Chi-Med Reports 2020 Interim Results and Provides Updates on Key Clinical Programs
Hutchison China MediTech Limited (HCM) reported strong progress in its oncology pipeline, achieving three FDA Fast Track Designations and preparing NDAs for surufatinib and savolitinib in China. The company anticipates multiple drug launches in late 2020 and 2021, including surufatinib for NET and fruquintinib for CRC, which could drive significant growth. Revenue for H1 2020 rose to $106.8 million, up from $102.2 million in H1 2019, though the company reported a net loss of $49.7 million. The firm holds $281 million in cash, following a $100 million private placement.
- Achieved three U.S. FDA Fast Track Designations.
- NDA submissions for surufatinib and savolitinib underway in China.
- Expecting multiple drug launches over the next 12-18 months.
- H1 2020 revenue increased to $106.8 million, a 4% rise from H1 2019.
- Significant increase (174%) in Elunate® prescriptions after national drug list inclusion.
- Net loss attributable to Chi-Med increased to $49.7 million in H1 2020 from $45.4 million in H1 2019.
- Adjusted net cash flows excluding financing activities were -$32.5 million.
- Heavy reliance on external partners for cash flow amid high R&D expenses.
– Strong global pipeline progress – three U.S. FDA1 Fast Track Designations; surufatinib U.S. NDA2 preparations underway; and initiation of global Phase III for fruquintinib –
– Two further NDAs submitted in China – savolitinib in MET3 Exon 14 skipping mutation NSCLC4, and surufatinib in pancreatic NET5 –
– Expansion of commercial activities in oncology – Chi-Med to be responsible for medical detailing and marketing for Elunate® throughout Mainland China starting October 2020 –
– Company to Host Results Call & Webcast Today at 1 p.m. BST / 8 a.m. EDT / 8 p.m. HKT –
HONG KONG and SHANGHAI and FLORHAM PARK, N.J., July 30, 2020 (GLOBE NEWSWIRE) -- Hutchison China MediTech Limited (“Chi-Med”) (Nasdaq/AIM: HCM), an innovation-driven, commercial-stage biopharmaceutical company, today announces its unaudited financial results for the six months ended June 30, 2020 and provides updates on key clinical and commercial developments.
“During the first half of 2020, we continued to build our fully integrated business in China, from research and development to manufacturing and commercialization and sales, with a focus on oncology,” said Mr. Simon To, Chairman of Chi-Med. “NDAs for surufatinib and savolitinib are currently under review by the China NMPA6 and we are now preparing for multiple potential launches employing our newly-established commercial organization in oncology, covering all provinces in Mainland China.”
“We are also one of a few China-based biotech companies working to realize the global potential of our home-grown innovative drug candidates,” he added. “We currently have nine novel drug candidates in clinical trials, many with global potential, and an additional five drug candidates at the IND7-enabling stage.”
“Over the past three years, we have significantly expanded our international development footprint and, in the first half of 2020, locked in global registration strategies for surufatinib and fruquintinib, while our global partnership with AstraZeneca8 is approaching the same for savolitinib. A deep pipeline of unpartnered earlier-stage oncology assets follows, with most notably, global development of our Syk9 and PI3Kδ10 assets progressing well and our IDH 1/211 inhibitor expected to start Phase I in the United States this year.”
“We believe that the anticipated launches of multiple innovative oncology drugs over the next twelve to eighteen months will address a broad range of unmet medical needs and benefit a large number of patients globally, propelling Chi-Med into a new phase of growth.”
FIRST HALF 2020 OPERATING HIGHLIGHTS
Set out below are some of Chi-Med’s operating highlights so far this year. For more details, please refer to “Operations Review” below.
I. PREPARING TO LAUNCH MULTIPLE ONCOLOGY DRUGS IN CHINA
Savolitinib – NDA submitted for potential first-in-class selective MET TKI12 in China:
- NDA accepted by NMPA in MET Exon 14 skipping mutation NSCLC: presented positive results at ASCO13 from a registration study in MET Exon 14 skipping mutation NSCLC demonstrating
49.2% ORR14,93.4% DCR15 and 9.6 months DoR16 in efficacy evaluable patients, underpinning the NDA acceptance in May 2020 and subsequent grant of Priority Review status in July 2020.
Surufatinib – Two NDAs with first China launch in NET planned for late 2020:
- Progressed non-pancreatic NET NDA: Supported by the positive SANET-ep Phase III and submitted in late 2019, the NMPA NDA review process is on-track, and we continue to plan for launch in late 2020;
- Submitted Pancreatic NET NDA: Following positive interim analysis and early termination of SANET-p Phase III, an NDA for pancreatic NET has been submitted in China, which we anticipate may be accepted in the near term;
- Progressed to Phase II for Tuoyi® combination: Initiated a Phase II in early 2020 in eight solid tumor indications for surufatinib plus Tuoyi®, a China-approved PD-117 antibody from Junshi18. Data presented at AACR19, shows the combination is well tolerated with encouraging activity, ORR
64% and DCR100% in efficacy evaluable patients at the RP2D20; and - Initiated Tyvyt® PD-1 combination: In July 2020, Innovent21 initiated a Phase I combining surufatinib with their China-approved PD-1 monoclonal antibody, Tyvyt®.
Fruquintinib – Commercial progress on Elunate® (fruquintinib capsules):
174% overall increase in Elunate® prescriptions22 during the first half of 2020: Inclusion in the 2020 National Reimbursement Drug List (“NRDL”) has led to a major increase in access. In-market sales, as provided by Lilly23, were$14.0 million 24 (H1-19:$11.4m ) during the first half of 2020;- Chi-Med to commercialize Elunate® in China beginning in October 2020: In July 2020, an agreement was reached with Lilly that Chi-Med will commence medical detailing and marketing activities for Elunate® across all of China effective October 1, 2020;
- Phase III interim analysis in second-line gastric cancer: In June 2020, following the second and final interim analysis for futility of the FRUTIGA study in China the IDMC25 recommended to continue the study. FRUTIGA is expected to complete enrollment in late 2020 or early 2021; and
- Expanded Tyvyt® PD-1 combination: Phase I dose escalation for the fruquintinib and Tyvyt® combination completed in July 2020. A Phase Ib expansion study at the RP2D is underway in China targeting five solid tumor indications.
Established in-house oncology commercial organization – Team now in place for imminent launches:
- An in-house oncology commercial organization has now been established with over 320 staff, versus about 90 at the start of 2020, in order to support the potential launch of surufatinib in China and commercialization of Elunate®.
II. REALIZING THE GLOBAL POTENTIAL OF OUR LATE STAGE ONCOLOGY ASSETS
Surufatinib – U.S. NDA under preparation:
- Secured FDA Fast Track Designations: FDA granted Fast Track Designations for both pancreatic NET and non-pancreatic NET in April 2020;
- Positive U.S. NET bridging study: Presented results at ASCO from the U.S. Phase Ib NET study in June 2020, reporting
100% DCR in heavily pre-treated pancreatic-NET and non-pancreatic NET patients; - Agreed U.S. NDA submission pathway: In May 2020, agreed with FDA that the two pivotal NET studies in China, along with existing data from the U.S. bridging study, could support an NDA submission. Now planning a U.S. NDA rolling submission from late 2020 into early 2021;
- U.S. commercial launch strategy: Work underway to establish U.S. launch readiness for late 2021;
- Progressed European regulatory discussions: Engaging extensively with European regulatory authorities, targeting MAA26 submission for NET during 2021; and
- BeiGene27 global PD-1 collaboration: Entered into a clinical collaboration in May 2020 to explore the combination of surufatinib with BeiGene’s PD-1 antibody, tislelizumab, in the U.S..
Fruquintinib – global Phase III registration study in CRC28 underway:
- Secured FDA Fast Track Designation: Granted in June 2020 for patients with metastatic CRC;
- Initiated FRESCO-2 global Phase III registration study in CRC: Following study design endorsement by the FDA, EMA29 and PMDA30, we initiated the global Phase III registration study in metastatic CRC. Enrollment of over 500 patients in ~130 sites in 10 countries targeted to complete in late 2021; and
- BeiGene and Innovent global PD-1 collaborations: Entered into a clinical collaboration with BeiGene in the U.S., Europe, China and Australia in May 2020 to explore the combination of fruquintinib and tislelizumab. Our work with Innovent has now established the RP2D for the fruquintinib and Tyvyt® combination and a U.S. IND is planned for late 2020.
Savolitinib – AstraZeneca collaboration making progress in lung and kidney cancer:
- SAVANNAH interim analysis – In late July 2020, AstraZeneca and Chi-Med conducted a first internal interim analysis for the SAVANNAH global Phase II study of the savolitinib plus Tagrisso combination in EGFR mutation positive TKI refractory NSCLC patients. Early interim efficacy and safety data is now under review. The enrollment of the SAVANNAH study continues apace in 13 countries;
- Encouraging efficacy in MET-driven PRCC31: In June 2020, we presented data at ASCO for SAVOIR, a Phase III study of savolitinib versus sunitinib. Savolitinib demonstrated encouraging efficacy compared to sunitinib with a
27% versus7% ORR, a trend toward benefit in PFS32 and an improvement in OS33 with tolerability advantages; and - Preliminary signal for savolitinib/Imfinzi® (PD-L134) combination in all PRCC: In February 2020, we presented data from the CALYPSO Phase II study at ASCO GU35 showing the combination was tolerable and associated with durable efficacy, with a 12.3 month median OS.
III. INVESTING IN THE FUTURE – EARLY PIPELINE
- Non-Hodgkin’s lymphoma (“NHL”): Advanced Phase Ib expansion of both of our NHL assets, HMPL-523 (Syk) and HMPL-689 (PI3Kδ) in China. We expect these studies to inform our China registration study decisions in 2020. In the U.S. and Europe, we continued to expand development of HMPL-523 and HMPL-689, with over twenty Phase I sites now enrolling;
- HMPL-453 – selective FGFR36 1/2/3 inhibitor: We initiated a Phase II study in advanced malignant mesothelioma in China in March 2020, with a second Phase II, in Cholangiocarcinoma, in planning;
- HMPL-306 – IDH 1/2 dual inhibitor: In late July 2020, we dosed our first patient in a Phase I study in China with our ninth in-house discovered asset, HMPL-306; and
- Five additional novel drug candidates in oncology are currently progressing through IND-enabling studies and are anticipated to reach the clinic over the next twelve to eighteen months.
IV. UPDATE ON THE IMPACT OF COVID-19
- Working to effectively manage COVID-19 challenges: The COVID-19 outbreak initially posed some challenges to our operations resulting from restrictions in travel. Our teams adapted quickly and have been able to minimize the effect across our businesses thus far. We will continue to closely monitor the evolving situation. At this stage, we are unable to assess the long-term effect of the outbreak, if any.
KEY EVENTS PLANNED FOR BALANCE 2020 & EARLY 2021
| CHINA EVENTS: A FULLY INTEGRATED ONCOLOGY BUSINESS IN CHINA | ||
| Fruquintinib | ·Elunate® China commercialization – Chi-Med to assume medical detailing and marketing activities for Elunate® in all China on October 1, 2020; and ·Enrollment completion of FRUTIGA Phase III – complete enrollment of China registration study in second-line gastric cancer. | |
| Surufatinib | ·Presentation of SANET-p Phase III data – pancreatic NET patients study at ESMO37 2020 conference; ·Acceptance of NDA in pancreatic NET – following recent NDA submission based on positive SANET-p Phase III interim analysis; ·Phase II/III interim analysis – for futility in second-line BTC38 in China; and ·Potential NDA approval and launch for non-pancreatic NET – first un-partnered oncology drug launch for Chi-Med in China. | |
| Savolitinib | ·Potential NDA approval and launch for NSCLC – monotherapy in MET Exon 14 skipping mutation NSCLC. If approved, this will be the first approval worldwide and the first selective c-MET TKI approval in China. Material milestone triggering event. | |
| Early-stage Assets | ·HMPL-689 (PI3Kδ) Phase I/Ib NHL data – potential presentation of China data at major scientific conference; ·HMPL-689 (PI3Kδ) – Potential registration study start – in indolent NHL in China; ·HMPL-523 (Syk) – Potential registration study start – in indolent NHL in China; and ·HMPL-523 (Syk) – completion of dose escalation in ITP39. | |
| GLOBAL EVENTS: REALIZING THE GLOBAL POTENTIAL OF OUR ONCOLOGY ASSETS | ||
| Fruquintinib | ·Global Phase III study (FRESCO-2) – expansion of registration study in CRC in 10 countries including the U.S., Europe and Japan; and ·Presentation of U.S. Phase Ib data – preliminary data from study of third and later line CRC patients at ESMO 2020 conference. | |
| Surufatinib | ·U.S. NDA submission for pancreatic- and non-pancreatic NET – U.S. NDA rolling submission beginning in late 2020 through early 2021. | |
| Savolitinib | ·Internal interim analyses on SAVANNAH – Complete the review of the first internal interim analysis and conduct further interim analysis to inform regulatory strategy; ·Potential endorsement of global Phase III in kidney cancer – savolitinib monotherapy in MET-driven PRCC; ·Potential endorsement of global Phase III in NSCLC – Tagrisso® combination in EGFRm40 positive, MET positive, NSCLC. Material milestone triggering event; ·Potential endorsement of global registration study in NSCLC – savolitinib in MET Exon 14 skipping mutation NSCLC; and ·Enrollment completion of SAVANNAH – AstraZeneca to complete enrollment of Phase II study, with registration potential, of savolitinib/Tagrisso® combination. | |
| Early-stage Assets | ·HMPL-523 (Syk) – Global Phase Ib expansion – in indolent NHL in the U.S. and Europe; ·HMPL-306 (IDH 1/2) – U.S. IND submission and initiation of Phase I; and ·HMPL-689 (PI3Kδ) – Global Phase Ib expansion – in indolent NHL in the U.S. and Europe. | |
FINANCIAL HIGHLIGHTS
The items below are selected financial data for the six months ended June 30, 2020. All dollars are expressed in U.S. dollar currency unless otherwise stated. For more details, please refer to “Financial Review”, “Operations Review” and “Interim Unaudited Condensed Consolidated Financial Statements” below.
OVERALL GROUP:
- Group revenue of
$106.8 million (H1-19:$102.2m ); - Net loss attributable to Chi‑Med of
$49.7 million (H1-19: net loss of$45.4m ); - Adjusted Group (non-GAAP) net cash flows excluding financing activities was -
$32.5 million (H1-19: -$34.2m ). Cash from our Commercial Platform, as well as cash received from our multi-national partners, continued to offset a substantial portion of our R&D41 expenses; - Recent financing activity strengthens cash position. We held cash, cash equivalents and short-term investments of
$281.0 million as of June 30, 2020 (December 31, 2019:$217.2m ). In early July 2020, we completed a private placement to General Atlantic42, raising an additional$100.0 million in gross proceeds, to further strengthen our cash position; and - Additional unutilized bank facilities of
$119.3 million (December 31, 2019:$119.3m ) and bank borrowings of$26.8 million (December 31, 2019:$26.8m ).
INNOVATION PLATFORM (our R&D operations):
- Consolidated revenue was $7.8 million (H1-19:
$7.3m ) mainly from service fee payments from AstraZeneca and Lilly; and - Net loss from our Innovation Platform attributable to Chi-Med of $73.6 million (H1-19: net loss of
$67.1m ) resulting from expansion in the development of our nine novel drug candidates, with five now in global development, and establishment of scaled international clinical and regulatory operations.
COMMERCIAL PLATFORM (our commercial operations):
- Total consolidated sales up
4% (9% at CER43) to$99.0 million (H1-19:$94.9m ) mainly due to continued progress on our Prescription Drugs subsidiary Hutchison Sinopharm44 as well as manufacturing revenues and royalties from Elunate®; - Total consolidated net income from our Commercial Platform attributable to Chi-Med up
14% (19% at CER) to$35.5 million (H1-19:$31.0m ), strong performance despite the limitations posed by COVID-19 underpinned by the growing profits of our Prescription Drugs operations in China; and - Guangzhou land compensation: In June 2020, our 50/50 joint venture, HBYS45, entered into an agreement with the Guangzhou government for the return of an unused piece of land in return for cash compensation of up to
$95 million . HBYS will receive compensation in stages over a period of approximately one year. The first$24.1 million payment was received by HBYS in late June 2020 and the return will be recorded in Chi-Med’s statement of operations in H2 2020.
FINANCIAL GUIDANCE
During the first half of 2020, we performed in-line with published guidance, with dividends from our Commercial Platform offsetting a material portion of our R&D expenses as expected.
Over the balance of 2020, cash investments will rise in a number of areas including: several major global clinical and regulatory activities such as the global FRESCO-2 Phase III for fruquintinib and the submission of the U.S. NDA for surufatinib; the first phase of construction of our new large-scale oncology manufacturing facility in Shanghai; and expansion of our commercial activities in oncology in China, specifically our new commercial role on Elunate® and preparation for the surufatinib launch.
We assume at this stage that the financial impact of the COVID-19 outbreak will not be material to the Group. Since we cannot predict how the situation will evolve, we will monitor and adjust if needed, as new material information emerges. We therefore provide unchanged Financial Guidance for 2020 below.
| H1 2020 Actual | 2020 Current Guidance | Adjustments vs. Previous Guidance | |
| Adjusted (non-GAAP) Innovation Platform segment operating loss | nil | ||
| Adjusted (non-GAAP) Group net cash flows excluding financing activities | nil |
Use of Non-GAAP Financial Measures and Reconciliation – References in this announcement to adjusted Innovation Platform segment operating loss, adjusted Group net cash flows excluding financing activities and financial measures reported at CER 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.
Conference Call and Audio Webcast Presentation Scheduled Today at 1 p.m. BST / 8 a.m. EDT / 8 p.m. HKT – Investors may participate in the call as follows: +44 20 3194 0569 (U.K.) / +1 646 722 4977 (U.S.) / +852 3027 6500 (Hong Kong), or access a live audio webcast of the call via Chi-Med’s website at www.chi-med.com/investors/event-information/.
Additional dial-in numbers are also available at Chi-Med's website. Please use participant access code “54962123#.”
About Chi-Med
Chi-Med (Nasdaq/AIM: HCM) is an innovative, commercial-stage, biopharmaceutical company committed, over the past twenty years, to the discovery and global development of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases. It has a portfolio of nine cancer drug candidates currently in clinical studies around the world and extensive commercial infrastructure in its home market of China. For more information, please visit: www.chi-med.com.
CONTACTS
| Investor Enquiries | |
| Mark Lee, Senior Vice President | +852 2121 8200 |
| Annie Cheng, Vice President | +1 (973) 567 3786 |
| Media Enquiries | |
| Americas – Brad Miles, Solebury Trout | +1 (917) 570 7340 (Mobile) bmiles@troutgroup.com |
| Europe – Ben Atwell / Alex Shaw, FTI Consulting | +44 20 3727 1030 / +44 7771 913 902 (Mobile) / +44 7779 545 055 (Mobile) Chi-Med@fticonsulting.com |
| Asia – Joseph Chi Lo / Zhou Yi, Brunswick | +852 9850 5033 (Mobile), jlo@brunswickgroup.com / +852 9783 6894 (Mobile), yzhou@brunswickgroup.com |
| Nominated Advisor | |
| Freddy Crossley / Atholl Tweedie, Panmure Gordon (UK) Limited | +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,” “first-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 impact of the COVID-19 pandemic or other health crises in China or globally; 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, 2020 was
Group revenues do not include the revenues of our two large-scale, 50/50 joint ventures in China, SHPL46 (Prescription Drugs) and HBYS (Consumer Health), since these are accounted for using the equity method.
In the first half of 2020, our Commercial Platform, which is a material source of profit and cash flow for Chi-Med, recorded a segment operating profit of
The Innovation Platform incurred a segment operating loss of
Net corporate unallocated operating loss, primarily Chi-Med Group overhead and operating costs, increased to
Consequently, Chi-Med Group’s operating loss was
The aggregate of interest and income tax expenses of the Chi-Med Group, as well as net income attributable to non-controlling interests was
The resulting total Group net loss attributable to Chi-Med was
As a result, Group net loss attributable to Chi-Med in the first half of 2020 was
Cash and Financing
Cash inflows from our Commercial Platform, as well as our R&D collaborations with AstraZeneca and Lilly, offset a material portion of our R&D expense. As a result, total Chi-Med Adjusted (non-GAAP) Group net cash flows excluding financing activities was -
The Chi-Med Group held cash, cash equivalents and short-term investments of
Outstanding Chi-Med Group level bank loans as of June 30, 2020 amounted to
The primary source of cash to the Chi-Med Group from our Commercial Platform are dividends from our two non-consolidated Commercial Platform joint ventures, SHPL and HBYS. During the first half of 2020, the Chi-Med Group received dividends of
OPERATIONS REVIEW
We are an innovative, commercial-stage biopharmaceutical company based in China aiming to become a fully integrated global leader in the discovery, development and commercialization of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases.
Innovation Platform
Our Innovation Platform is a comprehensive drug discovery and development operation, with a large team of about 550 scientists and staff (December 31, 2019: ~500) in China and at our international operation in New Jersey. Currently, we have nine self-discovered drug candidates in clinical trials, with five in global clinical development.
PRODUCT PIPELINE PROGRESS
SAVOLITINIB
Savolitinib is an oral, potent, and highly selective small molecule inhibitor of MET, a receptor tyrosine kinase which has been shown to function abnormally in many types of solid tumors promoting tumor growth, angiogenesis, and metastasis. In global partnership with AstraZeneca, savolitinib has been studied in over 1,000 patients to date, both as a monotherapy and in combinations. In clinical studies it has shown promising clinical efficacy in patients with MET gene alterations in multiple tumor types with an acceptable safety profile.
Savolitinib – Lung cancer:
MET is a prime target in NSCLC. The table below shows a summary of the clinical studies for savolitinib in lung cancer patients.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| Savolitinib | MET Exon 14 skipping | China | II Registration | NDA accepted | NCT02897479 |
| Savolitinib | MET Exon 14 skipping | Global | Registration | In planning | N/A |
| Savolitinib + Tagrisso® | SAVANNAH: 2L/3L EGFRm+; Tagrisso® refractory; MET+ | Global | II Registration potential | Enrolling | NCT03778229 |
| Savolitinib + Tagrisso® | 2L/3L EGFRm+; Tagrisso® refractory; MET+ | Global | III | In planning | N/A |
NDA accepted in MET Exon 14 skipping mutation NSCLC (NCT02897479) – It is estimated that 2
Results of the Phase II study were presented at ASCO in June 2020 and showed that as of the March 31, 2020 data cut off, ORR was
AstraZeneca and Chi-Med continue to explore the global development pathway for savolitinib in MET Exon 14 skipping mutation NSCLC.
EGFR48 TKI-resistance in NSCLC – MET-amplification is a major mechanism for acquired resistance to both first generation EGFR TKIs, such as Iressa® and Tarceva®, as well as third-generation EGFR TKIs like Tagrisso®, an EGFR TKI owned by AstraZeneca. As many as
SAVANNAH Phase II study of combination with Tagrisso® in patients who have progressed following Tagrisso® due to MET amplification or overexpression (NCT03778229) – The SAVANNAH study is a single-arm, open-label study, with the potential for registration, enrolling in North and South America, Europe and Asia. SAVANNAH followed the successful TATTON study, a Phase Ib/II expansion study of savolitinib in combination with Tagrisso® in over 220 EGFR mutation positive TKI refractory NSCLC patients, with data presented at both AACR and ESMO Asia in 2019 and published in The Lancet Oncology this year.
In late July 2020, AstraZeneca and Chi-Med conducted a first internal interim analysis for SAVANNAH, and review of early safety and efficacy data is ongoing.
Savolitinib – Kidney cancer:
MET is a clear genetic driver in RCC49. The table below shows a summary of the clinical studies for savolitinib in kidney cancer patients.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| Savolitinib monotherapy | MET-driven PRCC | Global | III | In planning | N/A |
| Savolitinib + Imfinzi® | CALYPSO: PRCC | UK/Spain | II | Interim data ASCO GU 2020 | NCT02819596 |
| Savolitinib + Imfinzi® | CALYPSO: Clear cell RCC; VEGFR TKI50 refractory | UK/Spain | II | Enrolling - Data in 2020 | NCT02819596 |
MET+ Papillary Renal Cell Carcinoma (“PRCC”) – PRCC is the most common of the non-clear cell renal cell carcinomas, representing approximately
SAVOIR Phase III in MET-positive PRCC (NCT03091192) – In late 2018, the SAVOIR study, a global Phase III study of savolitinib monotherapy compared with sunitinib in patients with MET-driven PRCC, was stopped due to confounding results from a separate, external, retrospective observational study.
