Hutchison China MediTech Ltd at Deutsche Bank ADR Virtual Investor Conference

HCM.L - Hutchison China MediTech Ltd
Hutchison China MediTech Ltd at Deutsche Bank ADR Virtual Investor Conference
Mar 21, 2018 / 01:30PM GMT 

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Corporate Participants
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   *  Christian Hogg
      Hutchison China MediTech Limited - CEO and Executive Director 

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Conference Call Participants
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   *  Zafar Aziz

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Presentation
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 Zafar Aziz,    [1]
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 Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. My name is Zafar Aziz, Head of DR IR Advisory at Deutsche Bank Depositary Receipts team. I'm pleased to announce that on our next presentation, we have Hutchison China MediTech from Hong Kong. Before I introduce our speaker, a few points to note. During the presentation, please submit questions in the Ask a Question Box along the bottom of your screen. There is no need to wait till the end of the presentation to type in your questions. Please remember that after presentation and the Q&A session lasting around 30 minutes in total, don't log out. You will automatically be transferred to the Hutchison China MediTech booth where you can continue the conversation via the chat screen and access additional investor material.

 On a final note, all today's presentations are recorded and can be accessed via the Deutsche Bank website, adr.db.com.

 At this point, I'm very pleased to welcome Christian Hogg, CEO, from Hutchison China MediTech. Over to you, Christian.

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 Christian Hogg,  Hutchison China MediTech Limited - CEO and Executive Director    [2]
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 Okay. Thanks very much, Zafar. So we have 30 minutes. I intend to at least spend 20 minutes of that taking listeners through our 2017 full year results on a high -- on a relatively high level and then 10 minutes for questions at the end. So bear with me as I move very quickly through the presentation, which is really designed to be a much longer presentation.

 So moving on to Page #3. So I just getting used to the controls. On a high level, Chi-Med had a terrific year in 2017 on most levels. We continue to build momentum in the context of our -- applying our commercial business in China as well as our listings in both London and New York. Page 3 lays out the kind of the key building blocks of our business and I'll taking you through those now. I mean, looking at the pipeline, our innovative drug pipeline, we have 8 clinical candidates in many different clinical studies, but the key achievements during last year to note are the top 4 [offers].

 First of all, we submitted our first new drug application in China in metastatic colorectal cancer that came on the heels of having published the positive Phase III results and the American Society of Clinical Oncology oral presentation, which was the first major oral presentation by a Chinese company at ASCO. So a big deal. We've spent the balance of the year -- since submitting the NDA in June last year, we spent the last 6 months and the first 3 months of this year working very closely with the Chinese regulatory authorities, going through all these sections of the clinical dates, clinical sites, quality, control work on the clinical drug products to ensure that they meet specifications. It's a very laborious and detailed process, going from NDA submission to approval. And we are now entering the final stages of it, which centers around the GMP certification of our [formulation] facility in Suzhou.

 So fruquintinib NDA process is on track, and hopefully, we continue to hope that we will see our approval maybe around the middle of the year and launch this year, but obviously, it's [all related] to the Chinese government's and CFDA's prioritization and capabilities [indiscernible] resource stretch. We are a priority review. We are MAH holder, which gives us -- puts us to the front of the line. So we remain optimistic. We'll get that approved this year and launched.

 The second major achievement last year was the results on -- in non-small cell lung cancer that we presented on savolitinib at the World Conference on Lung Cancer in October. We also announced last week that AstraZeneca had proceed -- had agreed to proceed into registration trials on savolitinib and Tagrisso combination. So that's a big step. It's a big program. It's highly complex. It will initially start with a placebo-controlled -- sorry, a chemo-doublet controlled study, which will start in probably August, September of this year. We're now in preparation for that study. So I'll talk more about that in a moment. But that really is the first major global indication that savolitinib is likely to reach approvals. Although where we are, in parallel, enrolling a Phase III study in kidney cancer in papillary renal cell carcinoma, the big step for savolitinib and Tagrisso and a major source of value for the company and for AstraZeneca for that matter.

 We are enrolling 6 Phase III studies at the moment. Actually, one of them has completed the FALUCA -- the FRESCO study in colorectal cancer. The FALUCA study on fruquintinib in third-line non-small cell lung cancer has also completed enrollment. We are now waiting for the data to sort of mature in those. Those top line data will be reported later this year. So that's a big indication for fruquintinib.

 But in parallel, many other Phase IIIs are also enrolling. And then, finally, we have 22 proof-of-concept studies underway on 8 drug candidates, all enrolling. In fact, in total, we are enrolling clinical studies on 36 different patient populations. So it's a very broad, deep pipeline. It's risk balanced. You have some indications that are high risk, high reward. You have some indications that are low risk and potentially less -- less sales potential, but the chances of success in approval are high. So we have a lot of shots on goal and moving everything in parallel.

