Hutchison China MediTech Limited (“Chi-Med”) (AIM:HCM) (Nasdaq:HCM)
today announces its unaudited financial results for the six months
ended June 30, 2018 and updates shareholders on key clinical
programs.
- Fruquintinib made substantial progress through China New Drug
Application (“NDA”) process, aiming for approval and launch for
colorectal cancer (“CRC”) this year; we also target to report Phase
III top-line results for non-small cell lung cancer (“NSCLC”) in Q4
2018;
- Savolitinib has two registration studies underway, global Phase
III in papillary renal cell carcinoma (“PRCC”) and China
registration intent Phase II in MET exon 14 mutation/deletion
NSCLC; also Tagrisso®/savolitinib combination studies in NSCLC
indications are in planning, and set to start in late 2018 and
early 2019;
- Expansion of U.S. and international operations firmly underway,
including recruitment of U.S. Chief Medical Officer and Head of
International Operations; and
- Video webcast presentation at 9:00 a.m. BST and additional
conference call at 9:00 a.m. EDT.
FINANCIAL HIGHLIGHTS
The points below are selected financial data for
the six months ended June 30, 2018. For more details, please refer
to “Financial Review”, “Operations Review” and “Unaudited Condensed
Consolidated Financial Statements” below.
Overall
Group • Group
revenue of
$102.2
million (H1 2017:
$126.6m). •
Net loss attributable to
Chi‑Med of $32.7 million (H1 2017: net profit
$1.7m). • Cash resources of $416.9
million at Group level as of June 30, 2018
($479.6m as of December 31, 2017), including cash and cash
equivalents, short-term investments and unutilized bank
facilities.
Innovation Platform: increased
investment in Research and Development (“R&D”) driven
by initiation of new trials and
ongoing enrollment in existing Phase III
programs •
Consolidated revenue was $13.6
million mainly from service fee
payments from AstraZeneca AB (publ) (“AstraZeneca”), Eli Lilly
& Company (“Lilly”) and Nutrition Science Partners Limited
(“NSP”), our 50/50 joint venture with Nestlé Health Science S.A.
(“Nestlé”) (H1 2017: $22.7m, which included $9.5m in milestone
payments from AstraZeneca and
Lilly). • R&D expenses
on an as adjusted (non-GAAP) basis increased to $66.7
million (H1 2017: $37.5m), primarily driven by
rapid expansion of operations and increased clinical trial expenses
on all eight clinical drug
candidates. • Net loss
attributable to Chi-Med of
$52.9
million (H1 2017: -$14.8m).
Commercial Platform: strong net
income growth amid shift in revenue model and over-the-counter
(“OTC”) logistics
divestment• Total
consolidated sales fell 15% to $88.6 million (H1
2017: $103.9m) due to the implementation of the Two-Invoice System
(“TIS”) in China, a new government policy that has led to a shift
in our revenue recognition for certain third-party drugs from gross
sales consolidation to a fee-for-service revenue
model. • Total sales of
non-consolidated joint ventures,
on an as adjusted (non-GAAP)
basis excluding the effects of
the divestment of certain non-core operations,
up 21% to $271.7 million (H1
2017: $224.2m). Strong growth across main product
categories. • Total
consolidated
net
income
attributable to Chi-Med, unaffected by the TIS
implementation, up 19%
to $26.9
million (H1 2017: $22.7m), on an as adjusted
(non-GAAP) basis which exclude one-time gains in H1 2017.
INNOVATION PLATFORM — OPERATING HIGHLIGHTS
The points below summarize some of the pipeline
development highlights so far this year. For more details, please
refer to “Operations Review – Innovation Platform” below.
Fruquintinib – Highly selective
tyrosine kinase inhibitor (“TKI”) of vascular endothelial growth
factor receptor (“VEGFR”) 1/2/3:•
FRESCO China Phase III in
third-line CRC, potentially best-in-class in
terms of both efficacy and safety:
- China NDA - substantial progress towards
approval: nearing the end of the pre-approval
inspection of manufacturing facilities stage of the NDA process,
one of the last stages of the NDA process, and aiming to receive an
approval in the second half of 2018;
- JAMA publication: in June
2018, the full results were published in the Journal of the
American Medical Association (“JAMA”), which we believe to be the
first China-based novel oncology therapy trial to be published in
the JAMA, another landmark achievement.
- Two further analyses of FRESCO data presented
at the annual meeting of the American Society of Clinical Oncology
(“ASCO”) in June 2018: subgroup analysis by prior
anti-VEGF or anti-EGFR target therapy showed that fruquintinib had
clinically meaningful benefits regardless of prior target therapy
(“PTT”) without observed cumulative toxicity; ad-hoc analysis of
quality-adjusted time without symptoms or toxicity (“Q-TWiST”)
showed relative improvement of Q-TWiST with fruquintinib,
representing a potentially clinically important quality-of-life
benefit for patients;
• FALUCA China Phase
III in third-line NSCLC: completed enrollment of
527 patients; expect to reach median overall survival (“OS”)
endpoint maturity and report top-line results in late
2018.• FRUTIGA China Phase III in
second-line gastric cancer: recruiting for
clinical study in combination with Taxol® (paclitaxel) proceeding
as planned, with an interim analysis intended in
2019.• U.S. Phase I
trial: enrolling as planned and intending to
complete at the end of 2018, which would allow us to explore
multiple innovative combination studies of fruquintinib and other
TKIs, chemotherapy and immunotherapy agents in the U.S.
Savolitinib – Highly selective
TKI of mesenchymal epithelial transition factor (“c-MET”) – Global
Phase III studies underway or in planning:•
In MET Exon 14
mutation/deletion first-line NSCLC: while
continuing to enroll patients in Phase II in China, we have reached
an agreement with regulators regarding the conditions under which
the existing trial could be sufficient for an NDA submission in
China. • In EGFR
mutation-positive NSCLC, following ongoing encouraging data in the
TATTON Phase Ib/II trials of combinations with Tagrisso®,
AstraZeneca is proceeding to:
- In third-generation EGFR
TKI-refractory (principally second-line and
third-line after Tagrisso®) NSCLC: initiate the next stage of
global clinical trials around the end of 2018;
- In first-/second-generation EGFR
TKI-refractory (principally second-line after
Iressa®/ Tarceva®) NSCLC: initiate the next stage of global
clinical trials in early 2019.
• SAVOIR global
Phase III study in c-MET-driven PRCC enrolling
patients at all sites now following its initiation in June
2017.• PRCC molecular epidemiology
study (“MES”) progressing: 200+ patient
tissue-sample diagnostic analysis likely to yield data by end of
2018, which we hope will highlight for regulatory authorities an
unmet medical need in c-MET-driven PRCC.•
CALYPSO Phase II combinations with
Imfinzi®
programmed death-ligand 1
(“PD-L1”)
inhibitor:
enrolled rapidly in H1 2018 and may complete enrollment in late
2018 and in mid-2019 in PRCC and clear cell renal cell carcinoma
(“ccRCC”) patients, respectively.
Sulfatinib – Unique angio-immuno
kinase inhibitor of VEGFR, fibroblast growth factor receptor
(“FGFR”) 1, and colony stimulating factor-1 receptor
(“CSF-1R”):• Phase
IIIs in neuroendocrine tumor (“NET”): enrollment
continuing in the two Phase III studies in NET patients in China,
with interim analysis expected for 2019; if results are positive,
this could potentially be our first novel drug candidate to be
launched by our own commercial team.•
U.S. Phase Ib/IIa expansion: enrolling
pancreatic NET and biliary tract cancer (“BTC”) patients, following
the completion of the U.S. dose escalation stage and based on
preliminary efficacy and safety data observed in these two
indications in China.
Further progress in
early/proof-of-concept clinical trials,
including:• Epitinib
Phase Ib/II in EGFR gene amplified glioblastoma:
trial initiated in China in the first quarter of 2018 with
epitinib, our unique EGFR inhibitor that has demonstrated the
ability to penetrate the blood-brain
barrier.• HMPL-523 U.S. investigational
new drug (“IND”) clearance: The U.S. Food and
Drug Administration (“FDA”) approved our highly selective spleen
TKI (“Syk”) to progress into clinical trials in June 2018, which we
plan to initiate in early 2019.•
HMPL004-6599 Australia Phase I initiated:
proprietary botanical drug being developed by our 50/50 joint
venture with Nestlé initiated and completed the single ascending
dose study in the first half of 2018. Phase II enabling
non-clinical studies are being initiated.
Expansion of U.S. and
international operations, and recruitment of key
personnel:• New office in New Jersey:
U.S./ex-Asia operations expanded to support our unpartnered
compounds through proof-of-concept, registration trials, and market
launch in territories outside of Asia.•
Key personnel recruited, including the U.S. Chief
Medical Officer and Head of International Operations.
Key potential pipeline
milestones anticipated in the next 6-12 months•
Savolitinib:
- Third-generation (Tagrisso®) EGFR-TKI refractory, c-MET gene
amplified, NSCLC (both second-line and third-line): initiation of
global study of savolitinib in combination with Tagrisso® in this
rapidly growing patient population.
- First-/second-generation (Iressa®/Tarceva®) EGFR-TKI
refractory, c-MET gene amplified, T790M negative NSCLC
(second-line): initiation of a global randomized, controlled study
of savolitinib in combination with Tagrisso® along with multiple
supporting clinical studies.
- Presentation of preliminary Phase II data for savolitinib
monotherapy in c-MET gene amplified gastric cancer and first-line
MET Exon 14 mutation/deletion NSCLC.
- Release of results of global PRCC MES and review of the
potential Breakthrough Therapy opportunity in c-MET-driven
PRCC.
•
Fruquintinib:
- Aim to receive NDA approval in advanced CRC and launch in
China, with our partner Lilly.
- Release of top-line results for the FALUCA Phase III study in
third-line NSCLC.
• Epitinib:
initiation of Phase III China registration study in first-line
NSCLC patients with EGFR activating mutations and brain
metastasis.• HMPL-523:
presentation of preliminary safety and efficacy data from Phase I
dose escalation study in hematological cancer in Australia and
China.• Immunotherapy
combinations: aim to take first steps to develop our VEGFR
inhibitors, fruquintinib and sulfatinib, in combination with
various programmed cell death protein-1 (“PD-1”) antibodies in
several solid tumor settings.
COMMERCIAL PLATFORM — OPERATING HIGHLIGHTS
The points below summarize some of the
operational and financial highlights of our Commercial Platform in
the first half of 2018. For more details, please refer to
“Operations Review — Commercial Platform” below.
Scaled, high-performance drug
marketing and distribution platform covering ~300 cites/towns in
China with approximately 3,400 sales personnel. Targeting multiple
indications with many household-name
brands:• Sales of our
non-consolidated Prescription Drugs joint
venture, Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) grew
by 18% to $152.7 million (H1 2017: $129.7m). SHPL’s main product,
She Xiang Bao Xin (“SXBX”) pill, an oral vasodilator and
pro-angiogenesis prescription therapy approved to treat coronary
artery disease, saw sales increase by 18% to $129.8 million.
• Our consolidated Prescription
Drugs business, operated through Hutchison
Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited
(“Hutchison Sinopharm”), saw sales decrease by 21% to $68.0 million
(H1 2017: $85.8m) as a result of the Chinese government’s
implementation of the new TIS, pursuant to which we had converted
to earning service fees from the commercialization of certain
third-party products instead of recognizing the gross sales from
these products in our revenue as we had done prior to
implementation of TIS in October 2017; despite the TIS change,
service fees earned from key third-party products, such as
anti-psychotic Seroquel®, grew rapidly, up 75% to $9.6 million (H1
2017: $5.5m).• Sales of our
non-consolidated Consumer Health joint venture,
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company
Limited (“HBYS”), grew by 26% to $119.0m (H1 2017: $94.4m,
excluding divested operations), driven by the elimination of
production capacity constraints.• Our
consolidated Consumer Health sales increased by
14% to $20.6 million (H1 2017: $18.1m), resulting from higher
volume in infant nutrition products.
Simon To,
Chairman of Chi-Med,
said: “Chi-Med continues to deliver on its clear strategy
of developing its broad pipeline and cultivating and growing its
capabilities in global drug discovery and development, while
maintaining an over a decade-and-a-half long track record of
earnings growth in its Commercial Platform.
During the first half of 2018, we have focused
on navigating the China NDA process for fruquintinib, which we
believe is now nearing completion. We are optimistic that we will
see fruquintinib approved and launched by year end. We also look
forward, around year end, to reporting the top-line results for the
pivotal Phase III, the FALUCA study, of fruquintinib in third-line
NSCLC in China.
Our collaboration with AstraZeneca continues to
gather momentum, and we are currently enrolling registration
studies in both kidney and lung cancer indications for savolitinib
monotherapy. We are also in the process of planning and preparing
to initiate multiple additional studies in lung and gastric
cancers, which we believe may ultimately serve as registration
studies.
Our un-partnered assets have also made good
progress, with sulfatinib in two Phase III studies in China that
could produce readout next year in NETs. In addition, we have
worked with key opinion leaders and the regulatory authorities in
China to agree on a Phase III pathway for epitinib and aim to
initiate a pivotal study around year end. On our Syk,
phosphoinositide 3-kinase delta (“PI3Kδ”) and FGFR compounds, all
of which are in proof-of-concept, we have made meaningful progress
in enrollment thereby acquiring a preliminary understanding of
efficacy and safety for each compound. We expect to present some of
these data at scientific conferences over the next twelve
months.
We are now looking closely into multiple
opportunities to combine our highly selective TKIs with both PD-1
and PD-L1 immunotherapy agents and will strive to make progress
during the second half of 2018, via collaboration, in this very
high potential arena.
We have expanded our U.S./ex-Asia operations,
including our office in New Jersey, and continue to recruit
seasoned talent to manage the progress of our unpartnered compounds
through proof-of-concept, registration trials, and market launch in
territories outside of Asia.
Chi-Med has a clear and ambitious aim to bring
three of our drugs through approval over the next approximately
three years. We believe we are adequately structured and resourced
to support this aim. In the longer term, we intend to continue to
emerge as a world-class innovator based in China, bringing our
assets to both the China and global markets. We have confidence in
our ability to achieve these aims.”
Use of Non-GAAP Financial
Measures – References in this announcement to
adjusted R&D expenses, adjusted consolidated net income
attributable to Chi-Med from our Commercial Platform, adjusted
consolidated operating profit from our Commercial Platform,
adjusted consolidated net income attributable to Chi-Med from our
Prescription Drugs business and adjusted revenue of HBYS and
non-consolidated joint ventures 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.
FINANCIAL
GUIDANCE:
Our updated guidance for 2018, compared to the
most recent guidance in our full year results announcement for the
year ended December 31, 2017 dated March 12, 2018, includes a $20
million increase in expected full year Innovation Platform R&D
expense to $130-140 million. This increase reflects a rise in
clinical trial spending as well as broadening of organizational
scale and new middle management share-based incentive grants. These
costs are all driven by the heightened competitive environment in
China biotech, resulting from the step-change increase interest and
investment in the sector over the past two years. We make no other
changes to the full year 2018 financial guidance as detailed
below:
|
|
2018 Previous Guidance |
2018 Current Guidance |
Adjustment |
| Group
Level: |
|
|
|
| • Consolidated
revenue |
$155-175m |
$155-175m |
None |
| • Admin., interest
& tax |
$(16)-(18)m |
$(16)-(18)m |
None |
| • Net loss[1] |
$(19)-(52)m |
$(39)-(72)m |
$(20)m increase |
|
|
|
|
|
|
Innovation Platform: |
|
|
|
| • Consolidated
revenue |
$40-50m |
$40-50m |
None |
| • Adjusted
(non-GAAP) R&D expenses |
$(110)-(120)m |
$(130)-(140)m |
$(20)m
increase |
| • Net loss[1] |
$(60)-(80)m |
$(80)-(100)m |
$(20)m increase |
| |
|
|
|
|
Commercial
Platform: |
|
|
|
| • Sales
(consolidated) |
$115-125m |
$115-125m |
None |
| • Sales of
non-consolidated JVs[2] |
$460-480m |
$460-480m |
None |
|
• Net income on an as adjusted (non-GAAP) basis excl. one-time
gains[1] |
$41-43m |
$41-43m |
None |
|
• One-time gains[1] |
$0-20m[3] |
$0-20m[3] |
None |
|
• Net income[1] |
$41-63m |
$41-63m |
None |
| Notes: [1]
Attributable to Chi-Med; [2] Joint ventures; [3] One-time property
compensation, timing of which is dependent on Guangzhou government
policy. |
| |
|
|
|
U.K. Analysts
Meeting and Webcast
Scheduled Today at 9:00 a.m. BST (4:00 p.m. HKT) – at
Citigate Dewe Rogerson, 3 London Wall Buildings, London,
EC2M 5SY, 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 U.S.,
please dial 1 866 966 5335.
Additional dial-in numbers are also available at
Chi-Med's website. For both calls please use conference ID
“Chi-Med.”
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 (SEHK: 1). For more
information, please visit: www.chi-med.com.
CONTACTS
|
Investor
Enquiries |
|
| Mark Lee, Senior Vice
President, 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,
Solebury Trout |
+1 (917) 570 7340 (Mobile)
bmiles@troutgroup.com |
| Susan Duffy,
Solebury Trout |
+1 (917) 499 8887 (Mobile)
sduffy@troutgroup.com |
| |
|
|
Investor
Relations |
|
| Xuan Yang,
Solebury Trout |
+1 (415) 971 9412 (Mobile) xyang@troutgroup.com |
| David Dible,
Citigate Dewe Rogerson |
+44 7967 566 919 (Mobile)
david.dible@citigatedewerogerson.com |
| |
|
|
Panmure Gordon (UK)
Limited |
|
| Richard Gray / Andrew
Potts |
+44 (20) 7886 2500 |
| |
|
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. Although Chi-Med believes that the publications, reports and
surveys are reliable, Chi-Med has not independently verified the
data and cannot guarantee the accuracy or completeness of such
data. You are cautioned not to give undue weight to this 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.
FINANCIAL REVIEW
Chi-Med Group revenue for the six months ended
June 30, 2018 decreased by 19% to $102.2 million (H1 2017:
$126.6m). Revenue from the Commercial Platform decreased to $88.6
million (H1 2017: $103.9m) driven by the adoption of the TIS policy
which caused our consolidated joint venture Hutchison Sinopharm to
cease recognizing gross sales from certain third-party products and
instead earn service fees from such sales in the first half of
2018. Revenue from the Innovation Platform decreased to $13.6
million in the first half of 2018 (H1 2017: $22.7m), reflecting
similar levels of service fee payments from our partners as was
received in the first half of 2017 but, no milestone payments were
received in the first half of 2018 (H1 2017: $5.0m from AstraZeneca
and $4.5m from Lilly). It should be noted that Group revenues do
not include the revenues of our two large-scale, 50/50 joint
ventures in China, SHPL and HBYS, since these are accounted for
using the equity method.
In the first half of 2018 our Commercial
Platform, which continues to be an important profit and cash source
for Chi-Med, grew operating profit by 22% to $31.0 million (H1
2017: $25.3m on an as adjusted (non-GAAP) basis excluding one-time
gains of $2.5m) as a result of strong growth in SHPL’s coronary
artery disease Prescription Drug business, service fees on
Seroquel® and Concor® and elimination of production capacity
constraints on our Consumer Health businesses. The Innovation
Platform incurred an operating loss of $53.1 million (H1 2017:
-$14.8m) as a result of expansion of practically all aspects of our
R&D organization and operations as well as clinical development
of our pipeline of eight drug candidates.
Net corporate unallocated expenses, primarily
Chi-Med Group overhead and operating costs, declined to $4.9
million (H1 2017: $6.7m) mainly due to higher interest income from
short-term investments.
Consequently, Chi-Med Group’s operating loss was
$27.0 million (H1 2017: operating profit of $6.3m).
The aggregate of interest and income tax
expenses of Chi-Med Group, as well as net income attributable to
non-controlling interests was $5.7 million (H1 2017: $4.6m) mainly
due to higher profit taxes and an increase in the share of net
income attributable to a non-controlling interest in the Commercial
Platform.
The resulting total Group net loss attributable
to Chi-Med was $32.7 million (H1 2017: net income $1.7m).
As a result, Group net loss attributable to
Chi-Med in the first half of 2018 was $0.49 per ordinary share /
$0.245 per American depositary share (“ADS”), compared to net
income attributable to Chi-Med of $0.03 per ordinary share / $0.015
per ADS, in H1 2017.
Cash and
Financing
During the past two years, we have had a high
degree of success in proof-of-concept studies on our eight clinical
drug candidates, which has naturally resulted in a significant
increase in investment. The scale of our late-stage clinical trial
programs has expanded significantly, with a total of seven
registration studies, either Phase III or Phase II registration
intent studies, either underway or completing. We plan for four
additional registration studies to start in late 2018/early 2019 as
well as to continue early development Phase Ib/II studies in
approximately 20 Target Patient Populations (“TPPs”).
We have, and will continue to try to partially
offset increasing clinical investment with cash generated in our
operating activities from dividends paid by our non-consolidated
Commercial Platform joint ventures, as well as payments received
from AstraZeneca, Lilly, and NSP, our joint venture with Nestlé. In
aggregate, in the first half of 2018, these helped offset a
meaningful portion of the $66.7 million (H1 2017: $37.5m) in
R&D expenses on an as adjusted (non-GAAP) basis.
As of June 30, 2018, we had available cash
resources of $416.9 million (December 31, 2017: $479.6m) at the
Chi-Med Group level including cash and cash equivalents and
short-term investments of $322.5 million (December 31, 2017:
$358.3m) and unutilized bank borrowing facilities of $94.4 million
(December 31, 2017: $121.3m). In addition, as of June 30, 2018, our
non-consolidated joint ventures (SHPL, HBYS and NSP) held $62.5
million (December 31, 2017: $67.0m) in available cash
resources.
Outstanding bank loans as of June 30, 2018
amounted to $26.7 million (December 31, 2017: $30.0m) at the
Chi-Med Group level, with a weighted average cost of borrowing in
the first half of 2018 of 2.33% (year ended December 31, 2017:
1.90%). As of June 30, 2018 and December 31, 2017, our
non-consolidated joint ventures had no outstanding bank loans.
In summary, we believe that the cash resources
that we currently hold are sufficient to fund all our near-term
activities, including the full development of our clinical drug
pipeline into 2020.
OPERATIONS REVIEW
INNOVATION PLATFORM
The Chi-Med pipeline of drug candidates has been
created and developed by the in-house R&D operation which was
started in 2002. Since then, we have built a large team of about
390 scientists and staff (June 30, 2017: 330) based in China
and are 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 build and leverage this platform, as we have
in the past decade, to produce a stream of novel drug candidates
with global potential.
Innovation Platform revenue in the first half of
2018 was $13.6 million (H1 2017: $22.7m) reflecting generally
similar levels of service fees and clinical cost reimbursements
received from AstraZeneca and Lilly to those received in the first
half of last year. Revenue in the first half of 2017 also included
milestone payments from AstraZeneca and Lilly for the start of the
savolitinib Phase III clinical trial in PRCC ($5.0m) and the
submission of the first fruquintinib NDA ($4.5m). We did not
receive any milestone payments in the first half of 2018.
In the first half of 2018 we granted options to
purchase on over 870,000 ordinary shares to over 40 members,
primarily of the Innovation Platform middle management team, an
important step to broaden equity participation among the future
leaders of the company. The non-cash expense for these grants
totaled $20.4 million and will be amortized over four years, with
$7.1 million expected to be expensed in 2018.
Net loss attributable to Chi-Med increased to
$52.9 million (H1 2017: -$14.8m) mainly from increased R&D
expenses of $66.7 million (H1 2017: $37.5m) on an as adjusted
(non-GAAP) basis driven by expansion of clinical development
activities, the aforementioned organization growth and new
share-based incentives, as well as further investment in the
expansion of small molecule manufacturing operations.
Since inception, the Innovation Platform has
dosed over 4,000 patients/subjects in clinical trials of our drug
candidates with over 400 dosed in the first half of 2018 primarily
as a result of enrollment in the seven registration studies that we
had underway during the period.
U.S. and International
Operations Expanded
In the second quarter of 2018, we commenced
operations of Hutchison MediPharma (US) Inc. at our new U.S.
offices in Florham Park, New Jersey. While we have been conducting
clinical and non-clinical development in North America and Europe
for over a decade, the activities conducted by this new U.S. office
will support our growth strategy outside of China and significantly
broaden and scale our non-Asia clinical development and
international operations. As part of this strategy, we recruited
two experienced senior personnel, namely the U.S. Chief Medical
Officer, and the Head of International Operations. They will
support our expansion of clinical development and regulatory
activities outside Asia, including initiating and managing Phase II
trials of fruquintinib, sulfatinib and HMPL-523 in the U.S. and
preparing for the commercial launch of fruquintinib and sulfatinib
outside of mainland China, if approved.
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 700 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 combinations. Two registration studies, one in kidney and
one in lung cancer, are underway and several additional studies,
that we believe could ultimately serve as registration studies, are
expected to start over the next 6-12 months.
Savolitinib – Kidney
cancer: High proportion of MET-driven
patients. The table below shows a summary of the clinical studies
that we have underway for savolitinib in kidney cancer
patients.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
1 |
SAVOIR: 1L/2L c-MET-driven PRCC |
Savolitinib monotherapy |
Global |
III |
Initiated Q2 2017Est. enrolled YE 2019 |
|
N/A |
MES: PRCC epidemiology study |
N/A – diagnostic |
Global |
N/A |
Est. completed YE 2018 |
|
2 |
PAPMET: PRCC |
Savolitinib vs. sunitinib vs. cabozantinib vs. crizotinib |
US(NCI) |
II |
Est. enrolled YE 2019 |
|
3 |
CALYPSO: PRCC |
Savolitinib and Imfinzi® |
UK/Spain |
II |
Est. enrolled YE 2018 |
|
4 |
CALYPSO: 2L ccRCC (VEGFR TKI refractory) |
Savolitinib monotherapy |
UK/Spain |
II |
Est. enrolled H1 2019 |
|
5 |
CALYPSO: 2L ccRCC (VEGFR TKI refractory) |
Savolitinib and Imfinzi® |
UK/Spain |
II |
Est. enrolled H1 2019 |
| |
TPP 1 – Enrolling (NCT03091192) – Phase III PRCC
savolitinib once daily (“QD”) monotherapy (Global) – A global
Phase III registration study, the SAVOIR study, of savolitinib
versus Sutent® in c-MET-driven metastatic PRCC patients was
initiated in June 2017. The primary endpoint for efficacy in the
SAVOIR study is median progression free survival (“PFS”), with
secondary endpoints of OS, objective response rate (“ORR”),
duration of response (“DoR”) and disease control rate (“DCR”). All
clinical trial site initiations in six countries were completed
early this year, and we expect enrollment to complete around the
end of 2019.
The MES is ongoing, whereby archived tissue
samples from over 200 PRCC patients are being screened using our
companion diagnostic to identify c-MET-driven disease. We expect
this global MES to contribute to developing a more comprehensive
understanding of the role of c-MET-driven disease in PRCC.
Historical medical records from these patients will then be used to
determine if c-MET-driven disease is predictive of worse outcome,
in terms of PFS and OS, in PRCC patients. If this is proven to be
the case, we will consider engaging in discussions regarding
Breakthrough Therapy potential with the FDA. We expect to have the
full MES data by the end of 2018, and could present it at a major
scientific conference in 2019.
TPP 2 – Enrolling (NCT02761057) – 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®; Cabometyx® (cabozantinib); Xalkori®
(crizotinib) and savolitinib. PAPMET began enrolling patients in
2016, and is expected to enroll about 180 patients in over 70
locations in the U.S. The savolitinib arm of the study is over a
third enrolled and is expected to complete enrollment in 2019.
TPP 3, TPP 4 and TPP 5 – Enrolling (NCT02819596)
– Phase II study of savolitinib monotherapy and in combination with
Imfinzi® (anti-PD-L1) in both PRCC and ccRCC patients (U.K./Spain)
– A 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® 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 phase of the CALYPSO study
successfully established the combination dose of savolitinib and
Imfinzi® and the study moved onto the Phase II expansion stage in
PRCC and ccRCC patients in the U.K. and Spain to further explore
efficacy. Patient recruitment moved rapidly in the first half of
2018. Enrollment for PRCC patients is expected to complete in the
second half of 2018 and for ccRCC patients in the first half of
2019.
Savolitinib – Lung
cancer: We believe this is Savolitinib’s
largest market opportunity. The table below shows a summary of the
clinical studies that we have underway for savolitinib in lung
cancer patients.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
6 |
TATTON: NSCLC 1st/2nd-gen EGFR TKI refractory |
Savolitinib and Tagrisso® |
Global |
Ib/II |
Next trial est. start H1 2019 |
|
7 |
TATTON: NSCLC 3rd-gen EGFR TKI refractory |
Savolitinib and Tagrisso® |
Global |
Ib/II |
Next trial est. start YE 2018 |
|
8 |
2L
NSCLC, EGFR TKI refractory |
Savolitinib and Iressa® |
China |
Ib/II |
Next trial in discussion with partner AstraZeneca |
|
9 |
1L
NSCLC |
Savolitinib monotherapy |
China |
II |
Enrollment complete |
|
10 |
MET Exon 14 mutation/deletion NSCLC |
Savolitinib monotherapy |
China |
II |
Registration intent. Enrolling |
| |
Tagrisso® combinations: In 2016, we initiated a
global Phase Ib/II expansion study in NSCLC, the TATTON (Part
B) study, aiming to recruit sufficient c-MET gene amplified
patients, who had progressed after prior treatment with a
first/second-generation TKI (e.g. Iressa®/Tarceva®), to support a
decision on global Phase II/III registration strategy. In this
first/second-generation EGFR TKI refractory NSCLC population, we
estimate that c-MET gene amplification occurs in 15-20% of
patients, while the T790M mutation occurs in approximately 45-70%
of patients. TATTON (Part B) also included patients who
subsequently developed resistance to third-generation EGFR TKIs
(primarily Tagrisso®). Preliminary data was presented in October
2017 at World Conference on Lung Cancer (“WCLC”) (as described
below). TATTON (Part B) continued to enroll and further data,
including PFS, is expected to be presented at a scientific
conference in the future. Other parallel studies, TATTON (Part C)
and TATTON (Part D), were initiated in 2017 and will further
broaden our data set in the 400mg (Japan only) and 300mg QD dose,
respectively, over the balance of 2018 and early 2019. Earlier this
year, AstraZeneca decided to progress onto the next stage of
development of two separate indications, and planning for each is
underway as described below (TPP 7 & TPP 6).
TPP 7 – Enrolling (NCT02143466) – Phase Ib/II
NSCLC (second- or third-line 3rd-generation EGFR TKI- (primarily
Tagrisso®) refractory), savolitinib (600mg QD) in combination with
Tagrisso® (Global) – Data presented in June 2017 at ASCO, by
Harvard Medical School and Massachusetts General Hospital Cancer
Center (“HMS/MGH”), showed that about 30% (7/23 patients) of
Tagrisso® resistant NSCLC patients harbor c-MET gene amplification.
This patient population is generally heavily pre-treated and highly
complex from a molecular analysis standpoint, with the HMS/MGH
study showing that more than half the c-MET gene amplification
patients also harbored additional genetic alterations, including
but not limited to EGFR gene amplification. At the 2017 WCLC,
preliminary TATTON (Part B) study data included 30 evaluable
patients previously treated with third-generation T790M-directed
EGFR inhibitors, primarily Tagrisso®. Confirmed partial response
(“PRs”) were observed in 10/30 (ORR 33%) of these patients, which
was as expected given the additional driver genes at work post
Tagrisso® monotherapy failure. We believe that the
savolitinib/Tagrisso® combination is an important treatment option
for these late-stage c-MET gene amplified patients who have no
remaining targeted treatment alternatives. Moreover, the FDA and
the European Commission approved Tagrisso® for first-line treatment
of EGFR-mutation NSCLC in April and June 2018, respectively, and as
such the need for treatment following Tagrisso® is expected to
increase.
Encouraged by the above-mentioned data and
recent approvals of Tagrisso®, AstraZeneca has decided to
prioritize proceeding with development of savolitinib in NSCLC for
patients that are refractory to third-generation EGFR TKI by the
end of 2018. This will start out as a single-arm, Phase II study
for savolitinib (600mg, 300mg if <55kg QD) and Tagrisso® (80mg
QD).
TPP 6 – Enrolling (NCT02143466) – Phase Ib/II
expansion NSCLC (second-line 1st/2nd-generation EGFR
TKI-refractory), savolitinib in combination with Tagrisso® (Global)
– At the 2017 WCLC, preliminary TATTON (Part B) study data included
34 evaluable patients who showed confirmed PRs in 14/23 (ORR 61%)
of T790M mutation negative patients, as well as confirmed PRs in
6/11 (55% ORR) of T790M mutation positive patients.
Planning is now underway for a global randomized
controlled study of the savolitinib plus Tagrisso® combination in
this TPP 6, first/second-generation EGFR TKI-refractory
(Iressa®/Tarceva®), c-MET-driven, T790M mutation-negative NSCLC
patients. This will also start out as a Phase II study and is
currently targeted to start in H1 2019.
Other lung cancer populations:
TPP 8 – Completed (NCT02374645) – Phase II NSCLC
(second-line), EGFR TKI-refractory, savolitinib in combination with
Iressa® (China) – We continue to discuss how this combination can
be further developed.
TPP 9 and TPP 10 – Enrollment Completed and
Enrolling (NCT01985555 / NCT02897479) – Phase II c-MET-driven
NSCLC, savolitinib monotherapy (China) – Phase II studies of
savolitinib are ongoing in NSCLC focusing on patients with
c-MET-driven disease. These are NSCLC patients with MET Exon 14
mutation/deletion who have failed prior systemic therapy, or are
unwilling or unable to receive chemotherapy. Following recent
regulatory dialogue and a subsequent protocol amendment, we expect
that this study, if successful, would be sufficient to support an
NDA submission in China. Preliminary data in these TPPs may be
presented at a major scientific conference in 2019.
Savolitinib – Gastric
cancer: multiple Phase II studies underway
in Asia in c-MET-driven patients.
Phase II gastric cancer studies are ongoing in
China as well as the VIKTORY umbrella study, being run at the
Samsung Medical Center in South Korea, in which savolitinib is
represented in three out of the twelve treatment arms. As at the
latest report in 2017, a total of over 850 gastric cancer patients
had been screened in these studies and those patients with
confirmed c-MET-driven disease are being treated with either
savolitinib monotherapy or savolitinib in combination with
Taxotere®. Presentations of preliminary data from these studies
were made in 2017 at the annual meetings of the Chinese Society of
Clinical Oncology (“CSCO”) (China Phase II, 441 patients screened)
and ASCO (VIKTORY Phase II, 438 patients screened), with about 5.1%
of patients determined to have c-MET gene amplification. The table
below shows a summary of the clinical studies that we have underway
for savolitinib in gastric cancer patients.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
11 |
Gastric cancer (c-MET gene amplification) and VIKTORY (in South
Korea) |
Savolitinib monotherapy |
China & South Korea |
II |
Enrolling |
|
12 |
VIKTORY: Gastric cancer (c-MET over-expression) |
Savolitinib and Taxotere® |
South Korea |
II |
Enrolling |
|
13 |
VIKTORY: Gastric cancer (c-MET gene amplification) |
Savolitinib and Taxotere® |
South Korea |
II |
Enrolling |
| |
TPP 11 – Enrolling (South Korea (NCT02449551) /
China (NCT01985555)) – Phase II gastric cancer, savolitinib
monotherapy, patients with c-MET gene amplification (South
Korea/China) – Preliminary results were presented at the CSCO 2017
conference for the efficacy evaluable c-MET gene amplified patients
in China. This China study concluded that savolitinib monotherapy
demonstrated promising anti-tumor efficacy in gastric cancer
patients with c-MET gene amplification, and the potential benefit
to these patients clearly warrants further exploration, including
continuing enrollment for a Phase II study in China. The VIKTORY
Phase II study is ongoing in c-MET gene amplified patients in South
Korea, and preliminary data may be presented at a major scientific
conference in the second half of 2018 or in 2019.
TPP 12 and TPP 13 – Enrolling (NCT02447380 /
NCT02447406) – Phase II studies of savolitinib in combination with
Taxotere® in c-MET over-expression or c-MET gene amplification
gastric cancer (South Korea) – Phase II studies are underway to
assess safety/tolerability of savolitinib and Taxotere® combination
as well as preliminary efficacy of the combination therapy in both
c-MET gene amplified patients and, the approximately 40% of gastric
cancer patients who harbor c-MET over-expression. The VIKTORY Phase
II is ongoing in South Korea in TPP 12 and 13, with preliminary
data may be presented at a major scientific conference in the
second half of 2018 or in 2019.
Savolitinib – Prostate
cancer: The table below shows a summary of the
clinical study that we have underway for savolitinib in prostate
cancer patients.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
14 |
Metastatic Castration-Resistant Prostate Cancer |
Savolitinib monotherapy |
Canada |
II |
Enrolling |
| |
TPP 14 – Enrolling (NCT03385655) – Phase II
study in patients with metastatic Castration-Resistant Prostate
Cancer (“mCRPC”) (Canada) – study sponsored by the Canadian Cancer
Trials Group is designed to determine the effect of savolitinib on
prostate-specific antigen (“PSA”) decline and time to PSA
progression, ORR as determined by RECIST 1.1 criteria, the safety
and toxicity profile of savolitinib in mCRPC patients, as well as
any potential predictive and prognostic factors. The umbrella study
targets to enroll around 500 patients into six treatment arms based
on molecular status, with one treatment arm being patients with
aberrant c-MET activation who will receive savolitinib. High levels
of c-MET over-expression can be prevalent in prostate cancer
patients.
FRUQUINTINIB (HMPL-013)
Fruquintinib is a highly selective and potent
oral inhibitor of VEGFR 1/2/3 that was designed to be a global
best-in-class VEGFR inhibitor for many types of solid tumors.
Fruquintinib's unique kinase selectivity has been shown to reduce
off-target toxicity thereby allowing for better target coverage, as
well as possible use in combination with other agents such as
chemotherapies, targeted therapies and immunotherapies. We believe
these are points of meaningful differentiation compared to other
approved small molecule VEGFR inhibitors, such as Sutent®, Nexavar®
(sorafenib) and Stivarga®, and can potentially significantly expand
the use and global market potential of fruquintinib.
We believe that fruquintinib is the first
home-grown, China-discovered and developed drug candidate in a
mainstream oncology indication to succeed in a pivotal Phase III
registration trial. There are three pivotal Phase III trials (the
FRESCO, FALUCA and FRUTIGA studies) currently underway or
completing in China. Our first ever NDA in China for third-line CRC
(the FRESCO study) is near the end of the approval application
process. We have also completed enrollment in third-line NSCLC (the
FALUCA study) and are enrolling patients in a study in combination
with Taxol® in second-line gastric cancer (the FRUTIGA study).
Furthermore, a Phase II study in combination with Iressa® in
first-line EGFR activating mutation NSCLC is ongoing, following
encouraging preliminary results presented at the 2017 WCLC. We also
expect a Phase I study of fruquintinib in the U.S. to complete by
the end of 2018, which will represent the first step in the
development of fruquintinib outside China. In China, fruquintinib
is jointly developed with Lilly, our commercial partner. The table
below shows a summary of the clinical studies that we have underway
for fruquintinib.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
15 |
FRESCO: 3L CRC |
Fruquintinib monotherapy |
China |
III |
Pending NDA approval |
|
16 |
FALUCA: 3L NSCLC |
Fruquintinib monotherapy |
China |
III |
Enrollment completeTop-line data YE 2018 |
|
17 |
1L
NSCLC |
Fruquintinib and Iressa® |
China |
II |
Enrollment complete |
|
18 |
Solid tumors |
Fruquintinib monotherapy |
US |
I |
Est. complete YE 2018 |
|
19 |
FRUTIGA: 2L gastric cancer |
Fruquintinib and Taxol® |
China |
III |
Initiated Oct 2017 |
| |
TPP 15 – NDA submitted June 2017 (NCT02314819) –
Phase III study in CRC (third-line), fruquintinib monotherapy
(China) – Since completing submission of the NDA to the China
National Drug Administration (“CNDA”, formerly the China Food and
Drug Administration) in June 2017, we have engaged the CNDA’s
Center for Drug Evaluation to conduct reviews in the areas of
pharmacology and toxicity, clinical data and statistical analysis,
and chemistry, manufacturing and control of standards and process.
We have also facilitated the conduct of clinical site visits
including Good Clinical Practice and Good Laboratory Practice
inspections, and the pre-approval inspections (“PAIs”) for our
active pharmaceutical ingredient contract manufacturer as well as
the PAI and Good Manufacturing Practice (“GMP”) certification
process for our Suzhou formulation facility. We hope to receive an
approval from the CNDA on our NDA in the second half of 2018.
Following the initial presentation of FRESCO, a
pivotal Phase III study in 416 patients with locally advanced
or metastatic CRC disease that progressed following at least two
prior systemic chemotherapies, at the 2017 ASCO annual meeting, two
further analyses were subsequently presented at the 2018 ASCO
annual meeting. Firstly, the results of a subgroup analysis by
prior anti-VEGF or anti-EGFR target therapy in FRESCO showed that
fruquintinib had clinically meaningful benefits in third-line
metastatic CRC patients regardless of PTT without observed
cumulative toxicity. This subgroup analysis result is consistent
with the previously reported FRESCO intent-to-treatment population
result. Secondly, an ad-hoc analysis aiming to compare the
quality-adjusted survival between the two arms of the FRESCO study
using Q-TWiST showed that the relative improvement of Q-TWiST
observed represents a clinically important quality-of-life benefit
for metastatic CRC patients.
In addition, in June 2018, the JAMA published
the full results of the FRESCO study. We believe that this is the
first time that the JAMA has ever published novel oncology therapy
results from China, a testament to the quality of the FRESCO study
design, execution, and result.
TPP 16 – Enrollment complete (NCT02691299) –
Phase III study of fruquintinib monotherapy in third-line NSCLC
(China) – Following a positive Phase II study comparing
fruquintinib with placebo in advanced non-squamous NSCLC patients
who have failed two prior systemic chemotherapies, we initiated a
Phase III registration study, the FALUCA study, in December 2015.
Results of the Phase II study were presented at the 2016 WCLC and
have been published in the Journal of Clinical Oncology. In
February 2018, we completed enrollment of the FALUCA study in
China, in which a total of 527 patients were randomized at a 2:1
ratio to receive either fruquintinib or placebo plus best
supportive care. The primary endpoint for the FALUCA study is OS,
with secondary endpoints including PFS, ORR, DCR and DoR. We expect
to reach median OS endpoint maturity and report top-line results in
late 2018.
TPP 17 – Enrollment complete (NCT02976116) –
Phase II study of fruquintinib in combination with Iressa® in
first-line NSCLC (China) – In early 2017, we initiated a
multi-center, single-arm, open-label, dose-finding Phase II study
of fruquintinib in combination with Iressa® in the first-line
setting for patients with advanced or metastatic NSCLC with EGFR
activating mutations. We have enrolled about 50 patients in this
study with the objective to evaluate the safety and tolerability as
well as efficacy of the combination therapy. Preliminary data was
presented at the 2017 WCLC, showing an encouraging efficacy and
safety profile.
Fruquintinib’s unique safety and tolerability
profile, resulting from its high kinase selectivity, combined with
better flexibility to manage treatment emergent toxicities due to
its shorter half-life than monoclonal antibody anti-angiogenesis
therapies, makes it a very high potential combination partner for
EGFR-TKIs.
TPP 18 – Enrolling (NCT03251378) – Phase I
fruquintinib monotherapy in advanced solid tumors (U.S.) – In
December 2017, we initiated a multi-center, open-label, Phase I
clinical study to evaluate the safety, tolerability and
pharmacokinetics (“PK”) of fruquintinib in U.S. patients with solid
tumors. Upon completion, likely at the end of 2018, our intention
is to begin exploring multiple innovative combination studies of
fruquintinib and other TKIs, chemotherapy and immunotherapy agents
in the U.S.
Recent innovations in solid tumor drugs have
focused on targeted therapies and immunotherapies which, as
monotherapies, have both delivered improved outcomes for patients.
Our proof-of-concept studies have already demonstrated the benefits
of TKI combinations with other TKIs or with chemotherapy, and
immunotherapy combinations will also be included. As unique
next-generation anti-angiogenesis VEGFR TKIs, fruquintinib (with
its uniquely selective profile) and sulfatinib (with its inhibition
of tumor-associated macrophages, facilitating PD-1 induced immune
response) represent ideal candidates for combination with
immunotherapy agents such as PD-1/L1 inhibitors to extend the
duration of these benefits and expand them to more patients. This
hypothesis was recently demonstrated at this year’s ASCO annual
meeting relating to the combination of Inlyta® (axitinib) and
Keytruda® (pembrolizumab) in first-line ccRCC in 52 patients, which
yielded an ORR of 73% vs. 34% and 38% for Inlyta® or Keytruda®
monotherapy, respectively.
TPP 19 – Enrolling (NCT03223376) – Phase III
study of fruquintinib in combination with Taxol® in gastric cancer
(second-line) (China) – In October 2017, we initiated the FRUTIGA
study, a randomized, double-blind, Phase III study to evaluate the
efficacy and safety of fruquintinib combined with Taxol® compared
with Taxol® monotherapy for second-line treatment of advanced
gastric or gastroesophageal junction adenocarcinoma, in patients
who had failed first-line standard 5-flourouracil-based
chemotherapy. A total of over 500 patients are expected to be
enrolled into the FRUTIGA study at a 1:1 ratio. The primary
endpoint is OS, with secondary endpoints including PFS, ORR, DCR
and quality-of-life score. Biomarkers related to the anti-tumor
activity of fruquintinib will also be explored. We intend to
conduct an interim analysis of the FRUTIGA study for futility,
sometime during mid-2019.
SULFATINIB (HMPL-012)
Sulfatinib is an oral drug candidate with a
unique angio-immuno kinase profile which provides both effects on
anti-angiogenesis and effects on enhancing the body’s immune
system, specifically T-cells. In addition to suppressing
angiogenesis through inhibiting VEGFR and FGFR1, sulfatinib is a
potent inhibitor of CSF-1R, a signaling pathway involved in
blocking the activation of tumor-associated macrophages. Sulfatinib
is the first oncology candidate that we have taken through
proof-of-concept in China and subsequently started clinical
development in the U.S. We are currently conducting studies in six
TPPs on sulfatinib and retain all rights to sulfatinib worldwide. A
summary of these clinical studies is shown in the table below.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
20 |
SANET-p: Pancreatic NET |
Sulfatinib monotherapy |
China |
III |
Est. enrolled 2019 |
|
21 |
SANET-ep: Non-pancreatic NET |
Sulfatinib monotherapy |
China |
III |
Est. enrolled 2019 |
|
22 |
Pancreatic NET and BTC |
Sulfatinib monotherapy |
US |
Ib/II |
Enrolling |
|
23 |
Thyroid cancer (Recurrent/refractory MTC) |
Sulfatinib monotherapy |
China |
II |
Enrollment complete |
|
24 |
Thyroid cancer (RAI-refractory DTC) |
Sulfatinib monotherapy |
China |
II |
Enrollment complete |
|
25 |
Chemotherapy refractory BTC |
Sulfatinib monotherapy |
China |
II |
Enrolling |
| |
TPP 20 – Enrolling (NCT02589821) – Phase III in
pancreatic NET patients (China) – In 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 sulfatinib 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 2019
and present top-line results thereafter.
TPP 21 – Enrolling (NCT02588170) – Phase III in
non-pancreatic NET patients (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 non-pancreatic
NET. Patients are randomized at a 2:1 ratio to receive either
sulfatinib 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 2019 and present top-line results thereafter.
TPP 22 – Enrolling (NCT02549937) – Phase Ib/II
in pancreatic NET and BTC patients (U.S.) – A Phase I dose
escalation study in advanced solid tumor patients in the U.S.
completed at the end of the first half of 2018, having confirmed
the 300mg QD recommended Phase II dose. Earlier in July 2018, we
initiated a U.S. multi-arm Phase Ib/II study to explore efficacy
and safety in both pancreatic NET and BTC patients.
TPP 23 and TPP 24 – Enrollment complete
(NCT02614495) – 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 medullary thyroid cancer (“MTC”) or
radioactive iodine (“RAI”)-refractory differentiated thyroid cancer
(“DTC”) in China where there are few safe and effective treatment
options. In June 2017, we presented preliminary Phase II data at
ASCO 2017 conference showing that at the time of data cut-off, a
total of 18 patients had been enrolled, and treated with
sulfatinib, with preliminary data showing that confirmed PRs were
reported in 3/10 (30.0% ORR) RAI-refractory DTC patients and 1/6
(16.7% ORR) MTC patients, and all other patients were reported as
stable disease.
TPP 25 – Enrolling (NCT02966821) – Phase II
study in chemotherapy refractory BTC patients (China) – In early
2017, we began a Phase II proof-of-concept study in patients
with BTC, a heterogeneous group of rare malignancies arising from
the biliary tract epithelia and the gallbladder. We see a major
unmet medical need for patients who have progressed while on
chemotherapy, and believe that sulfatinib may offer a new targeted
treatment option in this tumor type. Planning for a Phase III
pivotal study in China in this TPP is now underway.
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 are estimated to develop brain metastasis. Patients
with brain metastasis have a dismal prognosis 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 both pre-clinical and clinical studies.
EGFR inhibitors have revolutionized the treatment of NSCLC with
EGFR activating mutations. However, approved EGFR inhibitors such
as Iressa® and Tarceva® cannot penetrate the blood-brain barrier
effectively, leaving the majority of patients with brain metastasis
without an effective targeted therapy. We currently retain all
rights to epitinib worldwide. The table below shows a summary of
the clinical studies that we have underway for epitinib.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
26 |
EGFR-mutation NSCLC with brain metastasis |
Epitinib monotherapy |
China |
Ib |
EnrollingPh. III start YE 2018 |
|
27 |
Glioblastoma |
Epitinib monotherapy |
China |
Ib/II |
Initiated March 2018 |
| |
TPP 26 – Enrolling (NCT02590952) – Phase Ib
epitinib monotherapy in NSCLC patients with activating
EGFR-mutations and brain metastasis (China) – In December 2016 at
the WCLC, we presented encouraging efficacy data from an open
label, multi-center Phase I dose expansion study. For EGFR TKI
naïve patients treated with epitinib 160mg QD dose, ORR was in the
range of 60-70% (including confirmed and unconfirmed PRs), with a
tolerable safety profile. During the first half of 2018, we
continued to enroll patients in this Phase Ib study and, as a
result of our recent dialogue with regulators, are planning to
initiate a Phase III study in late 2018.
TPP 27 – Enrolling (NCT03231501) – Phase Ib/II
study in glioblastoma – Glioblastoma is a primary brain cancer that
harbors high levels of EGFR gene amplification. In March 2018, we
initiated a Phase Ib/II study multi-center, single-arm, open-label
study to evaluate the efficacy and safety of epitinib as a
monotherapy in patients with EGFR gene amplified, histologically
confirmed glioblastoma. The primary endpoint is ORR.
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® and Tarceva®, 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®. Consequently, we believe that
theliatinib could benefit patients with tumor-types with a high
incidence of wild-type EGFR activation. This is notable in certain
cancer types such as esophageal cancer, where 8-30% of patients
harbors EGFR gene amplification and 30-90% EGFR over-expression. We
currently retain all rights to theliatinib worldwide. The table
below shows a summary of the clinical studies that we have underway
for theliatinib.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
28 |
Solid tumors |
Theliatinib monotherapy |
China |
I |
Completed |
|
29 |
Esophageal cancer |
Theliatinib monotherapy |
China |
Ib |
Enrolling |
|
TPP 28 – Completed (NCT02601274) – Phase I study
of theliatinib monotherapy in solid tumors (China) – At the 2017
CSCO conference, we presented results from the Phase I study of the
safety and preliminary anti-tumor activity of theliatinib. Results
showed that doses up to 500mg QD were determined to be safe and
well-tolerated, with no dose limiting toxicities or maximum
tolerated dose established. The study concluded that further
development of theliatinib 400mg QD amongst esophageal cancer
patients with EGFR over-expression was warranted (TPP 29).
TPP 29 – Enrolling (NCT02601274) – Phase Ib
expansion theliatinib monotherapy in esophageal cancer (China) – In
early 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. This study is now in the
process of expanding through the opening of additional clinical
sites in China.
HMPL-523
HMPL-523 is a potential best-in-class oral
inhibitor targeting Syk, a key protein involved in B-cell
signaling. Modulation of the B-cell signaling system has proven to
have significant potential for the treatment of certain chronic
diseases in immunology, such as rheumatoid arthritis, immune
thrombocytopenia (ITP) or lupus, as well as hematological cancers
where it is a potential first-in-class compound. We currently
retain all rights to HMPL-523 worldwide. The table below shows a
summary of the clinical studies that we have underway for
HMPL-523.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
30 |
Immunology (healthy volunteers) |
HMPL-523
monotherapy |
Australia |
I |
Completed |
|
31 |
Immunology (healthy volunteers) |
HMPL-523
monotherapy |
China |
I |
Initiating |
|
32 |
Hematological cancers |
HMPL-523
monotherapy |
Australia |
I |
Enrolling |
|
33 |
Lymphoma |
HMPL-523
monotherapy |
China |
I |
Enrolling |
| |
TPP 30 and TPP 31 – Completed (NCT02105129) –
Phase I study (healthy volunteers) (Australia/China) – We believe
HMPL-523, as an oral drug candidate, has 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. The Phase I dose
escalation study showed HMPL-523 exhibited a tolerable safety
profile, with data presented in full at the 2016 American College
of Rheumatology conference. Off-target toxicities such as diarrhea
and hypertension, seen with the first-generation Syk inhibitor
fostamatinib, were not observed. In addition to tolerable safety,
this Phase I dose escalation study evaluated the PK and
pharmacodynamic (“PD”) profile of HMPL-523.
TPP 32 and TPP 33 – Enrolling (NCT02503033 /
NCT02857998) – 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 and have completed seven dose cohorts. China Phase I began
in early 2017 and completed five dose cohorts. Recommended Phase II
doses have been determined and dose expansion studies have
initiated in both Australia and China. Since early 2018, we have
been increasing the number of active clinical sites, now totaling
13, in Australia and China to support a large dose expansion
program in a broad range of hematological cancers. These include,
chronic lymphocytic leukemia, small lymphocytic lymphoma, mantle
cell lymphoma, follicular lymphoma and diffuse large B-cell
lymphoma. We target to present dose escalation results, including
preliminary proof-of-concept data, at a major scientific conference
later in 2018 or in 2019. Our U.S. IND application for HMPL-523 was
cleared by the FDA at the end of June 2018 and we are now planning
Phase II development.
HMPL-689
HMPL-689 is a novel, potential best-in-class,
highly selective and potent small molecule inhibitor targeting
the isoform PI3Kδ, a key component in the B-cell receptor
signaling pathway. We have designed HMPL-689 with superior
PI3Kδ isoform selectivity. HMPL-689's PK properties have been found
to be favorable with good oral absorption, moderate tissue
distribution and low clearance in preclinical PK studies. We also
expect that HMPL-689 will have low risk of drug accumulation
and drug-to-drug interaction. We currently retain all rights to
HMPL-689 worldwide. The table below shows a summary of the clinical
studies that we have underway for HMPL-689.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
34 |
Healthy
volunteers |
HMPL-689
monotherapy |
Australia |
I |
Completed |
|
35 |
Lymphoma |
HMPL-689
monotherapy |
China |
I |
Initiated
August 2017 |
| |
TPP 34 and TPP 35 – Enrolling (NCT02631642 /
NCT03128164) – Phase I dose escalation (Australia/China) – In 2016,
we completed a Phase I dose escalation study in Australia 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 tolerable safety profile. We subsequently
initiated a Phase I dose escalation and expansion study in patients
with hematologic malignancies in China in August 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. 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. The table below shows a summary of the clinical studies
that we have underway for HMPL-453.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
36 |
Solid
tumors |
HMPL-453
monotherapy |
Australia |
I |
Discontinued |
|
37 |
Solid
tumors |
HMPL-453
monotherapy |
China |
I |
Enrolling |
| |
TPP 36 and TPP 37 – Enrolling (NCT02966171 /
NCT03160833) – Phase I dose escalation (Australia/China) – In early
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. In July 2018 we discontinued the
Australian Phase I study due to the emergence of certain serious,
though non-life threatening, FGFR target related toxicities. The
China Phase I continues, with additional measures designed to
minimize risk to patients, due to the overall greater tolerance and
lower toxicities experienced in Chinese patients.
HMPL004-6599
The table below shows the clinical study that we
have underway for HMPL004-6599.
|
TPP |
Name, Line, Patient Focus |
Therapy |
Sites |
Phase |
Status |
|
38 |
Healthy
volunteers |
HMPL004-6599 monotherapy |
Australia |
I |
Initiated
April 2018 |
| |
TPP 38 – Enrolling (NCT03597971) – Phase I dose
escalation (Australia) – HMPL004-6599 is a proprietary botanical
drug for the treatment of inflammatory bowel disease, which we are
developing through NSP, our 50/50 joint venture with Nestlé. We
initiated Phase I clinical studies in Australia in April 2018 and
completed the single ascending dose stage. Phase II enabling
non-clinical studies are being initiated. HMPL004-6599 is an
enriched/purified re-formulation of HMPL-004, our drug candidate
that reported positive Phase II results in ulcerative colitis in
2010, but later proved futile in an interim analysis of the
subsequent Phase III study in 2014.
COMMERCIAL PLATFORM
The Commercial Platform, which has been built
over the past 17 years, is focused on two business areas. First is
our core Prescription Drugs business, a higher-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.
In the first half of 2018, the Commercial
Platform delivered strong net income growth despite a change in the
way we recognize certain sales resulting from the implementation of
the TIS and the divestment of a non-core OTC logistics business.
Consolidated sales of our Commercial Platform’s subsidiaries
decreased by 15% to $88.6 million (H1 2017: $103.9m) as TIS caused
us to shift from a gross sales revenue model to a service fee
revenue model with respect to sales of certain third-party
products. The sales of our Commercial Platform’s non-consolidated
joint ventures, SHPL and HBYS, grew by 21% to $271.7 million (H1
2017: $224.2m excluding divested operations). These resulted in
adjusted (non-GAAP) consolidated net income attributable to Chi-Med
from our Commercial Platform up 19% to $26.9 million (H1 2017:
$22.7m) when one-time gains were excluded (H1 2017: $2.5m,
R&D-related subsidies to SHPL).
