TIDMHCM
RNS Number : 8674E
Hutchison China Meditech Limited
03 March 2020
Chi-Med Reports 2019 Full Year Results and Provides Updates on
Key Clinical Programs
Company to Host Annual Results Conference Call Today at 1:00
p.m. GMT / 8:00 a.m. EST / 9:00 p.m. HKT
London: Tuesday, March 3, 2020: Hutchison China MediTech Limited
(" Chi-Med ") (Nasdaq/AIM: HCM), a commercial-stage
biopharmaceutical company with eight oncology drug candidates in
development around the world and a deep commercial presence in
China, today announces its audited financial results for the year
ended December 31, 2019 and provides updates on key clinical and
commercial developments.
"2019 was a year in which we laid the foundations for a new era
for Chi-Med," said Simon To, Chairman of Chi-Med. "Our first
launched drug, Elunate (R) , is set to broaden patient access this
year due to its recent addition to the NRDL(1) in China. We are
scaling up our oncology commercial team in preparation for the
potential launch of surufatinib, our first un-partnered oncology
drug candidate, late this year in non-pancreatic NET(2) ; and
another two NDA(3) submissions are imminent, one with savolitinib
in lung cancer and a second with surufatinib in pancreatic NET,
with launches anticipated for 2021."
"Based on extensive clinical data, we also expect to initiate
multiple global registration studies this year with fruquintinib,
surufatinib and potentially savolitinib. China registration studies
with certain of our hematological malignancy assets are also in
planning."
"We believe that the potential launches of multiple new oncology
products will address a broad range of unmet medical needs and
benefit a large number of patients, propelling Chi-Med rapidly
forward."
RECENT OPERATING HIGHLIGHTS
Set out below are some of Chi-Med's operating highlights for
2019 and so far this year. For more details, please refer to
"Operations Review" below.
SAVOLITINIB - GLOBAL
-- AstraZeneca (4) collaboration - Prime position in EGFR TKI (5) resistant NSCLC (6) :
o EGFRm (7) NSCLC patients with acquired resistance to
Tagrisso(R) driven by MET (8) amplification: Published full results
of TATTON study in The Lancet Oncology in 2020 for the
savolitinib/Tagrisso(R) combination reporting 30% ORR(9) and 5.4
months' median PFS(10) in 69 patients;
The SAVANNAH Phase II study, with registration potential,
underway in North and South America, Europe and Asia, is on-target
for interim analysis in mid-2020 and enrollment completion by
end-2020;
o EGFRm NSCLC patients with acquired resistance to Iressa(R) or
Tarceva(R) driven by MET amplification: Published full results of
TATTON study in Lancet Oncology for the savolitinib/Tagrisso(R)
combination reporting 64% ORR and 9.0 months' median PFS in 93
patients; and
o Completed enrollment in 70 patients Phase II registration
study - MET Exon 14 deletion NSCLC: Interim China Phase II data
presented at CSCO(11) . A s a result of our regulatory interaction
with the NMPA(12) , we now expect to submit savolitinib NDA in
early 2020.
-- Papillary renal cell carcinoma ("PRCC") - Renewed global development strategy:
o Actively evaluating restart in MET-driven PRCC: In late 2018,
enrollment was terminated in SAVOIR, a global Phase III
registration study of savolitinib monotherapy compared with
sunitinib monotherapy in MET-positive PRCC. Data from the
approximately 60 patients randomized in SAVOIR prior to termination
has matured during 2019 and will be presented at an upcoming
scientific conference in mid-2020. Based on these data, AstraZeneca
and Chi-Med are actively evaluating the opportunity to restart
clinical work in PRCC for monotherapy savolitinib; and
o Preliminary signal for savolitinib/Imfinzi(R) (PD-L1 (13) )
combination in all PRCC: Presented data for the PRCC cohort of the
CALYPSO Phase II study at ASCO GU(14) showing the combination was
tolerable and associated with durable efficacy. Median OS(15) was
12.3 months and twelve-month OS rate was 52%. Based on these data,
AstraZeneca and Chi-Med continue to explore development of the
savolitinib and Imfinzi(R) combination.
-- Promising savolitinib efficacy in MET-amplified gastric
cancer: The VIKTORY Phase II umbrella trial results were published
in Cancer Discovery(16) . VIKTORY sequenced 715 metastatic gastric
cancer patients, with MET-amplification observed in 3.5% of
patients. In MET-amplified gastric cancer patients, savolitinib
monotherapy met pre-specified 6-week PFS rate and reported an ORR
of 50%.
SURUFATINIB - CHINA
-- First targeted therapy to address NETs of all origins:
Recently reported two positive Phase III studies, SANET-ep
(mid-2019) in non-pancreatic NET and SANET-p (early 2020) in
pancreatic NET. Both studies were terminated early following
positive interim analyses that confirmed they had already met their
median PFS primary endpoint:
o China Non-pancreatic NET: Presented full results of SANET-ep
Phase III study at ESMO(17) reporting a median PFS for surufatinib
of 9.2 months as compared to 3.8 months for placebo (HR 0.334,
p<0.0001). A n NDA for the treatment of non-pancreatic NETs was
submitted to the NMPA in China in November 2019 and Priority Review
status was granted in December 2019; and
o China Pancreatic NET: Following positive interim analysis and
early termination of the SANET-p Phase III study, NDA preparations
are now underway.
-- Initiated China Phase II/III study in biliary tract cancer
("BTC"): Based on preliminary Phase Ib/IIa data, we initiated a
Phase IIb/III registration study in BTC in China in March 2019;
and
-- Progressed PD-1 (18) combination development: Completed a
Phase I dose-finding study in China of surufatinib plus Tuoyi (R) ,
an approved PD-1 monoclonal antibody from Junshi(19) , then
initiated an exploratory Phase II study of the combination in early
2020 in multiple solid tumor indications. Phase I development of
surufatinib plus Tyvyt(R) , an approved PD-1 monoclonal antibody
from Innovent(20) , is also in planning.
FRUQUINTINIB - CHINA
-- Progress on Elunate(R) (fruquintinib capsules) in third-line
colorectal cancer ("CRC") in China:
o $17.6 million in sales during 2019: In-market sales of
Elunate(R) to third-parties, as provided by Lilly(21) , in the
first full year since its late 2018 launch; and
o Inclusion in the National Reimbursement Drug List ("NRDL"):
Elunate(R) was included in the China NRDL in November 2019, with
reimbursement effective January 1, 2020. NRDL inclusion now makes
Elunate(R) a highly attractive approved therapy in third-line CRC
in China in terms of price, efficacy and safety profile. Elunate(R)
sales(22) in January-February 2020, were $6.6 million.
-- Phase III interim analysis in second-line gastric cancer: In
April 2019, an interim analysis for futility of the FRUTIGA study
in China was performed. The IDMC(23) recommended to continue the
study without changes; and
-- Progressed PD-1 combination development: Approaching
completion of Phase I dose-finding study in China of Elunate(R)
plus Tyvyt (R) (Innovent). Phase I development of Elunate(R) plus
genolimzumab, a PD-1 monoclonal antibody under development by
Genor(24) , is also now underway.
OTHER DEVELOPMENT CANDIDATES - CHINA
-- Non-Hodgkin's lymphoma ("NHL"): Advanced Phase Ib dose
expansion of both of our NHL assets, HMPL-523 (selective Syk(25)
inhibitor) and HMPL-689 (selective PI3K (26) inhibitor) in China.
We expect these Phase I/Ib studies to inform our China registration
study decisions in 2020;
-- HMPL-453 - selective FGFR (27) 1/2/3 inhibitor: We completed
Phase I development, with a Phase II study in advanced malignant
mesothelioma in China set to initiate; and
-- IND (28) clearance in China for HMPL-306: Our ninth in-house
discovered asset, an IDH(29) 1/2 dual inhibitor, received China IND
clearance in late 2019 with Phase I set to initiate.
INTERNATIONAL OPERATIONS
-- Global development footprint: Through our International
organization, based in New Jersey, we have rapidly expanded our
clinical and regulatory capabilities in the U.S., Europe and now
Japan;
-- Fruquintinib: Completed EOP2(30) meetings with U.S. Food and
Drug Administration ("FDA") in February 2020, regarding our global
Phase III, the FRESCO2 study, in colorectal cancer. Europe and
Japan EOP2 meetings are planned shortly;
-- Surufatinib: Data from a U.S. Phase I/Ib study were presented
at ESMO. In late 2019, the U.S. FDA granted Orphan Drug designation
for the treatment of pancreatic NET. Regulatory consultations in
U.S., Europe and Japan are underway, to clarify registration
pathway for surufatinib in NETs; and
-- HMPL-523 and HMPL-689: Expanded development into the U.S. and
Europe during 2019. Twenty Phase I sites are now enrolling and have
completed multiple dose cohorts.
ORGANIZATION
-- Chi-Med Group compensation and share-based incentive policy:
The Group has comprehensively reviewed its compensation and
share-based incentives policies, performed benchmarking research on
peer group U.S. and China biotech companies and established a new
competitive policy to ensure we are able to attract and retain top
talent ; and
-- Establishment of China oncology commercial organization:
Currently over 140 commercial staff, aiming to recruit a total of
300-350 staff to support potential surufatinib launch in late
2020.
UPDATE ON IMPACT OF COVID-19
-- Improvising amid COVID-19 challenges: The outbreak is posing
some challenges to our operations resulting from restrictions on
movement in China. Reduced patient hospital visits for clinical
assessment affected the conduct of certain clinical studies and
commercial team activities. To-date, none of our manufacturing
operations in China have been materially affected. Our teams have
adapted quickly and effectively thus far across our businesses, and
we will continue to closely monitor what is an evolving situation .
At this stage we are unable to assess the long-term effect of the
outbreak, if any.
KEY EVENTS PLANNED FOR 2020
Early 2020:
-- Savolitinib - Phase Ib/II data (CALYPSO) - PRCC cohort
overall survival results for the Imfinzi (R) / savolitinib
combination presented at ASCO GU (February 2020);
-- HMPL-453 - Phase II study start - FGFR 1/2/3 inhibitor in advanced malignant mesothelioma;
-- Savolitinib - NDA submission in MET exon 14 deletion NSCLC in
China - first NDA submission globally for savolitinib;
-- Surufatinib - NDA submission in pancreatic NET in China -
following the recent positive SANET-p Phase III interim
analysis;
-- PD -1 combos - Initiation of multiple Phase II studies in
China - for surufatinib/fruquintinib in combination with Tuoyi (R)
/Tyvyt (R) ; and
-- PD -1 combos - Phase I dose-finding data for surufatinib plus
Tuoyi (R) combination - presentation of preliminary data at major
scientific conference.
Mid-2020:
-- HMPL-306 - First in Human dose of IDH 1/2 inhibitor - initiate Phase I study in China;
-- Savolitinib - Data from terminated Phase III study (SAVOIR) -
presentation at major scientific conference of data comparing
savolitinib to sunitinib in MET-driven PRCC patients; Mature data
from about 60 patients;
-- Savolitinib - Interim analysis on SAVANNAH - interim analysis
on first 50 patients on SAVANNAH Phase II study of the
savolitinib/Tagrisso(R) combination;
-- Surufatinib - Completion of global regulatory consultations -
clarity on U.S., Europe and Japan registration pathway for
surufatinib in NETs. Initiation of required clinical studies in
U.S. and Europe;
-- Savolitinib - MET exon 14 deletion NSCLC data - presentation
of full data from the savolitinib Phase II registration intent
study at major scientific conference;
-- Surufatinib - Phase III data (SANET-p) - presentation of full
data from the SANET-p study in pancreatic-NET patients at a major
scientific conference;
-- Fruquintinib - Second Phase III interim analysis (FRUTIGA) -
interim analysis for futility in second-line gastric cancer Phase
III in China of fruquintinib / Taxol(R) (paclitaxel)
combination;
-- Fruquintinib - Global Phase III study (FRESCO2) - initiation
of registration study of fruquintinib in >=3(rd) line colorectal
cancer in U.S., Europe and Japan; and
-- HMPL-523 - Global Phase Ib expansion - in indolent NHL in U.S. and Europe.
Late 2020:
-- Surufatinib - Phase II/III interim analysis - for futility in second-line BTC in China;
-- Surufatinib - Potential NDA approval and launch for
non-pancreatic NET in China - first un-partnered oncology drug
launch for Chi-Med in China. Commercial team of 300-350 medical
sales personnel in place for launch;
-- HMPL-689 - Potential registration study start - in indolent NHL in China;
-- Fruquintinib - E nrollment completion of FRUTIGA - to
complete enrollment of China Phase III registration study in
second-line gastric cancer;
-- Savolitinib - Enrollment completion of SAVANNAH - AstraZeneca
to complete enrollment of global Phase II study, with registration
potential, of savolitinib/Tagrisso(R) combination; and
-- HMPL-689 - Global Phase Ib expansion - in indolent NHL in U.S. and Europe.
Financial Highlights
The items below are selected financial data for the year ended
December 31, 2019. All dollars are expressed in US dollar currency
unless otherwise stated. For more details, please refer to
"Financial Review", "Operations Review" and "Audited Consolidated
Financial Statements" below.
OVERALL GROUP:
-- Group r evenue of $204.9 million (2018: $214.1m).
-- N et loss attributable to Chi--Med of $106.0 million (2018: net loss of $74.8m ) .
-- Adjusted Group net cash flows excluding financing activities
was -$82.3 million (2018: -$49.1m). C ash from our Commercial
Platform, as well as cash received from our multi-national
partners, continued to offset a material portion of our R&D(31)
expenses.
-- Recent Nasdaq follow-on strengthens cash position. We held
cash, cash equivalents and short-term investments of $217.2 million
as of December 31, 2019 (December 31, 2018: $301.0m). In January
2020, we conducted a Nasdaq follow-on offering, raising an
additional $110.1 million in net proceeds, to further strengthen
our cash position; and
-- Additional unutilized bank facilities of $119.3 million
(December 31, 2018: $119.3m) and borrowings of $26.8 million
(December 31, 2018: $26.7m) .
I NNOVATION PLATFORM :
-- Consolidated revenue was $ 16.0 million (2018 : $37.6m)
mainly from service fee payments from AstraZeneca and Lilly. 2018
revenues included a one-time $13.5 million milestone payment from
Lilly following fruquintinib approval; and
-- Net loss from our Innovation Platform attributable to Chi-Med
of $ 133.2 million (2018: net loss of $104.4m) resulting from
expansion in the development of our eight clinical drug candidates
, five of which are now in global development, and establishment of
sizable international clinical and regulatory operations.
COMMERCIAL PLATFORM:
-- Total consolidated sales up 7% (11% at CER (32) ) to $188.9
million (201 8 : $176.5m) mainly due to continued progress on our
Prescription Drugs subsidiary Hutchison Sinopharm (33) as well as
manufacturing sales and royalties from Elunate (R) during its first
full year on the market;
-- Total consolidated net income from our Commercial Platform
attributable to Chi-Med up 9% (13% at CER) to $47.4 million (2018:
$43.4m) underpinned by the growing profits of our legacy operations
in China as well as Elunate(R) .
FINANCIAL GUIDANCE
In 2019 we performed in-line with our most recent guidance. We
provide Financial Guidance for 2020 below.
In 2020, on the broader Innovation Platform, we plan to continue
to increase our investment in R&D particularly on clinical
development of our main assets in the U.S., Europe and Japan as
well as in China (as discussed in the "Product pipeline progress"
section below). On the Commercial Platform, we expect to continue
to generate cash flow directly through our subsidiaries and via
dividends from our joint ventures. We assume at this stage that the
financial impact of the recent COVID-19 outbreak will not be
material to the Group. Since we cannot predict how the situation
will evolve, we will monitor and adjust if new material information
emerges.
2020 Guidance
----------------------------------------------------------------------- ----------------------
Adjusted (non-GAAP) Innovation Platform segment operating loss $(180) - (210) million
Adjusted (non-GAAP) Group Net Cash Flows excluding financing activities $(140) - (160) million
----------------------------------------------------------------------- ----------------------
Use of Non-GAAP Financial Measures and Reconciliation -
References in this announcement to adjusted Innovation Platform
segment operating loss , adjusted Group net cash flows excluding
financing activities and financial measures reported at CER are
based on non-GAAP financial measure s. 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, r espectively.
---
Conference Call and Audio Webcast Presentation Scheduled Today
at 1:00 p.m. GMT / 8:00 a.m. EST / 9:00 p.m. HKT - Investors may
participate in the call as follows: +44 20 3936 2999 (U.K.) / 1 845
213 3398 (U.S.) / +852 5808 4954 (Hong Kong), or access a live
audio webcast of the call via Chi-Med's website at
www.chi-med.com/investors/event-information/ .
Additional dial-in numbers are also available at Chi-Med's
website . Please use participant access code " 413486 ."
---
FINANCIAL STATEMENTS
Chi-Med will today file with the U.S. Securities and Exchange
Commission its Annual Report on Form 20-F.
ANNUAL GENERAL MEETING
The Annual General Meeting of Chi-Med will be held at 4(th)
Floor, Hutchison House, 5 Hester Road, Battersea, London SW11 4AN
on Monday, April 27, 2020 at 11:00 a.m.
About Chi-Med
Chi-Med (Nasdaq/AIM: HCM) is an innovative biopharmaceutical
company committed, over the past twenty years, to the discovery and
global development of targeted therapies and immunotherapies for
the treatment of cancer and immunological diseases. It has a
portfolio of eight cancer drug candidates currently in clinical
studies around the world and extensive commercial infrastructure in
its home market of China. For more information, please visit:
www.chi-med.com .
CONTACTS
Investor Enquiries
Mark Lee, Senior Vice President +852 2121 8200
Annie Cheng, Vice President +1 (973) 567 3786
David Dible, Citigate Dewe Rogerson +44 7967 566 919 (Mobile)
david.dible@citigatedewerogerson.com
Xuan Yang, Solebury Trout +1 (415) 971 9412 (Mobile)
xyang@troutgroup.com
Media Enquiries
UK & Europe - Anthony Carlisle, Citigate Dewe Rogerson +44 7973 611 888 (Mobile)
anthony.carlisle@cdrconsultancy.co.uk
Americas - Brad Miles, Solebury Trout +1 (917) 570 7340 (Mobile)
bmiles@troutgroup.com
Asia - Joseph Chi Lo, Brunswick +852 9850 5033 (Mobile)
jlo@brunswickgroup.com
- Zhou Yi, Brunswick +852 97 83 6894 (Mobile)
y zhou@brunswickgroup.com
Nominated Advisor
Freddy Crossley / Atholl Tweedie, Panmure Gordon (UK) Limited +44 (20) 7886 2500
References
Unless the context requires otherwise, references in this
announcement to the "Group," the "Company," "Chi-Med," "Chi-Med
Group," "we," "us," and "our," mean Hutchison China MediTech
Limited and its consolidated subsidiaries and joint ventures unless
otherwise stated or indicated by context.
Past Performance and Forward-Looking Statements
The performance and results of operations of the Group contained
within this announcement are historical in nature, and past
performance is no guarantee of future results of the Group. This
announcement contains forward-looking statements within the meaning
of the "safe harbor" provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These forward-looking statements can
be identified by words like "will," "expects, " "anticipates,"
"future," "intends," "plans," "believes," "estimates," "pipeline,"
"could," "potential," "first-in-class," "best-in-class," "designed
to," "objective," "guidance," "pursue," or similar terms, or by
express or implied discussions regarding potential drug candidates,
potential indications for drug candidates or by discussions of
strategy, plans, expectations or intentions. You should not place
undue reliance on these statements. Such forward-looking statements
are based on the current beliefs and expectations of management
regarding future events, and are subject to significant known and
unknown risks and uncertainties. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those set
forth in the forward-looking statements. There can be no guarantee
that any of our drug candidates will be approved for sale in any
market, or that any approvals which are obtained will be obtained
at any particular time, or that any such drug candidates will
achieve any particular revenue or net income levels. In particular,
management's expectations could be affected by, among other things:
unexpected regulatory actions or delays or government regulation
generally; the uncertainties inherent in research and development,
including the inability to me e t our key study assumptions
regarding enrollment rates, timing and availability of subjects
meeting a study's inclusion and exclusion criteria and funding
requirements, changes to clinical protocols, unexpected adverse
events or safety, quality or manufacturing issues; the inability of
a drug candidate to meet the primary or secondary endpoint of a
study; health crises in China or globally; the inability of a drug
candidate to obtain regulatory approval in different jurisdictions
or gain commercial acceptance after obtaining regulatory approval;
global trends toward health care cost containment, including
ongoing pricing pressures; uncertainties regarding actual or
potential legal proceedings, including, among others, actual or
potential product liability litigation, litigation and
investigations regarding sales and marketing practices,
intellectual property disputes, and government investigations
generally; and general economic and industry conditions, including
uncertainties regarding the effects of the persistently weak
economic and financial environment in many countries and
uncertainties regarding future global exchange rates. For further
discussion of these and other risks, see Chi-Med's filings with the
U.S. Securities and Exchange Commission and on AIM. Chi-Med is
providing the information in this announcement as of this date and
does not undertake any obligation to update any forward-looking
statements as a result of new information, future events or
otherwise.
In addition, this announcement contains statistical data and
estimates that Chi-Med obtained from industry publications and
reports generated by third-party market research firms . Although
Chi-Med believes that the publications, reports and surveys are
reliable, Chi-Med has not independently verified the data and
cannot guarantee the accuracy or completeness of such data. You are
cautioned not to give undue weight to this data. Such data involves
risks and uncertainties and are subject to change based on various
factors, including those discussed above.
Inside Information
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Ends
1 National Reimbursement Drug List ("NRDL")
2 Neuroendocrine Tumors ("NET")
3 New Drug Application ("NDA")
4 AstraZeneca AB (publ), a wholly owned subsidiary of AstraZeneca PLC
5 Epidermal growth factor receptor tyrosine kinase inhibitor ("EGFR TKI")
6 Non-small cell lung cancer ("NSCLC")
7 Epidermal growth factor receptor mutation ("EGFRm")
8 Mesenchymal epithelial transition receptor ("MET")
9 Objective response rate ("ORR")
10 Progression free survival ("PFS")
11 Chinese Society of Clinical Oncology 22(nd) Annual Meeting - September 2019
12 China National Medical Products Administration ("NMPA")
13 Programmed Death-Ligand 1 ("PD-L1")
14 American Society of Clinical Oncology Genitourinary Symposium - February 2020
15 Overall survival ("OS")
16 Lee J, Kim ST, Kim K, et al. Tumor Genomic Profiling Guides
Patients with Metastatic Gastric Cancer to Targeted Treatment: The
VIKTORY Umbrella Trial. Cancer Discov. 2019;9(10):1388-1405. doi:
10.1158/2159-8290.CD-19-0442
17 European Society for Medical Oncology congress - September 2019
18 Programmed Cell Death Protein-1 ("PD-1")
19 Shanghai Junshi Biosciences Co. Ltd ("Junshi")
20 Innovent Biologics (Suzhou) Co. Ltd ("Innovent")
21 Eli Lilly and Company ("Lilly")
22 In-market sales of Elunate(R) to third-parties, as provided by Lilly and unaudited
23 Independent Data Monitoring Committee ("IDMC")
24 Genor Biopharma Co. Ltd. ("Genor")
25 Spleen tyrosine kinase ("Syk")
26 Phosphoinositide 3-kinase delta ("PI3K ")
27 Fibroblast growth factor receptor ("FGFR")
28 Investigational New Drug application ("IND")
29 Isocitrate dehydrogenase ("IDH") 1/2
30 End of Phase 2 ("EOP2")
31 Research & development ("R&D")
32 We also report changes in performance at constant exchange
rate (CER) which is a non-GAAP measure. Please refer to "Use of
Non-GAAP Financial Measures and Reconciliation" below for further
information relevant to the interpretation of these financial
measures and reconciliations of these financial measures to the
most comparable GAAP measures.
33 Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai)
Company Limited ("Hutchison Sinopharm").
34 American Association for Cancer Research Annual Meeting - April 2019
35 European Society for Medical Oncology Asia Congress - November 2019
36 Disease control rate ("DCR")
37 Renal cell carcinoma ("RCC")
38 Vascular endothelial growth factor receptor tyrosine kinase inhibitor ("VEGFR TKI")
39 Vascular endothelial growth factor receptor ("VEGFR")
40 Vascular endothelial growth factor ("VEGF")
41 Pharmaceuticals and Medical Devices Agency of Japan ("PMDA")
42 Colony stimulating factor-1 receptor ("CSF-1R")
FINANCIAL REVIEW
Chi-Med Group revenue for the year ended December 31, 2019 was
$204.9 million (2018: $214.1m). Revenue from the Commercial
Platform increased to $188.9 million (2018: $176.5m) driven mainly
by our Prescription Drugs business which included full-year revenue
from manufacturing sales and royalties from the commercial sale of
Elunate(R) in 2019 as well as increased sales by our Hutchison
Sinopharm business. Revenue from the Innovation Platform decreased
to $16.0 million in 2019 (2018: $37.6m), primarily as a result of a
$13.5 million fruquintinib approval milestone in 2018.
Group revenues do not include the revenues of our two
large-scale, 50/50 joint ventures in China, Shanghai Hutchison
Pharmaceuticals Limited ("SHPL") and Hutchison Whampoa Guangzhou
Baiyunshan Chinese Medicine Company Limited ("HBYS"), since these
are accounted for using the equity method.
In 2019, our Commercial Platform, which is a material source of
profit and cash flow for Chi-Med, recorded an operating profit of
$51.1 million (2018: $49.0m). This reflected growth from innovative
medicines sales, partially offset by the discontinuation of our
distribution of Seroquel(R) in May 2019 and weakening of the RMB
against the U.S. dollar. The Innovation Platform incurred an
operating loss of $133.3 million (2018: operating loss of $104.6m)
as a result of the expansion of clinical activities and related
organizational growth, in particular the expansion of the
savolitinib, fruquintinib, surufatinib, HMPL-523 and HMPL-689
development programs.
Net corporate unallocated expenses, primarily Chi-Med Group
overhead and operating costs, increased to $17.2 million (2018:
$10.7m) mainly due to organizational expansion and increased
professional fees associated with equity capital market
transactions.
Consequently, Chi-Med Group's operating loss was $99.4 million
(2018: operating loss of $66.3m).
The aggregate of interest and income tax expenses of the Chi-Med
Group, as well as net income attributable to non-controlling
interests was $6.6 million (2018: $8.5m).
The resulting total Group net loss attributable to Chi-Med was
$106.0 million (2018: net loss of $74.8m).
As a result, Group net loss attributable to Chi-Med in 2019 was
$0.16 per ordinary share / $0.80 per American depositary share
("ADS"), compared to net loss attributable to Chi-Med of $0.11 per
ordinary share / $0.56 per ADS, in 2018.
Cash and Financing
Cash inflows from commercial operations and R&D
collaborations offset a material portion of our R&D expense. As
a result, in 2019 total Chi-Med Adjusted (non-GAAP) Group net cash
flows excluding financing activities was -$82.3 million despite
Adjusted (non-GAAP) Innovation Platform segment operating loss of
$149.3 million ($133.3m on GAAP basis).
The Chi-Med Group held cash, cash equivalents and short-term
investments of $217.2 million as of December 31, 2019 (December 31,
2018: $301.0m). In January 2020, we conducted a Nasdaq follow-on
offering, raising an additional $110.1 million in net proceeds, to
further strengthen our cash position.
Outstanding bank loans as of December 31, 2019 amounted to $26.8
million (December 31, 2018: $26.7m) and additional unutilized bank
facilities available to the Group totaled $119.3 million (December
31, 2018: $119.3m).
In addition, as of December 31, 2019, our non-consolidated joint
ventures (SHPL and HBYS) held $62.7 million (December 31, 2018:
$41.9m) in cash and cash equivalents . As of December 31, 2019, our
non-consolidated joint ventures had no outstanding bank loans.
OPERATIONS REVIEW
We are an innovative, commercial-stage biopharmaceutical company
based in China aiming to become a fully integrated global leader in
the discovery, development and commercialization of targeted
therapies and immunotherapies for the treatment of cancer and
immunological diseases.
Innovation Platform
Our Innovation Platform is a comprehensive drug discovery and
development operation, with a large team of about 500 scientists
and staff (December 31, 2018: 420) in China and at our
international clinical operation in New Jersey. Currently, we have
eight self-discovered drug candidates in clinical trials, five of
which are in global clinical development.
Our drug candidates were developed based on our core R&D
philosophy in treating cancer and immunological diseases through
multiple modalities and mechanisms. Our first wave of drug
candidates, led by fruquintinib, surufatinib and savolitinib, are
either at or approaching submission, approval and launch in major
markets. Our second wave of drug candidates, including HMPL-523 and
HMPL-689, which focus on B-cell malignancies, as well as
combination regimens of our first wave drug candidates with
PD-1/PD-L1 inhibitors, which are compiling sufficient clinical data
to soon inform registration studies decisions.
Product Pipeline Progress
Savolitinib
Savolitinib is a novel, selective, oral inhibitor of MET, an
enzyme which has been shown to function abnormally in many types of
solid tumors. In global partnership with AstraZeneca, savolitinib
has been studied in over 1,000 patients to date, both as a
monotherapy and in combinations. We have two ongoing studies, which
subject to positive clinical outcome, are designed to support NDA
submission in lung cancer. We are also actively evaluating the
opportunity to re-start development in kidney cancer in 2020.
Studies in several other oncology indications have reported, or
will report in 2020, and are likely to warrant further
development.
Savolitinib - Lung cancer - MET is a prime target in NSCLC: The
table below shows a summary of the clinical studies for savolitinib
in lung cancer patients.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
======================= ===================== ====== ================= ===================== ===========
Savolitinib monotherapy MET Exon 14 deletion China II Regist.-intent Completed enrollment NCT02897479
======================= ===================== ====== ================= ===================== ===========
Savolitinib and SAVANNAH: 2L/3L Global II (potential Enrolling NCT03778229
Tagrisso(R) EGFRm+; Tagrisso(R) registration)
refractory; MET+
======================= ===================== ====== ================= ===================== ===========
Savolitinib and TATTON: 2L/3L EGFRm+; Global Ib/II Completed enrollment; NCT02143466
Tagrisso(R) EGFR TKI refractory; data presented
MET+ in 2019
======================= ===================== ====== ================= ===================== ===========
Savolitinib and 2L EGFRm; Iressa(R) China Ib/II Completed NCT02374645
Iressa(R) ref; MET+
======================= ===================== ====== ================= ===================== ===========
MET Exon 14 deletion NSCLC (NCT02897479) - It is estimated that
2-3% of NSCLC patients have MET Exon 14 deletion, which predicts
poor prognosis and is believed to play an important role in driving
tumor growth. Current chemotherapies and immunotherapies provide
limited efficacy in MET Exon 14 deletion NSCLC patients. We have
now completed enrollment for a 70 patient Phase II
registration-intent study in China of savolitinib as a monotherapy
for MET Exon 14 deletion NSCLC patients who have progressed
following prior systemic therapy, or unable to receive
chemotherapy.
At the CSCO Annual Meeting in September 2019, interim data were
presented on the first 50 treated patients. The overall data were
encouraging, with efficacy in line with other selective MET
inhibitors and savolitinib being generally well tolerated. Based on
feedback from our regulatory interaction, we now intend to submit
our first NDA for savolitinib in this indication during H1 2020. We
also plan to submit the data for an upcoming scientific conference
presentation in 2020.
EGFR TKI-resistance in NSCLC - MET-amplification is a major
mechanism for acquired resistance to both first generation EGFR
TKIs, such as Iressa(R) and Tarceva(R) , as well as
third-generation EGFR TKIs like Tagrisso(R) . Between 10 and 30% of
EGFR mutation positive NSCLC patients develop MET amplification
driven resistance to EGFR TKIs. During the past three years,
savolitinib has been studied extensively in these patients and
meeting their needs represents a major focus for the Group.
TATTON study: Phase Ib/II expansion studies of savolitinib in
combination with Tagrisso(R) in EGFR mutation positive TKI
refractory NSCLC patients (NCT02143466) - The TATTON study is a
global exploratory Phase I/Ib study in NSCLC aiming to recruit
patients with MET amplification who had progressed after prior
treatment with EGFR inhibitors. As of data cut-off on March 29,
2019, over 220 patients had received the savolitinib plus
Tagrisso(R) combination treatment across six TATTON treatment arms,
Parts A, B1, B2, B3, C and D. TATTON data was presented at both
AACR (34) and ESMO Asia (35) in 2019 and published in The Lancet
Oncology last month. As summarized below, the combination
demonstrated an encouraging anti-tumor activity and an acceptable
risk-benefit profile, regardless of dose.
First-generation EGFR TKI, such as Iressa (R) and Tarceva (R) ,
refractory NSCLC patients with acquired resistance driven by MET
amplification.
TATTON Part B2 (no prior third-generation EGFR-TKI, T790M
negative) of 51 patients who received treatment, there were 33
confirmed responses (65% ORR) with 45 patients experiencing disease
control (88% DCR (36) ). The median PFS was 9.0 months (95% CI:
5.5, 11.9).
TATTON Part B3 (no prior third-generation EGFR-TKI, T790M
positive) of 18 patients who received treatment, there were 12
confirmed responses (67% ORR) with 18 patients experiencing disease
control (100% DCR). The median PFS was 11.0 months (95% CI: 4.0,
not reached).
Tagrisso (R) or another experimental third-generation EGFR TKI
refractory NSCLC patients with acquired resistance driven by MET
amplification
TATTON Part B1 (prior third-generation EGFR-TKI) of 69 patients
who received treatment, there were 21 confirmed responses (30% ORR)
with 52 patients experiencing disease control (75% DCR). The median
PFS was 5.4 months (95% CI: 4.1, 8.0).
TATTON Part D, a study of an additional 42 patients was designed
to compare against Part B2 in order to select the most tolerable
regimen for long term use, highlighting that a lower dose did not
impair clinical efficacy, while maintaining a better tolerability
profile. TATTON D led to the selection of the 300 mg savolitinib
plus 80 mg Tagrisso(R) combination dose as the final regimen for
the SAVANNAH study, below.
SAVANNAH (NCT03778229) - Phase II study of savolitinib /
Tagrisso (R) combination in EGFR mutation positive NSCLC patients
who have progressed following first or second-line Tagrisso(R)
therapy due to MET amplification - The SAVANNAH study is a
single-arm, open-label study, with the potential for registrational
use, enrolling in North and South America, Europe and Asia. We
target to conduct an interim analysis and complete enrollment by
the end of 2020.
Savolitinib - Kidney cancer - MET is a clear genetic driver in
RCC (37) : The table below shows a summary of the clinical studies
for savolitinib in kidney cancer patients.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
======================= ==================== ======== ===== ================= ===========
Savolitinib and CALYPSO: PRCC UK/Spain II Interim data NCT02819596
Imfinzi(R) ASCO GU 2020
======================= ==================== ======== ===== ================= ===========
Savolitinib and CALYPSO: Clear cell UK/Spain II Enrolling NCT02819596
Imfinzi(R) RCC; VEGFR TKI (38) - Data in
refractory 2020
======================= ==================== ======== ===== ================= ===========
Savolitinib monotherapy SAVOIR: MET-driven Global III Terminated NCT03091192
PRCC - data to
present mid-2020
======================= ==================== ======== ===== ================= ===========
Savolitinib and Immunotherapy Combinations - Immunotherapy
combinations are changing the treatment landscape in kidney cancer.
Anti-PD-L1 antibodies have been associated with clinical benefits
in metastatic RCC, and MET dysregulation is considered to play an
important role in the pathogenesis of RCC.
CALYPSO Phase II in RCC of savolitinib with Imfinzi(R) PD-L1
inhibitor combination (NCT02819596) - The CALYPSO study is an
investigator initiated open-label Phase I/II study of savolitinib
in combination with Imfinzi(R) , an anti-PD-L1 antibody owned by
AstraZeneca. The study is evaluating the safety and efficacy of the
savolitinib/Imfinzi(R) combination in patients with PRCC and clear
cell RCC at sites in the U.K. and Spain.
CALYPSO PRCC cohort - Interim data for the PRCC cohort of the
CALYPSO Phase II study were presented at 2020 ASCO GU reporting an
ORR of 27%, median PFS of 4.9 months (95% CI: 2.5, 12.0) and median
OS of 12.3 months (95% CI: 5.8, 21.3). Tolerability remained in
keeping with established single agent safety profiles. AstraZeneca
and Chi-Med continue to ex plore development in PRCC for the
savolitinib and Imfinzi (R) combination .
SAVOIR Phase III in MET-positive PRCC (NCT03091192) - In
December 2018, enrollment was terminated in SAVOIR, a global Phase
III registration study of savolitinib monotherapy compared with
sunitinib monotherapy in MET-positive PRCC. The early termination
was driven by multiple factors including PRCC molecular
epidemiology data and emerging favorable data in PRCC for
immunotherapies.
Data from the approximately 60 patients randomized in SAVOIR
prior to termination has matured during 2019 and will be presented
at an upcoming scientific conference in mid-2020. Based on these
data, AstraZeneca and Chi-Med are actively evaluating the
opportunity to restart clinical work in PRCC for monotherapy
savolitinib.
Savolitinib - Gastric cancer: Multiple Phase II studies have
been conducted in Asia to study savolitinib in MET-driven gastric
cancer patients. The table below shows a summary of these clinical
studies.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
================ ============================= ============ ===== ================== ==============
Savolitinib Gastric cancer China & Ib/II Completed NCT01985555
monotherapy (MET amplification) South Korea / NCT02449551
and VIKTORY
================ ============================= ============ ===== ================== ==============
Savolitinib VIKTORY: Gastric South Korea II Patient enrollment NCT02447406
and Taxotere(R) cancer (MET amplification) directed to
savolitinib
mono due to
high efficacy
observed
================ ============================= ============ ===== ================== ==============
Savolitinib VIKTORY: Gastric South Korea II NCT02447380
and Taxotere(R) cancer (MET over-expression)
================ ============================= ============ ===== ================== ==============
Savolitinib monotherapy in MET amplified gastric cancer patients
(NCT01985555 / NCT02449551) - The VIKTORY study is an investigator
initiated Phase II umbrella study in gastric cancer in which a
total of 715 patients were successfully sequenced into 10
molecular-driven patient groups. Patients with MET amplification
(25/715, or 3.5% of patients) were treated with savolitinib
monotherapy, reporting an ORR of 50% (10/20, 95% CI: 28.0, 71.9)
and meeting pre-specified 6-week PFS rates. The investigators of
VIKTORY have concluded that encouraging clinical efficacy of
savolitinib in MET-amplified gastric cancer warrants further
study.
Savolitinib - Other exploratory studies: The table below shows a
summary of the clinical study for savolitinib in prostate and
colorectal cancer patients.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
======================= =============================== ====== ===== =========== ===========
Savolitinib monotherapy Metastatic Castration-Resistant Canada II Enrolling NCT03385655
Prostate Cancer
======================= =============================== ====== ===== =========== ===========
Savolitinib monotherapy MET-driven metastatic US II Enrolling NCT03592641
colorectal cancer
======================= =============================== ====== ===== =========== ===========
The prostate cancer study is an umbrella study and is sponsored
by the Canadian Cancer Trials Group targeting to enroll
approximately 500 patients with savolitinib being one of six arms.
The exploratory colorectal cancer study is sponsored by the
National Cancer Institute and targets to enroll approximately 15
patients.
Fruquintinib (Elunate(R))
Fruquintinib is a novel, selective, oral inhibitor of VEGFR (39)
1/2/3 kinases that was designed to improve kinase selectivity to
minimize off-target toxicity and improve tolerability.
Chi-Med retains all rights to fruquintinib outside of China and
is partnered with Lilly in China. The table below shows a summary
of the clinical studies for fruquintinib.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
======================== ============================== ===== ===== =================== ===========
Fruquintinib monotherapy FRESCO: >=3L CRC; chemotherapy China III Approved and NCT02314819
refractory launched
======================== ============================== ===== ===== =================== ===========
Fruquintinib monotherapy CRC & breast cancer US Ib Global registration NCT03251378
study in planning
======================== ============================== ===== ===== =================== ===========
Fruquintinib and FRUTIGA: 2L gastric China III Enrolling; 2(nd) NCT03223376
paclitaxel cancer interim analysis
in 2020
======================== ============================== ===== ===== =================== ===========
Fruquintinib and 1L NSCLC; EGFRm China II Completed; final NCT02976116
Iressa(R) results presented
in Nov 2019
======================== ============================== ===== ===== =================== ===========
Fruquintinib and CRC China II Enrolling NCT04179084
Tyvyt (R) (PD-1)
======================== ============================== ===== ===== =================== ===========
Fruquintinib and Advanced solid tumors China Ib/II Enrolling NCT03903705
Tyvyt (R) (PD-1)
======================== ============================== ===== ===== =================== ===========
Fruquintinib and CRC China Ib Enrolling NCT03977090
genolimzumab (PD-1)
======================== ============================== ===== ===== =================== ===========
Fruquintinib and NSCLC China Ib Enrolling NCT03976856
genolimzumab (PD-1)
======================== ============================== ===== ===== =================== ===========
Fruquintinib - Colorectal Cancer:
Fruquintinib capsules, sold under the brand name Elunate(R) ,
are approved for metastatic CRC (third-line) patients that have
been previously treated with fluoropyrimidine, oxaliplatin and
irinotecan, including those who have previously received anti-VEGF
(40) therapy and/or anti-EGFR therapy (RAS wild type).
Elunate(R) launch update - In late 2018, our collaboration
partner Lilly commenced commercial sales of Elunate(R) in China.
In-market sales in 2019 of Elunate(R) , as provided by Lilly,
totaled $17.6 million (2018: $1.7m) resulting from out-of-pocket
payments from patients. Sales during the last quarter of 2019 were
$0.5 million, significantly lower than the $5.7 million quarterly
run-rate in the first three quarters of 2019, as a result of
rebates and downward price adjustments required in the distribution
channel in the lead up to NRDL inclusion.
We estimate that about 3,000 patients paid for treatment with
Elunate(R) during 2019, representing about 5% of the approximately
55,000 new third-line CRC per year in China. Penetration was
limited by materially higher pricing of Elunate(R) relative to
Stivarga(R) (Bayer) and certain local VEGFR TKIs that are routinely
prescribed off-label in third-line CRC.
On January 1, 2020, the price of Elunate(R) was reduced by 63%
in China, and it was added to the NRDL. This paves the way to
significantly broaden access for advanced CRC patients and rapidly
build Elunate(R) penetration in China over the coming years.
Global development of fruquintinib in metastatic CRC - We intend
to initiate a Phase III registration study, known as the FRESCO2
study, in the U.S., Europe and Japan in CRC. In February 2020, we
completed an EOP2 meeting with the U.S. FDA, and meetings with the
European Medicines Agency and Japanese PMDA(41) are planned for the
second quarter of 2020. FRESCO2, is expected to start enrolling
patients in mid-2020. Based on our agreement with the U.S. FDA,
both FRESCO and FRESCO 2 study, if positive, will support our NDA
application.
Fruquintinib - Gastric Cancer:
Phase III study of fruquintinib in combination with paclitaxel
in gastric cancer (second-line) (NCT03223376) -The FRUTIGA study is
a randomized, double-blind, Phase III study in China to evaluate
the efficacy and safety of fruquintinib combined with paclitaxel
compared with paclitaxel monotherapy for second-line treatment of
advanced gastric cancer. Over 540 patients are expected to be
enrolled into the FRUTIGA study at a 1:1 ratio with the primary
endpoint of this study being OS.
In April 2019, we conducted the first interim analysis of the
FRUTIGA study for futility. Following the analysis of safety and
efficacy of the first 100 patients, the IDMC recommended to
continue the study without changes. We expect to conduct a second
interim analysis in mid-2020 and complete enrollment of the study
in 2020.
Fruquintinib - NSCLC:
Phase II study of fruquintinib in combination with Iressa (R) in
first-line NSCLC (NCT02976116) - We have completed a 50-patient,
single-arm, multi-center, open-label, Phase II study of
fruquintinib in combination with Iressa(R) in China in the
first-line setting for NSCLC patients with EGFR activating
mutations.
Final results from this Phase II study were presented at ESMO
Asia 2019, reporting promising efficacy with ORR of 72% and median
PFS 14.7 months (95% CI: 12.5, 21.2). Fruquintinib exhibited an
overall acceptable safety profile, we believe as a result of its
high kinase selectivity.
Fruquintinib - Combinations with Checkpoint Inhibitors:
In November 2018, we entered into two collaboration agreements
to evaluate the safety, tolerability and efficacy of fruquintinib
in combination with checkpoint inhibitors. We are now a pproaching
completion of Phase I dose-finding study in China of Elunate(R)
plus Tyvyt (R) (PD-1, Innovent) and Phase I development of
Elunate(R) plus genolimzumab (PD-1, Genor) is also now
underway.
Fruquintinib - Exploratory development:
We are conducting multiple Phase Ib expansion cohorts in the
U.S., to explore fruquintinib in CRC and breast cancer. In China,
Lilly is also preparing to support investigator initiated studies
in multiple solid tumor settings.
SuRUfatinib
Surufatinib is a novel, oral angio-immuno kinase inhibitor that
selectively inhibits the tyrosine kinase activity associated with
VEGFR and FGFR, which both inhibit angiogenesis, and CSF-1R (42) ,
which regulates tumor-associated macrophages, promoting the body's
immune response against tumor cells.
Chi-Med currently retains all rights to surufatinib
worldwide.
Surufatinib is in several late-stage and proof-of-concept trials
in China and proof-of-concept clinical trials in the U.S. A summary
of these clinical studies is shown in the table below.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
======================= ======================== ===== ======= ======================= ===========
Surufatinib monotherapy SANET-ep: Non-pancreatic China III Met primary endpoint; NCT02588170
NET NDA accepted
======================= ======================== ===== ======= ======================= ===========
Surufatinib monotherapy SANET-p: Pancreatic China III Met primary endpoint; NCT02589821
NET preparing NDA
======================= ======================== ===== ======= ======================= ===========
Surufatinib monotherapy NETs; BTC and soft US/EU Ib Global registration NCT02549937
tissue sarcoma strategy in regulatory
discussion (NETs)
======================= ======================== ===== ======= ======================= ===========
Surufatinib monotherapy Chemotherapy refractory China IIb/III Enrolling NCT03873532
BTC
======================= ======================== ===== ======= ======================= ===========
Surufatinib and Solid tumors (eight China II Enrolling NCT04169672
Tuoyi (R) (PD-1) indications)
======================= ======================== ===== ======= ======================= ===========
Surufatinib - Neuroendocrine Tumors (NET):
NETs present in the body's organ system with fragmented
epidemiology. About 55-75% of NETs originate in the
gastrointestinal ("GI") tract and pancreas, 25-30% in the lung or
bronchus, and a further 10-20% in other organs or unknown
origins.
In China, there were about 67,600 newly diagnosed NET patients
in 2018 and, while no China prevalence data exists, we believe that
there could be over 400,000 patients living with the disease.
NETs can be functional, releasing hormones and peptides that
cause symptoms like diarrhea and flushing, or non-functional with
no such symptoms. Early-stage NETs which are often functional,
about 8-35% of patients, can be treated with somatostatin analogue
("SSA") subcutaneous injections, which alleviate symptoms and slow
NET growth, but have limited tumor reduction efficacy. SSAs are
approved and reimbursed in China.
Advanced-NETs grow more quickly and in China, Sutent(R) is
approved in pancreatic NET while Afinitor(R) , an m-TOR inhibitor,
is approved in non-functional NETs in the pancreas, lung and GI
tract. These approvals however, cover only about half of
advanced-NET patients.
Phase III study of surufatinib monotherapy in non-pancreatic NET
(SANET-ep) (NCT02588170) - In late 2019, an NDA for surufatinib for
the treatment of patients with advanced non-pancreatic NET was
accepted for review by the China NMPA. The NDA is supported by data
from the SANET-ep study, a Phase III study in China in patients
with grade 1 and 2 advanced non-pancreatic NET.
A 198-patient interim analysis was conducted on SANET-ep in
mid-2019, leading the IDMC to determine that it had met the
pre-defined primary endpoint of PFS and should be stopped early.
The positive results of this trial were highlighted in an oral
presentation at the 2019 ESMO Congress. Median PFS per investigator
assessment was 9.2 months for patients treated with surufatinib, as
compared to 3.8 months for patients in the placebo group (HR 0.334;
95% CI: 0.223, 0.499; p<0.0001). Efficacy was also supported by
Blinded Independent Image Review Committee assessment. Surufatinib
was well-tolerated in this study and the safety profile is
consistent with observations in prior clinical studies.
In late 2019, the China NMPA granted Priority Review status to
the NDA for surufatinib in non-pancreatic NET.
Phase III study of surufatinib monotherapy in pancreatic NET
(SANET-p) (NCT02589821) - In early 2020, an interim analysis was
conducted on SANET-p, also leading the IDMC to recommend that the
study stop early as the pre-defined primary endpoint of PFS had
already been met. Following the success of SANET-p, we now plan to
arrange a pre-NDA meeting with the China NMPA and will prepare for
NDA submission in this indication. The results of this study will
be submitted for presentation at a scientific conference in
mid-2020.
The positive SANET-ep and SANET-p Phase III studies now position
surufatinib to potentially be approved in the full-spectrum of
advanced-NET disease in China. We believe that no other approved
targeted therapy can address and treat all subtypes of NETs.
Global development of surufatinib in NET - In addition to our
China studies, we have been conducting a Phase Ib study in the U.S.
to assess safety and tolerability for surufatinib in western
patients. This Phase Ib study, which is guiding our planning for a
registration study in the U.S., Europe and Japan, has confirmed 300
mg as the recommended dose for further development, the same as for
China. Preliminary data presented at ESMO 2019 showed promising
anti-tumor activity with an ORR of 13.3% and disease control in
73.3% of the 15 heavily treated pancreatic NET patients.
Surufatinib was well-tolerated with a safety profile consistent
with our China studies.
The U.S. FDA granted orphan drug designation to surufatinib for
the treatment of pancreatic NET in late 2019, and we are now in
regulatory consultations in the U.S., Europe and Japan to explore
potential registration pathway on the basis of the two positive
China Phase III studies (SANET-ep and SANET-p). These consultations
will complete in mid-2020 resulting in clarification of our global
registration pathway for surufatinib in NETs. We target to initiate
the global clinical studies required to support NDA submission
during 2020.
Surufatinib - Biliary Tract Cancer (BTC):
Phase IIb/III study of surufatinib monotherapy in second line
BTC ( NCT03873532 ) - In early 2019, based on preliminary Phase
Ib/IIa data, we initiated a registration-intent Phase IIb/III study
comparing surufatinib with capecitabine in patients with
unresectable or metastatic BTC whose disease progressed on
first-line chemotherapy. The primary endpoint is OS and we expect
to conduct an interim analysis for futility in 2020.
Surufatinib - Combinations with Checkpoint Inhibitors:
Surufatinib's ability to inhibit angiogenesis, block the
accumulation of tumor associated macrophages and promote
infiltration of effector T cells into tumors, could help improve
the anti-tumor activity of PD-1 antibodies.
In late 2018, we entered into a global collaboration with Junshi
to evaluate the combination of surufatinib with Tuoyi (R) (PD-1).
We have completed a Phase I dose-finding study and will submit
results for presentation at an upcoming scientific conference in
early 2020. A Phase II study is already enrolling patients in a
number of solid tumor indications in China and a Phase Ib/II study
is in planning and expected to be initiated in the U.S. in
2020.
In late 2019, we expanded our global collaboration agreement
with Innovent to evaluate the safety and efficacy of Tyvyt (R)
(PD-1) in combination with surufatinib.
Surufatinib - Exploratory development:
We are now conducting multiple Phase Ib expansion cohorts in the
U.S. to explore surufatinib use in BTC and soft tissue sarcoma. In
China, we intend to support investigator initiated studies in
multiple solid tumor settings.
HMPL-523
HMPL-523 is a novel, selective, oral inhibitor targeting Syk,
for the treatment of hematological cancers and immune diseases. Syk
is a component in B-cell receptor signaling pathway. We currently
retain all rights to HMPL-523 worldwide. The table below shows a
summary of the clinical studies for HMPL-523.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
==================== =============================== ========= ===== =========== ===========
HMPL-523 monotherapy Indolent non-Hodgkin's lymphoma Australia Ib Enrolling NCT02503033
==================== =============================== ========= ===== =========== ===========
HMPL-523 monotherapy Indolent non-Hodgkin's lymphoma US/EU I/Ib Enrolling NCT03779113
==================== =============================== ========= ===== =========== ===========
HMPL-523 monotherapy Multiple sub-types of B-cell China I/Ib Enrolling NCT02857998
malignancies
==================== =============================== ========= ===== =========== ===========
HMPL-523 monotherapy Immune thrombocytopenia China I/Ib Enrolling NCT03951623
==================== =============================== ========= ===== =========== ===========
Phase Ib studies of HMPL-523 in indolent non-Hodgkin's lymphoma
and multiple subtypes of B-cell malignancies
(NCT02503033/NCT02857998) - Our Phase I/Ib dose escalation and
expansion studies in Australia and China have now enrolled over 190
patients in a broad range of hematological cancers. We expect these
Phase I/Ib data to inform registration study decisions in China in
2020 .
Phase I study of HMPL-523 in indolent non-Hodgkin's lymphoma
(NCT03779113) - Based on extensive proof-of-concept clinical data
in China and Australia, we have now initiated a Phase I/Ib study in
the U.S. and Europe. Patient enrollment is underway.
Phase I/Ib study of HMPL-523 in patients with immune
thrombocytopenia purpura (ITP) - In mid-2019, we started a Phase I
study of HMPL-523 for the treatment of immune thrombocytopenia, an
autoimmune disorder characterized by low platelet count and an
increased bleeding risk.
HMPL-689
HMPL-689 is a novel, selective oral inhibitor targeting the
isoform PI3K , a component in the B-cell receptor signaling
pathway. HMPL-689's pharmacokinetic ("PK") properties are favorable
with good oral absorption, moderate tissue distribution and low
clearance in preclinical PK studies, we therefore anticipate low
risk of drug accumulation and drug-to-drug interaction. We
currently retain all rights to HMPL-689 worldwide. The table below
shows a summary of the clinical studies for HMPL-689.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
==================== ====================== ========= ===== =========== ===========
HMPL-689 monotherapy Healthy volunteers Australia I Completed NCT02631642
==================== ====================== ========= ===== =========== ===========
HMPL-689 monotherapy Indolent non-Hodgkin's US/EU I/Ib Enrolling NCT03786926
lymphoma
==================== ====================== ========= ===== =========== ===========
HMPL-689 monotherapy Indolent non-Hodgkin's China Ib Enrolling NCT03128164
lymphoma
==================== ====================== ========= ===== =========== ===========
Our Phase I/Ib study of HMPL-689 in China has successfully
established a Phase II dose and has now expanded into multiple
sub-categories of indolent non-Hodgkin's lymphoma. We expect these
Phase I/Ib data to inform registration study decisions in China in
2020 . Furthermore, we have initiated a Phase I/Ib study in the
U.S. and Europe, with patient enrollment underway.
HMPL-453
HMPL-453 is a novel, selective, oral inhibitor targeting FGFR
1/2/3. Aberrant FGFR signaling is associated with tumor growth,
promotion of angiogenesis, as well as resistance to anti-tumor
therapies. We currently retain all rights to HMPL-453 worldwide.
The table below shows a summary of the clinical studies for
HMPL-453.
Treatment Name, Line, Patient Sites Phase Status/Plan NCT #
Focus
==================== =================== ===== ===== =========== ===========
HMPL-453 monotherapy Advanced malignant China II Initiating NCT04290325
mesothelioma
==================== =================== ===== ===== =========== ===========
HMPL-453 monotherapy Solid tumors China I Enrollment NCT03160833
completed
==================== =================== ===== ===== =========== ===========
Our Phase I study of HMPL-453 in China has successfully
established a Phase II dose and is now expanding into a Phase II
study. This is a single-arm, multi-center, open-label study,
evaluating the efficacy, safety and PK of HMPL-453 in patients with
advanced malignant mesothelioma that failed at least one line of
systemic therapy.
HMPL-306
HMPL-306 is a novel small molecule dual-inhibitor of IDH1 and 2
enzymes. IDH1 and IDH2 mutations have been implicated as drivers of
certain hematological malignancies, gliomas and solid tumors,
particularly among acute myeloid leukemia patients. The IND
application in China has been cleared and we expect to begin Phase
I development in mid-2020.
EpitiniB and theliatinib
We have completed Phase I/Ib studies of both epitinib, an EGFR
inhibitor with demonstrated ability to penetrate the blood-brain
barrier, and theliatinib, a novel small molecule EGFR inhibitor. We
are reviewing further development strategies for both assets.
DISCOVERY RESEARCH & PRECLINICAL DEVELOPMENT
We strive to create differentiated novel oncology and immunology
treatments with global potential. These include furthering both
small molecule and monoclonal antibody therapies which address
aberrant genetic drivers, inactivated T-cell response and
insufficient T-cell response. We design drug candidates with
profiles that enable them to be used in innovative combinations
with other therapy, such as chemotherapy, immunotherapy and other
targeted therapy in order to attack disease simultaneously through
multiple modalities and pathways. We believe that this approach can
significantly improve treatment outcomes for patients.
The aim of our in-house discovery is to submit a novel drug
candidate for clinical development each year or so.
COMMERCIAL PLATFORM
Our Commercial Platform is a large-scale, high-performance drug
marketing and distribution platform covering over 330 cities and
towns in China with approximately 3,500 sales personnel. Built over
the past 19 years, it has been focused on two main business
areas.
First, our Prescription Drugs business which includes our
launched novel oncology drug (Elunate (R) ) and our joint ventures
Hutchison Sinopharm and SHPL, for which we manage directly and run
all day-to-day operations. Second, is our Consumer Health business
which mainly sells market-leading, household-name over-the-counter
("OTC") drug products through our non-consolidated joint venture
HBYS.
During 2019, the Commercial Platform delivered continued solid
growth in sales and net income growth on a CER basis. Consolidated
sales of our Commercial Platform's subsidiaries grew by 7% (11% at
CER) to $188.9 million (2018: $176.5m). The sales of our Commercial
Platform's non-consolidated joint ventures, SHPL and HBYS, fell 1%
(up 3% at CER) to $487.5 million (2018: $491.5m). This resulted in
consolidated net income attributable to Chi-Med from our Commercial
Platform up 9% (13% at CER) to $47.4 million (2018: $43.4m).
PRESCRIPTION DRUGS BUSINESS:
In 2019, consolidated sales of our Prescription Drugs
subsidiaries increased by 13% (18% at CER) to $154.5 million (2018:
$136.4m), despite the discontinuation of our Seroquel (R)
distribution business. The consolidated net income attributable to
Chi-Med from our Prescription Drugs business grew 10% (14% at CER)
to $37.5 million (2018: $34.1m).
Oncology Business Department ("OBD"): During 2019 we began
building our in-house, wholly-owned, commercial organization in
oncology, the OBD, which has now grown to approximately 140
commercial staff. We plan to expand the OBD to 300-350 commercial
staff to support the potential launch of surufatinib in
non-pancreatic NET in China in late 2020.
During 2019, in-market sales of Elunate(R) to third-parties,
based on data provided by Lilly, were $17.6 million. Under the
terms of our licensing agreement with Lilly, Chi-Med reported $10.8
million in revenues (2018: $3.6m) from manufacturing product sales
and royalties from Elunate(R) . Lilly is responsible for all
commercialization activity for Elunate(R) and, as a result of the
recent NRDL inclusion, intends to ramp-up sales coverage in
2020.
We believe that Elunate (R) and surufatinib, if approved, have
the potential to be important products in the China market for
VEGFR/VEGF inhibitors which, according to Frost & Sullivan, has
grown from $500 million in 2015 to over $1.5 billion in 2019 and is
expected to reach $5 billion by 2026.
SHPL: Our own-brand Prescription Drugs business, operated
through our non-consolidated joint venture SHPL, is a
well-established large-scale business. In 2019, SHPL sales fell 1%
(up 3% at CER) to $272.1 million (2018: $275.7m).
The SHPL operation is large-scale, with a commercial team of
about 2,3 00 medical sales representatives allowing for the
promotion and scientific detailing of our products not just in
hospitals in provincial capitals and medium-sized cities, but also
in the majority of county-level hospitals in China. SHPL's
GMP-certified factory holds 74 drug product manufacturing licenses
and is operated by about 540 manufacturing staff .
She Xiang Bao Xin ("SXBX") pill : SHPL's main product is SXBX
pill, an oral vasodilator prescription therapy for coronary artery
disease. There are over one million deaths due to coronary artery
disease per year in China. SXBX pill is the third largest botanical
prescription drug in this indication in China, with market share in
January to October 2019 of 18.0 % (2018: 17.0%) national ly and
51.0% (2018: 48.0%) in Shanghai.
Sales of SXBX pill ha ve grown more than twenty-fold since 2001
due to continued geographical expansion of sales coverage,
including 3% (7% at CER) to $ 239.5 million in 2019 (2018:
$233.1m).
SXBX pill is protected by a formulation patent that expires in
202 9 and is one of less than two dozen proprietary prescription
drugs represented on China's National Essential Medicines List,
which means that all Chinese state-owned health care institutions
are required to carry it. SXBX pill is fully reimbursed in all
China .
In early 2019, SHPL was awarded the 2018 State Scientific and
Technological Progress Award ("SSTPA") - Second Prize, which was
presented by President Xi Jinping, Premier Li Keqiang and other
state leaders of China at the National Science and Technology
Awards Ceremony. This SHPL award was one of only two such SSTPA
awards given this year to studies in the botanical drug
industry.
Concor(R) : Concor(R) (Bisoprolol tablets) is a cardiac
beta1-receptor blocker, relieving hypertension and reducing high
blood pressure. Concor(R) holds the number two national market
share position in China's beta-blocker drug market. SHPL markets
Concor(R) in nine provinces in China (2018: six), containing about
600 million people.
Hutchison Sinopharm: Our Prescription Drugs commercial services
business, which in addition to commercializing our own products,
provides distribution and marketing services to third-party
companies in China . In 2019, Hutchison Sinopharm sales grew by 8%
(13% at CER) to $143.7 million (2018: $132.8m).
Hutchison Sinopharm has a dedicated team of over 200 commercial
staff focused on two key areas of operation. Firstly, a commercial
team that markets over 700 third-party prescription drug products
directly to over 360 public and private hospitals in the Shanghai
region and through a network of 50 distributors to cover all other
provinces in China. Second, a commercial team that markets
Chi-Med's own science-based infant nutrition products in over 8,000
outlets and through a network over 23,000 promoters and over
200,000 members.
CONSUMER HEALTH BUSINESS:
In 2019, sales of our Consumer Health subsidiaries fell 14%
(-13% at CER) to $34.4 million (2018: $40.1m) due to
rationalization of certain low margin products; but the
consolidated net income attributable to Chi-Med from our Consumer
Health business was up 7% (12% at CER) to $9.9 million in 2019
(2018: $9.3m).
HBYS: Our non-consolidated joint venture, HBYS, focuses on the
manufacture, marketing and distribution of primarily OTC and
limited prescription pharmaceutical products . In 2019, HBYS sales
were flat (up 4% at CER) at $215.4 million (2018: $215.8m), as a
result of an increase in sales of our second wave products being
offset by a decrease in mature product sales.
Its Bai Yun Shan brand is a market-leading, household name,
known by the majority of Chinese consumers. In addition to about
1,000 manufacturing staff in Guangdong and Anhui and 185 drug
product licenses, HBYS has a co mmercial team of about 900 sales
staff that cove rs the national retail pharmacy channel in China
.
Fu Fang Dan Shen ("FFDS") tablets and Banlangen granules: F FDS
tablets (angina) and Banlangen granules (anti-viral cold/flu), the
two main products of HBYS, are generic OTC drugs with leading
national market share. FFDS sales were down 17% (-13% at CER) to
$47.0 million (2018: $56.3m) due to heightened competition.
Banlangen sales were up 3% (8% at CER) to $64.3 million (2018:
$62.6m), due to the moderate 2019 flu season that preceded the
recent Covid-19 outbreak in China.
Given the maturity of FFDS and Banlangen, HBYS has focused in
recent years on building a second wave of products. These products,
including Nao Xin Qing tablets (cerebrovascular diseases) and Kou
Yan Qing granules (periodontitis), made progress in 2019 growing
14% (18% at CER) to $64.3 million (2018: $56.6m).
HBYS property update: HBYS's vacant Plot 2 (26,700 sqm.) in
Guangzhou has been listed for sale as part of the Guangzhou
municipal government's urban redevelopment scheme plan for several
years. Last month, the Guangzhou Mayor's Office cleared the Plot 2
sale process to proceed, which we expect to be completed in steps
over the next twelve months.
Commercial Platform dividends:
The profits of the Commercial Platform continue to pass on to
the Chi-Med Group through dividend payments primarily from our
non-consolidated joint ventures, SHPL and HBYS. Dividends of $28.1
million (2018: $35.2m) were paid from these joint ventures to the
Chi-Med Group level during 2019. Aggregate dividends received by
Chi-Med Group level from SHPL and HBYS have been over $220
million.
Christian Hogg
Chief Executive Officer
March 3 , 2020
USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
In addition to financial information prepared in accordance with
U.S. GAAP, this announcement also contains certain non-GAAP
financial measures based on management's view of performance
including:
-- Adjusted Innovation Platform segment operating loss;
-- Adjusted Group net cash flows excluding financing activities; and
-- CER.
Management uses such measures internally for planning and
forecasting purposes and to measure the Chi-Med Group's overall
performance. We believe these adjusted financial measures provide
useful and meaningful information to us and investors because they
enhance investors' understanding of the continuing operating
performance of our business and facilitate the comparison of
performance between past and future periods. These adjusted
financial measures are non-GAAP measures and should be considered
in addition to, but not as a substitute for, the information
prepared in accordance with U.S. GAAP. Other companies may define
these measures in different ways.
Adjusted Innovation Platform segment operating loss : We exclude
the impact of the revenue received from external customers of our
Innovation Platform, which is reinvested into our clinical trials,
to derive our adjusted Innovation Platform segment operating loss.
Revenue received from external customers of our Innovation Platform
consists of milestone and other payments from our collaboration
partners. The variability of such payments makes the identification
of aggregate investment made in R&D activities and the
associated trends more difficult. We believe the presentation of
adjusted Innovation Platform segment operating loss provides useful
and meaningful information about our ongoing R&D activities by
enhancing investors' understanding of the scope of our normal,
recurring operating R&D investment.
Adjusted Group net cash flows excluding financing activities :
We include the change in short-term investments for the year to the
change in cash and cash equivalents for the year, and exclude the
net cash (used in)/generated from financing activities for the year
to derive our adjusted Group net cash flows excluding financing
activities. We believe the presentation of adjusted Group net cash
flows excluding financing activities provides useful and meaningful
information about the change in our cash resources excluding those
from financing activities which may present significant
year-to-year differences.
CER: We remove the effects of currency movements from
year-to-year comparisons by retranslating the current year's
performance at previous year's foreign currency exchange rates.
Because we have significant operations in China, the RMB to U.S.
dollar exchange rates used for translation may have a significant
effect on our reported results. We believe the presentation at CER
provides useful and meaningful information because it facilitates
year-to-year comparisons of our results and increases the
transparency of our underlying performance.
Reconciliation of GAAP to Adjusted Innovation Platform segment
operating loss:
$'millions 2019 2018
------------------------------------------------- ------- -------
Innovation Platform segment operating loss (133.3) (104.6)
Less: Segment revenue from external customers
- Innovation Platform (16.0) (37.6)
Adjusted Innovation Platform segment operating
loss (149.3) (142.2)
------------------------------------------------- ------- -------
Reconciliation of GAAP change in cash and cash equivalents and
short-term investments to Adjusted Group net cash flows excluding
financing activities:
$'millions 2019 2018
------------------------------------------------------------- --------- -------
Cash and cash equivalents and short-term investments
at end of year 217.2 301.0
Less: Cash and cash equivalents and short-term
investments at
beginning of year ( 301 .0) (358.3)
Add: Net cash used in financing activities
for the year 1.5 8.2
-------------------------------------------------------------- --------- -------
Adjusted Group net cash flows excluding financing
activities (82.3) (49.1)
-------------------------------------------------------------- --------- -------
* For this guidance, rounded numbers are provided which are
considered to serve better illustration purpose.
Reconciliation of GAAP sales and net income attributable to
Chi-Med-Commercial Platform to CER:
$'millions (except
%) Year Ended Change Amount Change %
---------------------- ------------ ------------------------ ----------------------
Dec Dec
31, 31, Exchange Exchange
2019 2018 Actual CER effect Actual CER effect
---------------------- ----- ----- ------ ------ -------- ------ ---- --------
Consolidated sales
Commercial Platform 188.9 176.5 12.4 19.2 (6.8) 7% 11% -4%
- Prescription
Drugs^ 154.5 136.4 18.1 24.4 (6.3) 13% 18% -5%
- Consumer Health 34.4 40.1 (5.7) (5.2) (0.5) -14% -13% -1%
^ Includes:
- Hutchison Sinopharm 143.7 132.8 10.9 17.2 (6.3) 8% 13% -5%
Non-consolidated
joint venture sales 487.5 491.5 (4.0) 17.2 (21.2) -1% 3% -4%
- SHPL 272.1 275.7 (3.6) 7.9 (11.5) -1% 3% -4%
- HBYS 215.4 215.8 (0.4) 9.3 (9.7) 0% 4% -4%
Consolidated net
income attributable
to Chi-Med
Commercial Platform 47.4 43.4 4.0 5.9 (1.9) 9% 13% -4%
- Prescription
Drugs 37.5 34.1 3.4 4.7 (1.3) 10% 14% -4%
- Consumer Health 9.9 9.3 0.6 1.2 (0.6) 7% 12% -5%
Sales of Key Products
- SXBX pill 239.5 233.1 6.4 16.5 (10.1) 3% 7% -4%
- FFDS 47.0 56.3 (9.3) (7.2) (2.1) -17% -13% -4%
- Banlangen 64.3 62.6 1.7 4.8 (3.1) 3% 8% -5%
- Nao Xin Qing
and Kou Yan Qing 64.3 56.6 7.7 10.4 (2.7) 14% 18% -4%
Hutchison China MediTech Limited
Consolidated Balance Sheets
(in US$'000, except share data)
December 31,
--------------------
Note 2019 2018
---------- --------- ---------
Assets
Current assets
Cash and cash equivalents 5 121,157 86,036
Short-term investments 6 96,011 214,915
Accounts receivable-third parties 7 41,410 40,176
Accounts receivable-related parties 22 (ii) 1,844 2,782
Other receivables, prepayments and deposits 8 15,769 13,434
Amounts due from related parties 22 (ii) 24,623 889
Inventories 9 16,208 12,309
--------- ---------
Total current assets 317,022 370,541
Property, plant and equipment 10 20,855 16,616
Right-of-use assets 11 5,516 -
Leasehold land 1,110 1,174
Goodwill 3,112 3,186
Long-term prepayment 1,103 1,356
Other intangible asset 275 347
Deferred tax assets 23 (ii) 815 580
Investments in equity investees 12 98,944 138,318
Amount due from a related party 22 (ii) 16,190 -
Deferred issuance cost 180 -
Total assets 465,122 532,118
========= =========
Liabilities and shareholders' equity
Current liabilities
Accounts payable 13 23,961 25,625
Other payables, accruals and advance receipts 14 81,624 56,327
Lease liabilities 11 3,216 -
Income tax payable 23 (iii) 1,828 555
Deferred revenue 19 2,106 2,540
Amounts due to related parties 22 (ii) 366 432
Total current liabilities 113,101 85,479
Lease liabilities 11 3,049 -
Deferred tax liabilities 23 (ii) 3,158 4,836
Long-term bank borrowings 15 26,818 26,739
Deferred revenue 19 133 408
Other non-current liabilities 5,960 2,401
--------- ---------
Total liabilities 152,219 119,863
Commitments and contingencies 16
Company's shareholders' equity
Ordinary shares; $0.10 par value; 1,500,000,000
shares authorized; 666,906,450 and 666,577,450
shares issued at December 31 , 2019 and 2018
respectively 17 66,691 66,658
Additional paid-in capital 514,904 505,585
Accumulated losses (289,734) (183,004)
Accumulated other comprehensive loss (3,849) (243)
--------- ---------
Total Company's shareholders' equity 288,012 388,996
Non-controlling interests 24,891 23,259
--------- ---------
Total shareholders' equity 312,903 412,255
--------- ---------
Total liabilities and shareholders' equity 465,122 532,118
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
Hutchison China MediTech Limited
Consolidated Statements of Operations
(in US$'000, except share and per share data)
Year Ended December 31,
-------------------------------------
Note 2019 2018 2017
-------- ----------- ----------- -----------
Revenues
Goods-third parties 175,990 156,234 194,860
* related parties 22 (i) 7,637 8,306 8,486
Services-commercialization-third
parties 2,584 11,660 1,860
* collaboration research and development-third parties 15,532 17,681 16,858
* research and development-related parties 22 (i) 494 7,832 9,682
Other collaboration revenue-royalties-third
parties 2,653 261 -
* licensing-third parties - 12,135 9,457
----------- ----------- -----------
Total revenues 19 204,890 214,109 241,203
----------- ----------- -----------
Operating expenses
Costs of goods-third parties (152,729) (129,346) (168,331)
Costs of goods-related parties (5,494) (5,978) (6,056)
Costs of services-commercialization-third
parties (1,929) (8,620) (1,433)
Research and development expenses 20 (138,190) (114,161) (75,523)
Selling expenses (13,724) (17,736) (19,322)
Administrative expenses (39,210) (30,909) (23,955)
----------- ----------- -----------
Total operating expenses (351,276) (306,750) (294,620)
----------- ----------- -----------
(146,386) (92,641) (53,417)
Other income/(expense)
Interest income 25 4,944 5,978 1,220
Other income 1,855 1,798 808
Interest expense 25 (1,030) (1,009) (1,455)
Other expense (488) (781) ( 692 )
----------- ----------- -----------
Total other income/(expense) 5,281 5,986 (119)
----------- ----------- -----------
Loss before income taxes and equity
in earnings of equity investees (141,105) (86,655) (53,536)
Income tax expense 23 (i) (3,274) (3,964) (3,080)
Equity in earnings of equity investees,
net of tax 12 40,700 19,333 33,653
----------- ----------- -----------
Net loss (103,679) (71,286) (22,963)
Less: Net income attributable to
non-controlling interests (2,345) (3,519) (3,774)
----------- ----------- -----------
Net loss attributable to the Company (106,024) (74,805) (26,737)
=========== =========== ===========
Losses per share attributable to
the Company-basic and diluted (US$
per share) 24 (0.16) (0.11) (0.04)
Number of shares used in per share
calculation-basic and diluted 24 665,683,145 664,263,820 617,171,710
The accompanying notes are an integral part of these
consolidated financial statements.
Hutchison China MediTech Limited
Consolidated Statements of Comprehensive Loss
(in US$'000)
Year Ended December 31,
-----------------------------
2019 2018 2017
--------- -------- --------
Net loss (103,679) (71,286) (22,963)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain (4,331) (6,626) 10,964
--------- -------- --------
Total comprehensive loss (108,010) (77,912) (11,999)
Less: Comprehensive income attributable to non-controlling
interests (1,620) (2,566) (5,033)
--------- -------- --------
Total comprehensive loss attributable to the
Company (109,630) (80,478) (17,032)
========= ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
Hutchison China MediTech Limited
Consolidated Statements of Changes in Shareholders' Equity
(in US$'000, except share data in '000)
Accumulated Total
Ordinary Ordinary Additional Other Company's Non- Total
Shares Shares Paid-in Accumulated Comprehensive Shareholders' controlling Shareholders'
Number Value Capital Losses (Loss)/Income Equity Interests Equity
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at January
1, 2017 607,058 60,706 208,196 (80,357) (4,275) 184,270 19,790 204,060
Net (loss)/income - - - (26,737) - (26,737) 3,774 (22,963)
Issuance in
relation
to public
offering 56,849 5,685 295,615 - - 301,300 - 301,300
( 8,
Issuance costs - - 610) - - (8,610) - (8,610)
Issuances in
relation
to share option
exercises 563 56 324 - - 380 - 380
Share-based
compensation
Share options - - 1,255 - - 1,255 3 1,258
Long-term
incentive
plan ("LTIP") - - 1,537 - - 1,537 1 1,5 38
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
- - 2,792 - - 2,792 4 2,79 6
LTIP-treasury
shares
acquired and
held
by Trustee - - (1,367) - - (1,367) - (1,367)
Dividends
declared
to
non-controlling
shareholders of ( 1,594
subsidiaries - - - - - - ) ( 1, 594)
Transfer between
reserves - - 10 (10) - - - -
Foreign currency
translation 1 , 25
adjustments - - - - 9,705 9,705 9 10,964
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at December 66
31, 2017 664,470 ,447 496,960 (107,104) 5,430 461,733 23,233 484,966
======== ======== ========== =========== ============= ============= =========== =============
Impact of change
in accounting
policy
(Note 3) - - - (1,080) - (1,080) (3) (1,083)
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at January 1,
2018 664,470 66,447 496,960 (108,184) 5,430 460,653 23,230 483,883
Net (loss)/income - - - (74,805) - (74,805) 3,519 (71,286)
Issuances in
relation
to share option
exercises 2,107 211 2,952 - - 3,163 - 3,163
Share-based
compensation
Share options - - 7,885 - - 7,885 18 7,903
LTIP - - 3,224 - - 3,224 9 3,233
- - 11,109 - - 11,109 27 11,136
LTIP-treasury
shares
acquired and
held
by Trustee - - (5,451) - - (5,451) - (5,451)
Dividend declared
to a
non-controlling
shareholder of
a subsidiary - - - - - - (2,564) (2,564)
Transfer between
reserves - - 15 (15) - - - -
Foreign currency
translation
adjustments - - - - (5,673) (5,673) (953) (6,626)
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at December 23,
31, 2018 666,577 66,658 505,585 (183,004) (243) 388,996 259 412,255
======== ======== ========== =========== ============= ============= =========== =============
Impact of change
in accounting
policy ( 655 ( 671
(Note 3) - - - ) - (655) (16) )
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at January 1,
2019 666,577 66,658 505,585 (183,659) (243) 388,341 23,243 411,584
Net (loss)/income - - - (106,024) - (106,024) 2,345 (103,679)
Issuances in
relation
to share option
exercises 329 33 218 - - 251 - 251
Share-based
compensation
Share options - - 7,157 - - 7,157 16 7,173
LTIP - - 2,239 - - 2,239 12 2,251
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
- - 9,396 - - 9,396 28 9,424
LTIP-treasury
shares
acquired and
held
by Trustee - - (346) - - (346) - (346)
Transfer between
reserves - - 51 (51) - - - -
Foreign currency
translation
adjustments - - - - (3,606) (3,606) (725) (4,331)
-------- -------- ---------- ----------- ------------- ------------- ----------- -------------
As at December
31, 2019 666,906 66,691 514,904 (289,734) (3,849) 288,012 24,891 312,903
======== ======== ========== =========== ============= ============= =========== =============
The accompanying notes are an integral part of these
consolidated financial statements.
Hutchison China MediTech Limited
Consolidated Statements of Cash Flows
(in US$ '000 )
Year Ended December 31,
-------------------------------
Note 2019 2018 2017
--------- --------- --------- ---------
( 8,943
Net cash used in operating activities 26 (80,912) (32,847) )
--------- --------- ---------
Investing activities
( 5,019
Purchases of property, plant and equipment (8,565) (6,364) )
Deposits in short-term investments (478,140) (903,551) (325,032)
Proceeds from short-term investments 597,044 961,667 76,271
Purchase of a subsidiary company 2 (8,080) - -
Cash acquired in purchase of a subsidiary
company 16,769 - -
Investment in an equity investee - (8,000) (7,000)
--------- --------- ---------
Net cash generated from/(used in) investing (26 0,780
activities 119,028 43,752 )
--------- --------- ---------
Financing activities
Proceeds from issuance of ordinary shares 251 3,868 301,680
Purchases of treasury shares 18 (ii) (346) (5,451) (1,367)
Dividends paid to non-controlling shareholders
of subsidiaries (1,282) (1,282) (1,594)
Repayment of loan to a non-controlling
shareholder of a subsidiary - (1,550) -
Proceeds from bank borrowings 26,807 26,923 32,540
Repayment of bank borrowings (26,923) (30,000) (49,487)
Payment of issuance and other costs - (739) (8,576)
--------- --------- ---------
Net cash (used in)/generated from financing
activities (1,493) (8,231) 273,196
--------- --------- ---------
Net increase in cash and cash equivalents 36,623 2,674 3,473
Effect of exchange rate changes on cash
and cash equivalents (1,502) (1,903) 2,361
--------- --------- ---------
35,121 771 5,834
Cash and cash equivalents
Cash and cash equivalents at beginning
of year 86,036 85,265 79,431
--------- --------- ---------
Cash and cash equivalents at end of year 121,157 86,036 85,265
========= ========= =========
Supplemental disclosure for cash flow
information
Cash paid for interest 917 979 763
Cash paid for tax, net of refunds 23 (iii) 3,249 3,752 3,836
Supplemental disclosure for non-cash
activities
Accruals made for purchases of property,
plant and equipment 1,068 138 1,054
Vesting of treasury shares for LTIP 18 (ii) 944 731 1,800
Accrued issuance costs for public offering - - 34
The accompanying notes are an integral part of these
consolidated financial statements.
Hutchison China MediTech Limited
Notes to the Consolidated Financial Statements
1. Organization and Nature of Business
Hutchison China MediTech Limited (the "Company") and its
subsidiaries (together the "Group") are principally engaged in
researching, developing, manufacturing and marketing pharmaceutical
products. The Group and its equity investees have research and
development facilities and manufacturing plants in the People's
Republic of
China (the "PRC") and sell their products mainly in the PRC and Hong Kong.
The Company was incorporated in the Cayman Islands on December
18, 2000 as an exempted company with limited liability under the
Companies Law (2000 Revision), Chapter 22 of the Cayman Islands.
The address of its
registered office is P.O. Box 309, Ugland House, Grand Cayman, KY1--1104, Cayman Islands.
The Company's ordinary shares are listed on the AIM market of
the London Stock Exchange, and its American deposit a ry shares
("ADS"), each representing five ordinary shares, are traded on the
Nasdaq Global Select Market.
Liquidity
As at December 31, 2019 , the Group had accumulated losses of
US$289,734,000, primarily due to its spending in drug research and
development ("Drug R&D") activities. The Group regularly
monitors current and expected liquidity requirements to ensure that
it maintains sufficient cash balances and adequate credit
facilities to meet its liquidity requirements in the short and long
term. As at December 31 , 2019 , the Group had cash and cash
equivalents of US$121,157,000, short-term investments of
US$96,011,000 and unutilized bank borrowing facilities of
US$119,359,000. Short-term investments comprised of bank deposits
maturing over three months. The Group's operating plan includes the
continued receipt of dividends from certain of its equity
investees. Dividends received from equity investees for the years
ended December 31, 2019, 2018 and 2017 were US$28,135,000, US$
35,218,000 and US$55,586,000 respectively.
Based on the Group's operating plan, the existing cash and cash
equivalents , short-term investments and unutilized bank borrowing
facilities are considered to be sufficient to meet the cash
requirements to fund planned operations and other commitments for
at least the next twelve months (the look-forward period used).
2. Particulars of Principal Subsidiaries and Equity
Investees
Equity interest
Place of attributable to
establishment t he Group
-------------------------
a nd December 31,
-------------------------
Name operations 2019 2018 Principal activities
--------------------------------- ------------- ---------- --------- ---------------------------------
Subsidiaries
Hutchison MediPharma Limited PRC 99.75 % 99.75 % Research, development,
("HMPL") manufacture and commercialization
of pharmaceutical products
Hutchison Whampoa Sinopharm PRC 50.87 % 51 % Provision of sales, distribution
Pharmaceuticals (Shanghai) and marketing services to
Company Limited ("HSPL") (note pharmaceutical manufacturers
(a))
Hutchison Hain Organic (Hong Hong Kong 50 % 50 % Wholesale and trading of
Kong) Limited ("HHOL") (note (b)) healthcare and consumer products
Hutchison Hain Organic PRC 50 % 50 % Wholesale and trading of
(Guangzhou) Limited ("HHOGZL") healthcare and consumer products
(note (b))
Hutchison Healthcare Limited PRC 100 % 100 % Manufacture and distribution of
healthcare products
Hutchison Consumer Products Hong Kong 100 % 100 % Wholesale and trading of
Limited healthcare and consumer products
Nutrition Science Partners Hong Kong 99.75 % - Research and development of
Limited ("NSPL") (note (c)) pharmaceutical products
Equity investees
Shanghai Hutchison PRC 50 % 50 % Manufacture and distribution of
Pharmaceuticals Limited ("SHPL") prescription drug products
Hutchison Whampoa Guangzhou PRC 40 % 40 % Manufacture and distribution of
Baiyunshan Chinese Medicine over-the-counter drug products
Company Limited ("HBYS") (note
(d))
NSPL (note (c)) Hong Kong - 49.88 % Research and development of
pharmaceutical products
Notes:
(a) In November 2019, a subsidiary of the Group transferred its
51% shareholding in HSPL to HMPL. Afterwards, the effective equity
interest of the Group in HSPL changed to 50.87% as at December 31,
2019.
(b) HHOL and HHOGZL are regarded as subsidiaries of the Company,
as while both shareholders of these subsidiaries have equal
representation at their respective boards, in the event of a
deadlock, the Group has a casting vote and is therefore able to
unilaterally control the financial and operating policies of HHOL
and HHOGZL.
(c) As at December 31, 2018, the 50% equity interest in NSPL was
held by a 99.75% owned subsidiary of the Group. The effective
equity interest of the Group in NSPL was therefore 49.88%. In
December 2019, the Group acquired the remaining 50% shareholding in
NSPL from the equity investee partner for a consideration of
approximately US$8.1 million. Afterwards, the effective equity
interest of the Group in NSPL changed to 99.75% as at December 31,
2019.
(d) The 50% equity interest in HBYS is held by an 80% owned
subsidiary of the Group. The effective equity interest of the Group
in HBYS is therefore 40% for the year s presented.
3. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements reflect the
accounts of the Company and all of its subsidiaries in which a
controlling interest is maintained. Investments in equity investees
over which the Group has significant influence are accounted for
using the equity method. All inter--company balances and
transactions have been eliminated in consolidation. The
consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States
of America ("U.S. GAAP") .
Use of Estimates
The preparation of consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Additionally, estimates are used in determining items such
as useful lives of property, plant and equipment, write down of
inventories, allowance for doubtful accounts, share--based
compensation, impairments of long--lived assets, impairment of
other intangible asset and goodwill, income tax expenses, tax
valuation allowances, revenues and cost accruals from research and
development projects. Actual results could differ from those
estimates.
Foreign Currency Translation
The Company's presentation currency is the U.S. dollar ("US$").
The financial statements of the Company and its subsidiaries with a
functional currency other than the US$ have been translated into
the Company's presentation currency. All assets and liabilities of
the subsidiaries are translated using year--end exchange rates and
revenues and expenses are translated at average exchange rates for
the year. Translation adjustments are reflected in accumulated
other comprehensive (loss)/income in shareholders' equity.
Net foreign currency exchange gains of US$246,000 and net
foreign exchanges losses of US $233,000 and US$316,000 were
recorded in other income and other expense in the consolidated
statements of operations for the years ended December 31, 2019,
2018 and 2017 respectively.
Cash and Cash Equivalents
The Group considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Cash and cash equivalents consist primarily of cash on hand and
bank deposits and are
stated at cost, which approximates fair value.
Short-term Investments
Short-term investments include deposits placed with banks with
original maturities of more than three months but less than one
year.
Concentration of Credit Risk
Financial instruments that potentially expose the Group to
concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments, accounts receivable, other
receivables and amounts due from related parties.
The Group places substantially all of its cash and cash
equivalents and short-term investments in major financial
institutions, which management believes are of high credit quality.
The Group has a practice to limit the amount of credit exposure to
any particular financial institution.
The Group has no significant concentration of credit risk. The
Group has policies in place to ensure that sales are made to
customers with an appropriate credit history and the Group performs
periodic credit evaluations of its customers. Normally the Group
does not require collateral from trade debtors.
Foreign Currency Risk
The Group's operating transactions and its assets and
liabilities in the PRC are mainly denominated in Renminbi ("RMB"),
which is not freely convertible into foreign currencies. The
Group's cash and cash equivalents denominated in RMB are subject to
government controls. The value of the RMB is subject to
fluctuations from central government policy changes and
international economic and political developments that affect the
supply and demand of RMB in the foreign exchange market. In the
PRC, certain foreign exchange transactions are required by law to
be transacted only by authorized financial institutions at exchange
rates set by the People's Bank of China (the "PBOC"). Remittances
in currencies other than RMB by the Group in the PRC must be
processed through the PBOC or other PRC foreign exchange regulatory
bodies which require certain supporting documentation in order
to complete the remittance.
Fair Value of Financial Instruments
The fair value of financial instruments that are measured at
fair value is determined according to a fair value hierarchy that
prioritizes the inputs and assumptions used, and the valuation
techniques used. The three levels
of the fair value hierarchy are described as follows:
Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs are quoted prices for similar assets or liabilities in active markets; or quoted prices
for identical or similar instruments in markets that are not active; and model--derived valuations
in which all significant inputs and significant value drivers are observable in active markets.
Level 3 Inputs are unobservable inputs based on the Group's assumptions and valuation techniques used
to measure assets or liabilities at fair value. The inputs require significant management
judgment or estimation.
The assessment of the significance of a particular input to the
fair value measurement requires judgment and may affect the
valuation of assets and liabilities and their placement within the
fair value hierarchy levels.
The fair value of assets and liabilities is established using
the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date,
and a fair value hierarchy is established based on the inputs used to measure fair value.
Accounts Receivable
Accounts receivable are stated at the amount management expect s
to collect from customers based on their outstanding invoices.
Management reviews accounts receivable regularly to determine if
any receivable will potentially be uncollectible. Estimates are
used to determine the amount of allowance for doubtful accounts
necessary to reduce accounts receivable to its estimated net
realizable value. The amount of the allowance for
doubtful accounts is recognized in the consolidated statement s of operations.
Inventories
Inventories are stated at the lower of cost or net realizable
value. Cost is determined using the weighted average cost method.
The cost of finished goods comprises raw materials, direct labor,
other direct costs and related production overheads (based on
normal operating capacity). Net realizable value is the estimated
selling price in the ordinary course of business, less applicable
variable selling expenses. A provision for excess and obsolete
inventory will be made based primarily on forecasts of product
demand and production requirements. The excess balance determined
by this analysis becomes the basis for excess inventory charge and
the written--down value of the inventory becomes its cost.
Written--down inventory is not written up if market conditions
improve.
Property, Plant and Equipment
Property, plant and equipment consist of buildings, leasehold
improvements, plant and equipment, furniture and fixtures, other
equipment and motor vehicles. Property, plant and equipment are
stated at cost, net of accumulated depreciation. Depreciation is
computed using the straight--line method over the estimated useful
lives of the depreciable assets.
Buildings 20 years
Plant and equipment 5-10 years
Furniture and fixtures, other equipment 4-5 years
and motor vehicles
Leasehold improvements Shorter of (a) 5 years or (b) remaining term of
lease
Upon retirement or sale, the cost of assets disposed of and the
related accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in the consolidated
statements of operations in the year of d isposition. Additions and
improvements that extend the useful life of an asset are
capitalized.
Repairs and maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets
The Group evaluates the recoverability of long--lived assets in
accordance with authoritative guidance on accounting for the
impairment or disposal of long--lived assets. The Group evaluates
long--lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of these assets may
not be recoverable. If such indicators exist, the first step of the
impairment test is performed to assess if the carrying value of the
net assets exceeds the undiscounted cash flows of the assets . If
yes , the second step of the impairment test is performed in order
to determine if the carrying value of the net assets exceeds the
fair value. If yes, impairment is recognized for the excess.
Leasehold Land
Leasehold land represents fees paid to acquire the right to use
the land on which various plants and buildings are situated for a
specified period of time from the date the respective right was
granted and are stated at cost less accumulated amortization and
impairment loss, if any. Amortization is computed using the
straight-line basis over the lease period of 50 years.
Goodwill
Goodwill represents the excess of the purchase price plus fair
value of non--controlling interests over the fair value of
identifiable assets and liabilities acquired. Goodwill is not
amortized, but is tested for impairment at the reporting unit level
on at least an annual basis or when an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. When
performing an evaluation of goodwill impairment, the Group has the
option to first assess qualitative factors, such as significant
events and changes to expectations and activities that may have
occurred since the last impairment evaluation, to determine if it
is more likely than not that goodwill might be impaired. If as a
result of the qualitative assessment, that it is more likely than
not that the fair value of the reporting unit is less than its
carrying amount, the quantitative fair value test is performed to
determine if the fair value of the reporting unit exceeds its
carrying value.
Other Intangible Assets
Other i ntangible assets with finite useful lives are carried at
cost less accumulated amortization and impairment loss, if any.
Amortization is computed using the straight-line basis over the
estimated useful lives of the assets.
Borrowings
Borrowings are recognized initially at fair value, net of debt
issuance costs incurred. Borrowings are subsequently stated at
amortized cost; any difference between the proceeds (net of debt
issuance costs) and the redemption value is recognized in the
consolidated statements of operations over the period of the
borrowings using the effective interest method.
Ordinary Shares
The Company's ordinary shares are stated at par value of US$0.10
per ordinary share. The difference between the consideration
received, net of issuance cost, and the par value is recorded in
additional paid-in capital.
Treasury Shares
The Group accounts for treasury shares under the cost method.
The treasury shares are purchased for the purpose
of the LTIP and held by a trustee appointed by the Group (the "Trustee") prior to vesting.
Share-Based Compensation
Share options
The Group recognizes share--based compensation expense on share
options granted to employees and directors based on their estimated
grant date fair value using the Polynomial model. This Polynomial
pricing model uses various inputs to measure fair value, including
estimated market value of the Company's underlying ordinary shares
at the grant date, contractual terms, estimated volatility,
risk--free interest rate s and expected dividend yields. The Group
recognizes share--based compensation expense in the consolidated
statements of operations on a graded vesting basis over the
requisite service period, and accounts for forfeitures as they
occur.
Share options are classified as equity-settled awards.
Share-based compensation expense, when recognized, is charged to
the consolidated statements of operations with the corresponding
entry to additional paid-in capital.
LTIP
The Group recognizes the share-based compensation expense on the
LTIP awards based on a fixed or determinable monetary amount on a
straight-line basis for each annual tranche awarded over the
requisite period. For LTIP awards with performance targets, prior
to their determination date, the amount of LTIP awards that is
expected to vest takes into consideration the achievement of the
performance conditions and the extent to which the performance
conditions are likely to be met. Performance conditions vary by
awards, including targets for shareholder returns, free cash flows,
revenues, net profit after taxes and/or the achievement of clinical
and regulatory milestones.
These LTIP awards are classified as liability-settled awards
before the determination date (i.e. the date when the achievement
of any performance conditions are known), as they settle in a
variable number of shares based on a determinable monetary amount,
which is determined upon the actual achievement of performance
targets. As the extent of achievement of the performance targets is
uncertain prior to the determination date, a probability based on
management's assessment of the achievement of the performance
targets has been assigned to calculate the amount to be recognized
as an expense over the requisite period.
After the determination date or if the LTIP awards have no
performance conditions, the LTIP awards are classified as
equity-settled awards. If the performance target is achieved, the
Group will pay the determined monetary amount to the Trustee to
purchase ordinary shares of the Company or the equivalent ADS . Any
cumulative compensation expense previously recognized as a
liability will be transferred to additional paid-in capital, as an
equity-settled award. If the performance target is not achieved, no
ordinary shares or ADS of the Company will be purchased and the
amount previously recorded in the liability will be reversed and
included in the consolidated statements of operations.
Defined Contribution Plans
The Group's subsidiaries in the PRC participate in a
government--mandated multi--employer defined contribution plan
pursuant to which certain retirement, medical and other welfare
benefits are provided to employees. The relevant labor regulations
require the Group's subsidiaries in the PRC to pay the local labor
and social welfare authority's monthly contributions at a stated
contribution rate based on the monthly basic compensation of
qualified employees. The relevant local labor and social welfare
authorities are responsible for meeting all retirement benefits
obligations and the Group's subsidiaries in the PRC have no further
commitments beyond their
monthly contributions. The contributions to the plan are expensed as incurred.
The Group also makes payments to other defined contribution
plans for the benefit of employees employed by subsidiaries outside
the PRC. The defined contribution plans are generally funded by the
relevant companies and by payments from employees.
The Group's contributions to defined contribution plans for the
years ended December 31, 2019, 2018 and 2017 amounted to
US$3,479,000, US$ 2,878,000 and US$2,092,000 respectively.
Revenue Recognition
Summary of impact of applying Accounting Standards Codification
("ASC") 606, Revenue from Contracts with Customers (Topic 606)
("ASC 606")
The Group applied ASC 606 to all contracts at the date of
initial application of January 1, 2018. As a result, the Group has
changed its accounting policy for revenue recognition as detailed
below. The Group applied ASC 606 using the modified retrospective
method by recognizing the cumulative effect as an adjustment to
opening accumulated losses at January 1, 2018. The comparative
information prior to January 1, 2018 has not been adjusted and
continues to be reported under ASC 605, Revenue Recognition (Topic
605) ("ASC 605").
The Group assessed its license and collaboration contracts under
ASC 606. Refer to Note 19. As a result of this assessment, the
Group recorded an aggregate US$1.1 million deferral of revenue as a
cumulative adjustment to opening accumulated losses upon
adoption.
For sales of goods and services, the Group applied a portfolio
approach to aggregate contracts into portfolios whose performance
obligations do not differ materially from each other. In its
assessment of each portfolio, the Group assessed the contracts
under the new five-step model under ASC 606 and determined there
was no significant impact to the timing or amount of revenue
recognition under the new guidance.
U nder the Group's previous accounting policy, deferred revenue
comprised deferred upfront payments from the Group's license and
collaboration contracts. Under ASC 606, advance payments from
customers preceding an entity's performance are considered contract
liabilities; therefore, advance payments from customers from the
Group's Commercial Platform have been reclassified from other
payables, accruals and advance receipts to deferred revenue.
Expected rebates for sales of goods remain in other payables,
accruals and advance receipts.
The following tables summarize the impact of adopting ASC 606 on
the Group's consolidated financial statements as at and for the
year ended December 31, 2018, as compared to the amounts as if
applying ASC 605:
As reported As if applied
ASC 606 Adjustments ASC 605
----------- ----------- -------------
(in US$'000)
Consolidated Balance Sheet
Current assets 370,541 - 370,541
Non-current assets 161,577 - 161,577
----------- ----------- -------------
Total assets 532,118 - 532,118
=========== =========== =============
Liabilities and shareholders' equity
Current liabilities
Other payables, accruals and advance receipts 56,327 187 56,514
Deferred revenue 2,540 (605) 1,935
Other current liabilities 26,612 - 26,612
----------- ----------- -------------
Total current liabilities 85,479 (418) 85,061
Deferred revenue 408 64 472
Other non-current liabilities 33,976 - 33,976
----------- ----------- -------------
Total liabilities 119,863 (354) 119,509
Company's shareholders' equity
Accumulated losses (183,004) 384 (182,620)
Accumulated other comprehensive loss (243) (31) (274)
Other shareholders' equity 572,243 - 572,243
----------- ----------- -------------
Total Company's shareholders' equity 388,996 353 389,349
Non-controlling interests 23,259 1 23,260
----------- ----------- -------------
Total shareholders' equity 412,255 354 412,609
----------- ----------- -------------
Total liabilities and shareholders' equity 532,118 - 532,118
=========== =========== =============
As reported As if applied
ASC 606 Adjustments ASC 605
----------- ----------- -------------
(in US$'000)
Consolidated Statement of Operations
Total revenues 214,109 (698) 213,411
Total operating expense (306,750) - (306,750)
----------- ----------- -------------
(92,641) (698) (93,339)
Total other income 5,986 - 5,986
----------- ----------- -------------
Loss before income taxes and equity in earnings of equity
investees (86,655) (698) (87,353)
Income tax expense (3,964) - (3,964)
Equity in earnings of equity investees, net of tax 19,333 - 19,333
----------- ----------- -------------
Net loss (71,286) (698) (71,984)
Less: Net income attributable to non-controlling interests (3,519) 2 (3,517)
----------- ----------- -------------
Net loss attributable to the Company (74,805) (696) (75,501)
=========== =========== =============
As reported As if applied
ASC 606 Adjustments ASC 605
----------- ----------- -------------
(in US$'000)
Consolidated Statement of Comprehensive Loss
Net loss (71,286) (698) (71,984)
Other comprehensive loss (6,626) (31) (6,657)
----------- ----------- -------------
Total comprehensive loss (77,912) (729) (78,641)
Less: Comprehensive loss attributable to non-controlling interests (2,566) 2 (2,564)
----------- ----------- -------------
Total comprehensive loss attributable to the Company (80,478) (727) (81,205)
=========== =========== =============
There were no adjustments to net cash (used in)/generated from
operating activities, investing activities or financing activities
in the consolidated statement of cash flows.
Accounting policy-ASC 606
Revenue is measured based on consideration specified in a
contract with a customer, and excludes any sales incentives and
amounts collected on behalf of third parties. Taxes assessed by a
governmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction, that are collected by the
Group from a customer, are also excluded from revenue. The Group
recognizes revenue when it satisfies a performance obligation by
transferring control over a good, service or license to a
customer.
Nature of goods and services
The following is a description of principal activities,
separated by reportable segments, from which the Company generates
its revenue:
(i) Innovation Platform
The Innovation Platform reportable segment principally generates
revenue from license and collaboration contracts. The license and
collaboration contracts generally contain multiple performance
obligations including (1) the license to the commercialization
rights of a drug compound and (2) the research and development
services for each specified treatment indication, which are
accounted for separately if they are distinct, i.e. if a product or
service is separately identifiable from other items in the
arrangement and if a customer can benefit from it on its own or
with other resources that are readily available to the
customer.
The transaction price generally includes fixed and variable
consideration in the form of upfront payment, research and
development cost reimbursements, contingent milestone payments and
sales-based royalties. Contingent milestone payments are not
included in the transaction price until it becomes probable that a
significant reversal of revenue will not occur, which is generally
when the specified milestone is achieved. The allocation of the
transaction price to each performance obligation is based on the
relative standalone selling prices of each performance obligation
determined at the inception of the contract. The Group estimates
the standalone selling prices based on the income approach. Control
of the license to the drug compounds transfers at the inception
date of the collaboration agreements and consequently, amounts
allocated to this performance obligation are generally recognized
at a point in time. Conversely, research and development services
for each specified indication are performed over time and amounts
allocated to these performance obligations are generally recognized
over time using cost inputs as a measure of progress. The Group has
determined that research and development expenses provide an
appropriate depiction of measure of progress for the research and
development services. Changes to estimated cost inputs may result
in a cumulative catch-up adjustment. