumer Health Prescription Drugs Drug R&D
HBYS SHPL NSPL
----------------- -------------------- ---------------------
2017 2016 2017 2016 2017 2016
-------- ------- --------- --------- ---------- ---------
(in US$'000)
Opening net assets after non-controlling
interests as at January 1 127,072 121,523 150,134 93,263 33,611 18,093
Net income/(loss) attributable to the
shareholders of equity investee 11,522 17,137 37,743 29,557 (4,749) (4,184)
Dividend declared (14,615) (6,000) (70,619) (25,833) - -
Other comprehensive income/(loss) 2,330 (3,196) 2,889 (2,340) - -
Investments - - - - 14,000 10,000
Capitalization of loans - - - - - 14,000
-------- ------- --------- --------- ---------- ---------
Closing net assets after non-controlling
interests as at June 30 126,309 129,464 120,147 94,647 42,862 37,909
======== ======= ========= ========= ========== =========
Group's share of net assets 63,154 64,732 60,074 47,324 21,431 18,954
Goodwill - - 2,923 3,000 - -
-------- ------- --------- --------- ---------- ---------
Carrying amount of investments as at
June 30 63,154 64,732 62,997 50,324 21,431 18,954
======== ======= ========= ========= ========== =========
The equity investees had the following lease commitments and
capital commitments:
(a) The equity investees lease various factories and offices
under non--cancellable operating lease agreements. Future aggregate
minimum payments under non--cancellable operating leases as of the
dates indicated are as follows:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Not later than 1 year 1,480 1,511
Between 1 to 2 years 797 1,184
Between 2 to 3 years 300 -
Between 3 to 4 years 135 -
Between 4 to 5 years 113 -
-------- ------------
Total minimum lease payments 2,825 2,695
======== ============
(b) Capital commitments
The equity investees had the following capital commitments:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Property, plant and equipment
Contracted but not provided for 3,348 6,162
======== ============
9. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the
following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Accrued salaries and benefits 7,425 7,057
Accrued research and development expenses 6,700 11,771
Accrued selling and marketing expenses 3,828 4,340
Accrued administrative and other general expenses 4,506 4,078
Deferred government incentives 2,215 1,755
Others 2,977 2,715
-------- ------------
27,651 31,716
======== ============
10. Bank Borrowings
Bank borrowings consisted of the following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Current 26,861 19,957
Non-current 19,990 26,830
-------- ------------
46,851 46,787
======== ============
The weighted average interest rate for outstanding bank
borrowings for the six months ended June 30, 2017 and 2016 was
1.78% and 1.47% respectively. In addition, the Group incurred
guarantee fees of US$234,000 for both the six months ended June 30,
2017 and 2016, which was 1.00% and 0.88% respectively of the
weighted average outstanding bank borrowings. As at June 30, 2017
and December 31, 2016, the carrying amounts of the Group's bank
borrowings are all denominated in HK$.
In December 2011, the Group, through its subsidiary entered into
a three--year term loan with a bank in the aggregate principal
amount of HK$210,000,000 (US$26,923,000). The term loan bears
interest at 1.50% over the Hong Kong Interbank Offered Rate
("HIBOR") per annum. In June 2014, the term loan was refinanced
into a four-year term loan due June 2018 which bears interest at
1.35% over the HIBOR per annum. Accordingly, the term loan is
recorded as a short-term bank borrowing as at June 30, 2017 and a
long-term bank borrowing as at December 31, 2016. The term loan is
unsecured and guaranteed by Hutchison Whampoa Limited, an indirect
subsidiary of CK Hutchison Holdings Limited ("CK Hutchison"), as at
June 30, 2017 and December 31, 2016. An annual fee is paid to
Hutchison Whampoa Limited for the guarantee (Note 18(i)).
On February 28, 2017, the Group through its subsidiary, entered
into 2 separate facility agreements with banks for the provision of
unsecured credit facilities in the aggregate amount of
HK$546,000,000 (US$70,000,000). The first credit facility includes
(i) a HK$156,000,000 (US$20,000,000) term loan facility and (ii) a
HK$195,000,000 (US$25,000,000) revolving loan facility, both with a
term of 18 months and an annual interest rate of 1.25% over HIBOR.