Prescription Drugs
business
In the first half of 2018, sales of our
Prescription Drugs subsidiaries decreased as expected by 21% to
$68.0 million (H1 2017: $85.8m) as a result of the implementation
of TIS. Sales of our non-consolidated Prescription Drugs joint
venture (SHPL) grew by 18% to $152.7 million (H1 2017: $129.7m).
The consolidated (non-GAAP) net income attributable to Chi-Med from
our Prescription Drugs business was up 23% to $20.8 million (H1
2017: $16.9m, excluding one-time gains from R&D-related
subsidies to SHPL). The Prescription Drugs business represented 77%
of our overall Commercial Platform net income in the first half of
2018.
SHPL:
Our own-brand Prescription Drugs business, operated through our
non-consolidated joint venture SHPL, is a well-established and
stable-growth business. In the first half of 2018, SHPL delivered
sales growth of 18% at $152.7 million (H1 2017: $129.7m) as a
result of both volume and price growth on SXBX pill.
SXBX pill: SHPL’s main 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 one 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 are overweight) and
hypertension (26% of adults). SXBX pill is the third largest
botanical prescription drug in this indication in China, with a
market share of 15% nationally and 47% in Shanghai. Sales of SXBX
pill have grown more than twenty-fold since 2001 due to continued
geographical expansion of sales coverage, including 18% to $129.8
million in the first half of 2018 (H1 2017: $110.4m).
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 a 2017 average daily cost of
RMB4.00 (2016: RMB3.30), or approximately $0.60. 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 2,400 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. SHPL’s new, GMP-certified factory located 40
kilometers south of Shanghai in Fengpu district holds 74 drug
product manufacturing licenses and is operated by about 550
manufacturing staff. This new factory, opened in 2017, has
approximately tripled SHPL’s capacity and therefore positions us
well for continued long-term growth.
Concor®: Concor® (Bisoprolol tablets) is a
cardiac beta1-receptor blocker, relieving hypertension and reducing
high blood pressure. Concor® is the number two beta-blocker in
China with an approximately 18% national market share in China’s
beta-blocker drug market and 70% of China’s generic bisoprolol
market. SHPL is now the exclusive marketing agent in six provinces,
markets that contain over 360 million people. We have created
synergy with SHPL’s existing cardiovascular medical sales team by
detailing Concor® alongside SXBX pill. In the first half of 2018,
we grew Concor® sales by 25%, resulting in service fees of $2.2
million (H1 2017: $1.1m). We expect growth in these fees will
continue to be driven by cardiovascular market expansion.
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
2018, Hutchison Sinopharm sales decreased 21% to $68.0 million (H1
2017: $85.8m) as a result of the TIS implementation, as described
below.
Regulatory reform in the China pharmaceutical
distribution system – The new TIS, a mandatory government policy,
has now been rolled-out across China. In principle, the purpose of
the TIS is to restrict the number of layers in the drug
distribution system in China and to improve transparency, compliant
business conduct, and efficiency and thereby lower the cost of
drugs. The impact to us is that, starting in October 2017, the
Seroquel® sales model, in which our consolidated revenues
historically reflected total gross sales of Seroquel®, shifted to a
fee-for-service model similar to that used with respect to Concor®.
This change reduced the top-line revenues that Hutchison Sinopharm
records from sales of Seroquel® as well as several of our other
third-party products. Importantly, however, this drop in reported
sales has had no impact on profitability, the service fees paid to
Hutchison Sinopharm, or our commercial team operations and
expansion plans.
Seroquel®: Seroquel® (quetiapine tablets)
is an anti-psychotic therapy approved for bi-polar disorder and
schizophrenia, conditions that are under-diagnosed in China.
Seroquel® holds a 5.6% market share in China’s approximately $0.9
billion atypical anti-psychotic prescription drug market, and 45%
of China’s generic quetiapine market, primarily as a result of
being the first-mover and original patent holder on quetiapine.
Seroquel® is the only brand in China to have an extended release
(XR) formulation, which in 2017 was included on the National Drug
Reimbursement List (NDRL), thereby providing us with major
competitive advantage over quetiapine generics.
Hutchison Sinopharm is the exclusive marketing
agent for Seroquel® tablets in China and operates through a team of
about 110 dedicated medical sales representatives. As stated
throughout, the new TIS has had no effect on profitability, with
service fees paid to Hutchison Sinopharm for marketing Seroquel®
during the first half of 2018 increasing 75% to $9.6 million (H1
2017: $5.5m).
In June 2018, AstraZeneca sold and licensed
rights to Seroquel® to Luye Pharma Group, Ltd., including the
transfer of contracts entered into by AstraZeneca with third
parties. The terms of our agreement with AstraZeneca were assigned
to Luye Pharma Hong Kong Ltd. and remain unchanged following this
transaction, and this transaction has not affected our 2018
financial guidance.
Subject to Hutchison Sinopharm’s continued
performance of marketing services, and delivery of approximately
22% in-market sales growth in 2018 and 15% per year thereafter, we
will continue to retain exclusive commercial rights to Seroquel® in
China until 2025. Growth in Seroquel in-market sales during the
first half of 2018 was 36% due to overall strong execution. We
expect Hutchison Sinopharm to have a reasonable chance to meet
these annual Seroquel® sales targets over the next several years,
although such sales are subject to a number of factors, some of
which are beyond our control, including potential changes in
government pricing policies in China.
Consumer Health
business:
During the first half of 2018, sales of our
Consumer Health subsidiaries increased by 14% to $20.6 million (H1
2017: $18.1m) and sales of our non-consolidated Consumer Health
joint venture (HBYS) were $119.0 million, a 26% increase (H1 2017:
$94.4m on an as adjusted (non-GAAP) basis, excluding divested
operation sales of $29.0m). Consolidated net income attributable to
Chi-Med from our Consumer Health business grew by 7% to $6.1
million (H1 2017: $5.8m). The Consumer Health business represented
23% of our overall Commercial Platform net income in the first half
of 2018.
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
about 1,000 manufacturing staff in Guangdong and Anhui and 189 drug
product licenses, HBYS has a commercial team of about 1,000 sales
staff that covers the national retail pharmacy channel in China.
The increased available production capacity as detailed below, and
a decline in the prices of certain key raw materials, resulted in
the above strong revenue and net income growth in the first half of
2018.
New Bozhou factory: In August 2017, HBYS
transferred the majority of production to our new GMP-certified
low-cost factory in Bozhou, Anhui. Capacity until this point had
been constrained and production had to be supplemented by
third-party contract manufacturers. These production capacity
constraints were eliminated in the second half of 2017 once the
Bozhou factory began production.
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 leading national market share in China of 38% (2016:
32%) and 53% (2016: 51%), respectively. The first half of 2018 saw
the combined sales of these products increased by 10% to $70.7
million (H1 2017: $64.3m). This was largely due to the reversal of
several headwinds affecting Banlangen during the same period in
2017. Banlangen sales grew 34% to $37.9 million in the first half
of 2018 due to a moderate to severe flu season and the elimination
of manufacturing capacity constraints. This increase was offset in
part by a decline in sales of FFDS which fell 9% to $32.8 million
as a result of price increases and a reduction in distribution
channel inventory ahead of the approval and label expansion of FFDS
for use in certain early-stage dementia indications, which is
expected in the second half of 2018.
Nanyang Baiyunshan Hutchison Whampoa Guanbao
Pharmaceutical Company Limited (“Guanbao”) divestment: In September
2017, HBYS divested its 60% shareholding in Guanbao for a
consideration approximately equal to its carrying value. Guanbao
was a Good Supply Practice distribution company which had been
established via a joint venture in 2012. This low margin, primarily
third-party OTC logistics business, with operations limited mainly
to Henan province, had proven to be a business with no strategic
value to Chi-Med. Sales reported under HBYS for Guanbao were nil in
the first half of 2018 (H1 2017: $29.0m).
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, while we are actively working to
facilitate the process, external factors have to-date hampered
progress. Land prices however 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, we anticipate that based on recent
precedent land transactions, 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,
HHOH and other minor entities are subsidiaries involved in the
commercialization of health-related consumer products. Sales of
such products in the first half of 2018 grew by 14% to $20.6
million (H1 2017: $18.1m) driven in part by growth of the Zhi Ling
Tong® and Earth’s Best® infant nutrition products.
Commercial Platform
dividends:
The profits of the Commercial Platform continue
to pass on to the Chi-Med Group through dividend payments primarily
from our non-consolidated joint ventures, SHPL and HBYS. Dividends
of $23.5 million (H1 2017: $42.6m) were paid from these joint
ventures to the Chi-Med Group level in the first half of 2018.
Dividends in the first half of 2017 were unusually high as the
proceeds of one-time land compensation from SHPL were paid out. Net
income from SHPL and HBYS have totaled over $500 million since
2005, of which $355 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, 2018, SHPL and HBYS held in aggregate $41.9 million
in cash and cash equivalents, with no outstanding bank borrowings.
Christian Hogg Chief Executive Officer
July 27,
2018
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 R&D
expenses;• Adjusted consolidated
operating profit from our Commercial Platform;•
Adjusted consolidated net income attributable to
Chi-Med from our Commercial Platform;•
Adjusted consolidated net income attributable to
Chi-Med from our Prescription Drugs business; and•
Adjusted revenues of HBYS and non-consolidated joint
ventures.
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 excluded from adjusted financial results:
Adjusted R&D expenses: We exclude the impact
of the revenue received from external customers of our Innovation
Platform, which is reinvested into our clinical trials, to derive
our adjusted R&D expense. Revenue received from external
customers of our Innovation Platform consists of milestone and
other payments from our collaboration partners. The variability of
such payments makes the identification of trends in our ongoing
R&D activities more difficult. We believe the presentation of
adjusted R&D expenses provides useful and meaningful
information about our ongoing R&D activities by enhancing
investors’ understanding of the scope of our normal, recurring
operating R&D expenses.
Adjusted consolidated operating profit from our
Commercial Platform, 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 one-time gains which were
triggered by the payment of R&D-related subsidies from the
Shanghai government to SHPL.
Adjusted revenues of HBYS and non-consolidated
joint ventures: we exclude the sales of Guanbao because Guanbao was
divested by HBYS in September 2017.
Reconciliation of GAAP
to adjusted R&D expenses:
|
$’000 |
Six Months Ended June 30,
2018 |
Six Months Ended June 30,
2017 |
| Segment operating loss
– Innovation Platform |
(53,041 |
) |
(14,811 |
) |
|
Less: Segment revenue from external customers – Innovation
Platform |
(13,624 |
) |
(22,726 |
) |
| |
|
|
| Adjusted
R&D expenses |
(66,665 |
) |
(37,537 |
) |
| |
Reconciliation of GAAP
to adjusted consolidated operating profit from our Commercial
Platform:
|
$’000 |
Six Months Ended June 30,
2018 |
Six Months Ended June 30,
2017 |
| Consolidated operating
profit – Commercial Platform |
30,958 |
27,798 |
|
|
Less: One-time gains from R&D-related subsidies |
- |
(2,494 |
) |
| |
|
|
| Adjusted
consolidated operating profit – Commercial Platform |
30,958 |
25,304 |
|
| |
Reconciliation of GAAP
to adjusted consolidated net income attributable to Chi-Med from
our Commercial Platform:
|
$’000 |
Six Months Ended June 30,
2018 |
Six Months Ended June 30,
2017 |
| Consolidated net income
attributable to Chi-Med – Commercial Platform |
26,914 |
25,158 |
|
|
Less: One-time gains from R&D-related subsidies |
- |
(2,494 |
) |
| |
|
|
| Adjusted
consolidated net income attributable to Chi-Med – Commercial
Platform |
26,914 |
22,664 |
|
| |
Reconciliation of GAAP
to adjusted consolidated net income attributable to Chi-Med from
our Prescription Drugs business:
|
$’000 |
Six Months Ended June 30,
2018 |
Six Months Ended June 30,
2017 |
| Consolidated net income
attributable to Chi-Med – Prescription Drugs business |
20,768 |
19,421 |
|
|
Less: One-time gains from R&D-related subsidies |
- |
(2,494 |
) |
| |
|
|
| Adjusted
consolidated net income attributable to Chi-Med – Prescription
Drugs business |
20,768 |
16,927 |
|
| |
Reconciliation of GAAP
to adjusted revenues of HBYS and non-consolidated joint
ventures:
|
$’000 |
Six Months Ended June 30,
2018 |
Six Months Ended June 30,
2017 |
| HBYS revenue |
118,983 |
123,408 |
|
|
Less: Guanbao revenue |
- |
(28,964 |
) |
| |
|
|
| Adjusted revenue of
HBYS |
118,983 |
94,444 |
|
|
SHPL revenue |
152,717 |
129,718 |
|
| |
|
|
| Adjusted
revenues of non-consolidated joint ventures |
271,700 |
224,162 |
|
| |
UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Hutchison China MediTech
LimitedCondensed Consolidated
Balance Sheets(in US$’000,
except share data)
|
|
|
|
June 30, |
|
December 31, |
|
|
Note |
|
2018 |
|
2017 |
|
|
|
|
(Unaudited) |
|
|
|
Assets |
|
|
|
|
|
| Current assets |
|
|
|
|
|
| Cash and
cash equivalents |
3 |
|
75,329 |
|
|
85,265 |
|
|
Short‑term investments |
4 |
|
247,165 |
|
|
273,031 |
|
| Accounts
receivable—third parties |
5 |
|
44,419 |
|
|
38,410 |
|
| Accounts
receivable—related parties |
18
(ii) |
|
2,550 |
|
|
3,860 |
|
| Other
receivables, prepayments and deposits |
6 |
|
14,315 |
|
|
11,296 |
|
| Amounts
due from related parties |
18
(ii) |
|
1,110 |
|
|
8,544 |
|
|
Inventories |
7 |
|
9,788 |
|
|
11,789 |
|
| Total
current assets |
|
|
394,676 |
|
|
432,195 |
|
| Property, plant and
equipment |
8 |
|
14,416 |
|
|
14,220 |
|
| Deferred tax
assets |
19
(ii) |
|
681 |
|
|
633 |
|
| Investments in equity
investees |
9 |
|
161,589 |
|
|
144,237 |
|
| Other assets |
|
|
6,581 |
|
|
6,647 |
|
| Total
assets |
|
|
577,943 |
|
|
597,932 |
|
|
Liabilities and shareholders’
equity |
|
|
|
|
|
| Current
liabilities |
|
|
|
|
|
| Accounts
payable |
10 |
|
19,308 |
|
|
24,365 |
|
| Other
payables, accruals and advance receipts |
11 |
|
49,669 |
|
|
40,953 |
|
| Income
tax payable |
19
(iii) |
|
1,167 |
|
|
979 |
|
| Deferred
revenue |
16 |
|
3,753 |
|
|
1,295 |
|
| Amounts
due to related parties |
18
(ii) |
|
10,687 |
|
|
7,021 |
|
|
Short‑term bank borrowings |
12 |
|
— |
|
|
29,987 |
|
| Total
current liabilities |
|
|
84,584 |
|
|
104,600 |
|
| Deferred tax
liabilities |
19
(ii) |
|
5,052 |
|
|
4,452 |
|
| Long‑term bank
borrowings |
12 |
|
26,692 |
|
|
— |
|
| Deferred revenue |
16 |
|
924 |
|
|
809 |
|
| Other liabilities |
|
|
2,846 |
|
|
3,105 |
|
| Total
liabilities |
|
|
120,098 |
|
|
112,966 |
|
| Commitments and
contingencies |
13 |
|
|
|
|
|
Company’s shareholders’
equity |
|
|
|
|
|
| Ordinary
shares; $1.00 par value; 75,000,000 shares authorized;
66,532,683 and 66,447,037 shares issued at June 30, 2018 and
December 31, 2017 respectively |
14 |
|
66,533 |
|
|
66,447 |
|
|
Additional paid‑in capital |
|
|
497,517 |
|
|
496,960 |
|
|
Accumulated losses |
|
|
(140,890 |
) |
|
(107,104 |
) |
|
Accumulated other comprehensive income |
|
|
8,571 |
|
|
5,430 |
|
| Total
Company’s shareholders’ equity |
|
|
431,731 |
|
|
461,733 |
|
| Non‑controlling
interests |
|
|
26,114 |
|
|
23,233 |
|
| Total
shareholders’ equity |
|
|
457,845 |
|
|
484,966 |
|
| Total
liabilities and shareholders’ equity |
|
|
577,943 |
|
|
597,932 |
|
| |
| The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements. |
| |
Hutchison China MediTech
LimitedCondensed Consolidated
Statements of
Operations(Unaudited,
in US$’000, except share and per share
data)
|
|
|
|
Six Months Ended
June 30, |
|
|
Note |
|
2018 |
|
2017 |
|
Revenues |
|
|
|
|
|
| Sales—third
parties |
16 |
|
85,116 |
|
|
99,950 |
|
| Sales—related
parties |
16 |
|
3,449 |
|
|
3,908 |
|
| Revenue from license
and collaboration agreements—third parties |
16 |
|
8,548 |
|
|
17,843 |
|
| Revenue from research
and development services—related parties |
16 |
|
5,076 |
|
|
4,883 |
|
| Total
revenues |
|
|
102,189 |
|
|
126,584 |
|
|
Operating expenses |
|
|
|
|
|
| Costs of sales—third
parties |
|
|
(69,423 |
) |
|
(86,528 |
) |
| Costs of sales—related
parties |
|
|
(2,455 |
) |
|
(2,859 |
) |
| Research and
development expenses |
17 |
|
(60,053 |
) |
|
(31,566 |
) |
| Selling expenses |
|
|
(9,392 |
) |
|
(9,681 |
) |
| Administrative
expenses |
|
|
(14,549 |
) |
|
(12,015 |
) |
| Total
operating expenses |
|
|
(155,872 |
) |
|
(142,649 |
) |
| Loss
from operations |
|
|
(53,683 |
) |
|
(16,065 |
) |
| Other
income/(expense) |
|
|
3,188 |
|
|
(673 |
) |
| Loss
before income taxes and equity in earnings of equity
investees |
|
|
(50,495 |
) |
|
(16,738 |
) |
| Income tax expense |
19
(i) |
|
(2,680 |
) |
|
(1,846 |
) |
| Equity in earnings of
equity investees, net of tax |
9 |
|
23,050 |
|
|
22,269 |
|
| Net
(loss)/income |
|
|
(30,125 |
) |
|
3,685 |
|
| Less: Net income
attributable to non‑controlling interests |
|
|
(2,566 |
) |
|
(2,003 |
) |
| Net
(loss)/income attributable to the Company |
|
|
(32,691 |
) |
|
1,682 |
|
|
(Losses)/earnings per share attributable to the
Company—basic (US$ per share) |
20
(i) |
|
(0.49 |
) |
|
0.03 |
|
|
(Losses)/earnings per share attributable to the
Company—diluted (US$ per share) |
20
(ii) |
|
(0.49 |
) |
|
0.03 |
|
| Number of shares used
in per share calculation—basic |
20
(i) |
|
66,389,454 |
|
|
60,660,846 |
|
| Number of shares used
in per share calculation—diluted |
20
(ii) |
|
66,389,454 |
|
|
61,134,539 |
|
| |
| The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements. |
| |
Hutchison China MediTech
LimitedCondensed Consolidated
Statements of Comprehensive
(Loss)/Income(Unaudited,
in US$’000)
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
| Net
(loss)/income |
(30,125 |
) |
|
3,685 |
|
| Other comprehensive
income |
|
|
|
| Foreign
currency translation gain |
3,445 |
|
|
3,308 |
|
| Total
comprehensive (loss)/income |
(26,680 |
) |
|
6,993 |
|
| Less: Comprehensive
income attributable to non-controlling interests |
(2,870 |
) |
|
(2,367 |
) |
| Total
comprehensive (loss)/income attributable to the
Company |
(29,550 |
) |
|
4,626 |
|
| |
| The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements. |
| |
Hutchison China MediTech
LimitedCondensed Consolidated
Statements of Changes in Shareholders’
Equity(Unaudited,
in US$’000, except share data in ’000)
|
|
|
Ordinary SharesNumber |
|
OrdinarySharesValue |
|
Additional
Paid‑inCapital |
|
AccumulatedLosses |
|
Accumulated Other
ComprehensiveIncome/(Loss) |
|
Total Company’s Shareholders’
Equity |
|
Non‑
controlling Interests |
|
Total Equity |
| 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 share option exercises |
|
31 |
|
31 |
|
143 |
|
|
— |
|
|
— |
|
|
174 |
|
|
— |
|
|
174 |
|
| Share‑based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
options |
|
— |
|
— |
|
551 |
|
|
— |
|
|
— |
|
|
551 |
|
|
1 |
|
|
552 |
|
| Long‑term
incentive plan (“LTIP”) |
|
— |
|
— |
|
1,125 |
|
|
— |
|
|
— |
|
|
1,125 |
|
|
1 |
|
|
1,126 |
|
| |
|
— |
|
— |
|
1,676 |
|
|
— |
|
|
— |
|
|
1,676 |
|
|
2 |
|
|
1,678 |
|
| LTIP—treasury shares
acquired and held by Trustee |
|
— |
|
— |
|
(1,367 |
) |
|
— |
|
|
— |
|
|
(1,367 |
) |
|
— |
|
|
(1,367 |
) |
| Dividend paid to a
non‑controlling shareholder of a subsidiary |
|
— |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(37 |
) |
|
(37 |
) |
| 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 |
|
| As at
December 31, 2017 |
|
66,447 |
|
66,447 |
|
496,960 |
|
|
(107,104 |
) |
|
5,430 |
|
|
461,733 |
|
|
23,233 |
|
|
484,966 |
|
| Impact of change in
accounting policy (Note 2) |
|
— |
|
— |
|
— |
|
|
(1,080 |
) |
|
— |
|
|
(1,080 |
) |
|
(3 |
) |
|
(1,083 |
) |
| As at
January 1, 2018 |
|
66,447 |
|
66,447 |
|
496,960 |
|
|
(108,184 |
) |
|
5,430 |
|
|
460,653 |
|
|
23,230 |
|
|
483,883 |
|
| Net (loss)/income |
|
— |
|
— |
|
— |
|
|
(32,691 |
) |
|
— |
|
|
(32,691 |
) |
|
2,566 |
|
|
(30,125 |
) |
| Issuances in relation
to share option exercises |
|
86 |
|
86 |
|
634 |
|
|
— |
|
|
— |
|
|
720 |
|
|
— |
|
|
720 |
|
| Share‑based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share
options |
|
— |
|
— |
|
2,784 |
|
|
— |
|
|
— |
|
|
2,784 |
|
|
7 |
|
|
2,791 |
|
| LTIP |
|
— |
|
— |
|
2,575 |
|
|
— |
|
|
— |
|
|
2,575 |
|
|
7 |
|
|
2,582 |
|
| |
|
— |
|
— |
|
5,359 |
|
|
— |
|
|
— |
|
|
5,359 |
|
|
14 |
|
|
5,373 |
|
| LTIP—treasury shares
acquired and held by Trustee |
|
— |
|
— |
|
(5,451 |
) |
|
— |
|
|
— |
|
|
(5,451 |
) |
|
— |
|
|
(5,451 |
) |
| Transfer between
reserves |
|
— |
|
— |
|
15 |
|
|
(15 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Foreign currency
translation adjustments |
|
— |
|
— |
|
— |
|
|
— |
|
|
3,141 |
|
|
3,141 |
|
|
304 |
|
|
3,445 |
|
| As at
June 30, 2018 |
|
66,533 |
|
66,533 |
|
497,517 |
|
|
(140,890 |
) |
|
8,571 |
|
|
431,731 |
|
|
26,114 |
|
|
457,845 |
|
|
|
| The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements. |
| |
Hutchison China MediTech
LimitedCondensed Consolidated
Statements of Cash
Flows(Unaudited,
in US$’000)
|
|
|
|
Six Months Ended
June 30, |
|
|
Note |
|
2018 |
|
2017 |
| Net cash (used
in)/generated from operating activities |
22 |
|
(18,596 |
) |
|
19,422 |
|
|
Investing activities |
|
|
|
|
|
| Purchases of property,
plant and equipment |
|
|
(2,079 |
) |
|
(3,045 |
) |
| Deposits in short‑term
investments |
|
|
(491,169 |
) |
|
(16,000 |
) |
| Proceeds from
short‑term investments |
|
|
517,035 |
|
|
40,270 |
|
| Investment in an equity
investee |
|
|
(8,000 |
) |
|
(7,000 |
) |
| Net cash generated from
investing activities |
|
|
15,787 |
|
|
14,225 |
|
|
Financing activities |
|
|
|
|
|
| Proceeds from issuance
of ordinary shares |
15
(i) |
|
720 |
|
|
174 |
|
| Purchases of treasury
shares |
15
(ii) |
|
(5,451 |
) |
|
(1,367 |
) |
| Proceeds from bank
borrowings |
|
|
26,923 |
|
|
22,551 |
|
| Repayment of bank
borrowings |
|
|
(30,000 |
) |
|
(22,564 |
) |
| Payment of issuance
costs |
|
|
(34 |
) |
|
— |
|
| Dividends paid to a
non‑controlling shareholder of a subsidiary |
|
|
— |
|
|
(37 |
) |
| Net cash used in
financing activities |
|
|
(7,842 |
) |
|
(1,243 |
) |
| Net (decrease)/increase
in cash and cash equivalents |
|
|
(10,651 |
) |
|
32,404 |
|
| Effect of exchange rate
changes on cash and cash equivalents |
|
|
715 |
|
|
697 |
|
| |
|
|
(9,936 |
) |
|
33,101 |
|
| Cash
and cash equivalents |
|
|
|
|
|
| Cash and cash
equivalents at beginning of period |
|
|
85,265 |
|
|
79,431 |
|
| Cash and cash
equivalents at end of period |
|
|
75,329 |
|
|
112,532 |
|
| |
| The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements. |
| |
Hutchison China MediTech
LimitedNotes to the 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 at June 30, 2018, the Group had
accumulated losses of US$140,890,000, primarily due to its
significant spending in drug research and development (“Drug
R&D”) 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 at June 30,
2018, the Group had cash and cash equivalents of US$75,329,000,
short‑term investments of US$247,165,000 and unutilized bank
borrowing facilities of US$94,359,000. Short‑term investments
comprised of bank deposits maturing over three months. As at
December 31, 2017, the Group had cash and cash equivalents of
US$85,265,000, short‑term investments of US$273,031,000 and
unutilized bank borrowing facilities of US$121,282,000. 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, 2018 and 2017 were
US$23,526,000 and US$42,617,000 respectively.
Based on the Group’s operating plan, the
existing cash and cash equivalents, short‑term investments 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”) 2014-09, Revenue from Contracts
with Customers (Topic 606) (“ASC 606”) 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 unaudited condensed consolidated
financial statements and related disclosures have been prepared
with the presumption that users have read or have access to the
annual audited consolidated financial statements for the preceding
fiscal year.
The preparation of these interim unaudited
condensed consolidated financial statements in conformity with U.S.
GAAP required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as at the end of
the reporting period 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.
Revenue Recognition—ASC
606
Summary of impact of applying
ASC 606
The Group applied ASC 606 to all contracts at
the date of initial application of January 1, 2018. As a result,
the Group has changed its accounting policy for revenue recognition
as detailed below. The Group applied ASC 606 using the modified
retrospective method by recognizing the cumulative effect as an
adjustment to opening accumulated losses at January 1, 2018. The
comparative information prior to January 1, 2018 has not been
adjusted and continues to be reported under Accounting Standard
Codification 605, Revenue Recognition (Topic 605) (“ASC 605”).
The Group assessed its license and collaboration
contracts under ASC 606. Refer to Note 16. As a result of this
assessment, the Group recorded an aggregate US$1.1 million deferral
of revenue as a cumulative adjustment to opening accumulated losses
upon adoption.
For sales of goods and services, the Group
applied a portfolio approach to aggregate contracts into portfolios
whose performance obligations do not differ materially from each
other. In its assessment of each portfolio, the Group assessed the
contracts under the new five-step model under ASC 606 and
determined there was no significant impact to the timing or amount
of revenue recognition under the new guidance.
Under the Group’s previous accounting policy,
deferred revenue comprised deferred upfront payments from the
Group’s license and collaboration contracts. Under ASC 606, advance
payments from customers preceding an entity’s performance are
considered contract liabilities; therefore, advance payments from
customers from the Group’s Commercial Platform have been
reclassified from other payables, accruals and advance receipts to
deferred revenue. Expected rebates for sales of goods remain in
other payables, accruals and advance receipts.
The following tables summarize the impact of
adopting ASC 606 on the Group’s unaudited condensed consolidated
financial statements as at and for the six months ended June 30,
2018, as compared to the amounts as if applying ASC 605:
| |
|
As reported |
|
|
|
As if applied |
| |
|
ASC 606 |
|
Adjustments |
|
ASC 605 |
| |
|
|
|
|
|
|
|
|
|
| |
|
(in US$’000) |
|
Condensed Consolidated Balance
Sheet |
|
|
|
|
|
|
| Current
assets |
|
394,676 |
|
|
— |
|
|
394,676 |
|
|
Non-current assets |
|
183,267 |
|
|
— |
|
|
183,267 |
|
| Total
assets |
|
577,943 |
|
|
— |
|
|
577,943 |
|
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
| Current
liabilities |
|
|
|
|
|
|
| Other
payables, accruals and advance receipts |
|
49,669 |
|
|
1,754 |
|
|
51,423 |
|
| Deferred
revenue |
|
3,753 |
|
|
(2,434 |
) |
|
1,319 |
|
| Other
current liabilities |
|
31,162 |
|
|
— |
|
|
31,162 |
|
| Total
current liabilities |
|
84,584 |
|
|
(680 |
) |
|
83,904 |
|
| Deferred
revenue |
|
924 |
|
|
(267 |
) |
|
657 |
|
| Other
non-current liabilities |
|
34,590 |
|
|
— |
|
|
34,590 |
|
| Total
liabilities |
|
120,098 |
|
|
(947 |
) |
|
119,151 |
|
| Company’s
shareholders’ equity |
|
|
|
|
|
|
|
Accumulated losses |
|
(140,890 |
) |
|
916 |
|
|
(139,974 |
) |
|
Accumulated other comprehensive income |
|
8,571 |
|
|
28 |
|
|
8,599 |
|
| Other
shareholders’ equity |
|
564,050 |
|
|
— |
|
|
564,050 |
|
| Total
Company’s shareholders’ equity |
|
431,731 |
|
|
944 |
|
|
432,675 |
|
|
Non-controlling interests |
|
26,114 |
|
|
3 |
|
|
26,117 |
|
| Total
shareholders’ equity |
|
457,845 |
|
|
947 |
|
|
458,792 |
|
| Total
liabilities and shareholders’ equity |
|
577,943 |
|
|
— |
|
|
577,943 |
|
| |
|
|
|
|
|
|
| |
|
As reported |
|
|
|
As if applied |
| |
|
ASC 606 |
|
Adjustments |
|
ASC 605 |
| |
|
|
|
|
|
|
|
|
|
| |
|
(in US$’000) |
|
Condensed Consolidated Statement of
Operations |
|
|
|
|
|
|
| Total
revenues |
|
102,189 |
|
|
(164 |
) |
|
102,025 |
|
| Total
operating expense |
|
(155,872 |
) |
|
— |
|
|
(155,872 |
) |
| Loss from
operations |
|
(53,683 |
) |
|
(164 |
) |
|
(53,847 |
) |
| Total
other income |
|
3,188 |
|
|
— |
|
|
3,188 |
|
| Loss
before income taxes and equity in earnings of equity investees |
|
(50,495 |
) |
|
(164 |
) |
|
(50,659 |
) |
| Income
tax expense |
|
(2,680 |
) |
|
— |
|
|
(2,680 |
) |
| Equity in
earnings of equity investees, net of tax |
|
23,050 |
|
|
— |
|
|
23,050 |
|
| Net
loss |
|
(30,125 |
) |
|
(164 |
) |
|
(30,289 |
) |
| Less: Net
income attributable to non-controlling interests |
|
(2,566 |
) |
|
— |
|
|
(2,566 |
) |
| Net loss
attributable to the Company |
|
(32,691 |
) |
|
(164 |
) |
|
(32,855 |
) |
| |
|
|
|
|
|
|
| |
|
As reported |
|
|
|
As if applied |
| |
|
ASC 606 |
|
Adjustments |
|
ASC 605 |
| |
|
|
|
|
|
|
|
|
|
| |
|
(in US$’000) |
|
Condensed Consolidated Statement of Comprehensive
Loss |
|
|
|
|
|
|
| Net
loss |
|
(30,125 |
) |
|
(164 |
) |
|
(30,289 |
) |
| Other
comprehensive income |
|
3,445 |
|
|
28 |
|
|
3,473 |
|
| Total
comprehensive loss |
|
(26,680 |
) |
|
(136 |
) |
|
(26,816 |
) |
| Less:
Comprehensive income attributable to non-controlling interests |
|
(2,870 |
) |
|
— |
|
|
(2,870 |
) |
| Total
comprehensive loss attributable to ordinary shareholders of the
Company |
|
(29,550 |
) |
|
(136 |
) |
|
(29,686 |
) |
| |
There are no adjustments to net cash (used
in)/generated from operating activities, investing activities or
financing activities in the condensed consolidated statement of
cash flows.
Updated accounting
policy
Revenue is measured based on consideration
specified in a contract with a customer, and excludes any sales
incentives and amounts collected on behalf of third parties. Taxes
assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction, that are
collected by the Group from a customer, are also excluded from
revenue. The Group recognizes revenue when it satisfies a
performance obligation by transferring control over a good, service
or license to a customer.
Nature of goods and
services
The following is a description of principal
activities, separated by reportable segments, from which the
Company generates its revenue:
(i)
Innovation
Platform
The Innovation Platform reportable segment
principally generates revenue from license and collaboration
contracts. The license and collaboration contracts generally
contain multiple performance obligations including (1) the license
to the drug compound and (2) the research and development services
for each specified treatment indication, which are accounted for
separately if they are distinct, i.e. if a product or service is
separately identifiable from other items in the arrangement and if
a customer can benefit from it on its own or with other resources
that are readily available to the customer.
The transaction price generally includes fixed
and variable consideration in the form of upfront payment, research
and development cost reimbursements, contingent milestone payments
and sales-based royalties. Contingent milestone payments are not
included in the transaction price until it becomes probable that a
significant reversal of revenue will not occur, which is generally
when the specified milestone is achieved. The allocation of the
transaction price to each performance obligation is based on the
relative standalone selling prices of each performance obligation
determined at the inception of the contract. The Group estimates
the standalone selling prices based on the income approach. Control
of the license to the drug compounds transfers at the inception
date of the collaboration agreements and consequently, amounts
allocated to this performance obligation are generally recognized
at a point in time. Conversely, research and development services
for each specified indication are performed over time and amounts
allocated to these performance obligations are generally recognized
over time using cost inputs as a measure of progress. The Group has
determined that research and development expenses provide an
appropriate depiction of measure of progress for the research and
development services. Changes to estimated cost inputs may result
in a cumulative catch-up adjustment. Royalty revenues are
recognized as future sales occur as they meet the requirements for
the sales-usage based royalty exception.
Deferred revenue is recognized if allocated
consideration is received in advance of the Group rendering
research and development services. Accounts receivable is
recognized based on the terms of the contract and when the Group
has an unconditional right to bill the customer, which is generally
when research and development services are rendered.
(ii)
Commercial
Platform
The Commercial Platform reportable segment
principally generates revenue from (1) sales of goods, which are
the manufacture or purchase and distribution of drug, healthcare
and consumer products, and (2) sales of services, which are the
provision of sales, distribution and marketing services to
pharmaceutical manufacturers. These contracts include prescription
drug products and consumer health products.
Revenue from sales of goods is recognized when
the customer takes possession of the goods. This usually occurs
upon completed delivery of the goods to the customer site. The
amount of revenue recognized is adjusted for expected sales
incentives as stipulated in the contract, which are generally
issued to customers as direct discounts at the point‑of‑sale or
indirectly in the form of rebates. Sales incentives are estimated
using the expected value method. Additionally, sales are generally
made with a limited right of return under certain conditions.
Revenues are recorded net of provisions for sales discounts
and returns.
Revenue from sales of services is recognized
when the benefits of the services transfer to the customer over
time.
Deferred revenue is recognized if consideration
is received in advance of transferring control of the goods or
rendering of services. Accounts receivable is recognized if the
Group has an unconditional right to bill the customer, which is
generally when the customer takes possession of the goods or
services are rendered. Payment terms differ by subsidiary and
customer, but generally range from 45 to 180 days from the invoice
date.
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 February 2016, the Financial Accounting
Standards Board (“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. ASU 2016‑02 is effective for fiscal
years and interim periods within those years beginning after
December 15, 2018. The Group expects to adopt the new standard
using the modified retrospective method on January 1, 2019
with a retrospective adjustment to comparable periods starting from
January 1, 2017, subject to further implementation guidance
issued by the FASB. The Group is continuing to evaluate the impact
of the new guidance, but expects a gross up to the consolidated
balance sheets on the date of adoption primarily related to the
Group’s various factories and offices under non-cancellable lease
agreements (Note 13) and are currently accounted off-balance sheet
as operating leases under Accounting Standard Codification 840,
Leases (Topic 840). Additionally, the Group expects limited impact
to the consolidated statements of operations after adoption as the
pattern of rental expense recognition should not change materially
for such operating leases.
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting (“ASU
2018-07”), which simplifies the accounting for share-based payments
granted to nonemployees for goods and services. Under the ASU, most
of the guidance on such payments to nonemployees would be aligned
with the requirements for share-based payments granted to
employees. ASU 2018-07 is effective for fiscal years and interim
periods within those years beginning after December 15, 2018. The
Group shall adopt the guidance on January 1, 2019, but does not
expect a significant impact upon adoption as there have been no
nonemployee stock option grants during any periods presented.
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, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Cash at bank and on
hand |
57,209 |
|
30,018 |
| Bank deposits maturing
in three months or less (note (a)) |
18,120 |
|
55,247 |
| |
75,329 |
|
85,265 |
| Denominated in: |
|
|
|
| United States dollar
(“US$”) (note (b)) |
55,761 |
|
66,381 |
| Renminbi (“RMB”)
(note (b)) |
15,186 |
|
15,140 |
| UK Pound Sterling (“£”)
(note (b)) |
725 |
|
295 |
| Hong Kong dollar
(“HK$”) |
3,657 |
|
3,449 |
| |
75,329 |
|
85,265 |
| |
Notes:
(a) The weighted average effective
interest rate on bank deposits for the six months ended June 30,
2018 and for the year ended December 31, 2017 was 1.76% per
annum and 1.06% per annum respectively (with maturity ranging from
7 to 90 days).
(b) Certain cash and bank balances
denominated in RMB, US$ and £ were deposited with banks in the PRC.
