Chi-Med Reports Final Results for the Year Ended December 31, 2017 and Updates Shareholders on Key Clinical Programs
Published: Mar 12, 2018
Group: Year of major progress; results in line with guidance
- Group revenue up 12% to $241.2 million (2016: $216.1m);
- Net loss attributable to Chi-Med $26.7 million (2016: Net profit $11.7m), including $88.0 million in research and development expenses on an adjusted (non-GAAP) basis (2016: $76.1m).
Strengthened cash position: Expected to be sufficient to accelerate and broaden pipeline into 2020
- Cash resources of $479.6 million at Group level as of December 31, 2017 ($173.7m as of December 31, 2016), including cash and cash equivalents, short-term investments and unutilized bank facilities;
- Completed Nasdaq follow-on offering, raising net proceeds of $292.7 million in late 2017.
Innovation Platform: Submitted first China New Drug Application (“NDA”) on fruquintinib; initiated first global Phase III registration study on savolitinib; five other pivotal Phase III studies underway and more preparing to start; and discovery engine aiming to produce 1-2 novel clinical drug candidates per year
- Deep clinical pipeline of novel small molecule tyrosine kinase inhibitors (“TKIs”):
- Eight clinical drug candidates now in active or completing clinical trials in 36 target patient populations (“TPP”) (2016: 30) around the world; over 3,500 subjects dosed in trials to date, over 700 in 2017;
- Stream of second-generation immunotherapy compounds advancing through pre-clinical development.
- Savolitinib – Highly selective TKI of the mesenchymal epithelial transition factor (“c-MET”) – Global Phase III studies underway or in planning in kidney and lung cancer with Phase I/Ib studies in over a dozen exploratory TPPs in multiple further cancer indications:
- Presented positive Phase Ib/II data in second- and third-line non-small cell lung cancer (“NSCLC”), combination of savolitinib and Tagrisso® or Iressa® at the 2017 World Conference on Lung Cancer (“WCLC”); AstraZeneca AB (publ) (“AstraZeneca”) have now agreed to proceed with development in second-line NSCLC with the initiation of multiple studies including a global randomized, chemotherapy-doublet controlled study of savolitinib plus Tagrisso® in first-generation epidermal growth factor receptor (“EGFR”)-TKI refractory, c-MET gene amplified, T790M negative NSCLC patients;
- Presented positive Phase II data in c-MET-driven papillary renal cell carcinoma (“PRCC”) at the ASCO Genitourinary Cancers Symposium; then initiated global Phase III study, the SAVOIR study, in c-MET-driven PRCC in a head-to-head comparison with current standard therapy Sutent® (sunitinib), the first Phase III study ever conducted with molecularly selected patients in renal cell carcinoma (“RCC”).
- Fruquintinib – Highly selective TKI of vascular endothelial growth factor receptor (“VEGFR”)-1/2/3 – Likely to be Chi-Med’s first China Food and Drug Administration (“CFDA”)-approved TKI, Phase III studies in colorectal cancer (“CRC”), lung and gastric cancer in China either complete or enrolling and global development now underway:
- Positive outcome in Phase III study, the FRESCO study, in third-line CRC patients in China; 2017 American Society of Clinical Oncology (“ASCO”) oral presentation; Potentially best-in-class in terms of both efficacy and safety relative to Stivarga® (regorafenib); NDA submitted to the Center for Drug Evaluation of the CFDA in June 2017 and technical reviews and inspections are ongoing;
- Completed enrolment in early 2018 of a 527 patient Phase III study, the FALUCA study, in third-line NSCLC in China;
- Presented positive Phase Ib data, at the 2017 ASCO Gastrointestinal Cancers Symposium, for fruquintinib in combination with Taxol® (paclitaxel) in second-line gastric cancer; then initiated the FRUTIGA study, an over 500 patient Phase III study in China;
- Initiated Phase I development of fruquintinib in the United States in late 2017.
- In addition, presented positive preliminary proof-of-concept efficacy and safety data on multiple drug candidates over last year, including:
- Savolitinib in c-MET-driven gastric cancer;
- Fruquintinib in combination with Iressa® in first-line EGFR mutation positive NSCLC;
- Sulfatinib against VEGFR, fibroblast growth factor receptor 1/2/3 (“FGFR”) and colony stimulating factor 1 receptor (“CSF-1R”), in neuroendocrine tumors (“NET”) as well as thyroid cancer;
- Theliatinib in EGFR wild-type esophageal cancer.