The term loan was drawn from the first credit facility on March 9,
2017. The second credit facility includes (i) a HK$78,000,000
(US$10,000,000) term loan facility and (ii) a HK$117,000,000
(US$15,000,000) revolving loan facility, both with a term of 18
months and an annual interest rate of 1.25% over HIBOR. No amounts
have been drawn from this second facility. These credit facilities
are guaranteed by the Company.
On March 10, 2017, the Group repaid the HK$156,000,000
(US$20,000,000) term loan facility, which was part of the unsecured
credit facilities in the aggregate amount of HK$468,000,000
(US$60,000,000) entered in February 2016. These unsecured credit
facilities have been terminated.
In November 2015, the Group through its subsidiary renewed a
three year revolving loan facility with a bank in the aggregate
amount of HK$234,000,000 (US$30,000,000) with an annual interest
rate of 1.25% over HIBOR. This facility will expire in November
2018. In February 2017, HK$20,000,000 (US$2,564,000) was drawn from
this facility and the amount was fully repaid in March 2017. As of
June 30, 2017 and December 31, 2016, there were no amounts due
under this loan.
The Group's bank borrowings are repayable as follows:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Not later than 1 year 26,861 19,957
Between 1 to 5 years 19,990 26,830
-------- ------------
46,851 46,787
======== ============
As at June 30, 2017 and December 31, 2016, the Group has
unutilized bank borrowing facilities of US$80,000,000 and
US$70,000,000 respectively.
11. Other Liabilities
Other liabilities consisted of the following:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Other non-current liabilities-related parties 8,129 8,129
Deferred tax liabilities-non-current 4,621 3,997
Others 3,617 4,302
-------- ------------
16,367 16,428
======== ============
12. Commitments and Contingencies
Except as discussed below, the Group does not have any other
significant commitments or contingencies.
(i) Lease commitments
The Group leases various factories and offices under
non--cancellable operating lease agreements. Future aggregate
minimum payments under non--cancellable operating leases as of the
date indicated are as follows:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Not later than 1 year 1,495 1,711
Between 1 to 2 years 1,301 1,383
Between 2 to 3 years 759 1,053
Between 3 to 4 years 342 597
Between 4 to 5 years 102 108
Later than 5 years - 45
-------- ------------
Total minimum lease payments 3,999 4,897
======== ============
(ii) Capital commitments
The Group had the following capital commitments:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Property, plant and equipment
Contracted but not provided for 2,180 2,545
======== ============
In addition, the Group has also undertaken to provide the
necessary additional funds for NSPL to finance its ongoing
operations.
13. Ordinary Shares
The Company is authorized to issue 75,000,000 ordinary shares.
On March 17, 2016 and April 13, 2016, the Company issued 3,750,000
and 330,000 ordinary shares respectively in the form of American
depositary shares ("ADS") in a public offering on the Nasdaq. A
summary of ordinary shares transactions (in thousands) for each of
the periods presented is as follows:
2017 2016
------ ------
Balance as at January 1 60,706 56,533
Issuances in relation to exercise of share options 31 36
New ordinary shares issued - 4,080
------ ------
Balance as at June 30 60,737 60,649
====== ======
Each ordinary share is entitled to one vote. The holders of
ordinary shares are also entitled to receive dividends whenever
funds are legally available and when declared by the Board of
Directors of the Company.
