Hutchison China MediTech

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1 ADR research Hutchison China MediTech WCLC: Positive data highlights NSCLC pipeline ADR update Pharma & biotech At the recent IASLC World Conference on Lung Cancer, HCM published positive proof of concept data in NSCLC on key assets fruquintinib and epitinib. Affirmative data not only translates to further pipeline progression but critically underpins the R&D effort at HCM, fueling the prospects of a fruquintinib regulatory filing in China in In 2017 we anticipate the initiation of three more pivotal trials, further data from the mid- to latestage pipeline, including savolitinib data (papillary renal cell carcinoma, PRCC, and non-small cell lung cancer, NSCLC), and importantly potential China/US NDA submissions. We value HCM at $2.4bn or $20.1/ADS. Year end Revenue ($m) PTP* ($m) EPADS ($) DPADS ($) P/E (x) Gross yield (%) 12/ (9.3) (0.09) 0.0 N/A N/A 12/ N/A 12/16e N/A 12/17e (26.6) (0.22) 0.0 N/A N/A Note: Dividend yield excludes withholding tax. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws. 12 December 2016 Price US$14.0 Market cap US$1,700m ADR/Ord conversion ratio 1:0.5 Net cash ($m) as at end June ADSs in issue 121.4m ADS Code HCM ADS exchange NASDAQ Underlying exchange AIM Depository Deutsche Bank ADR share price performance Spotlight on NSCLC: New data at IASLC WCLC The recent proof of concept data published at IASLC WCLC in both the Phase II NSCLC trial with fruquintinib and the Phase Ib NSCLC trial with epitinib is highly encouraging. Importantly HCM has three TKIs in clinical development for NSCLC; each drug has a specific positioning and is truly differentiated: savolitinib (C-Met), fruquintinib (VEGFR) and epitinib (EGFR). Savolitinib has potential to be HCM s first internationally launched asset (expect launch in US/EU/Japan in 2018). Depending on the strength of the NDA submission packages and speed of China FDA, we anticipate fruquintinib launch in China in 2018 and epitinib in 2019/ /18: Future stars are aligning HCM s seven internally developed next-generation TKIs are in 25 clinical trials (four pivotal Phase III are underway, three more to initiate in 2017) and we expect material newsflow over the upcoming 18 months on savolitinib (Phase II in PRCC), epitinib (mature PFS data from the recently reported Phase Ib NSCLC with BM trial), fruquintinib (Phase III third-line NSCLC and CRC) and sulfatinib (Phase II in pancreatic NET and extra-pancreatic NET). Positive data would pave the way for the start of pivotal clinical trials and potential regulatory filings (US and/or China) for savolitinib and fruquintinib, respectively. Valuation: $2.4bn $20.1 per ADS We have increased our SOTP valuation to $2.4bn ($20.1/ADS) from $2.3bn ($19.3/ADS) in the main due to amendments to deal terms on savolitinib plus upgrades to our CP forecasts after a strong first half. IP is valued at $1,789m; and placing CP s 2016e share of net profit on a 22.5x rating gives $657m ($5.4/ADS). Adding June net cash and netting out unallocated costs results in a value of $2.4bn. Approval(s), clinical data and/or deals should increase our risk-adjusted valuation. High/low US$14.9 US$11.3 Business description Hutchison China MediTech (Chi-Med; HCM) is an innovative China-based biopharmaceutical company targeting the global market for novel, highly selective oral oncology, and immunology drugs. Its established China Healthcare business is growing ahead of the market. Next events Savolitinib Phase II data PRCC Feb 17 Fruquintinib Phase III data CRC Feb/Mar 17 Fruquintinib Phase III data NSCLC Analysts H217 Dr Susie Jana +44 (0) Daniel Wilkinson +44 (0) healthcare@edisongroup.com Edison profile page Hutchison China MediTech is a research client of Edison Investment Research Limited

2 Contents Investment summary... 3 All eyes on TKIs: Future stars are aligning... 4 Spotlight on NSCLC: Triple-pronged approach... 5 Fruquintinib: Best-in-class VEGFR inhibition?... 6 Savolitinib targets TKI resistance in NSCLC Epitinib targets NSCLC with brain metastasis Targeted therapies transform cancer treatment Sensitivities Valuation Financials Hutchison China MediTech 12 December

3 Investment summary Company description: Progressing the NSCLC pipeline Hutchison China MediTech (Chi-Med; HCM) is an innovative biopharma company focused on the highly lucrative global oncology and immunology markets. This note focusses on the Innovation Platform unit; we take a deeper dive into the group s tyrosine kinase inhibitor (TKI) pipeline for nonsmall cell lung cancer (NSCLC), specifically savolitinib, fruquintinib and epitinib following the recent publication of positive top-line Phase Ib epitinib and full Phase II fruquintinib data at IASLC World Conference on Lung Cancer (WCLC). HCM has built a substantial pipeline of highly differentiated TKI drugs; we expect continued progress of the mid- to late-stage pipeline during the coming 12 months (including potential US and China regulatory filings) to catapult the company into the international spotlight. Additionally, HCM s profitable Chinese healthcare business continues to benefit from the fast-growing domestic market; H116 results demonstrated robust double-digit growth despite currency headwinds. For a broader and more in-depth note on the group including the company s full portfolio, see our note Stellar Evolution, published in May Valuation: $2.4bn suggests market overlooks full R&D potential We have increased our sum-of-the-parts (SOTP) valuation to $2.4bn ($20.1 ADS) from $2.3bn ($19.3/ADS). The overall value of the company has increased by $0.1bn, reflecting amendments to deal terms on savolitinib (we have increased R&D expenses and the royalty rate on sales) plus upgrades to our commercial platform (CP) business forecasts after a strong first half of the year. We value the innovation platform (IP) at $1,789m; and placing CP s 2016e share of net profit on a 22.5x rating gives $657m ($5.4/ADS). Adding in net cash of $80.6m at end June 2016 and netting out unallocated costs results in a value of $2.4bn ($20.1/ADS). Sensitivities: CK Hutchison reduces Chinese risks HCM is subject to the usual biotech and drug development risks, including clinical development delays or failures, regulatory risks, competitor successes, partnering setbacks, and financing and commercial risks. Expectations for the pipeline have increased and while our risk-adjusted NPV highlights the future sources of upside to the shares, the failure of one or more products to succeed would have a negative impact on the shares; savolitinib, fruquintinib and sulfatinib contribute ~65% to our valuation of HCM. CK Hutchison s involvement in HCM materially reduces the myriad of risks associated with any direct investment in China; however, it does mean investors are minority shareholders. Additionally, the limited available free float reduces the shares liquidity. Financials: Healthy cash position HCM s CP business posted robust H1 results, prompting us to upgrade 2016 sales and net income forecasts. Additionally, the amendment of the AstraZeneca (AZN) deal on savolitinib has increased our R&D expense expectations in the near term, offset in the longer term by a higher expected royalty rate on sales ex China for the drug across all indications (now 14-18% from 9-13%). The group remains well funded in the near term; we expect future cash resources to be bolstered by profits generated by the CP business in China as well as the anticipated property windfall relating to cash compensation on land from the Shanghai government. Hutchison China MediTech 12 December