Results from 60 randomized patients (33 savolitinib, 27 sunitinib) were followed through August 19, 2019 with data presented at ASCO in May 2020. Although patient numbers and follow-up were limited, trends in efficacy were promising. In terms of OS, savolitinib patients had not reached median OS at data cut-off, compared to 13.2 months for sunitinib patients (HR51 0.51;
Based on these data, Chi-Med and AstraZeneca are actively evaluating the opportunity to restart clinical work in PRCC for monotherapy savolitinib.
Savolitinib and Immunotherapy Combinations – Major evidence is emerging demonstrating that MET plays an important role in the tumor microenvironment, leading to reduced anti-tumor activity of immune cells in many solid tumors. Therefore, combining immunotherapies with a MET inhibitor is hypothesized to enhance anti-tumor activity. Chi-Med and AstraZeneca, as well as others, are currently conducting several clinical studies of anti-PD-1/PD-L1 antibodies in combination with MET inhibitors aimed at validating this hypothesis.
CALYPSO Phase II in combination with Imfinzi® PD-L1 inhibitor in RCC (NCT02819596) – The CALYPSO study is an investigator initiated open-label Phase I/II study of savolitinib in combination with Imfinzi®, an anti-PD-L1 antibody owned by AstraZeneca. The study is evaluating the safety and efficacy of the savolitinib/Imfinzi® combination in patients with PRCC and clear cell RCC at sites in the U.K. and Spain.
CALYPSO PRCC cohort – Interim data for the PRCC cohort of the CALYPSO Phase II study were presented at ASCO GU 2020 reporting an ORR of
Savolitinib – Gastric cancer:
MET-driven gastric cancer has a very poor prognosis. Multiple Phase II studies have been conducted in Asia to study savolitinib in MET-driven gastric cancer patients. The VIKTORY study is an investigator initiated Phase II umbrella study in gastric cancer in South Korea in which a total of 715 patients were successfully sequenced into 10 molecular-driven patient groups. Patients with MET amplification (25/715, or
SURUFATINIB
Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR52 and FGFR, both shown to be involved in tumor angiogenesis, and CSF-1R53, which plays a key role in regulating tumor-associated macrophages, promoting the body’s immune response against tumor cells. Surufatinib has been studied in over 800 patients to date, both as a monotherapy and in combinations.
Chi-Med currently retains all rights to surufatinib worldwide. A summary of the clinical studies of surufatinib is shown in the table below.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| Surufatinib monotherapy | SANET-ep: Non-pancreatic NET | China | III | Met primary endpoint; NDA accepted | NCT02588170 |
| Surufatinib monotherapy | SANET-p: Pancreatic NET | China | III | Met primary endpoint; NDA submitted; acceptance imminent | NCT02589821 |
| Surufatinib monotherapy | NETs | US/EU/JP | Ib | To file US rolling NDA starting Q4 2020 | NCT02549937 |
| Surufatinib monotherapy | BTC and soft tissue sarcoma | US | Ib | Enrolling | NCT02549937 |
| Surufatinib monotherapy | Chemotherapy refractory BTC | China | IIb/III | Enrolling | NCT03873532 |
| Surufatinib + Tuoyi® (PD-1) | Solid tumors (eight indications) | China | II | Enrolling | NCT04169672 |
| Surufatinib + Tyvyt® (PD-1) | Solid tumors | China | I | Enrolling | NCT04427774 |
| Surufatinib + tislelizumab (PD-1) | Solid tumors | Global | I | In planning | N/A |
Surufatinib – Neuroendocrine Tumors (NET):
NETs present in the body’s organ system with fragmented epidemiology. About 55
Global development of surufatinib in NET – In June 2020, we held a pre-NDA meeting with the U.S. FDA for the treatment of patients with advanced NET and have reached an agreement that the completed SANET-ep (non-pancreatic NET) and SANET-p (pancreatic NET) studies, along with existing data from surufatinib in U.S. non-pancreatic and pancreatic NET patients, could form the basis to support a U.S. NDA submission.
The FDA granted Fast Track Designations for our pancreatic and non-pancreatic NET development programs in April 2020, following Orphan Drug Designation for pancreatic NET in November 2019. We have initiated preparatory work for the U.S. NDA and intend to utilize a rolling submission under Fast Track Designation status. The rolling NDA allows completed portions of an NDA to be submitted and reviewed by the FDA on an ongoing basis. The planned initial NDA submission is late 2020.
Regulatory interactions in Europe are also underway to confirm the clinical development strategy and potential path to registration with MAA submission targeted for 2021.
U.S. Phase Ib NET cohorts (NCT02549937) – At ASCO 2020, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients with pancreatic or non-pancreatic NETs. The safety profile is also consistent with the larger pool of surufatinib safety data. As of April 21, 2020, 16 patients with pancreatic NET were treated for a median of 7.1 months (range 2.0-17.5) and 16 patients with non-pancreatic NET were treated for a median of 4.9 months (range of 1.0-10.2). All 32 patients have pretreated progressive NETs (median prior lines of treatment: 3; range 1-8). Confirmed response was observed in
Pharmacokinetic and safety data from these cohorts was presented at AACR 2020, demonstrating similar profiles of surufatinib between Chinese and U.S. patients, meaning that race had minimal effect on exposure.
Phase III study of surufatinib in non-pancreatic NET (SANET-ep) (NCT02588170) – In late 2019, an NDA for surufatinib for the treatment of patients with advanced non-pancreatic NET was accepted for review by the China NMPA. The NDA is supported by data from the SANET-ep study, a Phase III study in China in patients with grade 1 and 2 advanced non-pancreatic NET.
A 198-patient interim analysis was conducted on SANET-ep in mid-2019, leading the IDMC to determine that the trial had met the pre-defined primary endpoint of PFS and should be stopped early. The positive results of this trial were highlighted in an oral presentation at the 2019 ESMO Congress. Median PFS per investigator assessment was 9.2 months for patients treated with surufatinib, as compared to 3.8 months for patients in the placebo group (HR 0.334;
In late 2019, the China NMPA granted Priority Review status to the NDA for surufatinib in non-pancreatic NET.
Phase III study of surufatinib in pancreatic NET (SANET-p) (NCT02589821) – In early 2020, an interim analysis was conducted on SANET-p, also leading the IDMC to recommend that the study stop early as the pre-defined primary endpoint of PFS had been met. Following the success of SANET-p, we submitted our NDA to the China NMPA and are now awaiting formal acceptance. The results of this study will be presented at ESMO 2020.
The positive SANET-ep and SANET-p Phase III studies now position surufatinib to potentially be approved in the full spectrum of advanced-NET disease in China. We believe that no other approved targeted therapy can address and treat all subtypes of NETs.
Surufatinib – Biliary Tract Cancer (BTC):
Phase IIb/III study of surufatinib monotherapy in second line BTC (NCT03873532) – In early 2019, based on preliminary Phase Ib/IIa data, we initiated a registration-intent Phase IIb/III study comparing surufatinib with capecitabine in patients with unresectable or metastatic BTC whose disease progressed on first-line chemotherapy. The primary endpoint is OS and we expect to conduct an interim analysis for futility in 2020. If the interim analysis is positive, we will consider moving the study into Phase III.
Surufatinib – Combinations with Checkpoint Inhibitors:
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
In late 2018, we entered into a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi® (PD-1). We have completed a Phase I dose-finding study and presented the data at the AACR in April 2020. The data showed that surufatinib plus Tuoyi® were well tolerated with no unexpected safety signals observed. At the RP2D, a DCR of
In addition, we have expanded our global collaboration with Innovent and, in July 2020, started a Phase I study to evaluate the safety and efficacy of Tyvyt® (PD-1) in combination with surufatinib. In May 2020, we further entered into a global clinical collaboration agreement to evaluate combining surufatinib with BeiGene’s anti-PD-1 antibody, tislelizumab, for the treatment of various solid tumor cancers in the United States.
Surufatinib – Exploratory development:
We are now conducting multiple Phase Ib expansion cohorts in the U.S. to explore surufatinib use in BTC and soft tissue sarcoma. In China, we intend to initiate multiple exploratory studies, both as a single agent, and in combinations, to evaluate efficacy of surufatinib. We also intend to support investigator-initiated studies in multiple tumor settings.
FRUQUINTINIB (ELUNATE®)
Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that was designed to improve kinase selectivity to minimize off-target toxicity and thereby improve tolerability. Fruquintinib has been studied in over 1,700 patients to date, both as a monotherapy and in combinations.
Chi-Med retains all rights to fruquintinib outside of China and is partnered with Lilly in China. The table below shows a summary of the clinical studies for fruquintinib.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| Fruquintinib monotherapy | FRESCO: ≥3L CRC; chemotherapy refractory | China | III | Approved and launched | NCT02314819 |
| Fruquintinib monotherapy | FRESCO-2: mCRC | US/EU/JP | III | Sites open; screening | NCT04322539 |
| Fruquintinib monotherapy | TN & HR+/Her2- breast cancer | US | Ib | Enrolling | NCT03251378 |
| Fruquintinib + paclitaxel | FRUTIGA: 2L gastric cancer | China | III | Enrolling; Completed 2nd interim analysis | NCT03223376 |
| Fruquintinib + Tyvyt® (PD-1) | CRC | China | II | Enrolling | NCT04179084 |
| Fruquintinib + Tyvyt® (PD-1) | Advanced solid tumors | China | Ib/II | Enrolling | NCT03903705 |
| Fruquintinib + tislelizumab (PD-1) | Solid tumors | Global | I | In planning | N/A |
| Fruquintinib + geptanolimab (PD-1) | CRC | China | Ib | Enrolling | NCT03977090 |
| Fruquintinib + geptanolimab (PD-1) | NSCLC | China | Ib | Enrolling | NCT03976856 |
Fruquintinib – Colorectal Cancer:
Fruquintinib capsules, sold under the brand name Elunate®, are approved in China for metastatic CRC (third-line) patients that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan, including those who have previously received anti-VEGF therapy and/or anti-EGFR therapy (RAS wild type). For details of first half 2020 sales performance please refer to “COMMERCIAL PLATFORM” below.
Global development of fruquintinib in metastatic CRC – The U.S. FDA has granted Fast Track Designation for the development of fruquintinib, for the treatment of patients with metastatic CRC who have been previously treated with fluoropyrimidine-, oxaliplatin-, and irinotecan-based chemotherapy, an VEGF biological therapy, and, if RAS wild-type, an anti-EGFR therapy.
In July 2020, we initiated a Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC in the U.S., Europe and Japan. FRESCO-2 is expected to enroll over 500 patients from approximately 130 sites in 10 countries. Multiple sites are now open and patient screening is underway. Enrollment is targeted to complete late 2021.
The U.S. FDA, EMA and Japanese PMDA have all acknowledged the totality of the fruquintinib clinical data, including the FRESCO-2 study (if positive), the prior positive Phase III FRESCO study demonstrating improvement in overall survival that led to fruquintinib approval for metastatic CRC in China in 2018, and additional completed and ongoing supporting studies in metastatic CRC, could potentially support an NDA for the treatment of patients with metastatic CRC in the third-line setting.
Fruquintinib – Gastric Cancer:
Phase III study of fruquintinib in combination with paclitaxel in gastric cancer (second-line) (NCT03223376) –The FRUTIGA study is a randomized, double-blind, Phase III study in China to evaluate the efficacy and safety of fruquintinib combined with paclitaxel compared with paclitaxel monotherapy, at a 1:1 ratio, for second-line treatment of advanced gastric cancer. The FRUTIGA study primary endpoint is OS.
In June 2020, the IDMC of the FRUTIGA study completed a second planned interim data review and, based on the preset criteria, recommended that the trial continue. We expect to complete enrollment of FRUTIGA in late 2020 or early 2021.
Fruquintinib – Combinations with Checkpoint Inhibitors:
In November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of fruquintinib in combination with checkpoint inhibitors. Phase I dose-finding study in China of Elunate® plus Tyvyt® (PD-1, Innovent) is close to completion, with the Phase Ib/II dose-expansion study already underway in five solid tumor indications in China. Phase Ib studies of Elunate® plus geptanolimab (PD-1, Genor55) in second-line CRC and NSCLC are also underway.