14. Share--based Compensation
(i) Share--based Compensation of the Company
A summary of the Company's share option activity and related
information is as follows:
Weighted-average
Number of Weighted-average remaining Aggregate
share exercise price in contractual life intrinsic value
options GBP per share (years) (in GBP'000)
--------- ----------------- ---------------- ---------------
Outstanding as at January 1, 2016 442,365 5.16
Granted 693,686 19.70
Exercised (92,705) 3.54
Lapsed (3,750) 6.10
Outstanding as at December 31, 2016 1,039,596 15.00 6.77 7,900
Granted 150,000 31.05
Exercised (31,381) 4.40
Lapsed (4,375) 6.10
Outstanding as at June 30, 2017 1,153,840 17.41 6.78 21,595
Vested and expected to vest as at December
31, 2016 1,039,596 15.00 6.77 7,900
Vested and exercisable as at December 31,
2016 767,376 14.64 6.66 6,106
Vested and expected to vest as at June 30,
2017 1,153,840 17.41 6.78 21,595
Vested and exercisable as at June 30, 2017 760,995 15.23 6.28 15,900
On March 27, 2017, the Company granted 150,000 share options to
participating directors and employees. The share options are
subject to a four-year vesting schedule, which 25% vests upon the
first anniversary of the vesting commencement date as defined in
the grant letter, and 25% every subsequent year. In determining the
fair value of share options granted, the following assumptions were
used in the Polynomial model for awards granted in the period
indicated:
Grant date
-----------------
March 27, 2017
-----------------
Value of each share option GBP 12.69
Significant inputs into the valuation model:
Exercise price GBP 31.05
Share price at effective date of grant GBP 31.05
Expected volatility 36.30%
Risk-free interest rate 1.17%
Contractual life of share options 10 years
Expected dividend yield 0%
The following table summarizes the Company's share option
values:
Six Months Ended
June 30,
------------------
2017 2016
--------- -------
Weighted-average grant-date fair value of share options granted during the period (in GBP
per share) 12.69 8.83
Total intrinsic value of share options exercised in US$'000 1,049 775
The Company recognizes compensation expense for only the portion
of options expected to vest, on a graded vesting approach over the
requisite service period. The following table presents share--based
compensation expense included in the Group's condensed consolidated
statements of operations:
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Research and development expenses 565 965
======== ========
As of June 30, 2017, the total unrecognized compensation cost
was US$2,268,000, net of estimated forfeiture rates, and will be
recognized on a graded vesting approach over the weighted--average
remaining service period of 3.5 years.
Cash received from option exercises under the share option plan
for the six months ended June 30, 2017 and 2016 was approximately
US$174,000 and US$145,000 respectively. The Company will issue new
shares to satisfy share options exercises.
(ii) Share--based Compensation of a Subsidiary
No share options have been granted under the share option scheme
of a subsidiary for the six months ended June 30, 2017 and 2016. On
June 15, 2016, 1,187,372 share options were cancelled, and
thereafter, no share options are outstanding. For the six months
ended June 30, 2017 and 2016, US$99,000 and US$195,000 respectively
of share-based compensation expense was recognized to research and
development expense for cash consideration payable related to prior
share option modifications. As at June 30, 2017, the total
unrecognized compensation costs was approximately US$81,000 over
the remainder of the year.
(iii) Long-term Incentive Plan ("LTIP")
On March 15, 2017, the Company granted awards under the LTIP to
participating directors and employees, giving them a conditional
right to receive ordinary shares of the Company or the equivalent
ADS (collectively the "Ordinary Shares") to be purchased by a
trustee consolidated by the Company (the "Trustee") up to a maximum
cash amount of US$17.8 million in aggregate that stipulate annual
performance targets. Shares under such LTIP awards will cover each
financial year from 2017 to 2019. The annual performance target
determination date is two business days after the announcement of
the Group's annual results for the covered financial year and
vesting occurs after the announcement of the following financial
year.
Additionally, on March 15, 2017, the Company granted awards
under the LTIP to participating directors and employees, giving
them a conditional right to receive Ordinary Shares to be purchased
by the Trustee up to a maximum cash amount of US$353,000 in
aggregate that do not stipulate performance targets. Shares under
such LTIP awards will vest one business day after the publication
of the annual report for the 2017 financial year.