4 All eyes on TKIs: Future stars are aligning HCM is approaching an inflection point; it is on the brink of the transformation of its Innovation Platform (IP) business into a late-stage portfolio story. A number of its next-generation TKI assets could reach the US (and ROW) and/or China market within the next few years (potential NDA submissions in the US and or China for savolitinib and fruquintinib, respectively, in 2017). We expect R&D driven news flow, including multiple top-line clinical trial data plus initiation of pivotal registration trials over the coming 12 months, to focus investor attention on the pipeline potential; we summarize the news flow by asset below. This note addresses HCM s NSCLC portfolio, addressing savolitinib, fruquintinib and epitinib; collectively these three assets (across all oncology indications including NSCLC) contribute $11.5/ADS to our HCM valuation. Savolitinib C-Met inhibitor for PRCC/RCC/NSCLC/gastric cancer Data expected: Phase II data in c-met driven PRCC H Next steps: Start of a global pivotal Phase III trial in c-met driven PRCC in H117. Start of Phase III in combination with AZN s Tagrisso in second-line NSCLC (T790m-/c-Met+). Depending on strength of Phase II data there is potential for US NDA (breakthrough therapy) submission. Positioning: As a highly selective first-in-class c-met inhibitor, savolitinib is hypothesized to have a greater beneficial impact on c-met driven tumors than approved multi-kinase inhibitors; savolitinib has the potential to become the first selective c-met inhibitor approved globally. Partnered with AstraZeneca. Edison peak forecast: Global peak sales of $3.4bn across the PRCC, RCC, NSCLC and gastric cancer indications. Valuation contribution $6.6/ADS across all indications. Fruquintinib VEGFR inhibitor for CRC/NSCLC/gastric cancer Data reported: Phase II third-line NSCLC data published at IASLC conference 4-7 December. Next steps: China NDA submission mid-2017; pivotal Phase III data in third-line colorectal cancer (CRC) (H117) and third-line NSCLC (H217). Positioning: Selective VEGFR 1/2/3 inhibitor; limits off-target toxicity and enables full and sustained target inhibition. Partnered with Eli Lilly. Edison peak forecast: Global peak sales of $2.3bn across the CRC, NSCLC and gastric cancer indications. Valuation contribution $4.1/ADS across all indications. Epitinib EGFR inhibitor for NSCLC with BM Data reported: Phase Ib data in NSCLC with brain metastasis published at IASLC WCLC Next steps: Start of a China pivotal Phase II/III trial in first-line EGFRm+ NSCLC with brain metastasis in H117. Phase II planning for glioblastoma trial initiation Positioning: Positioned to achieve higher concentrations within the brain versus established TKIs (eg Iressa, Tarceva) due to better blood brain barrier penetration; could translate to superior efficacy on brain metastasis in the clinical setting. Edison peak forecast: Global peak sales of $0.9bn for the NSCLC with brain metastasis indication alone. Valuation contribution $0.9/ADS for this indication only. Sulfatinib VEGFR/FGFR inhibitor for neuroendocrine tumors (NET)/thyroid cancer Data expected: Data from two Phase II trials (pancreatic NET and extra-pancreatic NET) early Next steps: Continue enrolment of thyroid cancer and initiation of biliary duct Phase II trials. Positioning: Broad efficacy across all NET subtypes, an unmet need. Edison peak forecast: Global peak sales of $1bn across the NET and thyroid cancer indications. Valuation contribution $2.5/ADS for both indications. Hutchison China MediTech 12 December

5 Spotlight on NSCLC: Triple-pronged approach Following the presentation of positive, proof of concept, top-line Phase Ib epitinib and full Phase II fruquintinib data at IASLC WCLC, 4-7 December 2016, we discuss the data in full within the context of HCM s NSCLC portfolio. HCM has three tyrosine kinase inhibitors in clinical development for NSCLC; each drug has a specific positioning in the ever-evolving armament to treat the complex and constantly mutating disease that is cancer: Savolitinib is a highly selective first-in-class c-met tyrosine kinase inhibitor, hypothesized to have a greater beneficial impact on c-met driven tumors than approved multi-kinase inhibitors; savolitinib could straddle multiple lines of treatment as monotherapy and in combination with other novel cancer agents in the first-, second- and third-line advanced NSCLC setting, particularly in EGFR-TKI resistant patient sub groups. Fruquintinib is a selective VEGFR 1, 2, 3 inhibitor; it limits off-target toxicity enabling full and sustained target inhibition. Potential as best-in-class, oral next-generation anti-angiogenesis inhibitor. Epitinib is a highly-differentiated EGFR inhibitor; it achieves higher concentrations within the brain due to better blood-brain barrier penetration than available TKIs; this could translate to superior efficacy on brain metastasis in the clinical setting. One of the clear strategic visions presented by HCM management is a focus on target selectivity, with the aim of having a potential first-in-class or best-in-class portfolio of TKI drugs within the targeted therapy space of cancer drugs. Multi-target kinase inhibitors, while efficacious, are hindered by side effect profiles (elicited from multiple target protein binding) and consequently lower clinical utility due to dose interruptions/reductions and or discontinuation of drug therapy. HCM is focused on designing and progressing candidates with superior kinase selectivity (eg savolitinib is a highly selective c-met inhibitor); higher selectivity translates to lower dose reductions/interruptions and thus higher/more prolonged target coverage resulting in superior efficacy and better tolerability compared to first-generation TKIs. Below we discuss NSCLC pipeline in more detail. Exhibit 1 highlights the pivotal trials currently underway (not limited to the NSCLC indication): the seven shots at pivotal success as highlighted by the company. Exhibit 1: Seven shots at pivotal success Source: Hutchison China MediTech Hutchison China MediTech 12 December

6 Fruquintinib: Best-in-class VEGFR inhibition? Fruquintinib is an oral small molecule inhibitor to all three VEGF receptors. Fruquintinib is an oral small molecule that is a highly selective VEGFR1, VEGFR2 and VEGFR3 inhibitor, which in preclinical trials demonstrated fewer off-target toxicities, allowing higher drug exposure that translates to 24 hours a day VEGFR receptor inhibition. Fruquintinib s most advanced indications are in NSCLC (third-line) and CRC (third-line) in China, and pivotal trials are currently underway in these indications; Exhibit 4 summarizes its ongoing clinical trial program. We assume success in third-line NSCLC and CRC will lead to development of fruquintinib in the second and first line settings. The first-generation VEGF/R inhibitors (examples include the monoclonal antibody Avastin [Roche]) had combined reported sales of approximately $8.7bn in 2015 across multiple tumor types. This class of drug revolutionized the treatment of cancer by targeting the growth of blood vasculature that is essential for tumor growth (anti-angiogenesis). Avastin has become a gold standard for the first-line treatment of NSCLC globally. A Phase III study (BEYOND) evaluating Avastin plus platinum doublet chemotherapy for first-line treatment in advanced non-squamous NSCLC in a Chinese patient population led to median OS of 24.3 months. Oral, small molecule VEGFR inhibitors Nexavar (Bayer) and Sutent (Pfizer) are approved for use in some cancers but not NSCLC given lack of efficacy in Phase III trials, highlighting the unmet need for an oral anti-angiogenesis agent with a demonstrable impact on progression-free survival (PFS) in NSCLC. WCLC: Phase II NSCLC data, PFS met, consistent safety profile In a Phase II, double-blind study, fruquintinib met the primary endpoint and significantly improved progression-free survival compared with placebo for third-line advanced NSCLC patients who had previously failed two lines of treatment. Data was presented at the recent IASLC World Conference on Lung Cancer (4-7 December 2016). In the 91-patient study, patients were randomized to receive 5mg fruquintinib (n=61) once daily (three weeks on treatment followed by one week off) plus best supportive care (BSC) or placebo (n=30) plus BSC. The primary objective of PFS was met; as of August 2015, the fruquintinib group had a median PFS of 3.8 months versus 1.2 months on placebo (HR=0.27, p<0.001) (Exhibit 2). Of note was the disease control rate (DCR) of 70.5% on the fruquintinib arm compared to 16.7% on placebo (Exhibit 3). DCR or clinical benefit rate (CBR) is the percentage of patients who demonstrate a response to treatment, eg tumor shrinks or remains stable, ie it is the sum of complete, partial and stable disease rates. This data is highly encouraging given the third-line setting (Exhibit 2 and 3). Comparison of overall survival between wild type and mutant demonstrated a marked benefit in EGFR mutant patients. Median overall survival in mutant was 8.44 months for fruquintinib (n=30) vs 5.49 months for placebo (n=15), (p=0.184). Median overall survival for wild type patients treated with fruquintinib was less then placebo (7.5 months vs 9.7 months, p=0.274). However, beyond 20 months, fruquintinib demonstrated a survival benefit. Due to the low power of this subgroup comparison and high p-values the significance of these results cannot be confirmed. In terms of toxicity, 100% of patients on the fruquintinib arm had a treatment emergent adverse event vs 90% on placebo. The most common grade 1-2 events were palmar-plantar erythrodysesthesia (PPE) syndrome (42.6%) and proteinuria (31.1%), and the most common grade 3-4 AE was hypertension (8.2%). Side effects of fruquintinib to date appear consistent with VEGFR inhibition. Hypertension, proteinuria and PPE are common side effects of many anti-cancer drugs, eg capecitabine, fludarabine and targeted therapies (including sorafenib and sunitinib). Hutchison China MediTech 12 December

7 Exhibit 2: PFS of fruquintinib Source: Hutchison China MediTech Exhibit 3: Best tumor response of fruquintinib Source: Hutchison China MediTech FALUCA pivotal NSCLC program top-line data expected 2018 FALUCA, the Phase III registration trial in China, was initiated in December 2015 as third-line treatment for non-squamous non-small cell lung cancer, following a positive Phase II proof-ofconcept (POC) trial that reached the primary endpoint of PFS with no unexpected safety issues. FALUCA is a double-blind, placebo-controlled Phase III evaluating fruquintinib 5mg once-a-day plus best supportive care in four-week treatment cycles (three weeks on drug, one week off). 521 patients are being randomized to the fruquintinib group or the placebo group at a ratio of 2:1 across 45 centers in China. The primary endpoint is overall survival; secondary endpoints include progression free survival, objective response rate, disease control rate and duration of response; top-line data is expected early 2018; trial enrolment is estimated to complete mid Fruquintinib China NDA submission on the cards for 2018 HCM expects to submit an NDA for fruquintinib in NSCLC to the China FDA in 2018, paving the way for a potential approval late 2018; we model The speed of any approval is less clear than with the US FDA, but we expect it to take between six and 12 months. We assume that the speed will depend on the quality of the data and a faster approval (nearer six months) could be achieved if the Phase III data is substantial. We expect further fruquintinib NSCLC trials to initiate in 2017, likely in combination with other targeted therapies. Notably the company has indicated a Phase Ib/II trial with Iressa in first-line NSCLC patients will start in H117. Hutchison China MediTech 12 December

8 Next data points: Fruquintinib pivotal Phase III in CRC Pivotal Phase III data for the treatment of third-line Chinese patients with colorectal cancer (CRC) will be HCM s first Phase III readout and is a major inflection point for the company. We expect the data to be published in February/March with an NDA submitted to the Chinese FDA in mid-2017, with an approval six to 12 months later. The Phase III trial completed enrolment of 416 patients in H116; it is a randomized, double-blind trial comparing fruquintinib to placebo in third-line or above colorectal cancer patients. The primary endpoint is overall survival and patients who have had previous treatment with VEGF/R inhibitors are excluded. Lilly deal has enabled accelerated development in China HCM and partner Lilly are developing fruquintinib as a potential best-in-class drug due to its better side effect profile than the first-generation drugs, for it to compete in the global setting. Consequently, fruquintinib is being assessed in late-stage clinical trials across multiple indications in China. In October 2013 Lilly signed a deal to co-fund development of fruquintinib for the Chinese market, worth up to $86.5m in upfront fees and milestones, with tiered royalties (15-20%), with an option for global development. HCM has received a $6.5m upfront fee (2013), and as of December 2015 $19.2m in development milestones for the positive phase II POC clinical trials in CRC and NSCLC plus $13.9m in reimbursement for certain developmental costs. Furthermore if Lilly exercises its option to develop fruquintinib outside of China, HCM could receive up to an additional $300m of developmental, regulatory and commercial milestones payments. Importantly the partnership agreement with Lilly has enabled HCM to establish a manufacturing facility in Suzhou, China, which is currently producing Phase III clinical supplies and will on approval be used to produce fruquintinib for commercial supply. Global development to focus on combination studies In order to compete in the global anti-angiogenesis inhibition setting, clinical trials will focus on more proprietary combination studies (eg, fruquintinib plus savolitinib in clear cell renal cell carcinoma, fruquintinib plus Iressa in first-line NSCLC, fruquintinib plus Taxol in second-line gastric cancer). Fruquintinib s lack of CYP450 inhibition/inducing is favorable for potential in combination treatment regimens, given that many drugs are metabolized through the cytochrome p450 enzyme pathway. Exhibit 4: Fruquintinib clinical trial program Program Indications Clinical trial Fruquintinib VEGF 1/2/3 Colorectal cancer Phase III third-line monotherapy (China), data expected 2017 FRESCO (416 patients); expect to publish top-line results Q117. Partner: Lilly Non-small cell lung cancer (NSCLC) Phase III second-line (China). Enrolling. FALUCA (521 patients), expect to publish top-line data early 2018 Gastric cancer Phase II/II second-line (China) in combination with paclitaxel to start H117. Source: Hutchison China MediTech reports Untapped China market opportunity for new entrants The relatively low penetration of Western developed drugs into China coupled with different patient demographics has generated a market that is open for opportunity. Many non-specific receptor tyrosine kinase inhibitors are marketed or in development that target combinations of VEGFR 1, 2 and 3. Due to their broad targeting they often have higher incidence of adverse events; as such more specific inhibitors of VEGFR 1, 2 and 3 are needed. In addition to fruquintinib there are four small molecule VEGFR inhibitors in development within China that we believe are comparable. Anlotinib (Jiangsu Chia-tai Tianqing Pharmaceutical Co, a subsidiary of Sino Biopharmaceutical ) targets multiple receptor tyrosine kinases including VEGFR 1/2/3, FGFR1-4, PDGFR α/β, c-kit, and Ret. It is currently in two active Phase II/III trials in patients Hutchison China MediTech 12 December