In addition, in May 2020, we entered into a global clinical collaboration agreement to evaluate the safety, tolerability and efficacy of combining fruquintinib with BeiGene’s anti-PD-1 antibody, tislelizumab, for the treatment of various solid tumor cancers in the U.S., Europe, China and Australia.
Fruquintinib – Exploratory development:
We are conducting multiple Phase Ib expansion cohorts in the U.S., to explore fruquintinib in CRC and breast cancer. In China, we are also preparing to support investigator-initiated studies in multiple solid tumor settings.
HMPL-523
HMPL-523 is a novel, selective, oral inhibitor targeting Syk, for the treatment of hematological cancers and immune diseases. Syk is a component in B-cell receptor signaling pathway. We currently retain all rights to HMPL-523 worldwide. The table below shows a summary of the clinical studies for HMPL-523.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| HMPL-523 monotherapy | Indolent non-Hodgkin’s lymphoma | Australia | Ib | Enrolling | NCT02503033 |
| HMPL-523 monotherapy | Indolent non-Hodgkin’s lymphoma | US/EU | I/Ib | Enrolling | NCT03779113 |
| HMPL-523 monotherapy | Multiple sub-types of B-cell malignancies | China | I/Ib | Enrolling | NCT02857998 |
| HMPL-523 monotherapy | Immune thrombocytopenia (ITP) | China | I/Ib | Enrolling | NCT03951623 |
Phase Ib studies of HMPL-523 in indolent non-Hodgkin’s lymphoma and multiple subtypes of B-cell malignancies (NCT02503033/NCT02857998) – Our Phase I/Ib dose escalation and expansion studies in Australia and China have now enrolled over 200 patients in a broad range of hematological cancers. We expect these Phase I/Ib data to inform registration study decisions in China in late 2020 or early 2021.
Phase I study of HMPL-523 in indolent non-Hodgkin’s lymphoma (NCT03779113) – Based on extensive proof-of-concept clinical data in China and Australia, we have now initiated a Phase I/Ib study in the U.S. and Europe. Patient enrollment is underway.
Phase I dose escalation study of HMPL-523 in patients with immune thrombocytopenia purpura (ITP) (NCT03951623) – In mid-2019, we started a Phase I study of HMPL-523 for the treatment of ITP, an autoimmune disorder characterized by low platelet count and an increased bleeding risk. We target to complete dose escalation by the end of 2020.
HMPL-689
HMPL-689 is a novel, selective oral inhibitor targeting the isoform PI3Kδ, a component in the B-cell receptor signaling pathway. HMPL-689's pharmacokinetic (“PK”) properties are favorable with good oral absorption, moderate tissue distribution and low clearance in preclinical PK studies, we therefore anticipate 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 for HMPL-689.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| HMPL-689 monotherapy | Healthy volunteers | Australia | I | Completed | NCT02631642 |
| HMPL-689 monotherapy | Indolent non-Hodgkin’s lymphoma | US/EU | I/Ib | Enrolling | NCT03786926 |
| HMPL-689 monotherapy | Indolent non-Hodgkin’s lymphoma | China | Ib | Enrolling | NCT03128164 |
Our Phase I/Ib study of HMPL-689 in China has successfully established a Phase II dose and has now expanded into multiple sub-categories of indolent non-Hodgkin’s lymphoma. We expect these Phase I/Ib data to inform registration study decisions in China in late 2020. Furthermore, we have initiated a Phase I/Ib study in the U.S. and Europe, with patient enrollment underway.
HMPL-453
HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies. We currently retain all rights to HMPL-453 worldwide. The table below shows a summary of the clinical studies for HMPL-453.
| Treatment | Name, Line, Patient Focus | Sites | Phase | Status/Plan | NCT # |
| HMPL-453 monotherapy | Advanced malignant mesothelioma | China | II | Enrolling | NCT04290325 |
| HMPL-453 monotherapy | Cholangiocarcinoma | China | II | In planning | N/A |
Phase II study of HMPL-453 in China is ongoing. This is a single-arm, multi-center, open-label study, evaluating the efficacy, safety and PK of HMPL-453 in patients with advanced malignant mesothelioma that failed at least one line of systemic therapy. A second Phase II study of HMPL-453 in Cholangiocarcinoma is in planning and targeted to start in late 2020.
HMPL-306
HMPL-306 is a novel small molecule dual-inhibitor of IDH1 and 2 enzymes. IDH1 and IDH2 mutations have been implicated as drivers of certain hematological malignancies, gliomas and solid tumors, particularly among acute myeloid leukemia patients. In July 2020, we initiated our Phase I development in China and, in the second half of 2020, we plan to submit an IND application and initiate Phase I development in the United States.
DISCOVERY RESEARCH & PRECLINICAL DEVELOPMENT
We strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering both small molecule and monoclonal antibody therapies which address aberrant genetic drivers; cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in innovative combinations with other therapy, such as chemotherapy, immunotherapy and other targeted therapy in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment outcomes for patients.
COMMERCIAL PLATFORM
Our Commercial Platform is a large-scale, high-performance drug marketing and distribution platform covering about 320 cities and towns in China with approximately 3,60056 commercial personnel. Built over the past 19 years, it focuses on two main business areas.
First, our Prescription Drugs business which includes our joint ventures Hutchison Sinopharm and SHPL, for which we manage directly and run all day-to-day operations. It also includes our newly-established oncology commercial organization which will support our innovative oncology drugs when, if approved, they are launched in China. Second, is our Consumer Health business which mainly sells market-leading, household-name over-the-counter (“OTC”) drug products through our joint venture HBYS. We do not consolidate the sales of SHPL and HBYS joint ventures which, in the first half of 2020, were
During the first half of 2020, the Commercial Platform delivered continued highly encouraging growth in sales and net income growth on a CER basis considering the challenges caused by COVID-19. Consolidated sales of our Commercial Platform’s subsidiaries grew by
PRESCRIPTION DRUGS BUSINESS:
In the first half of 2020, consolidated sales of our Prescription Drugs subsidiaries increased by
Oncology Business Department (“OBD”) in China: In 2020, we have continued to build our in-house, commercial organization in oncology, the OBD, which has grown rapidly from about 90 staff at the start of 2020 to the current level of over 320 staff. The OBD provides Chi-Med the capability to market oncology drugs to the top 1,300 hospitals and cancer centers in China, a network that we estimate represents over
During the first half of 2020, in-market sales of Elunate® to third parties, based on data provided by Lilly, were
In July 2020, we reached agreement with Lilly that Chi-Med will commence medical detailing and marketing activities for Elunate® across all China effective October 1, 2020. This agreement, in which Lilly and Chi-Med share gross profits linked to commercial performance, represents a win-win model that fully leverages the resources of both companies to capitalize on the recent NRDL inclusion and accelerate Elunate® sales growth. Subject to meeting pre-agreed sales targets, Lilly will pay Chi-Med an estimated total of
Preliminary preparation for potential U.S. launch of surufatinib: Following agreement with the U.S. FDA regarding NDA submission path for surufatinib, which we expect to commence in late 2020, we have now started planning to build capability to support the potential commercial launch of surufatinib in U.S. in late 2021.
SHPL: Our own-brand Prescription Drugs business, operated through our non-consolidated joint venture SHPL, is a well-established large-scale business. In the first half of 2020, COVID-19 constrained commercial activities in SHPL, resulting in a
The SHPL operation is large-scale, with a commercial team of about 2,300 staff managing the medical detailing and marketing of our 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 GMP-certified factory holds 74 drug product manufacturing licenses and is operated by about 520 manufacturing staff.
She Xiang Bao Xin (“SXBX”) pill: SHPL’s main product is SXBX pill, an oral vasodilator prescription therapy for coronary artery disease. There are over one million deaths due to coronary artery disease per year in China. SXBX pill is the third largest botanical prescription drug in this indication in China, with market share in January to April 2020 of
Sales of SXBX pill have grown more than twenty-fold since 2001 due to continued geographical expansion of sales coverage and have remained relatively stable despite COVID-19, with sales down -
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 it. SXBX pill is fully reimbursed in all China.
Concor®: Concor® (Bisoprolol tablets) is a cardiac beta1-receptor blocker, relieving hypertension and reducing high blood pressure. SHPL markets Concor® in nine provinces in China containing about 600 million people.
Hutchison Sinopharm: Our Prescription Drugs commercial services business, which in addition to commercializing our own products, provides services to third-party companies in China. In the first half of 2020, Hutchison Sinopharm sales grew by
Hutchison Sinopharm has a dedicated team of over 120 commercial staff focused on two key areas of operation. Firstly, a commercial team that markets over 800 third-party prescription drug products directly to over 400 public and private hospitals in the Shanghai region and through a network of around 40 distributors to cover all other provinces in China. Second, a commercial team that markets Chi-Med’s science-based infant nutrition products in over 8,000 outlets and through a network over 28,000 promoters and over 280,000 members.
CONSUMER HEALTH BUSINESS:
In the first half of 2020, sales of our Consumer Health subsidiaries fell
HBYS: Our non-consolidated joint venture, HBYS, focuses on the manufacture, marketing and distribution of primarily OTC and limited prescription pharmaceutical products. In the first half of 2020, HBYS sales rose
Its Bai Yun Shan brand is a market-leading, household name, known by the majority of Chinese consumers. In addition to about 1,000 manufacturing staff in Guangdong and Anhui and 185 drug product licenses, HBYS has a commercial team of about 900 commercial staff that cover the national retail pharmacy channel in China.
HBYS property update: In June 2020, we entered into an agreement with the Guangzhou government for the return of HBYS’s remaining 34 years’ land-use rights on its approximately 30,000 square meters unused site in Guangzhou. HBYS will receive cash compensation of up to
Christian Hogg
Chief Executive Officer
July 30, 2020
REFERENCES AND ABBREVIATIONS
- United States Food and Drug Administration (“FDA”)
- New Drug Application (“NDA”)
- Mesenchymal epithelial transition receptor (“MET”)
- Non-small cell lung cancer (“NSCLC”)
- Neuroendocrine tumors (“NET”)
- China National Medical Products Administration (“NMPA”)
- Investigational new drug application (“IND”)
- AstraZeneca AB (publ) (“AstraZeneca”)
- Spleen tyrosine kinase (“Syk”)
- Phosphoinositide 3-kinase delta (“PI3Kδ”)
- Isocitrate dehydrogenase (“IDH”) 1/2
- Tyrosine kinase inhibitor (“TKI”)
- American Society of Clinical Oncology Annual Meeting (“ASCO”)
- Objective response rate (“ORR”)
- Disease Control Rate (“DCR”)
- Duration of response (“DoR”)
- Programmed Cell Death Protein-1 (“PD-1”)
- Shanghai Junshi Biosciences Co. Ltd. (“Junshi”)
- American Association of Cancer Research Annual Meeting (“AACR”)
- Recommended Phase II Dose (“RP2D”)
- Innovent Biologics, Inc. (“Innovent”)
- Total cycles, calculated based on data provided by Lilly.
- Eli Lilly and Company (“Lilly”)
- Sales of Elunate® to third parties invoiced by Lilly were
$13.7 million (H1-19:$11.4m ) & invoiced by Chi-Med were$0.3 million (H1-19: nil). - Independent data monitoring committee (“IDMC”)
- Marketing Authorization Application (“MAA”)
- BeiGene Ltd (“BeiGene”)
- Colorectal cancer (“CRC”)
- European Medicines Agency (“EMA”)
- Japanese Pharmaceuticals and Medical Devices Agency (“PMDA”)
- Papillary renal cell carcinoma (“PRCC”)
- Progression Free Survival (“PFS”)
- Overall survival (“OS”)
- Programmed death-ligand 1 (“PD-L1”)
- American Society of Clinical Oncology Genitourinary Symposium – February 2020 (“ASCO GU”)
- Fibroblast growth factor receptor (“FGFR”)
- European Society for Medical Oncology Annual Congress (“ESMO”)
- Biliary tract cancer (“BTC”)
- Immune thrombocytopenia purpura (“ITP”)
- Epidermal growth factor receptor mutation (“EGFRm”)
- Research and development (“R&D”)
- General Atlantic Singapore HCM Pte. Ltd (“General Atlantic”)
- We also report changes in performance at constant exchange rate (“CER”) which is a non-GAAP measure. Please refer to “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.
- Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited (“Hutchison Sinopharm”)
- Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”)
- Shanghai Hutchison Pharmaceuticals Limited (“SHPL”)
- Adjusted (non-GAAP) Innovation Platform segment operating loss was
$81.2 million in H1-20 (H1-19:$74.5m ) - Epidermal growth factor receptor (“EGFR”)
- Renal cell cancer (“RCC”)
- Vascular endothelial growth factor receptor tyrosine kinase inhibitor (“VEGFR TKI”)
- Hazard ratio (“HR”)
- Vascular endothelial growth factor receptor (“VEGFR”)
- Colony stimulating factor-1 receptor (“CSF-1R”)
- Positive Response (“PR”)
- Genor Biopharma Co. Ltd. (“Genor”)
- Total commercial personnel: >320 OBD; ~2,300 SHPL; ~900 HBYS; >120 Hutchison Sinopharm
- Best estimate based on total unit sales, estimated average usage per patient, and the estimated incidence of third-line CRC in China
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 Innovation Platform segment operating loss;
- Adjusted Group net cash flows excluding financing activities; and
- CER.
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.
Adjusted Innovation Platform segment operating loss: 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 Innovation Platform segment operating loss. 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 aggregate investment made in R&D activities and the associated trends more difficult. We believe the presentation of adjusted Innovation Platform segment operating loss 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 investment.
Adjusted Group net cash flows excluding financing activities: We include the change in short-term investments for the period to the change in cash and cash equivalents for the period, and exclude the net cash generated from/used in financing activities for the period to derive our adjusted Group net cash flows excluding financing activities. We believe the presentation of adjusted Group net cash flows excluding financing activities provides useful and meaningful information about the change in our cash resources excluding those from financing activities which may present significant period-to-period differences.
CER: We remove the effects of currency movements from period-to-period comparisons by retranslating the current period’s performance at previous period’s foreign currency exchange rates. Because we have significant operations in China, the RMB to U.S. dollar exchange rates used for translation may have a significant effect on our reported results. We believe the presentation at CER provides useful and meaningful information because it facilitates period-to-period comparisons of our results and increases the transparency of our underlying performance.
Reconciliation of GAAP to Adjusted Innovation Platform segment operating loss:
| $’millions | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | ||
| Innovation Platform segment operating loss | (73.4 | ) | (67.2 | ) |
| Less: Segment revenue from external customers – Innovation Platform | (7.8 | ) | (7.3 | ) |
| Adjusted Innovation Platform segment operating loss | (81.2 | ) | (74.5 | ) |
Reconciliation of GAAP change in cash and cash equivalents and short-term investments to Adjusted Group net cash flows excluding financing activities:
| $’millions | H1 2020 | H1 2019 | |||
| Cash and cash equivalents and short-term investments at end of period | 281.0 | 237.3 | |||
| Exclude: Cash and cash equivalents and short-term investments at beginning of period | (217.2 | ) | (301.0 | ) | |
| Exclude: Net cash (generated from)/used in financing activities for the period | (96.3 | ) | 29.5 | ||
| Adjusted Group net cash flows excluding financing activities | (32.5 | ) | (34.2 | ) |
Reconciliation of GAAP revenue and net income attributable to Chi-Med—Commercial Platform to CER:
| $’millions (except %) | Six Months Ended | Change Amount | Change % | |||||||||||||
| June 30, 2020 | June 30, 2019 | Actual | CER | Exchange effect | Actual | CER | Exchange effect | |||||||||
| Consolidated revenue | ||||||||||||||||
| Commercial Platform | 99.0 | 94.9 | 4.1 | 8.3 | (4.2 | ) | 4 | % | 9 | % | -5 | % | ||||
| — Prescription Drugs^ | 83.0 | 77.3 | 5.7 | 9.7 | (4.0 | ) | 7 | % | 13 | % | -6 | % | ||||
| — Consumer Health | 16.0 | 17.6 | (1.6 | ) | (1.4 | ) | (0.2 | ) | -9 | % | -8 | % | -1 | % | ||
| ^ Includes: | ||||||||||||||||
| — Hutchison Sinopharm | 74.4 | 72.6 | 1.8 | 5.3 | (3.5 | ) | 2 | % | 7 | % | -5 | % | ||||
| Non-consolidated joint venture revenue | 274.8 | 276.9 | (2.1 | ) | 10.7 | (12.8 | ) | -1 | % | 4 | % | -5 | % | |||
| — SHPL | 150.7 | 158.9 | (8.2 | ) | (1.1 | ) | (7.1 | ) | -5 | % | -1 | % | -4 | % | ||
| — HBYS | 124.1 | 118.0 | 6.1 | 11.8 | (5.7 | ) | 5 | % | 10 | % | -5 | % | ||||
| Consolidated net income attributable to Chi-Med | ||||||||||||||||
| Commercial Platform | 35.5 | 31.0 | 4.5 | 6.1 | (1.6 | ) | 14 | % | 19 | % | -5 | % | ||||
| — Prescription Drugs* | 28.9 | 25.1 | 3.8 | 5.1 | (1.3 | ) | 15 | % | 20 | % | -5 | % | ||||
| — Consumer Health | 6.6 | 5.9 | 0.7 | 1.0 | (0.3 | ) | 11 | % | 16 | % | -5 | % | ||||
| * Includes: | ||||||||||||||||
| — SHPL | 24.0 | 21.0 | 3.0 | 4.1 | (1.1 | ) | 14 | % | 19 | % | -5 | % | ||||
| Revenue of Key Product | ||||||||||||||||
| — SXBX pill | 137.0 | 141.0 | (4.0 | ) | 2.5 | (6.5 | ) | -3 | % | 2 | % | -5 | % | |||
INTERIM UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
| Hutchison China MediTech Limited Condensed Consolidated Balance Sheets (in US$’000, except share data) | |||||||
| Note | June 30, 2020 | December 31, 2019 | |||||
| (Unaudited) | |||||||
| Assets | |||||||
| Current assets | |||||||
| Cash and cash equivalents | 3 | 49,940 | 121,157 | ||||
| Short‑term investments | 4 | 231,074 | 96,011 | ||||
| Accounts receivable—third parties | 5 | 44,623 | 41,410 | ||||
| Accounts receivable—related parties | 16(ii) | 1,084 | 1,844 | ||||
| Other receivables, prepayments and deposits | 17,499 | 15,769 | |||||
| Amounts due from related parties | 16(ii) | 15,245 | 24,623 | ||||
| Inventories | 6 | 15,262 | 16,208 | ||||
| Total current assets | 374,727 | 317,022 | |||||
| Property, plant and equipment | 20,841 | 20,855 | |||||
| Right‑of‑use assets | 5,283 | 5,516 | |||||
| Investments in equity investees | 7 | 106,966 | 98,944 | ||||
| Amount due from a related party | 16(ii) | 11,108 | 16,190 | ||||
| Other assets | 6,637 | 6,595 | |||||
| Total assets | 525,562 | 465,122 | |||||
| Liabilities and shareholders’ equity | |||||||
| Current liabilities | |||||||
| Accounts payable | 8 | 25,871 | 23,961 | ||||
| Other payables, accruals and advance receipts | 9 | 86,989 | 81,624 | ||||
| Lease liabilities | 2,594 | 3,216 | |||||
| Other current liabilities | 3,933 | 4,300 | |||||
| Total current liabilities | 119,387 | 113,101 | |||||
| Lease liabilities | 3,278 | 3,049 | |||||
| Long‑term bank borrowings | 10 | 26,839 | 26,818 | ||||
| Other liabilities | 9,010 | 9,251 | |||||
| Total liabilities | 158,514 | 152,219 | |||||
| Commitments and contingencies | 11 | ||||||
| Company’s shareholders’ equity | |||||||
| Ordinary shares; | 12 | 69,057 | 66,691 | ||||
| Additional paid‑in capital | 618,125 | 514,904 | |||||
| Accumulated losses | (339,528 | ) | (289,734 | ) | |||
| Accumulated other comprehensive loss | (5,534 | ) | (3,849 | ) | |||
| Total Company’s shareholders’ equity | 342,120 | 288,012 | |||||
| Non‑controlling interests | 24,928 | 24,891 | |||||
| Total shareholders’ equity | 367,048 | 312,903 | |||||
| Total liabilities and shareholders’ equity | 525,562 | 465,122 | |||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
| Hutchison China MediTech Limited Condensed Consolidated Statements of Operations (Unaudited, in US$’000, except share and per share data) | |||||||
| Six Months Ended June 30, | |||||||
| Note | 2020 | 2019 | |||||
| Revenues | |||||||
| Goods—third parties | 94,889 | 86,858 | |||||
| —related parties | 16(i) | 2,084 | 3,732 | ||||
| Services—commercialization—third parties | — | 2,584 | |||||
| —collaboration research and development—third parties | 7,507 | 7,056 | |||||
| —research and development—related parties | 16(i) | 240 | 252 | ||||
| Other collaboration revenue—royalties—third parties | 2,045 | 1,715 | |||||
| Total revenues | 14 | 106,765 | 102,197 | ||||
| Operating expenses | |||||||
| Costs of goods—third parties | (82,186 | ) | (74,051 | ) | |||
| Costs of goods—related parties | (1,386 | ) | (2,610 | ) | |||
| Costs of services—commercialization—third parties | — | (1,929 | ) | ||||
| Research and development expenses | 15 | (73,974 | ) | (69,287 | ) | ||
| Selling expenses | (5,673 | ) | (7,501 | ) | |||
| Administrative expenses | (21,711 | ) | (18,830 | ) | |||
| Total operating expenses | (184,930 | ) | (174,208 | ) | |||
| (78,165 | ) | (72,011 | ) | ||||
| Other income, net of other expenses | 1,585 | 3,710 | |||||
| Loss before income taxes and equity in earnings of equity investees | (76,580 | ) | (68,301 | ) | |||
| Income tax expense | 17 | (2,032 | ) | (2,462 | ) | ||
| Equity in earnings of equity investees, net of tax | 7 | 30,366 | 27,308 | ||||
| Net loss | (48,246 | ) | (43,455 | ) | |||
| Less: Net income attributable to non‑controlling interests | (1,448 | ) | (1,914 | ) | |||
| Net loss attributable to the Company | (49,694 | ) | (45,369 | ) | |||
| Losses per share attributable to the Company—basic and diluted (US$ per share) | 18 | (0.07 | ) | (0.07 | ) | ||
| Number of shares used in per share calculation—basic and diluted | 18 | 685,285,841 | 665,553,637 | ||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
| Hutchison China MediTech Limited Condensed Consolidated Statements of Comprehensive Loss (Unaudited, in US$’000) | |||||
| Six Months Ended June 30, | |||||
| 2020 | 2019 | ||||
| Net loss | (48,246 | ) | (43,455 | ) | |
| Other comprehensive loss | |||||
| Foreign currency translation loss | (1,827 | ) | (179 | ) | |
| Total comprehensive loss | (50,073 | ) | (43,634 | ) | |
| Less: Comprehensive income attributable to non‑controlling interests | (1,302 | ) | (1,892 | ) | |
| Total comprehensive loss attributable to the Company | (51,375 | ) | (45,526 | ) | |
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
| Hutchison China MediTech Limited Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited, in US$’000, except share data in ’000) | |||||||||||||||||||||
| Ordinary Shares Number | Ordinary Shares Value | Additional Paid‑in Capital | Accumulated Losses | Accumulated Other Comprehensive Loss | Total Company’s Shareholders’ Equity | Non‑ controlling Interests | Total Shareholders’ Equity | ||||||||||||||
| As at January 1, 2019 | 666,577 | 66,658 | 505,585 | (183,659 | ) | (243 | ) | 388,341 | 23,243 | 411,584 | |||||||||||
| Net (loss)/income | — | — | — | (45,369 | ) | — | (45,369 | ) | 1,914 | (43,455 | ) | ||||||||||
| Share‑based compensation | |||||||||||||||||||||
| Share options | — | — | 4,118 | — | — | 4,118 | 9 | 4,127 | |||||||||||||
| Long-term incentive plan (“LTIP”) | — | — | 1,303 | — | — | 1,303 | 3 | 1,306 | |||||||||||||
| — | — | 5,421 | — | — | 5,421 | 12 | 5,433 | ||||||||||||||
| LTIP—treasury shares acquired and held by Trustee | — | — | (346 | ) | — | — | (346 | ) | — | (346 | ) | ||||||||||
| Transfer between reserves | — | — | 39 | (39 | ) | — | — | — | — | ||||||||||||
| Foreign currency translation adjustments | — | — | — | — | (157 | ) | (157 | ) | (22 | ) | (179 | ) | |||||||||
| As at June 30, 2019 | 666,577 | 66,658 | 510,699 | (229,067 | ) | (400 | ) | 347,890 | 25,147 | 373,037 | |||||||||||