 The second group of boxes is the discovery organization. It's a big team now, 360 scientists and staff in Shanghai, primarily. Great deal of depth in chemistry, which is our greatest strength. Eight clinical drug candidates, all of which have been discovered and progressed from our in-house team. And another wave of innovation coming over the -- I'd say, one novel drug candidate per year probably for the next 4 or 5 years. And they're all second-generation immunotherapy assets, and they're designed to be combined with our current portfolio of 8 clinical drug candidates. So we are moving into IO, and we are looking to use those IO assets in combination with our existing therapy. And that would give us, we believe, a great competitive position.

 Finally, a really important aspect of our business is our commercial organization. It's broad. It's pan China. It's a large scale with 2,300 medical reps. But most importantly, it's cash generative. We generated dividends from our commercial organization. This year, Chi-Med received USD 55.6 million in dividends this year. We reported net profit of up 25% to $37.5 million after tax, excluding onetime items, which added another $2.5 million to that number. So it's big, it's profitable and it sits there ready to launch our oncology assets once we get approval.

 Moving on to the next slide. I won't go through in a lot of detail, but maybe the best slide to touch on is the 6 slide, but first before I do that I can show the results on the Innovation Platform and Commercial Platform. Innovation Platform, we invested about USD 88 million in our -- in progressing our pipeline this year. It was on target. That's what we said we were going to do. And the Commercial Platform, as I mentioned before, you can see net profit growth of 25% to USD 37.5 million on the year. So great progress in both areas.

 Looking at where we are from a cash standpoint, the balance sheet. We -- following the follow-on offer of last October, we're now in quite a strong cash position with around $479 million in available cash and resources, which is comprised of $358 million in cash and short-term investments and another $121 million in unutilized banking facilities. So that's the strongest cash position that we as a company have ever been in. And it positions us well to enter the next year or 2 and moving the pipeline.

 Looking at the guidance for '18, you can see the circled numbers. The $110 million to $120 million in R&D expenses, up from $88 million in 2017. So it's just a continued increase in expansion of the clinical programs. I mean, AstraZeneca has to pay for all the global Phase IIIs on savolitinib. But -- so that increase in expenditure there is primarily due to our un-partnered assets that we are progressing, like starting a Phase III on epitinib, progressing sulfatinib into U.S. studies, moving the Syk inhibitor into U.S. studies as well. So it's a real broadening of our un-partnered assets that drives up that investment.

 Then the second circled number there, $41 million to $43 million, it's continued growth in our commercial business. It's been a great 15-year run on our commercial business, and we see that continuing, driven by expansion of medical insurance in China as well as just general commercial expansion.

 So net, 2018, we expect a net loss is somewhere in the range of $19 to $52 million. And considering the available cash resources for the company, that puts us into a pretty good position to continue to move the pipeline certainly through the next 2 or 3 years.

 Moving on to the milestones. I think we'll take a bit of time to talk about this slide. Savolitinib, there should be quite a lot of activity in 2018 on savolitinib. The start of number one, which is the global randomized chemo-doublet controlled study of savolitinib/Tagrisso in second-line non-small cell lung cancer. This is an indication that today patients are -- really, they have no targeted therapy treatments. So really chemotherapy-doublet is the only available treatment for these patients with c-MET gene amplification and T790M mutation. And the kind of response rate you see on chemo-doublet in these patients in these second-line non-small cell lung cancer patients is, perhaps, a response rate of between high 20s, maybe, and a progression-free survival of maybe 3 or 4 months. So what we've seen in our -- in the studies that were presented at World Conference on Lung Cancer is the response rate in the high 50s, low 60s. So really significant increase in tumor shrinkage for those patients. So we believe that this is Breakthrough Therapy type activity. We have not published yet our progression-free survival data, but I'm sure we will at a scientific conference in, maybe, this year during the year. So we're obviously happy, and AstraZeneca, obviously, happy with the progression-free survival data in second-line non-small cell lung cancer or we would not be progressing into a global randomized study. So we're extremely positive about this. It's a massively important indication for Astra. The combination with Tagrisso -- Tagrisso is AstraZeneca's most successful drug in recent years, recording USD 955 million worth of sales in the second -- only the second year of sales. So it's an area that Astra is excited and Chi-Med is excited, and we're moving it rapidly as we can on this.

 We're still fine tuning the dose, which we'll do in parallel with starting up this global randomized study. And once we fine tune the dose with the intention of maximizing long-term tolerability, we will go to the FDA and talk about Breakthrough Therapy designation. That could happen at the end of this year, later in this year or it could happen early next year. But either way, I think Chi-Med at least is confident that the levels of efficacy we've seen are -- would warrant serious consideration for Breakthrough Therapy designation.