- Initiated early/proof-of-concept development on multiple drug candidates over last year, including:
- Savolitinib in combination with Imfinzi® (durvalumab), AstraZeneca’s anti-programmed death-ligand 1 (“PD-L1”) antibody – Phase II in PRCC and clear cell renal cell carcinoma (“ccRCC”) in Europe;
- Savolitinib – Phase II study in pulmonary sarcomatoid carcinoma in China;
- Savolitinib – Phase II study in prostate cancer in Canada;
- Sulfatinib – Phase II in second-line biliary tract cancer in China;
- Epitinib – Phase Ib/II in EGFR gene amplified glioblastoma in China;
- HMPL-523 against spleen tyrosine kinase (“Syk”) – Phase I in hematological cancer in China;
- HMPL-453 against FGFR 1/2/3 – Phase I in all comer solid tumors in Australia and China;
- HMPL-689 against phosphoinositide 3-kinase delta (“PI3Kδ”) – Phase I in hematological cancer in China;
- Theliatinib against EGFR wild-type – Phase Ib in esophageal cancer in China.
Commercial Platform: High-performance drug marketing and distribution platform covers ~300 cites/towns in China with approximately 3,300 sales people. High-value products and household-name brands
- Total consolidated sales up 13% to $205.2 million (2016: $180.9m);
- Total sales of non-consolidated joint ventures up 6% to $472.0 million (2016: $446.5m);
- Total consolidated net income attributable to Chi-Med up 25% to $37.5 million (2016: $29.9m) on an adjusted (non-GAAP) basis which excludes one-time gains.
Potential milestones targeted for 2018
- Second-line NSCLC – Initiation of a global randomized, chemotherapy-doublet controlled study of savolitinib plus Tagrisso® in first-generation (Iressa®/Tarceva®) EGFR-TKI refractory, c-MET gene amplified, T790M negative NSCLC along with multiple supporting studies;
- Third-line NSCLC – AstraZeneca to decide global registration strategy in third-generation (Tagrisso®) EGFR-TKI refractory NSCLC;
- AstraZeneca/Chi-Med agreement on registration strategy in China for savolitinib plus Iressa® combination in second-line NSCLC;
- Release of results of global PRCC molecular epidemiology study (“MES”) and review of the potential Breakthrough Therapy opportunity in c-MET-driven PRCC.
- NDA approval and launch in China, with our partner Eli Lilly and Company (“Lilly”), in advanced CRC;
- Release of top-line results for the FALUCA Phase III study in third-line NSCLC in late 2018.
- Epitinib (EGFR): Initiation of Phase III registration study in first-line NSCLC patients with EGFR activating mutations with brain metastasis in China;
- HMPL-523 (Syk): Presentation of preliminary safety and efficacy data from Phase I/Ib dose escalation and dose expansion study in hematological cancer in Australia and China.
Use of Non-GAAP Financial Measures – References in this announcement to adjusted research and development expenses, adjusted consolidated net income attributable to Hutchison China MediTech Limited (“Chi-Med”) from the Commercial Platform and adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business are based on non-GAAP financial measures. Please see the “Use of Non-GAAP Financial Measures and Reconciliation” below for further information relevant to the interpretation of these financial measures and reconciliations of these financial measures to the most comparable GAAP measures, respectively.
U.K. Analysts Meeting and Webcast Scheduled Today at 9:00 a.m. BST (5:00 p.m. HKT) – at Citigate Dewe Rogerson, 3 London Wall Buildings, London, EC2M 5SY, U.K.. Investors may participate in the call at +44 20 3003 2666 or access a live video webcast of the call via Chi-Med’s website at www.chi-med.com/investors/event-information/.
U.S. Conference Call Scheduled Today at 9:00 a.m. EDT – to participate in the call from the United States, please dial 1 866 966 5335.
Additional dial-in numbers are also available at Chi-Med's website. For both calls please use conference ID “Chi-Med.”
Simon To, Chairman of Chi-Med, said: “2017 was another year of important progress for Chi-Med. Both our Commercial Platform and our Innovation Platform delivered very strong performance; we met our financial guidance, substantially strengthened our cash position and continued Chi-Med’s multi-year record of generating considerable shareholder value. We believe that this record will continue in 2018 and beyond.