| As at January 1, 2020 | 666,906 | 66,691 | 514,904 | (289,734 | ) | (3,849 | ) | 288,012 | 24,891 | 312,903 | |||||||||||
| Net (loss)/income | — | — | — | (49,694 | ) | — | (49,694 | ) | 1,448 | (48,246 | ) | ||||||||||
| Issuance in relation to public offering | 23,669 | 2,366 | 115,975 | — | — | 118,341 | — | 118,341 | |||||||||||||
| Issuance costs | — | — | (8,033 | ) | — | — | (8,033 | ) | — | (8,033 | ) | ||||||||||
| Share‑based compensation | |||||||||||||||||||||
| Share options | — | — | 3,001 | — | — | 3,001 | 5 | 3,006 | |||||||||||||
| LTIP | — | — | 5,217 | — | — | 5,217 | (4 | ) | 5,213 | ||||||||||||
| — | — | 8,218 | — | — | 8,218 | 1 | 8,219 | ||||||||||||||
| LTIP—treasury shares acquired and held by Trustee | — | — | (12,904 | ) | — | — | (12,904 | ) | — | (12,904 | ) | ||||||||||
| Dividend declared to a non-controlling shareholder of a subsidiary | — | — | — | — | — | — | (1,231 | ) | (1,231 | ) | |||||||||||
| Purchase of additional interests in a subsidiary of an equity investee (Note 7) | — | — | (52 | ) | (83 | ) | (4 | ) | (139 | ) | (35 | ) | (174 | ) | |||||||
| Transfer between reserves | — | — | 17 | (17 | ) | — | — | — | — | ||||||||||||
| Foreign currency translation adjustments | — | — | — | — | (1,681 | ) | (1,681 | ) | (146 | ) | (1,827 | ) | |||||||||
| As at June 30, 2020 | 690,575 | 69,057 | 618,125 | (339,528 | ) | (5,534 | ) | 342,120 | 24,928 | 367,048 | |||||||||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
| Hutchison China MediTech Limited Condensed Consolidated Statements of Cash Flows (Unaudited, in US$’000) | |||||||
| Six Months Ended June 30, | |||||||
| Note | 2020 | 2019 | |||||
| Net cash used in operating activities | 20 | (28,376 | ) | (30,045 | ) | ||
| Investing activities | |||||||
| Purchases of property, plant and equipment | (4,058 | ) | (3,848 | ) | |||
| Deposits in short‑term investments | (422,838 | ) | (329,102 | ) | |||
| Proceeds from short‑term investments | 287,775 | 390,089 | |||||
| Net cash (used in)/generated from investing activities | (139,121 | ) | 57,139 | ||||
| Financing activities | |||||||
| Proceeds from issuance of ordinary shares | 118,341 | — | |||||
| Purchases of treasury shares | 13(ii) | (12,904 | ) | (346 | ) | ||
| Dividends paid to a non-controlling shareholder of a subsidiary | 16(iii) | (1,231 | ) | (1,282 | ) | ||
| Repayment of bank borrowings | 10 | — | (26,923 | ) | |||
| Payment of issuance costs | (7,863 | ) | (964 | ) | |||
| Net cash generated from/(used in) financing activities | 96,343 | (29,515 | ) | ||||
| Net decrease in cash and cash equivalents | (71,154 | ) | (2,421 | ) | |||
| Effect of exchange rate changes on cash and cash equivalents | (63 | ) | (255 | ) | |||
| (71,217 | ) | (2,676 | ) | ||||
| Cash and cash equivalents | |||||||
| Cash and cash equivalents at beginning of period | 121,157 | 86,036 | |||||
| Cash and cash equivalents at end of period | 49,940 | 83,360 | |||||
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Hutchison China MediTech Limited
Notes to the Interim 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 marketing pharmaceutical 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, 2020, the Group had accumulated losses of US
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), and it is appropriate for the Group to prepare the condensed consolidated financial statements on a going concern basis.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The interim unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles 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 Codification (“ASC”) 326 Financial Instruments – Credit Losses 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 is condensed to the same degree as the interim condensed balance sheet data.
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 interim unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the interim unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining items such as useful lives of property, plant and equipment, write‑down of inventories, allowance for doubtful accounts, share‑based compensation, impairments of long‑lived assets, impairment of other intangible asset and goodwill, income tax expenses, tax valuation allowances, revenues and cost accruals from research and development projects. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Group has adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020, which replaced the incurred loss methodology with an expected loss methodology that was referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology was applicable to financial assets measured at amortized cost, including accounts receivable and other receivables. ASU 2016-13 did not have a material impact to the Group’s condensed consolidated financial statements.
3. Cash and Cash Equivalents
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Cash at bank and on hand | 36,579 | 85,990 | |
| Bank deposits maturing in three months or less (note (a)) | 13,361 | 35,167 | |
| 49,940 | 121,157 | ||
| Denominated in: | |||
| U.S. dollar (“US$”) (note (b)) | 12,925 | 84,911 | |
| Renminbi (“RMB”) (note (b)) | 32,393 | 27,768 | |
| UK Pound Sterling (“£”) (note (b)) | 205 | 335 | |
| Hong Kong dollar (“HK$”) | 4,417 | 8,143 | |
| 49,940 | 121,157 | ||
Notes:
(a) The weighted average effective interest rate on bank deposits for the six months ended June 30, 2020 and the year ended December 31, 2019 was
(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, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Bank deposits maturing over three months (note) | |||
| Denominated in: | |||
| US$ | 198,240 | 73,986 | |
| RMB | 13,440 | — | |
| HK$ | 19,394 | 22,025 | |
| 231,074 | 96,011 | ||
Note: The weighted average effective interest rate on bank deposits for the six months ended June 30, 2020 and the year ended December 31, 2019 was
5. Accounts Receivable—Third Parties
Accounts receivable from contracts with customers, net of allowance for doubtful accounts, consisted of the following:
| June 30, 2020 | December 31, 2019 | ||||
| (in US$’000) | |||||
| Accounts receivable, gross | 44,631 | 41,426 | |||
| Allowance for doubtful accounts | (8 | ) | (16 | ) | |
| Accounts receivable, net | 44,623 | 41,410 | |||
Substantially all accounts receivable are denominated in RMB, US$ and HK$ and are due within one year from the end of the reporting periods. The carrying values of accounts receivable approximate their fair values due to their short‑term maturities.
Movements on the allowance for doubtful accounts:
| 2020 | 2019 | ||||
| (in US$’000) | |||||
| As at January 1 | 16 | 41 | |||
| Increase in allowance for doubtful accounts | 8 | 14 | |||
| Decrease in allowance due to subsequent collection | (16 | ) | (34 | ) | |
| As at June 30 | 8 | 21 | |||
6. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted of the following:
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Raw materials | 1,366 | 2,274 | |
| Finished goods | 13,896 | 13,934 | |
| 15,262 | 16,208 | ||
7. Investments in Equity Investees
Investments in equity investees consisted of the following:
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”) | 28,165 | 22,271 | |
| Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) | 78,289 | 76,226 | |
| Other Innovation Platform entity | 512 | 447 | |
| 106,966 | 98,944 | ||
The equity investees are private companies and there are no quoted market prices available for their shares.
Summarized financial information for the significant equity investees HBYS and SHPL is as follows:
(i) Summarized balance sheets
| Commercial Platform | ||||||||||||
| Consumer Health | Prescription Drugs | |||||||||||
| HBYS (note (a)) | SHPL | |||||||||||
| June 30, | December 31, | June 30, | December 31, | |||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| (in US$’000) | ||||||||||||
| Current assets | 156,675 | 124,704 | 154,711 | 141,268 | ||||||||
| Non-current assets | 91,427 | 95,096 | 87,722 | 91,098 | ||||||||
| Current liabilities | (153,414 | ) | (124,051 | ) | (85,533 | ) | (79,533 | ) | ||||
| Non-current liabilities | (37,621 | ) | (48,690 | ) | (5,963 | ) | (6,074 | ) | ||||
| Net assets | 57,067 | 47,059 | 150,937 | 146,759 | ||||||||
| Non-controlling interests | (737 | ) | (2,518 | ) | — | — | ||||||
| 56,330 | 44,541 | 150,937 | 146,759 | |||||||||
(ii) Summarized statements of operations
| Commercial Platform | ||||||||||||
| Consumer Health | Prescription Drugs | |||||||||||
| HBYS | SHPL | |||||||||||
| Six Months Ended June 30, | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| (in US$’000) | ||||||||||||
| Revenue | 124,098 | 118,047 | 150,703 | 158,874 | ||||||||
| Gross profit | 60,794 | 64,527 | 112,363 | 114,687 | ||||||||
| Interest income | 81 | 81 | 396 | 289 | ||||||||
| Finance cost | (5 | ) | (9 | ) | — | — | ||||||
| Profit before taxation | 14,792 | 14,272 | 55,470 | 49,534 | ||||||||
| Income tax expense (note (b)) | (2,386 | ) | (2,286 | ) | (7,485 | ) | (7,479 | ) | ||||
| Net income | 12,406 | 11,986 | 47,985 | 42,055 | ||||||||
| Non‑controlling interests | 207 | 223 | — | — | ||||||||
| Net income attributable to the shareholders of equity investee | 12,613 | 12,209 | 47,985 | 42,055 | ||||||||
Notes:
(a) In June 2020, HBYS has entered into an agreement with the Guangzhou government for the planned return of land-use rights with carrying value of US
(b) The main entity within each of the HBYS and SHPL groups have been granted the High and New Technology Enterprise (“HNTE”) status (the latest renewal of this status covers the years from 2017 to 2019). These entities were eligible to use a preferential income tax rate of
For the six months ended June 30, 2020 and 2019, other immaterial equity investees had net income of approximately US
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the carrying amount of investments in equity investees is as follows:
| Commercial Platform | ||||||||||||
| Consumer Health | Prescription Drugs | |||||||||||
| HBYS | SHPL | |||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| (in US$’000) | ||||||||||||
| Opening net assets after non‑controlling interests as at January 1 | 44,541 | 121,984 | 146,759 | 131,778 | ||||||||
| Impact of change in accounting policy (ASC 842—Leases) | — | (19 | ) | — | (2 | ) | ||||||
| Net income attributable to the shareholders of equity investee | 12,613 | 12,209 | 47,985 | 42,055 | ||||||||
| Purchase of additional interests in a subsidiary of an equity investee (note) | (347 | ) | — | — | — | |||||||
| Dividend declared | — | (14,615 | ) | (42,308 | ) | (21,731 | ) | |||||
| Other comprehensive loss | (477 | ) | (168 | ) | (1,499 | ) | (760 | ) | ||||
| Closing net assets after non‑controlling interests as at June 30 | 56,330 | 119,391 | 150,937 | 151,340 | ||||||||
| Group’s share of net assets | 28,165 | 59,695 | 75,468 | 75,670 | ||||||||
| Goodwill | — | — | 2,821 | 2,923 | ||||||||
| Carrying amount of investments as at June 30 | 28,165 | 59,695 | 78,289 | 78,593 | ||||||||
Note: During the period, HBYS acquired an additional
The equity investees had the following capital commitments:
| June 30, 2020 | |
| (in US$’000) | |
| Property, plant and equipment | |
| Contracted but not provided for | 2,902 |
8. Accounts Payable
| June 30, 2020 | December 31, 2019 | ||||
| (in US$’000) | |||||
| Accounts payable—third parties | 21,026 | 19,598 | |||
| Accounts payable—non-controlling shareholders of subsidiaries (Note 16(iv)) | 4,845 | 4,363 | |||
| 25,871 | 23,961 | ||||
Substantially all 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.
9. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the following:
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Accrued salaries and benefits | 12,128 | 12,970 | |
| Accrued research and development expenses | 56,485 | 48,531 | |
| Accrued selling and marketing expenses | 3,220 | 3,337 | |
| Accrued administrative and other general expenses | 8,560 | 8,699 | |
| Deferred government incentives | 353 | 445 | |
| Deposits | 1,401 | 1,778 | |
| Others | 4,842 | 5,864 | |
| 86,989 | 81,624 | ||
10. Bank Borrowings
Bank borrowings consisted of the following:
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Non‑current | 26,839 | 26,818 | |
The weighted average interest rate for outstanding bank borrowings for the six months ended June 30, 2020 and the year ended December 31, 2019 was
(i) 2‑year revolving loan facilities
In August 2018, 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
(ii) 3‑year revolving loan facility and 3‑year term loan and revolving loan facilities
In November 2018, the Group through its subsidiary, renewed a 3-year revolving loan facility with a bank in the amount of HK
In May 2019, the Group through its subsidiary, entered into a separate facility agreement with the bank for the provision of additional unsecured credit facilities in the aggregate amount of HK
The Group’s bank borrowings are repayable as from the dates indicated as follows:
| June 30, 2020 | December 31, 2019 | ||
| (in US$’000) | |||
| Not later than 1 year | — | — | |
| Between 1 to 2 years | 26,923 | — | |
| Between 2 to 3 years | — | 26,923 | |
| 26,923 | 26,923 | ||
As at June 30, 2020 and December 31, 2019, the Group had unutilized bank borrowing facilities of HK
11. Commitments and Contingencies
The Group had the following capital commitments:
| June 30, 2020 | |
| (in US$’000) | |
| Property, plant and equipment | |
| Contracted but not provided for | 3,421 |
The Group does not have any other significant commitments or contingencies.
12. Ordinary Shares
As at June 30, 2020, the Company is authorized to issue 1,500,000,000 ordinary shares.
On January 27, 2020, the Company issued 22,000,000 ordinary shares in the form of 4,400,000 American Depositary Share (“ADS”) for gross proceeds of US
A summary of ordinary share transactions (in thousands) is as follows:
| 2020 | 2019 | ||
| As at January 1 | 666,906 | 666,577 | |
| Public offering | 23,669 | — | |
| As at June 30 | 690,575 | 666,577 |
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.
13. 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.
Pursuant to a resolution passed in the Annual General Meeting on April 27, 2020, the scheme limit of HCML Share Option Scheme was refreshed to 34,528,738 ordinary shares, representing
As at June 30, 2020, the aggregate number of shares issuable under the HCML Share Option Scheme is 53,584,988 ordinary shares and the aggregate number of shares issuable under the prior share option scheme which expired in 2016 is 1,516,180 ordinary shares. The Company will issue new shares to satisfy share option exercises. Additionally, the number of shares authorized but unissued was 809,425,235 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
A summary of the Company’s share option activity and related information is as follows:
| Number of share options | Weighted average exercise price in £ per share | Weighted average remaining contractual life (years) | Aggregate intrinsic value (in £’000) | |||||
| Outstanding at January 1, 2019 | 18,554,850 | 3.31 | 7.35 | 15,158 | ||||
| Granted | 2,315,000 | 3.18 | ||||||
| Exercised | (329,000 | ) | 0.61 | |||||
| Cancelled | (1,012,110 | ) | 4.61 | |||||
| Expired | (96,180 | ) | 4.65 | |||||
| Outstanding at December 31, 2019 | 19,432,560 | 3.27 | 6.67 | 18,668 | ||||
| Granted | 12,746,500 | 3.51 | ||||||
| Cancelled | (1,200,040 | ) | 4.55 | |||||
| Expired | (574,090 | ) | 4.61 | |||||
| Outstanding at June 30, 2020 | 30,404,930 | 3.28 | 7.60 | 35,790 | ||||
| Vested and exercisable at December 31, 2019 | 10,139,170 | 2.39 | 4.89 | 16,654 | ||||
| Vested and exercisable at June 30, 2020 | 11,508,890 | 2.64 | 4.78 | 21,302 | ||||
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, 2019 | Six Months Ended June 30, 2020 | ||||
| Weighted average grant date fair value of share options (in £ per share) | 1.07 | 1.32 | |||
| Significant inputs into the valuation model (weighted average): | |||||
| Exercise price (in £ per share) | 3.18 | 3.51 | |||
| Share price at effective date of grant (in £ per share) | 3.07 | 3.51 | |||
| Expected volatility (note (a)) | 38.4 | % | 42.6 | % | |
| Risk‑free interest rate (note (b)) | 0.56 | % | 0.55 | % | |
| Contractual life of share options (in years) | 10 | 10 | |||
| Expected dividend yield (note (c)) | 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 Group recognizes compensation expense on a graded vesting approach over the requisite service period. The following table presents share‑based compensation expense included in the Group’s condensed consolidated statements of operations:
| Six Months Ended June 30, | |||
| 2020 | 2019 | ||
| (in US$’000) | |||
| Research and development expenses | 1,697 | 3,756 | |
| Administrative expenses | 1,237 | 371 | |
| Cost of goods | 72 | — | |
| 3,006 | 4,127 | ||
As at June 30, 2020, the total unrecognized compensation cost was US
(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 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 share-based compensation expense.
Granted awards under the LTIP are as follows:
| Maximum cash amount per annum | Covered | Performance target | |||||
| Grant date | (in US$ millions) | financial years | determination date | ||||
| August 5, 2019 | 0.7 | 2019 | note (a) | ||||
| October 10, 2019 | 0.1 | note (b) | note (b) | ||||
| April 20, 2020 | 37.4 | 2020 | note (a) | ||||
| April 20, 2020 | 1.9 | note (b) | note (b) | ||||
| April 20, 2020 | 0.2 | note (c) | note (c) |
Notes:
(a) 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.
(b) This award does not stipulate performance targets and is subject to a vesting schedule of
(c) This award does not stipulate performance targets and will be vested on the first anniversary of the date of grant.
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) held by the Trustee were as follows:
| Number of treasury shares | Cost (in US$’000) | ||||
| As at January 1, 2019 | 1,121,030 | 6,677 | |||
| Purchased | 60,430 | 346 | |||
| Vested | (240,150 | ) | (944 | ) | |
| As at December 31, 2019 | 941,310 | 6,079 | |||
| Purchased | 3,281,920 | 12,904 | |||
| Vested | (705,605 | ) | (4,800 | ) | |
| As at June 30, 2020 | 3,517,625 | 14,183 | |||
For the six months ended June 30, 2020 and 2019, US
The following table presents the share‑based compensation expenses recognized under the LTIP awards:
| Six Months Ended June 30, | |||
| 2020 | 2019 | ||
| (in US$’000) | |||
| Research and development expenses | 3,145 | 543 | |
| Selling and administrative expenses | 756 | 827 | |
| Cost of goods | 60 | — | |
| 3,961 | 1,370 | ||
| Recorded with a corresponding credit to: | |||
| Liability | 2,840 | 590 | |
| Additional paid‑in capital | 1,121 | 780 | |
| 3,961 | 1,370 | ||
For the six months ended June 30, 2020 and 2019, US
As at June 30, 2020, the total unrecognized compensation cost was approximately US
14. Revenues
The following table presents disaggregated revenue:
| Six Months Ended June 30, 2020 | |||||
| Innovation Platform | Commercial Platform | Total | |||
| (in US$’000) | |||||
| Goods—Innovative Medicines | — | 6,600 | 6,600 | ||
| Goods—Distribution | — | 90,373 | 90,373 | ||
| Services | 7,747 | — | 7,747 | ||
| Royalties | — | 2,045 | 2,045 | ||
| 7,747 | 99,018 | 106,765 | |||
| Third parties | 7,507 | 96,934 | 104,441 | ||
| Related parties (Note 16(i)) | 240 | 2,084 | 2,324 | ||
| 7,747 | 99,018 | 106,765 | |||
| Six Months Ended June 30, 2019 | |||||
| Innovation Platform | Commercial Platform | Total | |||
| (in US$’000) | |||||
| Goods—Innovative Medicines | — | 2,994 | 2,994 | ||
| Goods—Distribution | — | 87,596 | 87,596 | ||
| Services | 7,308 | 2,584 | 9,892 | ||
| Royalties | — | 1,715 | 1,715 | ||
| 7,308 | 94,889 | 102,197 | |||
| Third parties | 7,056 | 91,157 | 98,213 | ||
| Related parties (Note 16(i)) | 252 | 3,732 | 3,984 | ||
| 7,308 | 94,889 | 102,197 | |||
15. Research and Development Expenses
Research and development expenses are summarized as follows:
| Six Months Ended June 30, | |||
| 2020 | 2019 | ||
| (in US$’000) | |||
| Clinical trial related costs | 40,986 | 43,707 | |
| Personnel compensation and related costs | 29,356 | 21,917 | |
| Other research and development expenses | 3,632 | 3,663 | |
| 73,974 | 69,287 | ||
16. Significant Transactions with Related Parties and Non‑Controlling Shareholders of Subsidiaries
The Group has the following significant transactions with related parties and non‑controlling shareholders of subsidiaries, which were carried out in the normal course of business at terms determined and agreed by the relevant parties:
(i) Transactions with related parties:
| Six Months Ended June 30, | |||||
| 2020 | 2019 | ||||
| (in US$’000) | |||||
| Sales to: | |||||
| Indirect subsidiaries of CK Hutchison | 2,084 | 3,732 | |||
| Revenue from research and development services from: | |||||
| An equity investee | 240 | 252 | |||
| Purchases from: | |||||
| Equity investees | 1,887 | 1,222 | |||
| Rendering of marketing services from: | |||||
| Indirect subsidiaries of CK Hutchison | 152 | 198 | |||
| An equity investee | — | 2,682 | |||
| 152 | 2,880 | ||||
| Rendering of management services from: | |||||
| An indirect subsidiary of CK Hutchison | 478 | 465 | |||
(ii) Balances with related parties included in:
| June 30, 2020 | December 31, 2019 | ||||
| (in US$’000) | |||||
| Accounts receivable—related parties | |||||
| Indirect subsidiaries of CK Hutchison (note (a)) | 844 | 1,844 | |||
| An equity investee (note (a)) | 240 | — | |||
| 1,084 | 1,844 | ||||
| Amounts due from related parties | |||||
| Equity investees (note (a) and (b)) | 15,245 | 24,623 | |||
| Amount due from a related party | |||||
| An equity investee (note (b)) | 11,108 | 16,190 | |||
| Amounts due to a related party | |||||
| An indirect subsidiary of CK Hutchison (note (c)) | 378 | 366 | |||
| Other deferred income | |||||
| An equity investee (note (d)) | 986 | 1,103 | |||
Notes:
(a) Balances with related parties are unsecured, repayable on demand and interest‑free. The carrying values of balances with related parties approximate their fair values due to their short‑term maturities.
(b) As at June 30, 2020 and December 31, 2019, dividend receivables from an equity investee of approximately US
(c) Amounts due to an indirect subsidiary of CK Hutchison are unsecured, repayable on demand and interest‑bearing if not settled within one month.
(d) Other deferred income represents amounts recognized from granting of promotion and marketing rights.