The Trustee purchases and holds Ordinary Shares on behalf of the
LTIP grantee until they are vested. The Trustee's assets include
treasury shares and funds for additional treasury shares, trustee
fees and expenses. As at June 30, 2017, the number of Ordinary
Shares of the Company purchased and held by the Trustee is as
follows:
Number of treasury shares Cost in US$'000
------------------------- ---------------
As at January 1, 2017 62,921 2,390
Purchased 35,095 1,367
Distributed (42,038) (1,800)
------------------------- ---------------
As at June 30, 2017 55,978 1,957
========================= ===============
For the six months ended June 30, 2017, US$1,800,000 and
US$58,000 of the LTIP awards have been vested and forfeited
respectively.
The following table presents the share-based compensation
expenses recognized under the LTIP awards:
Six Months Ended
June 30,
------------------
2017 2016
---------- ------
(in US$'000)
Research and development expenses 691 409
Administrative expenses 578 377
---------- ------
1,269 786
========== ======
Recorded with a corresponding credit to:
Liability 594 166
Additional paid-in capital 675 620
---------- ------
1,269 786
========== ======
For the six months ended June 30, 2017 and 2016, US$451,000 and
US$64,000 was reclassified from liability to additional paid-in
capital respectively upon LTIP awards reaching the determination
date. As at June 30, 2017 and December 31, 2016, US$499,000 and
US$356,000 was recorded as liability respectively for LTIP awards
prior to the determination date.
As at June 30, 2017, the total unrecognized compensation cost
was approximately US$7,108,000, which considers expected
performance targets and the amount expected to vest, and will be
recognized over the requisite period.
15. Revenue from License and Collaboration Agreements-Third
Parties
Revenue from license and collaboration agreements-third parties
is as follows:
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Milestone revenue 9,510 9,931
Amortization of upfront payment 534 856
Research and development services 7,799 7,301
-------- --------
17,843 18,088
======== ========
The revenue is mainly from license and collaboration agreements
as follows:
License and collaboration agreement with Eli Lilly
On October 8, 2013, the Group entered into a licensing,
co-development and commercialization agreement in the PRC with Eli
Lilly relating to fruquintinib, a targeted oncology therapy for the
treatment of various types of solid tumors.
Under the terms of this agreement, the Group recognized US$4.5
million milestone revenue for the six months ended June 30, 2017 in
relation to the acceptance of a new drug application by the China
Food and Drug Administration for fruquintinib as a treatment of
patients with advanced colorectal cancer. The Group did not
recognize any milestone revenue in relation to this contract for
the six months ended June 30, 2016. The Group recognized US$0.5
million and US$0.8 million revenue from amortization of the upfront
payment during the six months ended June 30, 2017 and 2016
respectively. In addition, the Group recognized US$6.0 million
revenue from research and development services for both the six
months ended June 30, 2017 and 2016.
License and collaboration agreement with AstraZeneca
On December 21, 2011, the Group and AstraZeneca entered into a
global licensing, co-development, and commercialization agreement
for savolitinib, a novel targeted therapy and a highly selective
inhibitor of the c-Met receptor tyrosine kinase for the treatment
of cancer.
Under the terms of this agreement, the Group recognized US$5.0
million milestone revenue for the six months ended June 30, 2017 in
relation to the Phase III initiation for the secondary indication,
papillary renal cell carcinoma, and US$9.9 million milestone
revenue for the six months ended June 30, 2016 in relation to the
Phase IIb initiation for the primary indication, non-small cell
lung cancer. The Group recognized less than US$0.1 million revenue
from amortization of the up-front payment for both the six months
ended June 30, 2017 and 2016. The Group recognized US$1.8 million
and US$1.3 million revenue from research and development services
for the six months ended June 30, 2017 and 2016 respectively.
16. Research and Development Expenses
Research and development expenses are summarized as follows:
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Clinical trial related costs 16,473 16,900
Personnel compensation and related costs 11,875 11,366
Other costs 3,218 2,918
-------- --------
31,566 31,184
======== ========
...
