Edison issues ADR outlook on Hutchison China MediTech (HCM)

LONDON, UK / ACCESSWIRE / June 1, 2018 / Key near-term value drivers include newsflow from partnered assets savolitinib (AZN globally) and fruquintinib (LLY in China). By year end, we anticipate the China FDA to approve fruquintinib (3L CRC). The molecular epidemiology study (MES) data on savolitinib in PRCC could support a US NDA submission (possible breakthrough therapy designation, BTD). Both products have blockbuster potential; as combination therapies in cancer drive overall uptake of targeted therapies. Beyond this we expect progression in Hutchison China MediTech’s (LSE: HCM) wholly owned late stage oncology assets to reach value inflection points over the next few years. We have extensively reviewed our financial forecasts and increase our valuation to $47.9/ADS or $6.4bn.

Our large uplift in valuation stems from multiple factors. Our peak sales for savolitinib and fruquinitib benefit from the above-mentioned factors. Changing the economic terms for wholly owned assets has a disproportionate impact given these products could reach much higher operating margins than our prior flat 30% royalty rate on sales assumption. We also incorporate a terminal value for the first time to reflect the maturity of the company and depth of the pipeline to our higher sum-of-the-parts (SOTP) valuation of $6.4bn or $47.9/ADS (vs $2.7bn, or $22.6/ADS, in June 2017).

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