9 with advanced NSCLC. The largest is a 450-patient, double-blind Phase II/III trial testing anlotinib against placebo in patients who have received at least two lines of chemotherapy. Enrolment is complete and the primary outcome is overall survival. The study is estimated to complete in the next six months. A Phase II trial demonstrated a DCR of 83% (n=50/60) in the treatment arm compared with 32% (n=18/57) in placebo. Both of these are higher compared with fruquintinib s recently reported phase II data at WSCLC of 71% (n=43/61) and 17% (n=5/30) (placebo) potentially indicating initial selection of healthier patients in the anlotinib trial. Apatinib (Jiangsu HengRui Medicine) targets VEGFR1 and VEGFR2; it is approved in China for advanced gastric cancer (December 2014) and is currently undergoing Phase II/III clinical trials in China for multiple cancers including NSCLC. PFS data from a third-line NSCLC Phase II reported as follows; median PFS 4.7 months for the apatinib arm versus 1.9 months for the placebo arm (HR 0.278, p<0.0001). The side effect profile was as expected with VEGFR inhibition: hypertension, proteinuria and hand-foot syndrome. The DCR reported as 68.9% on drug vs 24.4% on placebo. Apatinib is currently being investigated in multiple NSCLC trials including a Phase III study in patients with EGFR wild-type non-squamous NSCLC; we note its first Phase III was stopped on the grounds of adverse events (apatinib known to inhibit CYP450). Famitinib (Jiangsu HengRui Medicene) targets VEGFR2, VEGFR3, PDGFR, c-kit, Flt1 and Flt3. It is being evaluated for numerous cancers including NSCLC. Famitinib is in Phase III for second-line advanced NSCLC in combination with docetaxel; this 574-patient study is expected to complete in March 2019, and top-line data may be available after the primary completion date in October Lenvantinib (Eisai) targets VEGFR 1, 2 and 3 along with PDGFR-α, PDGFR-β, FGFR1 and c- Kit. It has completed a Phase II trial in 135 third-line NSCLC patients. OS was 38.4 weeks (n=89) (95% CI; 26.57, 47.86) compared to 24.1 weeks for placebo (n=46) (95% CI; 15.29, 36.43). PFS was 20.9 weeks (95% CI; 15.86, 23.86) in the lenvantinib arm compared with 7.9 weeks for placebo (95% CI; 7.43, 8.14). Safety data to date has demonstrated significant toxicity; in a double blind phase III placebo controlled trial testing lenvantinib in 392 radioiodine refractory thyroid cancer patients, 75.9% (n=198/261) of patients had a grade 3 or above adverse event (9.9% [n=13/131] in placebo group). 7.7% (n=20/261) of patients died due to adverse events that arose because of treatment. 82.4% (n=215/261) of patients in the lenvantinib arm had a dose interruption compared with 18.3% (n=24/131) of those on placebo. Eisai has released no recent information about its plans to further develop lenvantinib in NSCLC. While at first glance it appears that the competition is intensifying in the China NSCLC targeted therapy market, we make the following observations. Fruquintinib s lack of cytochrome-450 inhibition should enable high doses and a cleaner toxicity profile then competitors anlotinib, apatinib and famitinib. This enables it to be delivered in combination with chemotherapy agents that typically demonstrate increased toxicity when used with CYP450 inhibiting agents. Further improvements in toxicity could become evident as of the three VEGFR1, 2, 3 selective inhibitors (fruquintinib, anlotinib and lenvantinib) fruquintinib is the most selective. Fruquintinib s reported grade 3+ AEs appear lower than the competition highlighting the rationale for combination studies. Finally, while pricing information is unknown at this time, we expect fruquintinib to be competitively priced. We expect HCM to capitalize on its knowledge of the Chinese market and to drive adoption through the utilization of its existing sales structure. The market in China remains untapped, especially by Western companies; there is room for multiple agents with demonstrable efficacy in the first-, second- and third-line settings. Hutchison China MediTech 12 December

10 Peak sales potential of $2.3bn across all indications We forecast global peak sales for fruquintinib of $2.3bn across the potential CRC, NSCLC and gastric cancer indications. Exhibit 4 details fruquintinib s full clinical trial program, incident rates and penetration assumptions. We assume pricing of $5,000 per month in the US and ROW ex-china with a treatment course duration of 12 months, with China priced at a 50% discount. Our model assumes a tiered 15-20% royalty on China sales and 11% ROW sales payable to HCM from Lilly and up to $60m more in milestone payments. We have not included milestone payments on further sales after initial launch nor sales ex China, which would significantly enhance our valuation, given that if Lilly exercises its option to global development of fruquintinib, HCM could receive up to $300m in additional milestones. Exhibit 5 details our peak sales forecasts and assumptions by indication. Note we forecast peak sales in China as seven to eight years from launch, and five years from launch for ROW. Exhibit 5: Fruquintinib peak sales forecasts Product Indication Launch year/ Launch year/ Assumptions peak sales China peak sales ROW Fruquintinib CRC 2018/2024 $106m 2020/2024 $632m Global new cases (1,477,000), China new cases (283,000). China penetration 1%, $2,500 per month, 12-month treatment duration. ROW penetration 0.8%, $5,000 per month, 12-month treatment duration. NSCLC 2019/2025 $297m 2019/2024 $706m Global new cases (1,690,000), China new cases (623,000), China penetration 1.5%, $2,500 per month, 12-month treatment duration. ROW penetration 1.0%, $5,000 per month, 12-month treatment duration. Gastric cancer 2019/2024 $141m 2019/2024 $384m Global new cases (1,034,000), China new cases (454,000). China penetration 1%, $2,500 per month, 12-month treatment duration. ROW penetration 1%, $5,000 per month, 12-month treatment duration. Deal economics Deal economics: $86.5m in upfront and milestones from Lilly, royalty rate 15-20% on China, 11% ROW. Majority of development costs, all commercial costs in China. Source: Edison Investment Research. Hutchison China MediTech 12 December