17. Administrative Expenses
Administrative expenses are summarized as follows:
Ff
Six Months Ended
June 30,
------------------
2017 2016
--------- -------
(in US$'000)
Staff costs, office and general expenses 8,154 6,826
Legal and professional fees 3,309 2,562
Other costs 552 570
--------- -------
12,015 9,958
========= =======
18. Significant Related Party Transactions
The Group has the following significant transactions during the
year with related parties which were carried out in the normal
course of business at terms determined and agreed by the relevant
parties:
(i) Transactions with related parties:
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Sales of goods to
-Indirect subsidiaries of CK Hutchison 3,908 5,398
======== ========
Revenue from research and development services
-Equity investees 4,883 3,815
======== ========
Purchase of goods from
-A non-controlling shareholder of a subsidiary 7,942 5,998
-An equity investee 494 62
-------- --------
8,436 6,060
======== ========
Rendering of marketing services from
-Indirect subsidiaries of CK Hutchison 241 273
-An equity investee 5,125 4,258
-------- --------
5,366 4,531
======== ========
Rendering of management services from
-An indirect subsidiary of CK Hutchison 448 437
======== ========
Interest paid to
-An immediate holding company - 84
-An indirect subsidiary of CK Hutchison 65 -
-A non-controlling shareholder of a subsidiary 32 47
-------- --------
97 131
======== ========
Guarantee fee on bank loan to
-An indirect subsidiary of CK Hutchison 234 234
======== ========
Dividend paid to
-A non-controlling shareholder of a subsidiary 37 -
======== ========
(ii) Balances with related parties included in:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Accounts receivable-related parties:
-Indirect subsidiaries of CK Hutchison (note (a)) 1,781 2,589
-Equity investees (note (a)) 638 1,634
-------- ------------
2,419 4,223
======== ============
Accounts payable-related parties:
-An indirect subsidiary of CK Hutchison (note (a)) - 19
* A non-controlling shareholder of a subsidiary (note
(a)) 5,401 5,136
-------- ------------
5,401 5,155
======== ============
Amounts due from related parties (included in other current assets):
-An indirect subsidiary of CK Hutchison (note (a)) 109 107
-Equity investees (note (a)) 956 1,029
-------- ------------
1,065 1,136
======== ============
Amounts due to related parties:
-Immediate holding company (note (b)) - 2,086
-An indirect subsidiary of CK Hutchison (note (b)) 3,462 152
-An equity investee (note (a)) 4,690 3,070
-------- ------------
8,152 5,308
======== ============
Other payables, accruals and advance receipts:
* Interest payable to a non-controlling shareholder of
a subsidiary 46 14
======== ============
Other deferred income (included in other liabilities):
-An equity investee (note (d)) 1,691 1,771
======== ============
Other non-current liabilities (included in other liabilities):
-Immediate holding company (note (b)) - 6,000
-An indirect subsidiary of CK Hutchison (note (b)) 6,000 -
* Loan from a non-controlling shareholder of a
subsidiary (note (c)) 1,550 1,550
* Loan from a non-controlling shareholder of a
subsidiary (note (e)) 579 579
-------- ------------
8,129 8,129
======== ============
Notes:
(a) Balances with related parties are unsecured, interest--free
and repayable on demand. The carrying values of balances with
related parties approximate their fair values due to their
short--term maturities.
(b) Amounts due to immediate holding company and an indirect
subsidiary of CK Hutchison are unsecured and interest--bearing.
During the six months ended June 30, 2017, amounts due to immediate
holding company was assigned to an indirect subsidiary of CK
Hutchison. As of June 30, 2017, approximately US$3,462,000
(December 31, 2016: US$2,238,000) of such balances are repayable
within one year or repayable on demand and US$6,000,000 (December
31, 2016: US$6,000,000) are repayable by equal installment of
US$3,000,000 in December 2018 and December 2019.
(c) Loan from a non--controlling shareholder of a subsidiary is
unsecured, interest--bearing and is repayable in October 2018.
(d) Other deferred income represents amounts recognized from
granting of promotion and marketing rights.
(e) Loan from a non--controlling shareholder of a subsidiary is
unsecured and interest bearing (with waiver of interest).