In our Innovation Platform, we have progressed our deep portfolio of eight clinical drug candidates, now in active or completing clinical trials in 36 TPPs around the world. Two major milestones were the formal NDA submission for fruquintinib in CRC in China; and the initiation of our first global Phase III registration study of savolitinib in c-MET-driven metastatic PRCC. We also presented positive Phase Ib/II data at major scientific conferences on savolitinib in PRCC, NSCLC and gastric cancer; fruquintinib in NSCLC and gastric cancer; sulfatinib in NET and thyroid cancer; and theliatinib in esophageal cancer, all positioning us well for 2018.
We are now entering the final stage of the NDA process for fruquintinib in China – the Good Manufacturing Practice (“GMP”) certification of our manufacturing facility in Suzhou – and subject to approval, we expect to launch fruquintinib in China in 2018 with our commercial partner, Lilly. Equally important, the positive Phase Ib/II data on savolitinib in combination with Tagrisso® in NSCLC, presented in late 2017 at WCLC, has now led AstraZeneca to agree to move forward and initiate a global randomized chemotherapy-doublet controlled study in NSCLC – which is targeted to start in H2 2018. Furthermore, in late 2017 we initiated a Phase III registration study in China of fruquintinib in gastric cancer and, in 2018, will start a Phase III registration study on epitinib in NSCLC patients with brain metastasis.
The systematic progress of our pipeline is testament to the quality of our in-house research organization, which has discovered all eight of our clinical drug candidates. This productivity continues, with the first of a stream of novel second-generation immunotherapy candidates now progressing towards starting human trials in 2019. This all demonstrates that global quality drug discovery is now taking center stage in China.
In parallel, our Commercial Platform continues to deliver, with net income attributable to Chi-Med up 25%, on an adjusted (non-GAAP) basis excluding one-time gains, to $37.5 million. This achievement was made more noteworthy when we consider that during the past two years, we have built two new large-scale GMP certified manufacturing facilities that have affected over 1,000 manufacturing staff. Moving production to these new factories, which approximately triple our capacity and lower production cost, has unlocked one-time property compensation that is expected to exceed their cost. Our Prescription Drugs marketing capabilities are one of our greatest strengths, as proven by our success on Seroquel® and Concor®. Our team of about 2,300 medical sales people now stands ready to enter oncology either through, subject to approval, the launch of our own Innovation Platform drugs, or acquisition.
We are building a company with deep capabilities, aiming to take advantage of emerging opportunities in China and beyond. To this end, in 2017, we appointed five new members to the ten-person Chi-Med board – all industry veterans well positioned to help the company develop. We also successfully completed a $301.3 million follow-on offering on Nasdaq sufficient, we believe, to take us to approvals on multiple drugs. Consequently, we view Chi-Med’s future with confidence.”
2017 FINANCIAL AND OPERATIONAL HIGHLIGHTS:
Consolidated financial results of the Group are reported under U.S. generally accepted accounting principles (“U.S. GAAP”) and in U.S. dollar currency unless otherwise stated. Chi-Med also conducts its business through three non-consolidated joint ventures, which are accounted for under the equity accounting method as non-consolidated entities in our consolidated financial statements. Within this announcement, certain financial results reported by such non-consolidated joint ventures are referred to, which are based on figures reported in their respective consolidated financial statements prepared pursuant to International Financial Reporting Standards (as issued by the International Accounting Standards Board). Unless otherwise indicated, references to “subsidiaries” mean the consolidated subsidiaries and joint ventures (excluding non-consolidated joint ventures) of Chi-Med.
Innovation Platform – a deep, broad, and risk-balanced global oncology/immunology pipeline.
Consolidated revenue from our Innovation Platform was $36.0 million (2016: $35.2m) from milestone payments from Lilly (fruquintinib NDA filing) and AstraZeneca (savolitinib Phase III initiation) and service fee payments from Lilly, AstraZeneca and Nutrition Science Partners Limited (“NSP”), our 50/50 joint venture with Nestlé Health Science S.A. (“Nestlé”). Net loss attributable to Chi-Med from our Innovation Platform of $51.9 million (2016: -$40.7m) primarily driven by $75.5 million (2016: $66.9m) in research and development expenses, or $88.0 million (2016: $76.1m) on an adjusted (non-GAAP) basis, spent on our active or completing clinical trials in 36 TPPs, six of which are pivotal Phase III studies on savolitinib, fruquintinib, and sulfatinib.