The conversion of these balances into foreign currencies is subject
to the rules and regulations of foreign exchange control
promulgated by the PRC government.
4. Short‑term
Investments
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
| Bank deposits maturing
over three months (note) |
|
|
|
| Denominated in: |
|
|
|
| US$ |
246,791 |
|
272,659 |
| HK$ |
374 |
|
372 |
| |
247,165 |
|
273,031 |
| |
| Note: The weighted average effective interest rate on bank
deposits maturing over three months for the six months ended June
30, 2018 and for the year ended December 31, 2017 was 1.93%
per annum and 1.32% per annum respectively (with maturity ranging
from 91 to 100 days, and 91 to 183 days respectively). |
| |
5. Accounts Receivable—Third
Parties
|
|
June 30, |
|
|
December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
|
|
|
|
| Accounts receivable,
gross |
44,722 |
|
|
38,668 |
|
| Allowance for doubtful
accounts |
(303 |
) |
|
(258 |
) |
| Accounts receivable,
net |
44,419 |
|
|
38,410 |
|
| |
Substantially all the accounts receivable are
denominated in RMB, US$ and HK$ and are due within one year from
the end of the reporting period. The carrying values of accounts
receivable approximate their fair values due to their short‑term
maturities.
Movements on the allowance for doubtful
accounts:
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| As at
January 1 |
258 |
|
|
2,720 |
|
| Increase in allowance
for doubtful accounts |
279 |
|
|
6 |
|
| Decrease in allowance
due to subsequent collection |
(235 |
) |
|
(7 |
) |
| Write-off |
(1 |
) |
|
— |
|
| Exchange
difference |
2 |
|
|
48 |
|
| As at June 30 |
303 |
|
|
2,767 |
|
| |
6. Other Receivables,
Prepayments and Deposits
Other receivables, prepayments and deposits
consisted of the following:
|
|
June 30,
|
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Prepayments |
4,961 |
|
2,565 |
| Purchase rebates |
184 |
|
284 |
| Other service
receivables |
— |
|
490 |
| Deposits |
1,326 |
|
932 |
| Value-added tax
receivables |
6,595 |
|
5,436 |
| Interest
receivables |
634 |
|
506 |
| Others |
615 |
|
1,083 |
| |
14,315 |
|
11,296 |
| |
7.
Inventories
Inventories, net of provision for excess and
obsolete inventories, consisted of the following:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
(in US$’000) |
|
|
|
| Raw materials |
639 |
|
314 |
| Finished goods |
9,149 |
|
11,475 |
| |
9,788 |
|
11,789 |
Movements on the provision for excess and
obsolete inventories are as follows:
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| As at
January 1 |
121 |
|
|
160 |
|
| Increase in provision
for excess and obsolete inventories |
79 |
|
|
— |
|
| Decrease in provision
due to subsequent sale or recovery |
(124 |
) |
|
(13 |
) |
| Exchange
difference |
3 |
|
|
3 |
|
| As at June 30 |
79 |
|
|
150 |
|
| |
8. Property, Plant and
Equipment
Property, plant and equipment consisted of the
following:
|
|
Buildings |
|
Leasehold improvements |
|
Plant and equipment |
|
Furniture andfixtures,
other equipment and motor vehicles |
|
Construction in
progress |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
| Cost |
|
|
|
|
|
|
|
|
|
|
|
| As at
January 1, 2018 |
2,372 |
|
9,057 |
|
2,568 |
|
15,154 |
|
|
2,558 |
|
|
31,709 |
|
|
Additions |
— |
|
80 |
|
2 |
|
492 |
|
|
1,021 |
|
|
1,595 |
|
|
Disposals |
— |
|
— |
|
— |
|
(68 |
) |
|
— |
|
|
(68 |
) |
|
Transfers |
— |
|
209 |
|
748 |
|
208 |
|
|
(1,165 |
) |
|
— |
|
| Exchange
differences |
40 |
|
141 |
|
38 |
|
243 |
|
|
45 |
|
|
507 |
|
| As at
June 30, 2018 |
2,412 |
|
9,487 |
|
3,356 |
|
16,029 |
|
|
2,459 |
|
|
33,743 |
|
| Accumulated
depreciation |
|
|
|
|
|
|
|
|
|
|
|
| As at
January 1, 2018 |
1,141 |
|
5,296 |
|
499 |
|
10,553 |
|
|
— |
|
|
17,489 |
|
|
Depreciation |
56 |
|
569 |
|
159 |
|
851 |
|
|
— |
|
|
1,635 |
|
|
Disposals |
— |
|
— |
|
— |
|
(62 |
) |
|
— |
|
|
(62 |
) |
| Exchange
differences |
18 |
|
79 |
|
6 |
|
162 |
|
|
— |
|
|
265 |
|
| As at
June 30, 2018 |
1,215 |
|
5,944 |
|
664 |
|
11,504 |
|
|
— |
|
|
19,327 |
|
| Net book value |
|
|
|
|
|
|
|
|
|
|
|
| As at
June 30, 2018 |
1,197 |
|
3,543 |
|
2,692 |
|
4,525 |
|
|
2,459 |
|
|
14,416 |
|
| |
|
|
Buildings |
|
Leasehold improvements |
|
Plant and equipment |
|
Furniture andfixtures,
other equipment and motor vehicles |
|
Construction in
progress |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(in US$’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 |
|
| |
9. Investments in Equity
Investees
Investments in equity investees consisted of the
following:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Hutchison Whampoa
Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”) |
62,146 |
|
55,308 |
| Shanghai Hutchison
Pharmaceuticals Limited (“SHPL”) |
74,276 |
|
69,417 |
| Nutrition Science
Partners Limited (“NSPL”) |
24,792 |
|
19,201 |
| Other |
375 |
|
311 |
| |
161,589 |
|
144,237 |
| |
All of the equity investees are private
companies and there are no quoted market prices available for
their shares.
Summarized financial information for the
significant equity investees is as follows:
(i)
Summarized balance sheets
|
|
Commercial
Platform |
|
Innovation
Platform |
|
|
Consumer Health
HBYS |
|
Prescription Drugs
SHPL |
|
Drug R&D
NSPL |
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Current assets |
121,229 |
|
|
101,570 |
|
|
134,355 |
|
|
129,535 |
|
|
20,627 |
|
|
9,640 |
|
| Non‑current assets |
108,263 |
|
|
107,226 |
|
|
103,468 |
|
|
103,477 |
|
|
30,000 |
|
|
30,000 |
|
| Current
liabilities |
(82,693 |
) |
|
(75,787 |
) |
|
(87,274 |
) |
|
(91,665 |
) |
|
(1,044 |
) |
|
(1,239 |
) |
| Non‑current
liabilities |
(18,839 |
) |
|
(18,748 |
) |
|
(8,202 |
) |
|
(8,616 |
) |
|
— |
|
|
— |
|
| Net assets |
127,960 |
|
|
114,261 |
|
|
142,347 |
|
|
132,731 |
|
|
49,583 |
|
|
38,401 |
|
| Non‑controlling
interests |
(3,668 |
) |
|
(3,645 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
124,292 |
|
|
110,616 |
|
|
142,347 |
|
|
132,731 |
|
|
49,583 |
|
|
38,401 |
|
|
|
(ii)
Summarized statements of operations
|
|
Commercial
Platform |
|
Innovation
Platform |
|
|
Consumer Health
HBYS |
|
Prescription Drugs
SHPL |
|
Drug R&D
NSPL |
|
|
Six Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Revenue |
118,983 |
|
|
123,408 |
|
|
152,717 |
|
|
129,718 |
|
|
— |
|
|
— |
|
| Gross profit |
59,155 |
|
|
45,933 |
|
|
108,802 |
|
|
94,964 |
|
|
— |
|
|
— |
|
| Interest income |
37 |
|
|
79 |
|
|
407 |
|
|
498 |
|
|
43 |
|
|
— |
|
| Finance cost |
(135 |
) |
|
(58 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Profit/(loss) before
taxation |
14,306 |
|
|
13,525 |
|
|
45,942 |
|
|
43,727 |
|
|
(4,818 |
) |
|
(4,749 |
) |
| Income tax expense
(note) |
(2,362 |
) |
|
(1,942 |
) |
|
(7,127 |
) |
|
(5,984 |
) |
|
— |
|
|
— |
|
| Net income/(loss) |
11,944 |
|
|
11,583 |
|
|
38,815 |
|
|
37,743 |
|
|
(4,818 |
) |
|
(4,749 |
) |
| Non‑controlling
interests |
39 |
|
|
(61 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Net income/(loss)
attributable to the shareholders of equity investee |
11,983 |
|
|
11,522 |
|
|
38,815 |
|
|
37,743 |
|
|
(4,818 |
) |
|
(4,749 |
) |
|
|
Note: HBYS and SHPL have been granted the High
and New Technology Enterprise (“HNTE”) status. Accordingly,
the companies were eligible to use a preferential income tax rate
of 15% for the six months ended June 30, 2018 and 2017.
For the six months ended June 30, 2018 and 2017,
other immaterial equity investees had net income of approximately
US$120,000 and US$22,000 respectively.
(iii)
Reconciliation of summarized financial
information
Reconciliation of the summarized financial
information presented to the carrying amount of investments in
equity investees is as follows:
|
|
Commercial
Platform |
|
Innovation
Platform |
|
|
Consumer
HealthHBYS |
|
Prescription
DrugsSHPL |
|
Drug
R&DNSPL |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Opening net assets
after non-controlling interests as at January 1 |
110,616 |
|
127,072 |
|
|
132,731 |
|
|
150,134 |
|
|
38,401 |
|
|
33,611 |
|
| Net income/(loss)
attributable to the shareholders of equity investee |
11,983 |
|
11,522 |
|
|
38,815 |
|
|
37,743 |
|
|
(4,818 |
) |
|
(4,749 |
) |
| Dividends declared |
— |
|
(14,615 |
) |
|
(31,538 |
) |
|
(70,619 |
) |
|
— |
|
|
— |
|
| Other comprehensive
income |
1,693 |
|
2,330 |
|
|
2,339 |
|
|
2,889 |
|
|
— |
|
|
— |
|
| Investments |
— |
|
— |
|
|
— |
|
|
— |
|
|
16,000 |
|
|
14,000 |
|
| Closing net assets
after non-controlling interests as at June 30 |
124,292 |
|
126,309 |
|
|
142,347 |
|
|
120,147 |
|
|
49,583 |
|
|
42,862 |
|
| Group’s share of net
assets |
62,146 |
|
63,154 |
|
|
71,173 |
|
|
60,074 |
|
|
24,792 |
|
|
21,431 |
|
| Goodwill |
— |
|
— |
|
|
3,103 |
|
|
2,923 |
|
|
— |
|
|
— |
|
| Carrying amount of
investments as at June 30 |
62,146 |
|
63,154 |
|
|
74,276 |
|
|
62,997 |
|
|
24,792 |
|
|
21,431 |
|
|
|
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 from the dates indicated are
as follows:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Not later than
1 year |
1,272 |
|
1,282 |
| Between 1 to
2 years |
595 |
|
400 |
| Between 2 to
3 years |
391 |
|
151 |
| Between 3 to
4 years |
137 |
|
141 |
| Between 4 to
5 years |
— |
|
47 |
| Total minimum lease
payments |
2,395 |
|
2,021 |
| |
(b) The equity investees had
the following capital commitments:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
| Property, plant and
equipment |
|
|
|
|
Contracted but not provided for |
1,368 |
|
1,034 |
| |
10. Accounts
Payable
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Accounts payable—third
parties |
13,430 |
|
17,095 |
| Accounts
payable—non-controlling shareholders of subsidiaries (Note 18
(iv)) |
5,878 |
|
7,250 |
| Accounts
payable—related party (Note 18 (ii)) |
— |
|
20 |
| |
19,308 |
|
24,365 |
| |
Substantially all the accounts payable are
denominated in RMB and US$ and due within one year from the end of
the reporting period. The carrying values of accounts payable
approximate their fair values due to their short‑term
maturities.
11. Other Payables, Accruals and
Advance Receipts
Other payables, accruals and advance receipts
consisted of the following:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Accrued salaries and
benefits |
7,904 |
|
9,295 |
| Accrued research and
development expenses |
23,908 |
|
14,613 |
| Accrued selling
expenses and rebates |
5,524 |
|
4,121 |
| Accrued administrative
and other general expenses |
4,843 |
|
4,729 |
| Deferred government
incentives |
1,936 |
|
1,790 |
| Loan from a
non-controlling shareholder of a subsidiary
(Note 18 (iv)) |
1,550 |
|
1,550 |
| Deposits (note) |
1,386 |
|
1,282 |
| Others |
2,618 |
|
3,573 |
| |
49,669 |
|
40,953 |
| |
Note: As at December 31, 2017, this balance
included payments in advance from customers of US$0.7 million,
which were reclassified to deferred revenue after the adoption of
ASC 606 on January 1, 2018.
12. Bank
Borrowings
Bank borrowings consisted of the following:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Current |
— |
|
29,987 |
| Non-current |
26,692 |
|
— |
| |
26,692 |
|
29,987 |
| |
The weighted average interest rate for
outstanding bank borrowings for the six months ended June 30, 2018
and the year ended December 31, 2017 was 2.33% per annum and 1.90%
per annum respectively. In addition, the Group incurred guarantee
fees of nil and US$320,000 for the six months ended June 30, 2018
and the year ended December 31, 2017 respectively, which was nil
and 0.76% per annum respectively of the weighted average
outstanding bank borrowings. The carrying amounts of the Group’s
bank borrowings are all denominated in HK$.
3-year term loan and 18-month
revolving loan facilities
In November 2017, the Group through its
subsidiary, entered into facility agreements with a bank for the
provision of unsecured credit facilities in the aggregate amount of
HK$400,000,000 (US$51,282,000). The credit facilities include (i) a
HK$210,000,000 (US$26,923,000) 3-year term loan facility and (ii) a
HK$190,000,000 (US$24,359,000) 18-month revolving loan facility.
The term loan bears interest at 1.50% over the Hong Kong Interbank
Offered Rate (“HIBOR”) per annum and an upfront fee of HK$1,575,000
(US$202,000). The revolving loan facility bears interest at 1.25%
over HIBOR per annum. The term loan was drawn in May 2018 and is
due in November 2020. Accordingly, the term loan is recorded under
long-term bank borrowings as at June 30, 2018. As at June 30, 2018
and December 31, 2017, no amount has been drawn from the revolving
loan facility. These credit facilities are guaranteed by the
Company.
18-month term loan and revolving
loan facilities
In February 2017, the Group through its
subsidiary, entered into two 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 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.
The term loans from the first and second credit facilities were
repaid and terminated in May 2018. As at June 30, 2018 and December
31, 2017, no amount has been drawn from either of the revolving
loan facilities which are guaranteed by the Company.
3-year revolving loan
facility
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$2,564,000) was drawn from this facility and the amount was
fully repaid in March 2017. As at June 30, 2018 and December
31, 2017, there were no amounts due under this loan.
The Group’s bank borrowings are repayable as
from the dates indicated as follows:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Not later than
1 year |
— |
|
30,000 |
| Between 1 to
2 years |
— |
|
— |
| Between 2 to
3 years |
26,923 |
|
— |
| |
26,923 |
|
30,000 |
| |
As at June 30, 2018 and December 31, 2017,
the Group had unutilized bank borrowing facilities of
HK$736,000,000 (US$94,359,000) and HK$946,000,000 (US$121,282,000)
respectively.
13. Commitments and
Contingencies
(i) Lease
commitments
The Group leases various factories and offices
under non‑cancellable operating lease agreements. Future aggregate
minimum payments under non‑cancellable operating leases as from the
dates indicated are as follows:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Not later than
1 year |
3,544 |
|
3,330 |
| Between 1 to
2 years |
2,725 |
|
2,875 |
| Between 2 to
3 years |
1,232 |
|
2,132 |
| Between 3 to
4 years |
285 |
|
345 |
| Between 4 to
5 years |
52 |
|
161 |
| Later than
5 years |
4 |
|
17 |
| Total minimum lease
payments |
7,842 |
|
8,860 |
| |
(ii) Capital
commitments
The Group’s capital commitments as from the
dates indicated are as follows:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
| Property, plant and
equipment |
|
|
|
|
Contracted but not provided for |
2,248 |
|
161 |
| |
In addition, the Group has also undertaken to
provide the necessary additional funds for NSPL to finance its
ongoing operations. The Group does not have any other significant
commitments or contingencies.
14.
Ordinary Shares
The Company is authorized to issue
75,000,000 ordinary shares. A summary of ordinary share
transactions (in thousands) is as follows:
|
|
2018 |
|
2017 |
| As at
January 1 |
66,447 |
|
60,706 |
| Share option
exercises |
86 |
|
31 |
| As at June 30 |
66,533 |
|
60,737 |
| |
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.
15.
Share‑based Compensation
(i)
Share‑based Compensation of the Company
The Company conditionally adopted a share option
scheme on June 4, 2005 (as amended on March 21,
2007) and such scheme has a term of 10 years. It expired in
2016 and no further share options can be granted. Another share
option scheme was conditionally adopted on April 24, 2015
(the “HCML Share Option Scheme”). Pursuant to the HCML Share
Option Scheme, the Board of Directors of the Company may, at its
discretion, offer any employees and directors (including Executive
and Non‑executive Directors but excluding Independent Non‑executive
Directors) of the Company, holding companies of the Company and any
of their subsidiaries or affiliates, and subsidiaries or affiliates
of the Company, share options to subscribe for shares of
the Company.
The aggregate number of shares issuable under
the HCML Share Option Scheme is 2,425,597 ordinary shares. The
aggregate number of shares issuable under the prior share option
scheme which expired in 2016 is 197,080 ordinary shares. As at
June 30, 2018, the number of shares authorized but unissued was
8,467,317 ordinary shares.
Share options granted are generally subject to a
four‑year vesting schedule, depending on the nature and the purpose
of the grant. Share options subject to the four‑year vesting
schedule, in general, vest 25% upon the first anniversary of the
vesting commencement date as defined in the grant letter, and 25%
every subsequent year. However, certain share option grants may
have a different vesting schedule as approved by the Board of
Directors of the Company. No outstanding share options will be
exercisable or subject to vesting after the expiry of a maximum of
eight to ten years from the date of grant.