 Number two is the decision on savolitinib/Tagrisso post-Tagrisso failure. So, a third-line non-small cell lung cancer. This is another area that's of great strategic importance to AstraZeneca. We have chosen to focus on second line as our initial plan just because that is the strongest signal in 60-or-so percent response rate. In third line, it's a complex patient population. You see more like low 30s response rate. That's still a very important level of efficacy for these patients. So it is very highly likely that we progress into registration studies on third-line non-small cell lung cancer likely in the new year sometime.

 The third major point there is AstraZeneca/Chi-Med discussion or decision on the savolitinib/Iressa combination. This is an area that Chi-Med is actually very eager to progress. AstraZeneca is slightly less so given the savolitinib and Iressa would potentially cannibalize savolitinib/Tagrisso in the second-line setting. But it's an area of discussion we are keen to progress. And I think in China, this combination of savolitinib and the off-patent Iressa could potentially be a very -- a more cost-efficient way of getting to Chinese patients. So that discussion continues. And I'm sure we'll update everybody on this over the next 6 months or so.

 And then number four is the molecular epidemiology study on papillary renal cell carcinoma. It's a huge study, 300-patient study. Actually not patients, they are tissue samples taken from patients that have been archived, used our companion diagnostic to screen for c-MET aberrants. And we are then overlaying the survival data for these patients and treatment histories of these patients. So we hope that by the end of the year, we would be able to show that c-MET, as it is for gastric cancer and lung cancer, is just a highly negative prognostic for outcome -- survival outcome in PRCC patients. And if we can show that, then we will go back to the U.S. FDA and talk Breakthrough Therapy designation for PRCC again. So that's an important study for us.

 Fruquintinib on -- obviously, we talked the NDA approval and launched in China in third-line colorectal cancer. I think that will be a very large event for Chi-Med. We're still the first biotech company, new biotech company in China that's got to the NDA stage. And it is a great learning experience. It's going to set us in very good stead for all our un-partnered assets if they come through. But yes, as I said earlier, we're confident that we'll be able to launch fruquintinib this year.

 And number six, the release of the top line data for Phase III FALUCA study in non-small cell lung cancer. This is just -- if we're able to succeed in non-small cell lung cancer, it will double the size of fruquintinib relative to third-line colorectal cancer. So it's important. Lung cancer is more risky than CRC, in general. So progression-free survival in both cases, you see a 3- to 4-month progression-free survival doses about 1 month for the placebo. But in terms of overall survival, in colorectal cancer, progression-free survival correlates very closely to overall survival. In non-small cell lung cancer, because those patients are less predictable and there's more going on in non-small cell lung cancer in terms of the pathology of this disease, you do tend to find that, that PFS advantage doesn't correlate as well to OS, at least historically in studies that have been published. We believe, however, that fruquintinib has a very strong efficacy in non-small cell lung cancer. So we remain highly optimistic, and we wouldn't have endeavored -- we wouldn't have started off on this study if we didn't feel that we had a good chance of success. So -- but I want listeners to understand that non-small cell lung cancer has historically been a more challenging area than colorectal and -- with EGFR inhibitors. But we'll find out later in the year, and we are all hoping for a positive outcome, and I'm optimistic about that.

 Epitinib, the Phase III study starts -- finally, will start this year. We talked about this last year about starting the Phase III, but we've been working on a 120-milligram dose as compared to the 160-milligram daily dose that was used in our Phase Ib, Phase II study, that we reported outstanding 70% intracranial response rates. So we are -- we're going with 120 because it removes the skin pigmentation. There's cosmetic side effect that occurs, that is quite unpopular with women. And if we go to 120 milligrams a day, it will remove -- vastly remove that cosmetic side effect. So that's what we'll start with this year, and we're looking forward to that because epitinib is a great drug.

 Sulfatinib, we'll start the Phase II in the states, probably later in the year in neuroendocrine tumor patients.

 And 523, the Syk inhibitor is moving as rapidly as we can. We're trying to gain more and more data on the Syk inhibitor, so that we can present it at the American Society of Hematology later in the year, December this year. So we're hoping that we can sort of have the Syk inhibitor arrive on the scene as far as proof-of-concept is concerned later this year. But that's a lot of hard work involved in doing that.

 And 689, the PI3K delta, we started in Australia and China, and things are moving nicely. That's a terrific highly selected, highly potent PI3K delta inhibitor. And we're seeing, in preliminary efficacy as we are with 523 with Syk inhibitor, seeing exactly what we'd expect we would see.

 So moving on, I won't go through the rest of the slides because I've now reached 21 minutes. And I think I'd probably like to open it up for questions at this point. But the following 60 slides in this presentation, go through each of the drug candidates in great detail and as does our annual report and results announcement goes through each of the 36 target patient populations in detail.