11 Savolitinib targets TKI resistance in NSCLC Savolitinib (AZD6094), a highly selective first-in-class c-met tyrosine kinase inhibitor, could be the first of its kind to market. Herein we discuss the clinical rationale for a c-met inhibitor, the competitive market and finally our development and sales assumptions. Savolitinib is a novel, orally administered, small molecule tyrosine kinase inhibitor (TKI) that is being developed with partner AstraZeneca. The drug is a highly selective inhibitor of the c-met signaling pathway and targets patients with resistant cancers whose tumor type tests positive for MET amplification or overexpression. Savolitinib is 1,000 times more selective for c-met than the next kinase (PAK 3). MET activation is associated with poor prognosis in NSCLC and is also associated with EGFR TKI resistance. Pfizer s c-met targeting multi kinase inhibitor (MKI) Xalkori (currently only approved for ALK+ or ROS1+ NSCLC) has aimed to address this need, but there remains the clinical rationale for a highly specific c-met inhibitor. A highly specific c-met inhibitor should theoretically improve the efficacy and side effect profile of MKIs, enabling a wider range of combination treatment regimens for cancer. Drug-related renal toxicity has been an issue with the first-generation selective c-met TKIs that were under development and a factor in why none have reached the market to date. Savolitinib has been structurally designed by HCM s scientists to address the renal toxicity issues that have, in part, prevented c-met TKIs from gaining approval (the quinolone region of the compound has been replaced); clinical data so far shows it has not displayed any material renal toxicity (>370 patients to date). Building an arsenal of clinical trial data across tumor types Savolitinib is in 12 active clinical trials for renal cell carcinomas, NSCLC and gastric cancer. It is most advanced in its PRCC and NSCLC indications. Data from multiple Phase I/II studies support savolitinib s early clinical benefit as a highly selective c-met inhibitor in a number of cancer types. Given that savolitinib has demonstrated partial response in several solid tumors (Phase I overall response rate of 38% in PRCC indication compared to GSK s foretinib 13.5% in Phase II), it is conceivable that savolitinib could be the first global, first-in-class c-met inhibitor to reach the market. In Phase I studies the level of response to savolitinib by each patient correlated closely with the level of MET amplification. Savolitinib has additionally demonstrated synergistic effects with other cancer drugs in pre-clinical models; hence, its expansive clinical trial program includes combination with other targeted therapies and immune therapies, eg the combination of savolitinib with AstraZeneca s Tagrisso could shut down two resistant pathways accounting for 60-70% of all EGFRm+ TKI resistant NSCLC patients. Possible NDA submission for NSCLC and PRCC in 2017 A global, pivotal Phase II/II trial is evaluating the combination of savolitinib and Tagrisso for the second-line treatment of patients with c-met driven NSCLC (T790M±) as part of the TATTON study. Data is expected from the Phase IIb expansion part and, if positive, this could lead to the initiation of a global Phase III program in H117. The initiation of the Phase II expansion triggered a $10m milestone payment from AstraZeneca to HCM in June 2016 (this expansion was initiated following encouraging early data from a number of patients enrolled in the TATTON study who received savolitinib in combination with Tagrisso). Importantly, overwhelmingly positive data could support a US NDA under breakthrough therapy designation for the NSCLC indication (second-line in combination with Tagrisso). Additionally, positive data from the Phase II in PRCC in February/March 2017 (the study completed enrolment in October 2015) could enable a US NDA submission (under the breakthrough therapy designation) with potential US launch for the PRCC indication in late 2017 or early Hutchison China MediTech 12 December

12 Companion diagnostic test to complete the NDA package The pivotal Phase III study in PRCC represents the first molecularly selected trial in renal cell carcinoma globally. Partner AstraZeneca has entered an agreement with US-based Foundation Medicine to develop a companion diagnostic test (tissue biopsy) to identify patients with c-met driven cancers; the test is being developed in parallel with savolitinib s clinical trial program as part of a coordinated regulatory strategy and we anticipate it will form part of the regulatory filing with the FDA. We highlight that HCM comments that the PRCC Phase III companion diagnostic platform will be largely similar for other indications such as NSCLC and gastric cancer. Currently there is no standard method for testing for mutations; methods include gene sequencing, mass spectrometry and fluorescence in-situ hybridization (FISH). Savolitinib for NSCLC clinical trial program The NSCLC indication could be savolitinib s largest opportunity given 1.7m new cases a year (8-10% MET amplification rate in NSCLC, source Frost & Sullivan). Exhibit 6 highlights where savolitinib could straddle the NSCLC treatment paradigm. The NSCLC clinical trial program is assessing its utility in the first-, second- and third-line setting in certain identifiable patient populations. HCM estimates that the annual incidence of c-met driven NSCLC in the US, European Union and Japan is around 40,000 to 50,000 patients across all treatment settings. Exhibit 6 shows the five opportunities for savolitinib within the current NSCLC treatment paradigm. We believe the second-line NSCLC setting (#2 and #3 below) to be savolitinib s largest commercial opportunity: It has potential for breakthrough therapy designation and therefore US launch in 2018 for the second-line indication. The clinical trial program is most advanced in the second-line setting. Combination therapy targeting EGFR and c-met driven pathways should shut down two cancer pathways and have a synergistic impact on patient survival. Exhibit 6: Five opportunities for savolitinib in the NSCLC treatment paradigm Source: Hutchison China MediTech HCM see five opportunities for savolitinib in NSCLC patients as outlined below: Opportunity 1: first-line monotherapy in c-met+ plus Exon 14 skipping subgroup Of the worldwide 1.7 million new NSCLC patients per year, 6% patients will be sensitive to c- Met inhibitor (either have EXON 14 skipping or MET gene amplification). Pfizer s Xalkori (trialled in c-met+) is approved in the first-line treatment of metastatic NSCLC whose tumors Hutchison China MediTech 12 December

13 are ALK positive or ROS-1 positive. HCM believes that savolitinib s pre-clinical data demonstrates better target coverage and a durable tumor cell suppression versus Xalkori (savolitinib is 10x more potent against c-met), which could translate to superior efficacy in this subgroup; savolitinib is being evaluated in an exploratory Phase IIa monotherapy trial in China. We view this setting as furthest from the market, as we expect the second-line setting to be the first to come into fruition. Opportunity 2 and 3: second-line combination with Tagrisso in T790M+/c-Met+ or with Iressa/Tagrisso in T790M-/c-Met+ In the second-line NSCLC setting for patients with EGFR mutation derived EGFR resistance (to Iressa/Tarceva median PFS 9-10 months) 16% of patients have c-met driven NSCLC with or without T790 mutation. The TATTON Phase I/ II studies are evaluating Tagrisso in combination with savolitinib or Iressa in combination with savolitinib in TKI resistant c-met driven patients. In June 2016, a $10m milestone payment from AZN was triggered by the start of an expansion Phase IIb study. A decision on whether to proceed to a global Phase III trial will depend on whether the expansion study reflects the efficacy rates seen in earlier clinical studies. As described above, strong efficacy data could lead to a US NDA submission under breakthrough therapy designation. Opportunity 4 and 5: Third-line combination with Tagrisso in c-met+ MET mutations are emerging as the main resistance pathway in third-line NSCLC patients on Tagrisso; 18% are c-met+/t790m+. Next data point: Savolitinib for papillary renal cell carcinoma Renal (kidney) cell carcinoma (RCC) is the seventh most prevalent cancer in the Western world; RCC is diagnosed by histological subtype. Papillary renal cell carcinoma (PRCC) accounts for 14% of the 366,000 new renal cell carcinoma cases that occur worldwide, while clear cell renal carcinoma (CCRC) accounts for 74%. A number of targeted therapies (including Roche s Avastin, Pfizer s Sutent and Bayer s Nexavar), immunotherapies and immune checkpoint inhibitors are approved to treat advanced renal cell carcinoma; however, there are no currently approved treatments for c-met driven PRCC specifically. As MET amplification occurs in 40-70% of PRCC cases (100% of hereditary PRCC patients test positive for MET mutation), while c-met overexpression occurs in 79% of CCRC (source Frost & Sullivan), it follows that a successful c-met TKI inhibitor could transform renal cancer treatment. Savolitinib is currently in four Phase I/II trials for PRCC and CRCC (clear cell renal carcinoma). Papillary renal cell carcinoma (PRCC) Phase II data is expected in February/March 2017, most likely at ASCO GI. This 109-patient, open-label Phase II study will report results of savolitinib (600mg qd) on its primary endpoint, ORR (objective response rate). While a single-arm, open-label study has its limitations; it is important that the data on survival from this study is in line with previous early stage data. While HCM and AZN have agreed to proceed savolitinib into its Phase III global pivotal study for PRCC, overtly positive data from the open-label Phase II trial could lead to a US NDA application under breakthrough therapy designation for the PRCC indication, given the clear unmet need for c- Met driven PRCC. The final design of the pivotal trial is being agreed with international health authorities. Importantly this trial will be aligned with a companion diagnostic for c-met driven PRCC; and this PRCC Phase III diagnostic will be similar for use in other indications. AZN deal enables a rich clinical development program In 2011, HCM granted AstraZeneca co-exclusive rights to develop, manufacture and commercialize savolitinib globally. HCM received an initial $20m non-refundable license fee with up to a further $120m in clinical development and early sales milestones payable (as of June 2016 HCM had Hutchison China MediTech 12 December