A summary of the Company’s share option activity
and related information is as follows:
|
|
Number of share
options |
|
Weighted averageexercise price in
£ per share |
|
Weighted averageremaining
contractual life (years) |
|
Aggregate intrinsic value
(in £’000) |
|
Outstanding at January 1,
2017 |
1,039,596 |
|
|
15.00 |
|
6.77 |
|
7,900 |
|
Granted |
150,000 |
|
|
31.05 |
|
|
|
|
|
Exercised |
(56,309 |
) |
|
5.16 |
|
|
|
|
|
Cancelled |
(6,875 |
) |
|
6.10 |
|
|
|
|
|
Outstanding at December 31,
2017 |
1,126,412 |
|
|
17.69 |
|
6.29 |
|
43,158 |
|
Granted |
949,626 |
|
|
46.78 |
|
|
|
|
|
Exercised |
(85,646 |
) |
|
6.10 |
|
|
|
|
|
Outstanding at June 30, 2018 |
1,990,392 |
|
|
32.07 |
|
7.72 |
|
28,530 |
|
Vested and exercisable at December 31,
2017 |
951,412 |
|
|
15.52 |
|
5.81 |
|
38,508 |
|
Vested and exercisable at June 30,
2018 |
928,266 |
|
|
17.13 |
|
5.46 |
|
26,702 |
| |
In estimating the fair value of share options
granted, the following assumptions were used in the Polynomial
model for awards granted in the periods indicated:
|
|
Year Ended December
31, |
|
|
Six Months Ended June
30, |
|
|
2011 |
|
2013 |
|
2016 |
|
2017 |
|
2018 |
| Weighted
average grant date fair value of share options (in £ per
share) |
1.84 |
|
|
3.15 |
|
|
8.99 |
|
|
12.69 |
|
|
16.71 |
|
|
Significant inputs into the valuation model (weighted
average): |
|
|
|
|
|
|
|
|
|
| Exercise
price (in £ per share) |
4.41 |
|
|
6.10 |
|
|
19.70 |
|
|
31.05 |
|
|
46.78 |
|
| Share
price at effective date of grant (in £ per share) |
4.33 |
|
|
6.10 |
|
|
19.70 |
|
|
31.05 |
|
|
46.57 |
|
| Expected
volatility (note (a)) |
46.6 |
% |
|
36.0 |
% |
|
39.0 |
% |
|
36.3 |
% |
|
37.7 |
% |
| Risk‑free
interest rate (note (b)) |
3.13 |
% |
|
3.16 |
% |
|
1.00 |
% |
|
1.17 |
% |
|
1.47 |
% |
|
Contractual life of share options (in years) |
10 |
|
|
10 |
|
|
8 |
|
|
10 |
|
|
10 |
|
| Expected
dividend yield (note (c)) |
0 |
% |
|
0 |
% |
|
0 |
% |
|
0 |
% |
|
0 |
% |
| |
Notes:
(a) The Company calculated its expected
volatility with reference to the historical volatility prior to the
issuances of share options.
(b) The risk‑free interest rates used in
the Polynomial model are with reference to the sovereign yield of
the United Kingdom because the Company’s ordinary shares are
currently listed on AIM and denominated in £.
(c) The Company has not declared or paid
any dividends and does not currently expect to do so in the
foreseeable future, and therefore uses an expected dividend yield
of zero in the Polynomial model.
The Company will issue new shares to satisfy
share option exercises. The following table summarizes the
Company’s share option exercises:
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
| |
|
|
|
| |
(in US$’000) |
| |
|
| Cash received from
share options exercised |
720 |
|
174 |
| Total intrinsic value
of share options exercised |
4,817 |
|
1,049 |
| |
|
|
|
The Group 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:
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Research and
development expenses |
2,616 |
|
565 |
| Administrative
expenses |
175 |
|
— |
| |
2,791 |
|
565 |
| |
As at June 30, 2018, the total unrecognized
compensation cost was US$20,937,000 and will be recognized on a
graded vesting approach over the weighted average remaining service
period of 3.75 years.
(ii)
LTIP
The Company grants awards under the LTIP to
participating directors and employees, giving them a conditional
right to receive ordinary shares of the Company or the equivalent
American depositary shares (“ADS”) (collectively the “Awarded
Shares”) to be purchased by the Trustee up to a cash amount.
Vesting will depend upon continued employment of the award holder
with the Group and will otherwise be at the discretion of the Board
of Directors of the Company. Additionally, some awards are subject
to change based on annual performance targets prior to their
determination date.
LTIP awards prior to the determination date
Performance targets vary by award, and may
include targets for shareholder returns, free cash flows, revenues,
net profit after taxes and the achievement of clinical and
regulatory milestones. As the extent of achievement of the
performance targets is uncertain prior to the determination date, a
probability based on management’s assessment on the achievement of
the performance target has been assigned to calculate the amount to
be recognized as an expense over the requisite period with a
corresponding entry to liability.
LTIP awards after the determination date
Upon the determination date, the Company will
pay a determined monetary amount, up to the maximum cash amount
based on the actual achievement of the performance target specified
in the award, to the Trustee to purchase the Awarded Shares. Any
cumulative compensation expense previously recognized as a
liability will be transferred to additional paid‑in capital, as an
equity‑settled award. If the performance target is not achieved, no
Awarded Shares of the Company will be purchased and the amount
previously recorded in the liability will be reversed through
profit or loss.
Granted awards under the LTIP are as
follows:
On December 15, 2017, the Company granted
awards up to a maximum cash amount per annum of US$0.5 million
that stipulated annual performance targets. Shares under such LTIP
awards will cover each financial year from 2018 to 2019. The annual
performance target determination date is the date of the
announcement of the Group’s annual results for the covered
financial year and vesting occurs two business days after the
announcement of the Group’s annual results for the financial year
falling two years after the covered financial year to which the
LTIP award relates.
On March 15, 2017 and August 2, 2017,
the Company granted awards up to a maximum cash amount per annum of
US$6.0 million that stipulated annual performance targets.
Shares under such LTIP awards will cover each financial year from
2017 to 2019. The annual performance target determination date is
the date of the announcement of the Group’s annual results for the
covered financial year and vesting occurs two business days after
the announcement of the Group’s annual results for the financial
year falling two years after the covered financial year to which
the LTIP award relates.
On March 15, 2017, the Company granted
awards up to a maximum cash amount of US$0.4 million in
aggregate that did not stipulate performance targets. Shares under
such LTIP awards vested one business day after the publication date
of the annual report for the 2017 financial year.
The Trustee has been set up solely for the
purpose of purchasing and holding the Awarded Shares during the
vesting period on behalf of the Group using funds provided by the
Group. On the determination date, if any, the Company will
determine the cash amount, based on the actual achievement of each
annual performance target, for the Trustee to purchase the Awarded
Shares. The Awarded Shares will then be held by the Trustee until
they are vested.
The Trustee’s assets include treasury shares and
funds for additional treasury shares, trustee fees and expenses.
The number of treasury shares (in the form of ordinary shares
or ADS of the Company) purchased and held by the Trustee are
as follows:
|
|
Number of treasury
shares |
|
Cost in
US$’000 |
| As at January 1,
2017 |
62,921 |
|
|
2,390 |
|
| Purchased |
35,095 |
|
|
1,367 |
|
| Vested |
(42,038 |
) |
|
(1,800 |
) |
| As at December 31,
2017 |
55,978 |
|
|
1,957 |
|
| Purchased |
79,500 |
|
|
5,451 |
|
| Vested |
(23,375 |
) |
|
(731 |
) |
| As at June
30, 2018 |
112,103 |
|
|
6,677 |
|
| |
For the six months ended June 30, 2018,
US$93,000 of the determined LTIP awards have been forfeited.
The following table presents the share‑based
compensation expenses recognized under the LTIP awards:
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Research and
development expenses |
878 |
|
691 |
| Selling and
administrative expenses |
723 |
|
578 |
| |
1,601 |
|
1,269 |
| Recorded with a
corresponding credit to: |
|
|
|
| Liability |
789 |
|
594 |
| Additional paid‑in
capital |
812 |
|
675 |
| |
1,601 |
|
1,269 |
| |
For the six months ended June 30, 2018 and 2017,
US$1,770,000 and US$451,000 was reclassified from liability to
additional paid‑in capital respectively upon LTIP awards reaching
the determination date. As at June 30, 2018 and December 31, 2017,
US$1,260,000 and US$2,241,000 was recorded as liability
respectively for LTIP awards prior to the
determination date.
As at June 30, 2018, the total unrecognized
compensation cost was approximately US$6,679,000, which considers
expected performance targets and the amount expected to vest, and
will be recognized over the requisite periods.
16.
Revenues
The following table presents revenue
disaggregated by customers and major product lines, and reconciles
disaggregated revenue with reportable segments:
|
|
Six Months Ended
June 30, 2018 |
|
|
Innovation Platform |
|
Commercial Platform |
|
Total |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
Customers |
|
|
|
|
|
| Third
parties |
8,548 |
|
85,116 |
|
93,664 |
| Related
parties (Note 18 (i)) |
5,076 |
|
3,449 |
|
8,525 |
| |
13,624 |
|
88,565 |
|
102,189 |
| Major
product lines (note) |
|
|
|
|
|
|
Goods |
— |
|
82,912 |
|
82,912 |
|
Services |
13,624 |
|
5,653 |
|
19,277 |
| |
13,624 |
|
88,565 |
|
102,189 |
| |
Note: Sales of goods are recognized at a
point-in-time and sales of services are recognized over time. The
implementation of the two-invoice system in China has resulted in a
shift from a gross sales of goods revenue model to a net
fee-for-service revenue model in the Group’s Commercial Platform,
as we do not obtain control of the goods for distribution for
relevant
transactions.
The following table presents balances from contracts with
customers:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
(in US$’000) |
|
Innovation Platform |
|
|
|
|
Receivables—included in accounts receivable |
6,483 |
|
|
6,535 |
|
| Deferred
revenue—current portion (note (a)) |
(1,999 |
) |
|
(1,295 |
) |
| Deferred
revenue—noncurrent portion (note (a)) |
(924 |
) |
|
(809 |
) |
|
Commercial Platform |
|
|
|
|
Receivables—included in accounts receivable |
40,486 |
|
|
35,735 |
|
| Deferred
revenue—current portion (note (b)) |
(1,754 |
) |
|
— |
|
| |
Notes:
(a) Innovation Platform deferred revenue
relates to the unamortized upfront and milestone payments and
advance consideration received for cost reimbursements, which are
attributed to research and development services that have not yet
been rendered as at the reporting
date. (b)
Commercial Platform deferred revenue relates to payments in advance
from customers for goods that have not been transferred and
services that have not been rendered to the customer as at the
reporting date.
For the six months ended June 30, 2018, revenue
of US$1.2 million was recognized that was included in the deferred
revenue balance as at January 1, 2018 (which includes US$2.1
million deferred revenue as at December 31, 2017, US$0.7 million of
payments in advance from customers reclassified from other
payables, accruals and advance receipts (Note 11) and US$1.1
million cumulative adjustment upon adoption of ASC 606). Estimated
deferred revenue to be recognized over time as from the date
indicated is as follows:
|
|
June 30,
2018 |
|
|
(in US$’000) |
| Not later than
1 year |
3,753 |
| Between 1 to
2 years |
661 |
| Between 2 to
3 years |
253 |
| Between 3 to
4 years |
10 |
| Total deferred
revenue |
4,677 |
| |
Innovation
Platform
Innovation Platform 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
China with Eli Lilly (“Lilly”) relating to fruquintinib (“Lilly
Agreement”), a targeted oncology therapy for the treatment of
various types of solid tumors. Under the terms of the Lilly
Agreement, the Group is entitled to receive a series of payments up
to US$86.5 million, including upfront payments and development and
regulatory approval milestones. Should fruquintinib be successfully
commercialized in China, the Group would receive tiered royalties
from 15% to 20% on all sales in China. Development costs after the
first development milestone are shared between the Group and
Lilly.
Upfront and milestone payments in the Lilly
Agreement are summarized as follows:
|
|
(in US$’000) |
| Upfront payment |
6,500 |
| Development milestone
payments achieved as at June 30, 2018 |
25,000 |
| Remaining development
and regulatory approval milestone payments |
55,000 |
|
|
86,500 |
| |
In addition, the Group also signed an option
agreement which grants Lilly an exclusive option to expand the
fruquintinib rights beyond Hong Kong and China. The option
agreement further sets out certain milestone payments and royalty
rates that apply in the event the option is exercised on a global
basis. However, these are subject to further negotiation should the
option be exercised on a specific territory basis as opposed to a
global basis. The option was determined at the inception of the
contract to have minimal value. As at June 30, 2018, the
option has not been exercised.
The Group adopted ASC 606 on January 1, 2018 and
reassessed the Lilly Agreement under the new standard, which
resulted in US$0.1 million recognition of previously deferred
revenue as a cumulative adjustment to opening accumulated losses as
at January 1, 2018, summarized as follows (in US$ millions).
| |
|
ASC 605 |
|
|
|
ASC 606 |
| |
|
December 31, 2017 |
|
Opening
Adjustments |
|
January 1, 2018 |
|
Cumulative amounts recognized to accumulated losses
from: |
|
|
|
|
|
|
| Upfront
payment (note (a)) |
|
5.7 |
|
0.5 |
|
|
6.2 |
| Milestone
payments (note (b)) |
|
23.7 |
|
(0.4 |
) |
|
23.3 |
|
|
|
29.4 |
|
0.1 |
|
|
29.5 |
| |
Notes:
(a) Upfront payment amounts deferred under
ASC 605, but was allocated to the license to fruquintinib
transferred at inception under ASC 606, resulting in additional
revenue recognition on adoption.
(b) Milestone payments had been fully
recognized under ASC 605’s milestone method, but was allocated to
the portion of research and development services that had not been
performed under ASC 606, resulting in deferral of revenue on
adoption.
Under ASC 606, the Group identified the
following performance obligations under the Lilly Agreement: (1)
the license to fruquintinib and (2) the research and development
services for the specified indications. The transaction price
includes the upfront payment, research and development cost
reimbursements, milestone payments and sales-based royalties.
Milestone payments were not included in the transaction price until
it became probable that a significant reversal of revenue would not
occur, which is generally when the specified milestone is achieved.
The allocation of the transaction price to each performance
obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the
contract. Based on this estimation, proportionate amounts of
transaction price to be allocated to the license to fruquintinib
and the research and development services were 90% and 10%
respectively. Control of the license to fruquintinib transferred at
the inception date of the agreement and consequently, amounts
allocated to this performance obligation were recognized at
inception. Conversely, research and development services for each
specified indication are performed over time and amounts allocated
are recognized over time using the prior and estimated future
development costs for fruquintinib as a measure of progress.
Under ASC 606, the Group recognized US$5.7
million, US$0.1 million and US$0.2 million revenue during the six
months ended June 30, 2018 for research and development cost
reimbursements, the amortization of the upfront payment and the
amortization of the milestone payments respectively.
Under ASC 605, the Group recognized US$6.0
million, US$0.5 million and US$4.5 million revenue during the
six months ended June 30, 2017 for research and development
services, amortization of the upfront payment and the achievement
of the milestone in relation to the acceptance of a new drug
application by the China Food and Drug Administration (now the
China National Drug Administration) for fruquintinib as a treatment
of patients with advanced colorectal cancer respectively.
License and collaboration
agreement with AstraZeneca
On December 21, 2011 (as amended on
August 1, 2016), the Group and AstraZeneca (“AZ”) entered into
a global licensing, co‑development, and commercialization agreement
for savolitinib (“AZ Agreement”), 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 the AZ Agreement,
the Group is entitled to receive a series of payments including
upfront payments and development, first-sale and commercial sale
milestones. Should savolitinib be successfully commercialized
outside China, the Group would receive tiered royalties from 14% to
18% on all sales outside of China. After total aggregate sales of
savolitinib have reached US$5 billion, this royalty will step down
over a two-year period to an ongoing tiered royalty rate from 10.5%
to 14.5%. Should savolitinib be successfully commercialized in
China, the Group would receive fixed royalties of 30% based on all
sales in China. Development costs for savolitinib in China will be
shared between the Group and AZ, with the Group continuing to lead
the development in China. AZ will lead and pay for the development
of savolitinib for the rest of the world, except for Phase III
clinical trial costs related to developing savolitinib for
papillary renal cell carcinoma which the Group shall pay for up to
a maximum of US$50 million.
Upfront and milestone payments in the AZ
Agreement are summarized as follows:
|
|
(in US$’000) |
| Upfront payment |
20,000 |
| Development milestone
payments achieved as at June 30, 2018 |
25,000 |
| Remaining development
and first-sale milestone payments (note) |
95,000 |
|
|
140,000 |
| |
Note: The AZ Agreement also contains
possible significant future commercial sale milestones.
The Group adopted ASC 606 on January 1, 2018 and
reassessed the AZ Agreement under the new standard, which resulted
in US$1.2 million deferral of previously recognized revenue as a
cumulative adjustment to opening accumulated losses as at January
1, 2018, summarized as follows (in US$ millions).
| |
|
ASC 605 |
|
|
|
ASC 606 |
|
|
|
December 31, 2017 |
|
Opening
Adjustments |
|
January 1, 2018 |
|
Cumulative amounts recognized to accumulated losses
from: |
|
|
|
|
|
|
| Upfront
payment (note (a)) |
|
19.6 |
|
(0.3 |
) |
|
19.3 |
| Milestone
payments (note (b)) |
|
24.9 |
|
(0.9 |
) |
|
24.0 |
|
|
|
44.5 |
|
(1.2 |
) |
|
43.3 |
| |
Notes:
(a) Upfront payment amounts allocated to
research and development services recognized under ASC 606 differed
from ASC 605 due to a different basis in measuring progress on
adoption, resulting in deferral of revenue.
(b) Milestone payments had been fully
recognized under ASC 605’s milestone method, but was allocated to
the portion of research and development services that had not been
performed under ASC 606, resulting in deferral of revenue on
adoption.
Under ASC 606, the Group identified the
following performance obligations under the AZ Agreement: (1) the
license to savolitinib and (2) the research and development
services for the specified indications. The transaction price
includes the upfront payment, research and development cost
reimbursements, milestone payments and sales-based royalties.
Milestone payments were not included in the transaction price until
it became probable that a significant reversal of revenue would not
occur, which is generally when the specified milestone is achieved.
The allocation of the transaction price to each performance
obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the
contract. Based on this estimation, proportionate amounts of
transaction price to be allocated to the license to savolitinib and
the research and development services were 95% and 5% respectively.
Control of the license to savolitinib transferred at the inception
date of the agreement and consequently, amounts allocated to this
performance obligation were recognized at inception. Conversely,
research and development services for each specified indication are
performed over time and amounts allocated are recognized over time
using the prior and estimated future development costs for
savolitinib as a measure of progress.
Under ASC 606, the Group recognized US$2.4
million, US$0.1 million and US$0.1 million revenue during the six
months ended June 30, 2018 for research and development cost
reimbursements, the amortization of the upfront payment and the
amortization of milestone payments respectively.
Under ASC 605, the Group recognized
US$1.8 million, approximately US$0.1 million and US$5.0
million revenue during the six months ended June 30, 2017 for
research and development services, amortization of the upfront
payment and the achievement of the milestone in relation to the
Phase III initiation for the secondary indication papillary
renal cell carcinoma respectively.
17. Research and
Development Expenses
Research and development expenses are summarized
as follows:
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Clinical trial related
costs |
40,244 |
|
16,473 |
| Personnel compensation
and related costs |
17,282 |
|
11,875 |
| Other research and
development expenses |
2,527 |
|
3,218 |
| |
60,053 |
|
31,566 |
| |
18. Significant Transactions
with Related Parties and Non‑Controlling Shareholders
of Subsidiaries
The Group has the following significant
transactions with related parties and non‑controlling shareholders
of subsidiaries, 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, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
| Sales to: |
|
|
|
| Indirect
subsidiaries of CK Hutchison |
3,449 |
|
3,908 |
| Revenue from research
and development services from: |
|
|
|
| Equity
investees |
5,076 |
|
4,883 |
| Purchases from: |
|
|
|
| Equity
investees |
1,197 |
|
494 |
| Rendering of marketing
services from: |
|
|
|
| Indirect
subsidiaries of CK Hutchison |
256 |
|
241 |
| An equity
investee |
6,561 |
|
5,125 |
| |
6,817 |
|
5,366 |
| Rendering of management
services from: |
|
|
|
| An
indirect subsidiary of CK Hutchison |
455 |
|
448 |
| Interest paid to: |
|
|
|
| An
indirect subsidiary of CK Hutchison |
— |
|
65 |
| Guarantee fee on bank
borrowing to: |
|
|
|
| An
indirect subsidiary of CK Hutchison |
— |
|
234 |
| |
(ii) Balances
with related parties included in:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
| Accounts
receivable—related parties |
|
|
|
| Indirect
subsidiaries of CK Hutchison (note (a)) |
1,738 |
|
2,761 |
| Equity
investees (note (a)) |
812 |
|
1,099 |
| |
2,550 |
|
3,860 |
| Accounts payable |
|
|
|
| An equity
investee (note (a)) |
— |
|
20 |
| Amounts due from
related parties |
|
|
|
| An
indirect subsidiary of CK Hutchison (note (a)) |
— |
|
23 |
| Equity
investees (note (a)) |
1,110 |
|
893 |
| Dividend
receivable from an equity investee |
— |
|
7,628 |
| |
1,110 |
|
8,544 |
| Amounts due to related
parties |
|
|
|
| An
indirect subsidiary of CK Hutchison (note (b)) |
285 |
|
454 |
| An equity
investee (note (a)) |
10,402 |
|
6,567 |
| |
10,687 |
|
7,021 |
| Other deferred
income |
|
|
|
| An equity
investee (note (c)) |
1,558 |
|
1,648 |
| |
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 an indirect subsidiary
of CK Hutchison are unsecured and repayable on demand. For the
year ended December 31, 2017, such amounts were interest-bearing.
For the six months ended June 30, 2018, such amounts were
interest-free.
(c) Other deferred income represents
amounts recognized from granting of promotion and marketing
rights.
(iii)
Transactions with non‑controlling shareholders of
subsidiaries:
|
|
Six Months Ended June
30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Sales |
10,506 |
|
7,037 |
| Purchases |
8,113 |
|
9,485 |
| Interest expense |
39 |
|
32 |
| Dividend paid |
— |
|
37 |
| |
(iv) Balances
with non‑controlling shareholders of subsidiaries included
in:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Accounts
receivable—third parties |
4,865 |
|
1,846 |
| Accounts payable |
5,878 |
|
7,250 |
| Other payables,
accruals and advance receipts |
|
|
|
| Loan |
1,550 |
|
1,550 |
| Interest
payable |
119 |
|
80 |
| |
1,669 |
|
1,630 |
| Other non‑current
liabilities |
|
|
|
| Loan |
579 |
|
579 |
| |
19. Income
Taxes
(i) Income
tax expense
|
|
Six Months Ended June
30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
(in US$’000) |
| Current tax |
|
|
|
| HK
(note (a)) |
289 |
|
244 |
| PRC
(note (b)) |
1,010 |
|
355 |
|
Other |
104 |
|
— |
| Deferred income
tax |
1,277 |
|
1,247 |
| Income tax expense |
2,680 |
|
1,846 |
| |
Notes:
(a) The Company, two subsidiaries
incorporated in the British Virgin Islands and its Hong Kong
subsidiaries are subject to Hong Kong profits tax which has been
provided for at the rate of 16.5% on the estimated assessable
profits less estimated available tax losses in
each entity.
(b) Taxation in the PRC has been provided
for at the applicable rate on the estimated assessable profits less
estimated available tax losses, if any, in each entity. Under the
PRC Enterprise Income Tax Law (the “EIT Law”), the standard
enterprise income tax rate is 25%. In addition, the EIT Law
provides for, among others, a preferential tax rate of 15% for
companies which qualify as HNTE. HMPL qualifies as a HNTE up to
December 31, 2019. Pursuant to the EIT law, a 10% withholding
tax is levied on dividends declared by PRC companies to their
foreign investors. A lower withholding tax rate of 5% is applicable
under the China‑HK Tax Arrangement if direct foreign investors with
at least 25% equity interest in the PRC companies are Hong Kong tax
residents, and meet the conditions or requirements pursuant to the
relevant PRC tax regulations regarding beneficial ownership. Since
the equity holders of the major subsidiaries and equity investees
of the Company are Hong Kong incorporated companies and Hong Kong
tax residents, and meet the aforesaid conditions or requirements,
the Company has used 5% to provide for deferred tax liabilities on
retained earnings which are anticipated to be distributed. As at
June 30, 2018 and December 31, 2017, the amounts accrued in
deferred tax liabilities relating to withholding tax on dividends
were determined on the basis that 100% of the distributable
reserves of the major subsidiaries and equity investees operating
in the PRC will be distributed as dividends.
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, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Loss before income
taxes and equity in earnings of equity investees |
(50,495 |
) |
|
(16,738 |
) |
| Tax calculated at the
statutory tax rate of the Company |
(8,332 |
) |
|
(2,762 |
) |
| Tax effects of: |
|
|
|
| Different
tax rates available in different jurisdictions |
893 |
|
|
537 |
|
| Tax
valuation allowance |
10,231 |
|
|
3,881 |
|
|
Preferential tax deduction |
(1,763 |
) |
|
(845 |
) |
| Expenses
not deductible for tax purposes |
690 |
|
|
261 |
|
|
Utilization of previously unrecognized tax losses |
(2 |
) |
|
(97 |
) |
|
Withholding tax on undistributed earnings of PRC entities |
1,323 |
|
|
1,307 |
|
|
Others |
(360 |
) |
|
(436 |
) |
| Income tax expense |
2,680 |
|
|
1,846 |
|
| |
(ii) Deferred
tax assets and liabilities
The significant components of deferred tax
assets and liabilities are as follows:
|
|
June 30, |
|
December 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
| Deferred tax
assets |
|
|
|
| Tax
losses |
41,647 |
|
|
31,028 |
|
|
Others |
1,448 |
|
|
1,267 |
|
| Total deferred tax
assets |
43,095 |
|
|
32,295 |
|
| Less: Valuation
allowance |
(42,414 |
) |
|
(31,662 |
) |
| Deferred tax
assets |
681 |
|
|
633 |
|
| Deferred tax
liabilities |
|
|
|
|
Undistributed earnings from PRC entities |
4,937 |
|
|
4,332 |
|
|
Others |
115 |
|
|
120 |
|
| Deferred tax
liabilities |
5,052 |
|
|
4,452 |
|
| |
The movements in deferred tax assets and
liabilities are as follows:
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US’000) |
|
|
|
| As at
January 1 |
(3,819 |
) |
|
(4,989 |
) |
| Utilization of
previously recognized withholding tax on undistributed
earnings |
788 |
|
|
2,140 |
|
| (Charged)/Credited to
the consolidated statements of operations |
|
|
|
|
Withholding tax on undistributed earnings of PRC entities |
(1,323 |
) |
|
(1,307 |
) |
| Deferred
tax on amortization of intangible assets |
10 |
|
|
9 |
|
| Deferred
tax on provision for assets |
36 |
|
|
51 |
|
| Exchange
differences |
(63 |
) |
|
(96 |
) |
| As at June 30 |
(4,371 |
) |
|
(4,192 |
) |
| |
The deferred tax assets and liabilities are
offset when there is a legally enforceable right to set off and
when the deferred income taxes relate to the same fiscal
authority.
The table below summarizes changes in the
deferred tax valuation allowance:
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| As at
January 1 |
31,662 |
|
|
20,145 |
|
| Charged to consolidated
statements of operations |
10,231 |
|
|
3,881 |
|
| Utilization of
previously unrecognized tax losses |
(2 |
) |
|
(97 |
) |
| Others |
259 |
|
|
(965 |
) |
| Exchange
differences |
264 |
|
|
280 |
|
| As at June 30 |
42,414 |
|
|
23,244 |
|
| |
The Group recognizes interest and penalties, if
any, under income tax payable on its condensed consolidated balance
sheets and under other expenses in its condensed consolidated
statements of operations. As at June 30, 2018 and December 31,
2017, the Group did not have any material unrecognized uncertain
tax positions.
(iii) Income
tax payable
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| As at
January 1 |
979 |
|
|
274 |
|
| Current tax |
1,403 |
|
|
599 |
|
| Withholding tax upon
dividend declaration from PRC entities |
788 |
|
|
2,140 |
|
| Tax paid |
(2,020 |
) |
|
(2,458 |
) |
| Exchange
difference |
17 |
|
|
2 |
|
| As at June 30 |
1,167 |
|
|
557 |
|
| |
20.
(Losses)/Earnings per Share
(i) Basic
(losses)/earnings per share
Basic (losses)/earnings per share is calculated
by dividing the net (loss)/income attributable to the Company by
the weighted average number of ordinary shares in issue during the
period. Treasury shares held by the Trustee are excluded from the
weighted average number of outstanding ordinary shares in issue for
purposes of calculating basic (losses)/earnings per share.
|
|
Six Months Ended June
30, |
|
|
2018 |
|
2017 |
| Weighted average number
of outstanding ordinary shares in issue |
66,389,454 |
|
|
60,660,846 |
| Net (loss)/income
attributable to the Company (US$’000) |
(32,691 |
) |
|
1,682 |
| (Losses)/earnings per
share attributable to the Company (US$ per share) |
(0.49 |
) |
|
0.03 |
| |
(ii) Diluted
(losses)/earnings per share
Diluted (losses)/earnings per share is
calculated by dividing net (loss)/income attributable to 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 option and LTIP awards issued by
the Company using the treasury stock method.
|
|
Six Months Ended June
30, |
|
|
2018 |
|
2017 |
| Weighted average number
of outstanding ordinary shares in issue |
66,389,454 |
|
|
60,660,846 |
| Adjustment for share
options and LTIP |
— |
|
|
473,693 |
| |
66,389,454 |
|
|
61,134,539 |
| Net (loss)/income
attributable to the Company (US$’000) |
(32,691 |
) |
|
1,682 |
| (Losses)/earnings per
share attributable to the Company (US$ per share) |
(0.49 |
) |
|
0.03 |
| |
For the six months ended June 30, 2018, the
share options and LTIP awards issued by the Company were not
included in the calculation of diluted losses per share because of
their anti‑dilutive effect.
21.
Segment Reporting
The Group determines its operating segments from
both business and geographic perspectives as follows:
(i) Innovation Platform: 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:
- Prescription Drugs: comprises the development, manufacture,
distribution, marketing and sale of prescription
pharmaceuticals; and
- Consumer Health: comprises the development, manufacture,
distribution, marketing and sale of over‑the‑counter
pharmaceuticals and consumer health products.
Innovation Platform and Prescription Drugs
businesses 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 is
assessed based on three measurements: (a) losses or earnings
of subsidiaries before interest income, interest expense, income
tax expense 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,
2018 |
|
|
Innovation
Platform |
|
Commercial
Platform |
|
|
|
|
|
|
Drug R&D |
|
Prescription Drugs |
|
Consumer Health |
|
|
|
|
|
|
|
|
|
|
PRC |
|
PRC |
|
PRC |
|
Hong Kong |
|
|
Subtotal |
|
Unallocated |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
|
|
| Revenue
from external customers |
13,624 |
|
|
67,950 |
|
6,559 |
|
14,056 |
|
88,565 |
|
— |
|
|
102,189 |
|
|
| Adjusted
(LBIT)/EBIT |
(50,718 |
) |
|
3,457 |
|
456 |
|
1,584 |
|
5,497 |
|
(7,619 |
) |
|
(52,840 |
) |
|
| Interest
income |
26 |
|
|
23 |
|
7 |
|
32 |
|
62 |
|
2,701 |
|
|
2,789 |
|
|
| Equity
in earnings of equity investees, net of tax |
(2,349 |
) |
|
19,408 |
|
5,991 |
|
— |
|
25,399 |
|
— |
|
|
23,050 |
|
|
|
Operating (loss)/profit |
(53,041 |
) |
|
22,888 |
|
6,454 |
|
1,616 |
|
30,958 |
|
(4,918 |
) |
|
(27,001 |
) |
|
| Interest
expense |
— |
|
|
— |
|
— |
|
39 |
|
39 |
|
405 |
|
|
444 |
|
|
| Income
tax expense |
20 |
|
|
813 |
|
124 |
|
264 |
|
1,201 |
|
1,459 |
|
|
2,680 |
|
|
| Net
(loss)/income attributable to the Company |
(52,930 |
) |
|
20,768 |
|
5,497 |
|
649 |
|
26,914 |
|
(6,675 |
) |
|
(32,691 |
) |
|
|
Depreciation/amortization |
1,584 |
|
|
68 |
|
12 |
|
10 |
|
90 |
|
14 |
|
|
1,688 |
|
|
|
Additions to non‑current assets (other than financial instrument
and deferred tax assets) |
1,564 |
|
|
5 |
|
7 |
|
14 |
|
26 |
|
5 |
|
|
1,595 |
|
|
| |
|
|
|
June 30, 2018 |
|
|
Innovation Platform |
|
Commercial
Platform |
|
|
|
|
|
|
Drug R&D |
|
Prescription Drugs |
|
Consumer Health |
|
|
|
|
|
|
|
|
|
|
|
PRC |
|
PRC |
|
PRC |
|
Hong Kong |
|
|
Subtotal |
|
|
Unallocated |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
|
|
| Total
assets |
95,668 |
|
133,674 |
|
65,482 |
|
14,882 |
|
214,038 |
|
268,237 |
|
577,943 |
|
|
Property, plant and equipment |
14,147 |
|
135 |
|
57 |
|
33 |
|
225 |
|
44 |
|
14,416 |
|
|
Leasehold land |
1,264 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,264 |
|
|
Goodwill |
— |
|
2,949 |
|
407 |
|
— |
|
3,356 |
|
— |
|
3,356 |
|
| Other
intangible asset |
— |
|
403 |
|
— |
|
— |
|
403 |
|
— |
|
403 |
|
|
Investments in equity investees |
25,167 |
|
74,276 |
|
62,146 |
|
— |
|
136,422 |
|
— |
|
161,589 |
|
| |
|
|
Six Months Ended June 30,
2017 |
|
|
Innovation
Platform |
|
Commercial
Platform |
|
|
|
|
|
|
Drug R&D |
|
Prescription Drugs |
|
Consumer Health |
|
|
|
|
|
|
|
|
|
PRC |
|
PRC |
|
PRC |
|
Hong Kong |
|
Subtotal |
|
Unallocated |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
|
|
| Revenue
from external customers |
22,726 |
|
|
85,759 |
|
4,423 |
|
|
13,676 |
|
103,858 |
|
— |
|
|
126,584 |
|
|
| Adjusted
(LBIT)/EBIT |
(12,467 |
) |
|
1,523 |
|
99 |
|
|
1,519 |
|
3,141 |
|
(6,846 |
) |
|
(16,172 |
) |
|
| Interest
income |
19 |
|
|
17 |
|
5 |
|
|
3 |
|
25 |
|
207 |
|
|
251 |
|
|
| Equity
in earnings of equity investees, net of tax |
(2,363 |
) |
|
18,871 |
|
5,761 |
|
|
— |
|
24,632 |
|
— |
|
|
22,269 |
|
|
|
Operating (loss)/profit |
(14,811 |
) |
|
20,411 |
|
5,865 |
|
|
1,522 |
|
27,798 |
|
(6,639 |
) |
|
6,348 |
|
|
| Interest
expense |
— |
|
|
— |
|
— |
|
|
32 |
|
32 |
|
785 |
|
|
817 |
|
|
| Income
tax expense |
14 |
|
|
441 |
|
(179 |
) |
|
243 |
|
505 |
|
1,327 |
|
|
1,846 |
|
|
| Net
(loss)/income attributable to the Company |
(14,790 |
) |
|
19,421 |
|
5,093 |
|
|
644 |
|
25,158 |
|
(8,686 |
) |
|
1,682 |
|
|
|
Depreciation/amortization |
1,232 |
|
|
52 |
|
6 |
|
|
9 |
|
67 |
|
13 |
|
|
1,312 |
|
|
|
Additions to non‑current assets (other than financial instrument
and deferred tax assets) |
3,017 |
|
|
6 |
|
1 |
|
|
1 |
|
8 |
|
20 |
|
|
3,045 |
|
|
| |
|
|
December 31,
2017 |
|
|
Innovation Platform |
|
Commercial
Platform |
|
|
|
|
|
|
Drug R&D |
|
Prescription Drugs |
|
Consumer Health |
|
|
|
|
|
|
|
|
|
PRC |
|
PRC |
|
PRC |
|
Hong Kong |
|
Subtotal |
|
Unallocated |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
|
|
| Total
assets |
63,268 |
|
122,665 |
|
58,961 |
|
13,794 |
|
195,420 |
|
339,244 |
|
597,932 |
|
|
Property, plant and equipment |
13,917 |
|
160 |
|
61 |
|
30 |
|
251 |
|
52 |
|
14,220 |
|
|
Leasehold land |
1,261 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,261 |
|
|
Goodwill |
— |
|
2,901 |
|
407 |
|
— |
|
3,308 |
|
— |
|
3,308 |
|
| Other
intangible asset |
— |
|
430 |
|
— |
|
— |
|
430 |
|
— |
|
430 |
|
|
Investments in equity investees |
19,512 |
|
69,417 |
|
55,308 |
|
— |
|
124,725 |
|
— |
|
144,237 |
|
| |
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 nil and US$708,000 for the six months ended
June 30, 2018 and 2017 respectively. Sales between segments are
carried out at mutually agreed terms.
There was one customer who accounted for over
10% of the Group’s revenue for the six months ended June 30, 2018
and nil customers for the six months ended June 30, 2017.
Unallocated expenses mainly represent corporate
expenses which include corporate employee benefit expenses and the
relevant share‑based compensation expenses. Unallocated assets
mainly comprise cash and cash equivalents and short‑term
investments.
A reconciliation of Adjusted LBIT to net
(loss)/income is as follows:
|
|
Six Months Ended June
30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Adjusted LBIT |
(52,840 |
) |
|
(16,172 |
) |
| Interest income |
2,789 |
|
|
251 |
|
| Equity in earnings of
equity investees, net of tax |
23,050 |
|
|
22,269 |
|
| Interest expense |
(444 |
) |
|
(817 |
) |
| Income tax expense |
(2,680 |
) |
|
(1,846 |
) |
| Net (loss)/income |
(30,125 |
) |
|
3,685 |
|
| |
22.
Note to Condensed Consolidated Statements of Cash
Flows
Reconciliation of net (loss)/income for the
period to net cash (used in)/generated from operating
activities:
|
|
Six Months Ended
June 30, |
|
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(in US$’000) |
|
|
|
| Net (loss)/income |
(30,125 |
) |
|
3,685 |
|
| Adjustments to
reconcile net (loss)/income to net cash used in/ generated from
operating activities |
|
|
|
| Depreciation and
amortization |
1,688 |
|
|
1,312 |
|
| Share‑based
compensation expense—share options |
2,791 |
|
|
664 |
|
| Share‑based
compensation expense—LTIP |
1,601 |
|
|
1,269 |
|
| Equity in earnings of
equity investees, net of tax |
(23,050 |
) |
|
(22,269 |
) |
| Dividends received from
equity investees |
23,526 |
|
|
42,617 |
|
| Other adjustments |
990 |
|
|
(772 |
) |
| Changes in working
capital |
|
|
|
| Accounts
receivable—third parties |
(6,053 |
) |
|
(2,699 |
) |
| Accounts
receivable—related parties |
1,310 |
|
|
1,804 |
|
| Other
receivables, prepayments and deposits |
(3,266 |
) |
|
(3,448 |
) |
| Amounts
due from related parties |
(194 |
) |
|
71 |
|
|
Inventories |
2,041 |
|
|
2,148 |
|
| Accounts
payable |
(5,057 |
) |
|
(2,875 |
) |
| Other
payables, accruals and advance receipts |
10,215 |
|
|
(4,320 |
) |
| Deferred
revenue |
1,490 |
|
|
(533 |
) |
| Amounts
due to related parties |
3,666 |
|
|
2,844 |
|
| Other
changes in working capital |
(169 |
) |
|
(76 |
) |
| Total changes in
working capital |
3,983 |
|
|
(7,084 |
) |
| Net cash (used
in)/generated from operating activities |
(18,596 |
) |
|
19,422 |
|
| |
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 27, 2018, which is the date when the interim unaudited
condensed consolidated financial statements were issued.
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