- Savolitinib: Potential first-in-class selective c-MET inhibitor currently in active clinical studies in 14 TPPs worldwide in multiple tumor types including kidney, lung, gastric and prostate cancers as a monotherapy or in combination with other targeted and immunotherapy agents. Developing globally in partnership with AstraZeneca:
1. Kidney cancer:
a. Presented Phase II global multi-center study in advanced PRCC at the 2017 ASCO Genitourinary Cancers Symposium showing robust efficacy with savolitinib monotherapy in c-MET-driven patients. Median progression free survival (“PFS”) of 6.2 months in patients with c-MET-driven tumors as compared with 1.4 months (p<0.0001) in c-MET-independent patients. Objective response rate (“ORR”) was 18.2% in c-MET-driven patients vs. 0% (p=0.002) in c-MET independent patients, based on confirmed partial responses (“PRs”). Encouraging durable response and a tolerable safety profile were reported in savolitinib treated patients. The full article has now been published in the September 2017 issue of the Journal of Clinical Oncology.
b. A global Phase III study, the SAVOIR study, was initiated in late June 2017. The SAVOIR study is an open-label, randomized, controlled trial evaluating the efficacy and safety of savolitinib, compared with Sutent®, in patients with c-MET-driven, unresectable, locally advanced or metastatic PRCC. Approximately 180 patients will be randomized in the United States, Europe, Asia and Latin America; c-MET-driven PRCC will be selected via the use of a companion diagnostic kit.
c. During 2017, the CALYPSO study confirmed a safe dose of savolitinib in combination with Imfinzi® (PD-L1 antibody) in RCC patients. Subsequently, a Phase II expansion of CALYPSO was initiated, in both PRCC and ccRCC in the U.K. and Spain.
2. Lung cancer:
a. Presented Phase Ib/II data, the TATTON (Part B) study, in second- and third-line NSCLC, combination of the savolitinib 600mg once-daily (“QD”) plus Tagrisso® 80mg QD combination dose regimen at the 2017 WCLC. In c-MET gene amplified NSCLC patients refractory to first-generation EGFR TKIs (Iressa®/Tarceva®) confirmed PRs were reported in 14/23 (ORR 61%) of T790M mutation negative patients, as well as confirmed PRs in 6/11 (55% ORR) of T790M mutation positive patients. In NSCLC patients refractory to third-generation EGFR TKIs (primarily Tagrisso®) confirmed PRs were observed in 10/30 (ORR 33%) patients. Since 2017 WCLC, both PFS and duration of response (“DoR”) have further matured. The safety profile of savolitinib plus Tagrisso® is in line with previous reports and going forward, AstraZenca has concluded that a weight-based dosing algorithm will be applied for the combination.
AstraZeneca has now agreed to proceed with development in second-line NSCLC with multiple studies including: (1) a global randomized chemotherapy-doublet (platinum plus Alimta® (pemetrexed)) controlled study of savolitinib plus Tagrisso® combination in first-generation (Iressa®/Tarceva®) EGFR-TKI refractory, c-MET gene amplified, T790M negative NSCLC patients, targeted to start in H2 2018; (2) TATTON (Part D), already enrolling, a study of savolitinib 300mg QD combined with Tagrisso® 80mg QD, aimed at exploring the lower dose in the context of maximizing long-term tolerability of the savolitinib and Tagrisso® combination for patients who could be on the combination for long periods of time; and (3) further supporting studies. We expect that later in 2018 or early 2019, the mature TATTON (Part B) and preliminary TATTON (Part D) data will enable AstraZeneca to engage in regulatory discussion for both second- and third-line NSCLC.
b. Presented Phase Ib/II data in second-line NSCLC, combination of savolitinib and Iressa® at the 2017 WCLC. In c-MET gene amplified NSCLC patients refractory to first-generation EGFR TKIs (Iressa® and Tarceva®) confirmed PRs were reported in 12/23 (ORR 52%) of T790M mutation negative patients, similar to that recorded by the savolitinib and Tagrisso® combination. Plans for a registration study in China for this combination are currently under discussion with AstraZeneca.