14 received $20m of those milestones) in addition to significant further milestone payments based on sales. This is in addition to a 30% royalty rate payable on China sales and originally tiered royalties of 9-13% of sales outside China. Under the terms of the 2011 deal AZN would pay 100% of the development costs ex-china and 75% of the costs for development in the China market (with HCM funding the remaining 25%). Under the 2016 amendment, HCM will contribute an additional $50m to accelerate the PRCC program over a three-year period and in return will receive an additional 5% of royalty on sales on all indications ex-china, effectively taking the tiered royalty rate to 14-18%. Importantly the collaboration with AstraZeneca has resulted in the addition of savolitinib to AstraZeneca s Tagrisso and Iressa in two separate Phase Ib/II trials to address the opportunity for combination therapy as second-line and third-line treatment for NSCLC. Further combination studies are likely, eg savolitinib plus AZN s PD-1 inhibitor durvalumab. Peak sales potential of $3.4bn across current indications We forecast global peak sales for savolitinib of $3.4bn across the potential PRCC, CRCC, NSCLC and gastric cancer indications. Exhibit 7 details savolitinib s peak sales potential by indication, incident rates and penetration assumptions. We assume pricing of $10,000 per month in the US and ROW ex-china with a treatment course duration of 12 months, with China priced at a 50% discount. We believe this is conservative given that AstraZeneca s Tagrisso, a third-generation TKI, is priced at $12,750 per month, which is in line with the pricing being attached to most new lung cancer drugs, including ALK (anaplastic lymphoma kinase) inhibitors such as Pfizer's Xalkori and Novartis's Zykadia (source: Reuters). Furthermore, savolitinib could be moved into earlier lines of therapy as part of combination treatments, increasing the market opportunity, depending on the results of ongoing trials. Our model assumes a 30% royalty on China sales and 14-18% tiered royalty on ROW sales payable to HCM from AstraZeneca and up to $100m more in milestone payments. We have not included milestone payments on further sales after initial launch, which would significantly enhance our valuation. We note that under the terms of the agreement with AZN, the royalty rate is expected to step down to % upon reaching aggregate savolitinib sales of $5bn. We have assumed higher overall penetration rates for PRCC given the 40-70% MET amplification and NSCLC 79% c-met over expression rates. Our China penetration rates for NSCLC and gastric cancer err on conservatism. While we expect initial launch in 2017 for PRCC in China and the US, it follows that NSCLC and gastric cancer are larger opportunities given the patient populations. Note we forecast peak sales in China as seven to eight years from launch, and five years from launch in the rest of the world. Exhibit 7: Savolitinib peak sales forecasts Product Indication Launch year/ Launch year/ Assumptions peak sales China peak sales ROW Savolitinib PRCC 2017/2025 $129m 2017/2023 $475m Global 2015 new cases (50,000), China 2015 new cases (7,800) MET amplification 40-70%, therefore assume higher penetration rates. China penetration 20%, $5,000 per month, 12-month treatment duration. ROW penetration 8%, $10,000 per month, 12-month treatment duration. Clear cell renal carcinoma 2020/2026 $127m 2020/2025 $484m Global 2015 new cases (270,000), China 2015 new cases (54,000) MET overexpression 79%. China penetration 3%, $5,000 per month, 12-month treatment duration. ROW penetration 1.5%, $10,000 per month, 12-month treatment duration. NSCLC 2018/2027 $290m 2018/2025 $845m Global new cases (1,690,000), China new cases (623,000) MET amplification 10%. China penetration 0.6%, $5,000 per month, 12-month treatment duration. ROW penetration 0.5%, $10,000 per month, 12-month treatment duration. Gastric cancer 2021/2028 $326m 2021/2026 $742m Global new cases (1,034,000), China new cases (454,000) MET amplification 10%. China penetration 1%, $5,000 per month, 12-month treatment duration. ROW penetration 0.8%, $10,000 per month, 12-month treatment duration. Deal economics $140m in initial upfront and milestones from AstraZeneca, royalty rate 30% on China, 14-18% ROW. COGs and SG&A on China sales only. R&D proportioned. Source: Edison Investment Research. Hutchison China MediTech 12 December