19. Income Taxes
(i) Income tax expense
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Current tax
* HK 244 372
* PRC 355 138
Deferred income tax 1,247 1,177
-------- --------
Income tax expense 1,846 1,687
======== ========
The reconciliation of the Group's reported income tax expense to
the theoretical tax amount that would arise using the tax rates of
the Company against the Group's loss before income taxes and equity
in earnings of equity investees is as follows:
Six Months Ended
June 30,
------------------
2017 2016
-------- --------
(in US$'000)
Loss before income taxes and equity in earnings of equity investees (16,738) (16,770)
Tax calculated at the statutory tax rate of the Company (2,762) (2,767)
Tax effects of:
Different tax rates available to different jurisdictions 537 120
Tax valuation allowance 3,036 2,184
Expenses not deductible for tax purposes 261 272
Utilization of previously unrecognized tax losses (97) (14)
Withholding tax on undistributed earnings of PRC entities 1,307 1,160
Others (436) 732
-------- --------
Income tax expense 1,846 1,687
======== ========
(ii) Deferred tax assets and liabilities
The significant components of deferred tax assets and
liabilities are as follows:
June 30, December 31,
2017 2016
-------- ------------
(in US$'000)
Deferred tax assets:
Tax losses 23,244 20,145
Others 429 372
-------- ------------
Total deferred tax assets 23,673 20,517
Less: Valuation allowance (23,244) (20,145)
-------- ------------
Deferred tax assets 429 372
======== ============
Deferred tax liabilities:
Undistributed earnings from PRC entities 4,497 5,230
Others 124 131
-------- ------------
Deferred tax liabilities 4,621 5,361
======== ============
As at June 30, 2017, all deferred tax assets and liabilities are
classified as non-current after adopting ASU 2015-17 (Note 2). As
at December 31, 2016, deferred tax assets and liabilities of
US$372,000 and US$1,364,000 respectively were classified as
current, with the remainder as non-current.
The Company believes that it is more likely than not that future
operations will not generate sufficient taxable income to realize
the benefit of the deferred tax assets as the subsidiaries of the
Company have had sustained tax losses, which will expire if not
utilized within five years in the case of PRC companies whereas
Hong Kong subsidiaries do not generate profits taxable in Hong Kong
to utilize their tax losses. Accordingly, a valuation allowance has
been recorded against the deferred tax assets arising from the tax
losses of the Company.
(iii) Income taxes payable
2017 2016
------- -------
(in US$'000)
As at January 1 274 442
Current tax 599 510
Withholding tax upon dividend declaration from PRC entities 2,140 796
Tax paid (2,458) (1,609)
Exchange difference 2 2
------- -------
As at June 30 557 141
======= =======
20. Earnings Per Share
(i) Basic earnings per share
Basic earnings per share is calculated by dividing the net
income attributable to ordinary shareholders of the Company by the
weighted average number of ordinary shares in issue during the
period. Treasury shares held by the Trustee are excluded from the
weighted average number of outstanding ordinary shares in issue for
purposes of calculating basic earnings per share.
Six Months Ended
June 30,
----------------------
2017 2016
---------- ----------
Weighted average number of outstanding ordinary shares in issue 60,660,846 58,822,425
========== ==========
Net income (US$'000) 3,685 2,794
Net income attributable to non-controlling interests (US$'000) (2,003) (2,257)
---------- ----------
Net income for the period attributable to ordinary shareholders of the Company (US$'000) 1,682 537
---------- ----------
Earnings per share attributable to ordinary shareholders of the Company (US$ per share) 0.03 0.01
========== ==========
(ii) Diluted earnings per share
Diluted earnings per share is calculated by dividing net income
attributable to ordinary shareholders of the Company, by the
weighted average number of ordinary and dilutive ordinary share
equivalents outstanding during the period. Dilutive ordinary share
equivalents include shares issuable upon the exercise or settlement
of share-based awards issued by the Company and its subsidiaries
using the treasury stock method.