3. Gastric cancer:
a. As at the latest report in 2017, Phase II studies in China and South Korea had screened over 850 gastric cancer patients, enrolled 54 c-Met-driven patients (31 China and 23 South Korea) and continue to enroll. Presented preliminary China savolitinib monotherapy data at the 2017 Chinese Society of Clinical Oncology (“CSCO”) conference. Based on confirmed and unconfirmed PRs, we reported an ORR of 43% (3/7 patients) and disease control rate (“DCR”) of 86% in c-MET gene amplified patients.
- Fruquintinib: Designed to be a best-in-class selective inhibitor of VEGFR 1/2/3 – we are developing outside of China and in partnership with Lilly within China:
1. CRC (third-line): Reported in March 2017 that fruquintinib met the primary endpoint of median overall survival (“OS”), 9.30 months versus 6.57 months (p<0.001), and all secondary endpoints in the FRESCO Phase III study as a monotherapy among third-line CRC patients in China; and further that the adverse events (“AEs”) demonstrated in FRESCO did not identify any new or unexpected safety issues; then presented the full FRESCO data-set in an oral presentation at the 2017 ASCO and CSCO conferences and completed submission of our China NDA in June 2017.
2. NSCLC (third-line): Completed enrollment in early 2018 of a 527 patient Phase III study, named FALUCA, with a primary endpoint of OS, to evaluate fruquintinib as a monotherapy in third-line NSCLC patients in China; expect top-line Phase III data to be reported in late 2018.
3. Gastric cancer (second-line): Presented positive preliminary data in the Phase Ib dose finding/expansion study in early 2017 at the ASCO Gastrointestinal Cancers Symposium. Established a well-tolerated combination dose of fruquintinib with Taxol® with encouraging efficacy, including ORR of 36% based on confirmed PRs; DCR of 68%; ≥16 week PFS of 50% and ≥7 month OS of 50%. In late 2017, we initiated the FRUTIGA study, a randomized, double-blind, Phase III study in which we target to enroll over 500 patients.
4. NSCLC (first-line): In early 2017, we initiated a Phase II study of fruquintinib in combination with Iressa® in first-line NSCLC patients with EGFR activating mutations in China. Preliminary data was presented at the 2017 WCLC in which 17 efficacy evaluable patients showed an ORR of 76% (13/17 including 4 unconfirmed at data cut-off) and a DCR of 100% (17/17). There were no serious AEs or those that led to death. We have now completed enrollment of about 50 patients and are monitoring outcome.
5. In December 2017, we initiated a multi-center, open-label, Phase I clinical study to evaluate the safety, tolerability and pharmacokinetics (“PK”) of fruquintinib in the United States, which is the first step toward development of fruquintinib outside China.
6. Production facility in Suzhou, China operated by Chi-Med is now ready to support the commercial launch of fruquintinib, if approved, in 2018. The Suzhou facility is now entering the CFDA Pre-Approval Inspection (“PAI”) and GMP certification stage of the NDA process.
- Sulfatinib: A unique angio-immuno TKI therapy with high potency against VEGFR, FGFR1 and colony stimulating factor-receptor 1 (“CSF-1R”) with emerging strong efficacy in multiple solid tumor settings – enrolling two pivotal Phase III studies as well as multiple Phase II studies:
1. NET and Biliary tract cancer:
a. Presented positive preliminary Phase II data at the European Neuroendocrine Tumor Society (“ENETS”) conference in early 2017. Established that sulfatinib was well tolerated with highly encouraging efficacy in both pancreatic NET (ORR 17.1% based on confirmed PRs; DCR 90.2%; and median PFS 19.4 months) and non-pancreatic NET (ORR 15.0% based on confirmed PRs; DCR 92.5%; and median PFS 13.4 months), including 100% DCR in 12 patients who had disease progression on targeted therapies such as Sutent® and Afinitor® (everolimus); now enrolling two Phase III studies in China, named SANET-p (in pancreatic NET patients) and SANET-ep (in non-pancreatic NET patients), with primary endpoint of median PFS and expected to complete enrollment in 2019.
b. Initiated a Phase II proof-of-concept study in biliary tract cancer in China in early 2017.
c. U.S. Phase I study has confirmed the recommended Phase II dose (“RP2D”). Planning is now underway for expansion in the United States into a multi-arm Phase IIa study to explore efficacy and safety in Sutent® and Afinitor® refractory pancreatic NET patients as well as solid tumor patients.