15 Competitor analysis: Capmatinib nipping at the heels There remains a clear unmet need for a selective c-met TKI inhibitor in the cancer armamentarium. The array of pathways that c-met is involved in combined with the complex range of molecular alterations make it a difficult but extremely valuable target. It is increasingly apparent that the c-met signaling network is complex, and combination therapy may be needed for optimal clinical efficacy. Exhibit 8 summarizes the wider competitive landscape; this includes selective c-met inhibitors, multi-kinase inhibitors and monoclonal antibodies. In our view, savolitinib s closest competitor is capmatinib (INC280), a selective c-met inhibitor that Novartis licensed from Incyte Corporation in Per our analysis across the c-met inhibitor space we view capmatinib as the closest compound to savolitinib in terms of target selectivity, clinical development program and timeframe for NDA submission. Data to date shows promise; in preclinical work it demonstrated that it was 10,000-fold more selective for c-met then 57 other human kinases. However, capmatinib unlike savolitinib retains a similar molecule structure (2-quinolinone molecule) to earlier drugs that failed due to renal toxicity; while no renal toxicity has been reported to date we do not expect Novartis to test capmatinib in patients with kidney cancer. As such in c-met driven PRCC and clear cell renal carcinoma we would expect savolitinib to benefit from a lack of direct competition. Additionally through HCM s collaboration with AZN, savolitinib benefits as the sole c-met inhibitor in clinical development in combination therapy for NSCLC with the only EGFR/T790M inhibitor currently on the market (Tagrisso). As AZN look to position Tagrisso as a first-line therapy in NSCLC in developed markets, savolitinib could be well positioned as the only approved c-met inhibitor that can be used in combination with Tagrisso. In emerging markets where pricing constraints are more common we expect an Iressa plus savolitinib combination protocol to dominate, partly due to the strength of Iressa plus savolitinib combination data in certain markets e.g. Chinese patients with NSCLC. HCM expect to be the first to launch a selective c-met inhibitor in at least 50% of emerging markets. For the NSCLC indication, Novartis plans to file for capmatinib s NDA in Capmatinib is being evaluated across multiple cancers; recent data presented at ASCO included data from a Phase I and Phase I/II study in NSCLC: In a small Phase I study (n= 26) in NSCLC patients who were treated with capmatinib, only five (19%) had a partial response; however, in the only two patients that had MET exon 14 mutations, both had a partial response. In a follow-up expansion study five (of eight) patients (63%) who had a MET gene count number above 5 had a partial response. In a Phase I/IIb combination study testing capmatinib with gefitinib (Iressa) in MET positive NSCLC patients who had progressed on gefitinib, erlotinib or afatinib, 12/65 (18%) evaluable patients had a partial response while 40/65 (62%) had stable disease. Capmatinib is currently in 16 active Phase I/II trials, eight of which are in NSCLC. Novartis plans to file an NDA in NSCLC in 2018, potentially one year after savolitinib. We believe there is scope for a number of selective c-met inhibitors given the NSCLC market size and with oncology heavyweights AstraZeneca and Novartis in the space, we would anticipate a stronger awareness of the potential for the selective c-met class of drugs among prescribers and payers. Crizotinib: Leading the pack of multi-target TKIs In addition to c-met specific inhibitors, a range of multi-target inhibitors that target c-met are in development or marketed; these are summarized in Exhibit 8. One of the most clinically advanced is the marketed crizotinib (Xalkori). Crizotinib has been on the market since 2011 for treatment of NSCLC patients where it was approved for ALK (abnormal anaplastic lymphoma kinase gene)- positive patients and in March this year it was approved for ROS1 gene-positive NSCLC. It is currently in an array of Pfizer-sponsored and investigator-led trials for c-met positive cancers. Hutchison China MediTech 12 December

16 A Phase I study in 13 c-met amplified NSCLC patients treated with crizotinib were subdivided into three amplification groups (low [n=1], intermediate [n=6] and high [n=6]). Four partial responses were observed, one in the intermediate group and three in the high c-met amplified group. Median duration of response was 35 weeks (95% CI). The most common adverse event (AE) was diarrhea, which occurred in 50% of the patients: most AEs were grade 1 in severity. A Phase I trial in 17 (15 response evaluable) patients with MET exon 14 altered NSCLC treated with crizotinib observed that five patients (29%) had a confirmed partial response (an additional five patients had an unconfirmed partial response). The duration of treatment ranged from 0.5 to 9.1+ months. There were no deaths or progressive disease by the data cut-off date. The correct identification of c-met or MET status is needed to ensure efficacy of treatment. If savolitinib can demonstrate that it is effective in these patient subsets and is one of the first to market it could achieve significant success; however, the competitive environment still remains complex. The correct selection of patients in clinical trials could be fundamental in any c-met inhibitor s success. Theoretically savolitinib should provide an advantage over crizotinib as it provides full coverage of c-met. Exhibit 8: c-met inhibitor competitive landscape Drug Company Type Target Phase (MET+ Note NSCLC) Capmatinib Novartis Small molecule inhibitor c-met II Capmatinib is a selective c-met inhibitor that is currently in eight Phase I/II NSCLC trials. Along with savolitinib it has one of the most advanced c- Met NSCLC programs. Tivantinib ArQule Small molecule inhibitor AMG337 NantPharma Small molecule inhibitor Tepotinib Merck Serono Small molecule inhibitor Crizotinib Pfizer Small molecule inhibitor Cabozantinib Exelixis Small molecule inhibitor Glesatinib Mirati Therapeutics Small molecule inhibitor c-met III (discontinued) Tivantinib is a c-met selective kinase inhibitor jointly developed by Daiichi Sankyo in the US, Europe and ROW excluding Asia and Kyowa-Hakko Kirin in Asia. Development is focused on hepatocellular carcinoma (HCC), which is in two Phase III trials. It was granted orphan drug designation in HCC by the FDA and EMA in A Phase III study in 1,048 pre-treated non-squamous NSCLC patients was discontinued due to futility at the interim analysis. c-met N/A AMG337 is a c-met selective kinase inhibitor that was recently in-licensed from Amgen (for an undisclosed fee) for worldwide development except for Japan, Russia and Central Asia. NantPharma aims to utilize its NantOmics suite of genomic and proteomic capabilities to select suitable patients for future c-met trials. According to clinicaltrials.gov it is in four Phase I/II active trials focused on stomach cancers. It currently has no trials in NSCLC. c-met II Tepotinib (MSC J) is a c-met selective kinase inhibitor that is in four ongoing Phase I/II clinical trials in lung and liver cancer (two in each). Recent data published at ASCO 2016 from a Phase Ib trial of tepotinib plus gefitinib in Asian patients with c-met positive/egfr mutant NSCLC demonstrated 5/18 (27%) patients had a partial response and 4/18 (22%) had stable disease. No dose limiting toxicities were observed and at 11% (2/18) occurrence the most common grade 3 and above AEs were hyperamylasemia and increased lipase concentration equally. c-met, ALK, Ron Axl, Tie- 2 c-met, VEGFR2, Ret, Kit, Flt3, Tie-2 c-met, Axl inhibitor II II II Crizotinib is marketed for the treatment of NSCLC patients who express ALK or ROS1. It is currently in multiple trials for c-met expressing cancers. Cabozantinib (CABOMETYX) is a c-met, VEGF, AXL and RET inhibitor that was approved by the FDA and EMA in H116 for the treatment of patients with advanced renal cell carcinoma. It is currently in an array of Phase II trials testing its efficacy in NSCLC. Glesatinib (MGCD265) is a c-met and AXL inhibitor. It is currently recruiting patients in a Phase II trial in second-line NSCLC patients (previously on chemotherapy) with genetic alterations in MET. Ficlatuzumab AVEO/Biodesix Antibody HGF I/II Ficlatuzumab is an antibody targeting the c-met ligand hepatocyte growth factor (HGF). It is currently in a double-blind Phase II trial in combination with erlotinib for advanced NSCLC patients selected by a biomarker tests. Sym015 Symphogen Antibody HGF I/II Symphogen is an antibody targeting the c-met ligand hepatocyte growth factor (HGF). It is currently in a Phase I/II trial in solid tumors. It is currently in no clinical trials for NSCLC. Source: Edison Investment Research, company reports Hutchison China MediTech 12 December