(iii) Transactions with non‑controlling shareholders of subsidiaries:
| Six Months Ended June 30, | ||||
| 2020 | 2019 | |||
| (in US$’000) | ||||
| Sales | 16,784 | 12,146 | ||
| Purchases | 6,625 | 6,397 | ||
| Dividend paid | 1,231 | 1,282 | ||
(iv) Balances with non‑controlling shareholders of subsidiaries included in:
| June 30, 2020 | December 31, 2019 | |||
| (in US$’000) | ||||
| Accounts receivable | 7,814 | 5,228 | ||
| Accounts payable | 4,845 | 4,363 | ||
| Other non-current liabilities | ||||
| Loan | 579 | 579 | ||
17. Income Taxes
| Six Months Ended June 30, | |||
| 2020 | 2019 | ||
| (in US$’000) | |||
| Current tax | |||
| HK (note (a)) | 232 | 220 | |
| PRC (note (b)) | 48 | 822 | |
| U.S. and others (note (c)) | 530 | 347 | |
| Deferred income tax | 1,222 | 1,073 | |
| Income tax expense | 2,032 | 2,462 | |
Notes:
(a) The Company, three subsidiaries incorporated in the British Virgin Islands and its Hong Kong subsidiaries are subject to Hong Kong profits tax. In March 2018, the Hong Kong two-tiered profits tax rates regime was signed into law under which the first HK
(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
Pursuant to the EIT law, a
(c) The Company’s subsidiary in the U.S. with operations in New Jersey and New York states is subject to U.S. taxes, primarily federal and state taxes, which have been provided for at approximately
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, | |||||
| 2020 | 2019 | ||||
| (in US$’000) | |||||
| Loss before income taxes and equity in earnings of equity investees | (76,580 | ) | (68,301 | ) | |
| Tax calculated at the statutory tax rate of the Company | (12,636 | ) | (11,270 | ) | |
| Tax effects of: | |||||
| Different tax rates available in different jurisdictions | 1,431 | 1,351 | |||
| Tax valuation allowance | 16,178 | 13,309 | |||
| Preferential tax rate difference | (119 | ) | — | ||
| Preferential tax deduction | (4,678 | ) | (2,908 | ) | |
| Expenses not deductible for tax purposes | 1,618 | 1,094 | |||
| Utilization of previously unrecognized tax losses | (152 | ) | (49 | ) | |
| Withholding tax on undistributed earnings of PRC entities | 1,513 | 1,386 | |||
| Income not subject to tax | (552 | ) | (577 | ) | |
| Others | (571 | ) | 126 | ||
| Income tax expense | 2,032 | 2,462 | |||
18. Losses per Share
(i) Basic losses per share
Basic losses per share is calculated by dividing the net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue during the period. Treasury shares held by the Trustee are excluded from the weighted average number of outstanding ordinary shares in issue for purposes of calculating basic losses per share.
| Six Months Ended June 30, | |||||
| 2020 | 2019 | ||||
| Weighted average number of outstanding ordinary shares in issue | 685,285,841 | 665,553,637 | |||
| Net loss attributable to the Company (US$’000) | (49,694 | ) | (45,369 | ) | |
| Losses per share attributable to the Company (US$ per share) | (0.07 | ) | (0.07 | ) | |
(ii) Diluted losses per share
Diluted losses per share is calculated by dividing net loss attributable to the Company by the weighted average number of outstanding ordinary shares in issue 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.
For the six months ended June 30, 2020 and 2019, 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. Therefore, diluted losses per share were equal to basic losses per share for the six months ended June 30, 2020 and 2019.
19. 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 for commercialization targeted therapies and immunotherapies for the treatment of cancer and immunological diseases; and
(ii) Commercial Platform: comprises of the manufacture, marketing and distribution of prescription drugs and over‑the‑counter pharmaceuticals in the PRC as well as consumer health products through Hong Kong. The Commercial Platform is further segregated into two core business areas:
(a) Prescription Drugs: comprises the development, manufacture, distribution, marketing and sale of prescription drugs; and
(b) Consumer Health: comprises the development, manufacture, distribution, marketing and sale of over‑the‑counter pharmaceuticals and consumer health products.
Innovation Platform and Prescription Drugs 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 segment operating (loss)/profit.
Since the second half of 2019, the Group began including the results from manufacturing and commercializing a prescription drug developed by the Innovation Platform and launched into the market under Prescription Drugs in the Commercial Platform. It has been included in the Commercial Platform due to its transition to the commercial stage and because commercial resources for innovative medicines are built under the Commercial Platform. The segment information below for the six months ended June 30, 2019 has been revised so that all segment disclosures are comparable.
The segment information is as follows:
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||
| Innovation | ||||||||||||||||||||||||
| Platform | Commercial Platform | |||||||||||||||||||||||
| Drug | Prescription | Consumer | ||||||||||||||||||||||
| R&D | Drugs | Health | ||||||||||||||||||||||
| Hong | ||||||||||||||||||||||||
| PRC | PRC | PRC | Kong | Subtotal | Unallocated | Total | ||||||||||||||||||
| (in US$’000) | ||||||||||||||||||||||||
| Revenue from external customers | 7,747 | 83,056 | 5,205 | 10,757 | 99,018 | — | 106,765 | |||||||||||||||||
| Interest income | 114 | 34 | 11 | 26 | 71 | 1,732 | 1,917 | |||||||||||||||||
| Equity in earnings of equity investees, net of tax | 68 | 23,992 | 6,306 | — | 30,298 | — | 30,366 | |||||||||||||||||
| Segment operating (loss)/profit | (73,377 | ) | 28,612 | 7,183 | 1,553 | 37,348 | (9,674 | ) | (45,703 | ) | ||||||||||||||
| Interest expense | — | — | — | — | — | 511 | 511 | |||||||||||||||||
| Income tax expense | 312 | (137 | ) | 66 | 227 | 156 | 1,564 | 2,032 | ||||||||||||||||
| Net (loss)/income attributable to the Company | (73,608 | ) | 28,879 | 5,903 | 691 | 35,473 | (11,559 | ) | (49,694 | ) | ||||||||||||||
| Depreciation/amortization | 2,687 | 87 | 10 | 44 | 141 | 95 | 2,923 | |||||||||||||||||
| Additions to non-current assets (other than financial instruments and deferred tax assets) | 4,262 | 79 | 59 | 2 | 140 | 13 | 4,415 | |||||||||||||||||
| June 30, 2020 | ||||||||||||||
| Innovation | ||||||||||||||
| Platform | Commercial Platform | |||||||||||||
| Drug | Prescription | Consumer | ||||||||||||
| R&D | Drugs | Health | ||||||||||||
| Hong | ||||||||||||||
| PRC | PRC | PRC | Kong | Subtotal | Unallocated | Total | ||||||||
| (in US$’000) | ||||||||||||||
| Total assets | 77,662 | 138,805 | 35,067 | 13,269 | 187,141 | 260,759 | 525,562 | |||||||
| Property, plant and equipment | 19,568 | 394 | 60 | 257 | 711 | 562 | 20,841 | |||||||
| Right-of-use assets | 2,697 | 1,901 | 50 | 234 | 2,185 | 401 | 5,283 | |||||||
| Leasehold land | 1,084 | — | — | — | — | — | 1,084 | |||||||
| Goodwill | — | 2,681 | 407 | — | 3,088 | — | 3,088 | |||||||
| Other intangible asset | — | 241 | — | — | 241 | — | 241 | |||||||
| Investments in equity investees | 512 | 78,289 | 28,165 | — | 106,454 | — | 106,966 | |||||||
| Six Months Ended June 30, 2019 | |||||||||||||||||||||||
| Innovation | |||||||||||||||||||||||
| Platform | Commercial Platform | ||||||||||||||||||||||
| Drug | Prescription | Consumer | |||||||||||||||||||||
| R&D | Drugs | Health | |||||||||||||||||||||
| Hong | |||||||||||||||||||||||
| PRC | PRC | PRC | Kong | Subtotal | Unallocated | Total | |||||||||||||||||
| (in US$’000) | |||||||||||||||||||||||
| Revenue from external customers | 7,308 | 77,327 | 6,192 | 11,370 | 94,889 | — | 102,197 | ||||||||||||||||
| Interest income | 205 | 30 | 16 | 2 | 48 | 2,808 | 3,061 | ||||||||||||||||
| Equity in earnings of equity investees, net of tax | 176 | 21,027 | 6,105 | — | 27,132 | — | 27,308 | ||||||||||||||||
| Segment operating (loss)/profit | (67,179 | ) | 26,577 | 6,585 | 973 | 34,135 | (7,261 | ) | (40,305 | ) | |||||||||||||
| Interest expense | — | — | — | — | — | 688 | 688 | ||||||||||||||||
| Income tax expense | 120 | 624 | 138 | 142 | 904 | 1,438 | 2,462 | ||||||||||||||||
| Net (loss)/income attributable to the Company | (67,133 | ) | 25,135 | 5,542 | 385 | 31,062 | (9,298 | ) | (45,369 | ) | |||||||||||||
| Depreciation/amortization | 2,191 | 80 | 11 | 45 | 136 | 78 | 2,405 | ||||||||||||||||
| Additions to non-current assets (other than financial instruments and deferred tax assets) | 3,300 | 2,624 | 9 | 3 | 2,636 | 7 | 5,943 | ||||||||||||||||
| December 31, 2019 | ||||||||||||||
| Innovation | ||||||||||||||
| Platform | Commercial Platform | |||||||||||||
| Drug | Prescription | Consumer | ||||||||||||
| R&D | Drugs | Health | ||||||||||||
| Hong | ||||||||||||||
| PRC | PRC | PRC | Kong | Subtotal | Unallocated | Total | ||||||||
| (in US$’000) | ||||||||||||||
| Total assets | 97,784 | 131,881 | 27,354 | 12,469 | 171,704 | 195,634 | 465,122 | |||||||
| Property, plant and equipment | 19,422 | 424 | 65 | 300 | 789 | 644 | 20,855 | |||||||
| Right-of-use assets | 2,445 | 2,102 | 15 | 349 | 2,466 | 605 | 5,516 | |||||||
| Leasehold land | 1,110 | — | — | — | — | — | 1,110 | |||||||
| Goodwill | — | 2,705 | 407 | — | 3,112 | — | 3,112 | |||||||
| Other intangible asset | — | 275 | — | — | 275 | — | 275 | |||||||
| Investments in equity investees | 447 | 76,226 | 22,271 | — | 98,497 | — | 98,944 | |||||||
Revenue from external customers is after elimination of inter‑segment sales. Sales between segments are carried out at mutually agreed terms. The amount eliminated attributable to sales within Consumer Health business from Hong Kong to the PRC was US
There were two customers which accounted for over
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 segment operating loss to net loss is as follows:
| Six Months Ended June 30, | |||||
| 2020 | 2019 | ||||
| (in US$’000) | |||||
| Segment operating loss | (45,703 | ) | (40,305 | ) | |
| Interest expense | (511 | ) | (688 | ) | |
| Income tax expense | (2,032 | ) | (2,462 | ) | |
| Net loss | (48,246 | ) | (43,455 | ) | |
20. Note to Condensed Consolidated Statements of Cash Flows
Reconciliation of net loss for the period to net cash used in operating activities:
| Six Months Ended June 30, | |||||
| 2020 | 2019 | ||||
| (in US$’000) | |||||
| Net loss | (48,246 | ) | (43,455 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities | |||||
| Depreciation and amortization | 2,923 | 2,405 | |||
| Share‑based compensation expense—share options | 3,006 | 4,127 | |||
| Share‑based compensation expense—LTIP | 3,961 | 1,370 | |||
| Equity in earnings of equity investees, net of tax | (30,366 | ) | (27,308 | ) | |
| Dividends received from equity investees | 35,321 | 18,173 | |||
| Changes in right-of-use assets | 205 | (929 | ) | ||
| Other adjustments | (740 | ) | 1,107 | ||
| Changes in working capital | |||||
| Accounts receivable—third parties | (3,205 | ) | (2,562 | ) | |
| Inventories | 1,171 | (2,113 | ) | ||
| Accounts payable | 1,910 | 520 | |||
| Other payables, accruals and advance receipts | 7,313 | 14,606 | |||
| Lease liabilities | (334 | ) | 764 | ||
| Other changes in working capital | (1,295 | ) | 3,250 | ||
| Total changes in working capital | 5,560 | 14,465 | |||
| Net cash used in operating activities | (28,376 | ) | (30,045 | ) | |
21. 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.
On May 17, 2019, Luye Pharma Hong Kong Ltd. (“Luye”) issued a notice to the Group purporting to terminate a distribution agreement that granted the Group exclusive commercial rights to Seroquel in the PRC for failure to meet a pre-specified target. The Group disagrees with this assertion and believes that Luye have no basis for termination. As a result, the Group commenced legal proceedings in 2019 in order to compel Luye to comply with its obligations under the distribution agreement, or alternatively compensate the Group’s damages. The legal proceedings are still in progress. Accordingly, no adjustment has been made to Seroquel-related balances as at June 30, 2020, including accounts receivable, long-term prepayment, accounts payable and other payables of US
22. Subsequent Events
The Group evaluated subsequent events through July 30, 2020, which is the date when the interim unaudited condensed consolidated financial statements were issued.
In July 2020, the Company issued (1) 20,000,000 ordinary shares and (2) warrants to a third party for gross proceeds of US
In July 2020, the Group entered into an amendment to the 2013 licensing, co-development and commercialization agreement with Eli Lilly and Company (“Lilly”) relating to the expansion of the Group’s role in the commercialization of fruquintinib (Elunate) across all of China, and Lilly will pay the Group in the form of royalties, manufacturing costs and service payments.
FAQ
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