2. Thyroid cancer: Presented Phase II data at ASCO and at the American Thyroid Association Annual Meetings in 2017 in patients with locally advanced or metastatic radioactive iodine (“RAI”)-refractory differentiated thyroid cancer (“DTC”) or medullary thyroid cancer (“MTC”) in China. Preliminary data in 16 efficacy evaluable patients showing an ORR of 30.0% in RAI-DTC and an ORR of 16.7% in MTC patients based on confirmed PRs, with all other patients reporting stable disease (“SD”).
- Epitinib: Highly differentiated EGFR TKI designed for optimal blood-brain barrier penetration allowing for higher drug exposure in the brain than currently marketed first-generation EGFR TKIs:
1. NSCLC with brain metastasis: Epitinib has been shown to be well tolerated with encouraging preliminary efficacy. Including confirmed and unconfirmed PRs, epitinib showed an overall ORR (lung and brain) of 62% in all EGFR TKI naïve NSCLC patients (those patients not previously treated with an EGFR TKI) and an ORR of 70% in EGFR TKI naïve NSCLC patients who also had measurable brain metastasis and were c-MET negative. Enrollment continued in 2017 to explore a further dose regimen; we expect to decide on the Phase III dose and initiate the Phase III during 2018.
2. Glioblastoma: Initiated a Phase Ib/II study in glioblastoma, a primary brain cancer that harbors high levels of EGFR gene amplification, in March 2018.
- HMPL-523: Potential first-in-class Syk inhibitor in oncology and immunology:
1. Immunology: We have submitted investigational new drug (“IND”) applications for autoimmune diseases and target, pending the submission of additional data requested by the U.S. Food & Drug Administration (“FDA”), to progress into a Phase II proof-of-concept study in immunology in late 2018 or early 2019.
2. Hematological cancer: Currently enrolling Phase I dose escalation studies in Australia and China in patients with hematologic malignancies. We have established the RP2D in both Australia and China. We are now in the process of increasing the number of clinical sites in both countries to support Phase Ib/II expansion in a broad range of indolent non-Hodgkin’s lymphoma sub-types.
- HMPL-689: Potential best-in-class, highly selective PI3Kδ inhibitor, which we believe should have meaningful advantages in safety and tolerability over Zydelig® (idelalisib) and selectivity over Aliqopa® (copanlisib):
Hematological cancer: Completed Phase I study in healthy volunteers in Australia, and subsequently initiated a Phase I dose escalation and expansion study in patients with hematologic malignancies in China in August 2017.
- Theliatinib: EGFR inhibitor, with high binding affinity to wild-type EGFR protein, with potential in patients with solid tumors presenting EGFR gene amplification or high-level of protein over-expression:
Esophageal cancer: Presented preliminary Phase I results at the 2017 CSCO conference with no dose limiting toxicities or maximum tolerated dose established. The Phase I included seven esophageal cancer patients, five of which were evaluated for response, with all five achieving SD. Subsequently, in early 2017, we began a Phase Ib expansion and are opening further clinical sites in China.
- HMPL-453: Potential first-in-class and/or best-in-class selective FGFR 1/2/3 inhibitor:
Solid tumors: During the first half of 2017, we initiated Phase I dose escalation studies in both Australia and China.
Commercial Platform – a deeply established, cash-generative, pharmaceutical business in China – an established platform to commercialize our Innovation Platform drug candidates.
Total consolidated sales from the Commercial Platform were up 13% to $205.2 million (2016: $180.9m) mainly resulting from growth in our Prescription Drug commercial services business. Total sales of non-consolidated joint ventures were up 6% to $472.0 million (2016: $446.5m). Flat first half sales, due to a price increase on our main cardiovascular prescription drug and a relatively quiet influenza season on the over-the-counter (“OTC”) drug business, were offset by very strong second half sales across both the Prescription Drug and Consumer Health businesses. This resulted in total consolidated net income attributable to Chi-Med of $40.0 million (2016: $70.3m), or up 25% to $37.5 million (2016: $29.9m) on an adjusted (non-GAAP) basis excluding one-time gains of $2.5 million in 2017 from research and development subsidies and $40.4 million in 2016 primarily from property compensation.
- Prescription Drugs business continuing profit growth – consolidated sales up 11% to $166.4 million (2016: $149.9m); total sales of non-consolidated Prescription Drugs joint venture up 10% to $244.6 million (2016: $222.4m); and total consolidated net income attributable to Chi-Med up 28% to $26.5 million (2016: $20.7m) on an adjusted (non-GAAP) basis excluding one-time gains.