17 Epitinib targets NSCLC with brain metastasis Epitinib is a selective EGFR tyrosine kinase inhibitor designed for optimal brain penetration, to target brain metastases (BM) associated with EGFR mutation positive solid tumors. Herein we discuss the clinical rationale for a next-generation EGFR inhibitor, the competitive market and finally our development and sales assumptions. Epitinib s development rationale has been spurred on from preclinical studies where the drug demonstrated favorable drug exposures in the brain. TKIs as a class have revolutionized the treatment of EGFR positive cancers; however, few trials have been conducted to assess clinical utility in cancer patients with brain metastasis. In comparison to approved EGFR inhibitors (eg Iressa and Tarceva) preclinical data demonstrates that epitinib can cross the blood-brain barrier to reach more effective concentrations with potential higher efficacy in treating brain metastasis. Currently no targeted therapy has been approved that effectively can treat both NSCLC and brain metastases. According to OncoLink, the exact incidence of brain metastases is not known. Studies suggest brain metastases occur in 10-30% of patients with cancer, including NSCLC. An estimated one-third of patients with EGFRm NSCLC experience disease progression due to development of brain metastasis. Furthermore, around 50% of NSCLC patients who eventually develop brain metastasis do not have effective treatments. Long-term prognosis is poor, with an estimated overall five-year survival rate less than 5% for patients with metastatic NSCLC. Blood-brain barrier; anatomical significance The blood-brain barrier (BBB) is an anatomical structure that serves to control and limit what molecules are able to enter the brain through selective passage of substances. The BBB consists of brain capillaries endothelial cells that are sealed together with tight junctions and are surrounded by astrocytes that allow lipid soluble substances, as well as glucose, oxygen, and water through. Proteins, ions, and large molecules do not enter at all or enter very slowly. While the BBB functions to protect the brain from the entry of harmful pathogens and substances, it throws up challenges for drug development. The majority of orally delivered pharmaceutical agents used to treat CNS disorders are lipophilic small molecules that cross the BBB by transmembrane diffusion. Most oral chemotherapeutic agents are unable to cross the blood brain barrier, thus at present treatment for brain metastasis is mainly limited to surgical resection and radiotherapy (whole-brain radiotherapy and stereotactic radiotherapy). Epitinib highly differentiated EGFR TKI Iressa and Tarceva, two approved EGFR inhibitors for NSCLC, have limited blood-brain barrier penetration and limited cerebral spinal fluid (CSF) concentrations of 2.5% for Iressa and 5% for Tarceva. Retrospective data analysis shows these TKIs have utility in treating EGFR mutated (NSCLC) in combination with whole brain radiation therapy (WBRT), however clinical trials have not directly addressed utility of these agents in treating NSCLC with BM. The impact of first-generation TKIs such as Tarceva and Crizotinib in CNS metastasis is modest, as limited CSF penetration has been seen with corresponding low rates of intracranial efficacy reported. HCM recognized the clinical need for a novel EGFR TKI with improved efficacy against brain metastasis, and has subsequently developed epitinib, which in preclinical studies demonstrated excellent brain exposure compared to gold standard EGFR TKI Tarceva (Exhibit 9). Hutchison China MediTech 12 December

18 Exhibit 9: Preclinical mouse model data Source: Hutchison China MediTech reports Currently, a number of third-generation TKIs that have demonstrated better CNS penetration are at various stages of clinical development, including Tagrisso (AZN), ASP8273 (Astellas), HM61713 (Hanmi Pharmaceutical) and epitinib. Tagrisso is in Phase II for NSCLC with exon 19 deletion, T790 mutation. AZN is also developing AZD 3759; it has been specifically designed to penetrate the BBB but lacks activity against T790M. Epitinib proof-of-concept data encouraging (at IASLC WLCLC) HCM presented data from the ongoing Phase Ib first-line epitinib for EGFR+ve NSCLC with BM clinical trial at the recent IASLC World Conference on Lung Cancer. The primary objective of the trial was to evaluate the safety and tolerability of continuous dosing of epitinib in addition to determining the MTD or recommended Phase II dose (RP2D). The trial results demonstrated that epitinib was well tolerated with a safety profile consistent with approved EGFR-TKIs. MTD was not reached and 160mg once a day was determined to be the RP2D. In terms of efficacy, clinical utility was evident in EGFR +ve patients, and patients who were EGFR-treatment naïve demonstrated a strong response with an overall response rate of 61.9% and DCR of 90.5% (Exhibit 10). Key points were: The trial consisted of two parts: a dose escalation (n=36) and a dose expansion stage (n=37). Skin rash was the most common AE, occurring in 60% (n=21) and 83.8% (n=31) of patients in the dose escalation and dose expansion stages, respectively. Overall 2.9% (n=1) and 5.4% (n=2) of patients observed a grade 3-4 skin rash, respectively. These AEs are in line with approved therapies. Tarceva (erlotinib, Roche) prescribing information states that of first-line NSCLC patients, the most common AE is skin rash, occurring in 85% of patients. Grade 3-4 skin rashes occurred in 14% of patients. More serious AEs were also typically in line with approved treatments; alanine aminotransferase (ALT) and aspartate aminotransferase (AST) increased in all grades by 31.4% (n=11) and 34.3% (n=12) of patients in the dose escalation stage. ALT and AST increased by 40.5% (n=15) for both in the dose expansion stage. Comparably Iressa (gefitinib) (AstraZeneca) prescribing information states that 38% and 40% of patients (n=1,126) demonstrated an increase in ALT and AST, respectively. Of secondary objectives, preliminary signs of antitumor activity were observed, with a 90.5% DCR (95% CI; 38.4, 81.9) and 61.9% ORR (95% CI; 69.6, 98.8) demonstrated in EGFR TKI treatment naïve patients. Comparably Tarceva demonstrated an ORR of 65% (95% CI; 54.1, 75.1) in 86 first-line NSCLC patients, while Iressa demonstrated an ORR of 50% (95% CI; 41, 59) (blinded independent central review) and 70% (95% CI; 61, 78) (investigator assessment) in 106 first-line patients. Intracranial data demonstrates promising signs of efficacy, of 11 EGFR TKI treatment naïve patients, 7 (63.6%) demonstrated an intracranial ORR (95% CI; 30.8, 89.1) and 10 (90.9%) patients demonstrated DCR (95% CI; 58.7, 99.8). While this promising intracranial data is in Hutchison China MediTech 12 December

19 small patient numbers it highlights the potential in a patient population which has limited treatment options. A pivotal trial starting in 2017 should give further insight. Exhibit 10: Epitinib P1 NSCLC with BM efficacy data Source: Hutchison China MediTech reports This Phase Ib trial has been expanded into a Phase Ib/II proof of concept trial, which is ongoing in China; mature PFS data is expected in HCM anticipates that a pivotal Phase III in first-line patients with EGFRm NSCLC with BM in China could be initiated in H117. We note that the China FDA has cleared the Phase II/III clinical trial protocol. This could pave the way for international studies and a potential application for US approval under the FDA s breakthrough therapy designation. Peak sales of $905m forecast for NSCLC with brain metastasis alone We forecast epitinib peak sales of $905m for the NSCLC with brain metastasis indication, based on a 5% penetration of the NSCLC patient population with brain metastasis (20% of the 1,690,000 global new cases of NSCLC patients worldwide, 623,000 new cases in China), $5,000 per month ex-china (50% discount on price in China) and a 12-month duration of treatment. HCM currently retains all rights to the products worldwide. In our epitinib valuation, we assume a partnering deal worth $80m with a $20m upfront payment in 2019, and a further $60m in development milestones. We assume a 30% royalty rate on China sales, and 11% ROW. Targeted therapies transform cancer treatment Lung cancer is the leading cause of cancer-related deaths globally (19.4% of total cancer-related deaths); 1.8m new cases were reported worldwide in The US and China are two of the Hutchison China MediTech 12 December