 So I won't go anymore, and I'll open it up for questions at this stage.

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Questions and Answers
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 Christian Hogg,  Hutchison China MediTech Limited - CEO and Executive Director    [1]
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 So -- okay. So I'm just clicking on to system here. So the first one is from John Corona. Any plans to build additional large-scale GMP-certified manufacturing facilities?

 No plans at the moment. We finished building 2 large GMP-certified facilities to support our commercial organization that opened up capacity massively and then now allowing us to grow rapidly. So that's been hard work over the last 3 or 4 years. We're about to get GMP certification on our formulation facility for fruquintinib. As I said earlier, the next 3 months will be spent doing that. As far as long term, we are now looking at land close to Shanghai to build a large commercial -- sorry, a large manufacturing operation to produce those API as well as formulating and finish product for our broader pipeline. And that's going to take time though. It's not going to be starting, that's going to be ready anytime soon. But we will start now looking into feasibility. And I imagine that, that would be something that would come into play over the next either 3, 4, 5 years. In the meantime, our formulation facility in Suzhou is able to produce fruquintinib, sulfatinib and epitinib. So it should support all activities over the coming 2, 3 years.

 Okay. So Matt Jones. Any plans for additional JVs like SHPL and Baiyunshan?

 No. Not at the moment. We are focused very much on preparing our commercial organization to get ready for the launch of our oncology drugs when they come. They're coming. Sulfatinib hopefully will be ready to launch in 2020. So that's only a couple of years. And for us, the preparation where it needs to go into building an oncology organization is pretty significant. And we are looking for oncology assets that we can hold over the next couple of years to do like what we've done on Seroquel, which is full-service marketing for big pharma, but for oncology assets, so we can start building a team around that. Those kind of transactions or collaborations we would do. But I think we have the commercial team in place that we need. We don't really need any more joint ventures to facilitate that. So all about now focus on oncology and focus on getting ready for launching our own products.

 Jeff Diaz. How much do you plan to increase R&D expenditures?

 You can see from the guidance that I've given for '18, R&D expenditures goes from $88 million in 2017, up to $110 million to $120 million in '18. And I expect it to continue to increase, maybe, up to $150 million in 2019. We're getting deeper, broader, more Phase III studies enrolling, more assets in the clinic. And it just gets bigger and more expensive. So I could see then getting to a level of sort of $150 million to $180 million for 2 or 3 years thereafter.

 Tim Swanson. Are your cash requirements covered for all of '18 with your Q4 '17 equity raise?

 Absolutely. As you can see from the guidance, the burn in '18, we make a lot of money on other things, we make 30 -- well, in '18, we're making $40 million, $50 million in income from our partnerships, Astra and Lilly and Nestlé. And our commercial business is making over $40 million after tax. So we've got $80 million coming in from that. We're burning $110 million to $120 million on the pipeline and, you've got some overhead costs. So net we'll burn only between $19 million and $52 million in '18. And as I said earlier, $360 million in [clear] cash and another $120 million in unutilized banking facilities. So based on the plans we have, I think the cash requirements of the -- through '19 and well into 2020, but it really depends. We're currently negotiating with our partners and other areas to potentially take on more financial risk for a larger portion of the economics of savolitinib and fruquintinib. These are discussions that are ongoing. There is no certainty we'll be able to get our [bars] to allow us to put more financial resource at work, but if we could we would. And if we're able to do that, maybe, we would have reasons to raise more cash, but there'll be a very specific reason for it.

 Okay. Kevin Nadone. Do you expect any delays in NDA submission for fruquintinib? When in '18 do you expect to launch?

 Well, the submission is already done. So I think you mean NDA approval for fruquintinib. That, as I said, we will be completed -- we will have completed all of the inspection work, all of the GMP certification work, everything, required, hopefully, by sort of 3, maximum 4 months from now. So we'll be done. And it had been an enormous processes and full on effort by the entire organization. I don't know how small biotechs can submit NDA. It's taken literally an organization of 360 people to focus on it for a year to get this done. And so it will be done. And when it is done, then it really comes -- come to how long it takes the FDA to approve it. Now they have fruquintinib assigned as a priority product. Priority review is the first marketing authorization holder drug that ever come through NDA submission. So it's a real case study. And I expect them to not hang around once all the qualification work is done. But yes, I think, we should see approval, maybe, mid- to third quarter of '18, and we'll launch it within 2 or 3 months of that.

 These are all the questions I'd seen. And I see we're also running out of time. So I mean, have another one. Can you speak to the actions you put in place to improve corporate governance at the broad level?

 20 seconds on that -- the last 20 seconds. We are a -- we endeavor to run our company with blue chip corporate governance with the board that is highly experienced in governance, and I think our transparency speaks for itself.

 That's time up. And thank you very much for listening, and thanks for these good questions.




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