1. Shanghai Hutchison Pharmaceuticals Limited (“SHPL”) – our large-scale non-consolidated Prescription Drugs joint venture – Continued progress on She Xiang Bao Xin (“SXBX”) pill, our most important commercial product, a prescription vasodilator that accounts for 15.4% (2016: 12.0%) of China’s rapidly growing, approximately $2.0 billion, botanical coronary artery disease prescription drug market. SXBX pill is a proprietary product with full patent protection through 2029. During late 2016 and early 2017, we were able to effectively implement a pricing strategy that led to very strong second half sales growth, $114.9 million (up 20% versus H2 2016), and materially improved margins.
2. Shanghai government subsidy – In 2017, SHPL recognized a one-time research and development subsidy totaling $5.9 million, equivalent to $2.5 million in net income attributable to Chi-Med.
3. Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Limited (“Hutchison Sinopharm”) – our Prescription Drugs commercial services business – Continued commercial success in 2017 on Seroquel® (bi-polar disorder/schizophrenia), including securing inclusion of Seroquel XR® (extended release (“XR”) formulation) on the National Drug Reimbursement List (“NDRL”) in China, leading to a 22% increase in service fees to $11.4 million (2016: $9.3m) received from AstraZeneca; and Concor® (hypertension/high blood pressure) where strong sales led Merck Serono, in late 2017, to expand Hutchison Sinopharm’s exclusive territory by over 70% to now cover a total of six provinces and municipalities with a population of over 360 million people. As a result, service fees from Concor® increased 31% to $1.8 million (2016: $1.4m).
- Consumer Health business first half constrained but very strong second half – consolidated sales up 25% to $38.8 million (2016: $31.0m); total sales of non-consolidated Consumer Health joint venture flat at $227.4 million (2016: $224.1m); and total consolidated net income attributable to Chi-Med up 20% to $11.0 million (2016: $9.2m).
1. Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (“HBYS”) – our large-scale non-consolidated OTC drug joint venture – 2017 was a year of major change with the move of a large part of our production to a new state-of-the-art, high-capacity, cost-efficient factory in central China. The first half of 2017 was consequently affected by short-term capacity constraints; as well as an increase in certain key raw material prices; and a mild influenza season. The second half of the year, however, was very strong, with the new factory up and running and raw material prices drawing back. Sales of our two key products, Fu Fang Dan Shen tablets (“FFDS”) (angina) and Banlangen granules (anti-viral), accelerated, increasing to $54.5 million (up 17% versus H2 2016), and margins were also materially improved.
2. Divestment of Nanyang Baiyunshan Hutchison Whampoa Guanbao Pharmaceutical Company Limited (“Guanbao”) – In September 2017, HBYS divested Guanbao, a 60% subsidiary of HBYS for a consideration approximately equal to its carrying value. Guanbao was a low-margin, regional OTC logistics business, with no strategic value to Chi-Med.
A more detailed version of this announcement can be found on our website at www.chi-med.com/wp-content/uploads/2018/03/a180312.pdf.
FINANCIAL GUIDANCE: 2017 revenue and net income met our most recent guidance (provided in our interim results announcement for the six months ended June 30, 2017 dated July 31, 2017) despite the delay in one-time property compensation, reflecting the strength of our Commercial Platform performance and lower than expected administration, interest and tax expenses at the Group level.
In our guidance for 2018, we expect to see an increase in both revenue and expenses in the Innovation Platform, driven by the launch of fruquintinib if approved in China, potential milestone payments from Lilly and AstraZeneca, and continued expansion of clinical development investment on our drug candidates.
On the Commercial Platform, the new CFDA Two-Invoice System (“TIS”) roll-out in China, while having limited effect on the scope of our commercial operations or activities in 2018, will reduce the revenue that Hutchison Sinopharm is able to consolidate from the sales of certain third-party drugs. Furthermore, the divestment of the 60% shareholding in Guanbao, under our non-consolidated joint venture, HBYS, eliminates this low margin and non-core business from our 2018 Guidance. Neither the TIS nor the Guanbao divestment, however, will affect growth in the overall Commercial Platform net income, which is expected to continue to progress steadily.
Finally, we continue to work towards achieving a one-time gain on the property in HBYS, however the date of an auction remains dependent on Guangzhou government policy.