Six Months Ended
June 30,
----------------------------
2017 2016
---------------- ----------
Weighted average number of outstanding ordinary shares in issue 60,660,846 58,822,425
Adjustment for share options and LTIP 473,693 303,660
---------------- ----------
61,134,539 59,126,085
================ ==========
Net income for the period attributable to ordinary shareholders of the Company
(US$'000) 1,682 537
---------------- ----------
Earnings per share attributable to ordinary shareholders of the Company (US$ per
share) 0.03 0.01
================ ==========
21. Segment Reporting
The Group determines its operating segments from both business
and geographic perspectives as follows:
(i) Innovation Platform (Drug research and development ("Drug
R&D")): focuses on discovering and developing innovative
therapeutics in oncology and autoimmune diseases, and the provision
of research and development services; and
(ii) Commercial Platform: comprises of the manufacture,
marketing and distribution of prescription and over--the--counter
pharmaceuticals in the PRC as well as consumer health products
through Hong Kong. The Commercial Platform is further segregated
into two core business areas:
(a) Prescription Drugs: comprises the development, manufacture,
distribution, marketing and sale of prescription pharmaceuticals;
and
(b) Consumer Health: comprises the development, manufacture,
distribution, marketing and sale of over--the--counter
pharmaceuticals and consumer health products.
Innovation Platform and Prescription Drugs business under the
Commercial Platform are primarily located in the PRC. The locations
for Consumer Health business under the Commercial Platform are
further segregated into the PRC and Hong Kong.
The performance of the reportable segments are assessed based on
three measurements: (a) losses or earnings of subsidiaries before
interest income, interest expense, income tax expenses and equity
in earnings of equity investees, net of tax ("Adjusted (LBIT)/EBIT"
or "Adjusted LBIT"), (b) equity in earnings of equity investees,
net of tax and (c) operating (loss)/profit.
The segment information is as follows:
Six Months Ended June 30, 2017
----------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- ---------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ --------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ ----- ------- -------- ------------- --------
(in US$'000)
Revenue from external
customers 22,726 85,759 4,423 13,676 103,858 - 126,584
---------- ------------ ----- ------- -------- ------------- --------
Adjusted (LBIT)/EBIT (12,467) 1,523 99 1,519 3,141 (6,846) (16,172)
Interest income 19 17 5 3 25 207 251
Equity in earnings of
equity investees, net of
tax (2,363) 18,871 5,761 - 24,632 - 22,269
---------- ------------ ----- ------- -------- ------------- --------
Operating (loss)/profit (14,811) 20,411 5,865 1,522 27,798 (6,639) 6,348
Interest expense - - - 32 32 785 817
Income tax expense 14 441 (179) 243 505 1,327 1,846
Net income attributable to
ordinary shareholders of
the Company (14,790) 19,421 5,093 644 25,158 (8,686) 1,682
Depreciation/amortization 1,232 52 6 9 67 13 1,312
Additions to non-current
assets (other than
financial instrument and
deferred tax assets) 3,017 6 1 1 8 20 3,045
========== ============ ===== ======= ======== ============= ========
As at June 30, 2017
--------------------------------------------------------------------------------
Innovation
Platform Commercial Platform
------------ --------------------------------------------
Drug Prescription Consumer
R&D Drugs Health
------------ ------------- ------------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
------------ ------------- --------- ------- --------- ----------- -------
(in US$'000)
Total assets 85,465 120,626 65,875 11,388 197,889 61,346 344,700
Property,
plant and
equipment 11,672 135 30 32 197 55 11,924
Leasehold land 1,225 - - - - - 1,225
Goodwill - 2,778 407 - 3,185 - 3,185
Other
intangible
asset - 445 - - 445 - 445
Investments in
equity
investees 21,673 62,997 63,154 - 126,151 - 147,824
============ ============= ========= ======= ========= =========== =======
Six Months Ended June 30, 2016
-----------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- ---------------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ -------------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ --------- ------- ---------- ----------- ----------
(in US$'000)
Revenue from external
customers 22,258 67,614 2,704 11,941 82,259 - 104,517
Adjusted (LBIT)/EBIT (11,708) 1,463 (1,120) 1,166 1,509 (5,949) (16,148)
Interest income 25 19 15 1 35 129 189
Equity in earnings of
equity investees, net of
tax (2,096) 14,779 8,568 - 23,347 - 21,251
---------- ------------ --------- ------- ---------- -----------
Operating (loss)/profit (13,779) 16,261 7,463 1,167 24,891 (5,820) 5,292
Interest expense - - - 47 47 764 811
Income tax expense - 434 (279) 150 305 1,382 1,687
Net income attributable to
ordinary shareholders of
the Company (13,742) 15,313 6,296 538 22,147 (7,868) 537
Depreciation/amortization 1,041 52 5 10 67 25 1,133
Additions to non-current
assets (other than
financial instrument and
deferred tax assets) 1,440 19 14 50 83 47 1,570
========= =======
As at December 31, 2016
Innovation
Platform Commercial Platform
Drug Prescription Consumer
R&D Drugs Health
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
(in US$'000)
Total assets 53,774 134,681 67,161 10,701 212,543 76,120 342,437
Property,
plant and
equipment 9,686 145 34 40 219 49 9,954
Leasehold
land 1,220 - - - - - 1,220
Goodwill - 2,730 407 - 3,137 - 3,137
Other
intangible
asset - 469 - - 469 - 469
Investments
in equity
investees 17,031 77,939 63,536 - 141,475 - 158,506
Revenue from external customers is after elimination of
inter--segment sales. The amount eliminated attributable to sales
within Consumer Health business from Hong Kong to the PRC was
US$708,000 and nil for the six months ended June 30, 2017 and 2016
respectively. Sales between segments are carried out at mutually
agreed terms.
There were no customers who accounted for over 10% of the
Group's revenue for the six months ended June 30, 2017 and
2016.
Unallocated expenses mainly represent corporate expenses which
include corporate employee benefit expenses and the relevant
share--based compensation expenses. Unallocated assets mainly
comprise cash and cash equivalents and short-term investments.
A reconciliation of Adjusted LBIT to net income is provided as
follows:
Six Months Ended
June 30,
2017 2016
(in US$'000)
Adjusted LBIT (16,172) (16,148)
Interest income 251 189
Equity in earnings of equity investees, net of tax 22,269 21,251
Interest expense (817) (811)
Income tax expense (1,846) (1,687)
Net income 3,685 2,794
22. Note to Condensed Consolidated Statements of Cash Flows
Reconciliation of net income for the period to net cash
generated from operating activities:
Six Months Ended
June 30,
2017 2016
(in US$'000)
Net income 3,685 2,794
Adjustments to reconcile net income to net cash generated from operating activities
Depreciation and amortization 1,312 1,133
Share-based compensation expense-share options and LTIP 1,933 1,946
Equity in earnings of equity investees, net of tax (22,269) (21,251)
Dividend received from equity investees 42,617 15,917
Unrealized currency translation (gain)/loss (224) 791
Changes in income tax balances (612) 76
Other non-cash operating activities 64 71
Changes in working capital
Accounts receivable-third parties (2,699) (2,560)
Other receivables, prepayments and deposits (3,448) 736
Inventories 2,148 1,652
Accounts payable-third parties (3,121) 3,582
Other payables, accruals and advance receipts (4,320) 641
Amounts due from/due to related parties 4,965 3,773
Other changes in operating assets and liabilities (609) (246)
Total changes in working capital (7,084) 7,578
Net cash generated from operating activities 19,422 9,055
23. Litigation
From time to time, the Group may become involved in litigation
relating to claims arising from the ordinary course of business.
The Group believes that there are currently no claims or actions
pending against the Group, the ultimate disposition of which could
have a material adverse effect on the Group's results of
operations, financial position or cash flows. However, litigation
is subject to inherent uncertainties and the Group's view of these
matters may change in the future. When an unfavorable outcome
occurs, there exists the possibility of a material adverse impact
on the Group's financial position and results of operations for the
periods in which the unfavorable outcome occurs, and potentially in
future periods.
24. Subsequent Events
The Group evaluated subsequent events through July 31, 2017,
which is the date when the interim unaudited condensed consolidated
financial statements were issued.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BCGDRXBXBGRG
(END) Dow Jones Newswires
July 31, 2017 02:01 ET (06:01 GMT)
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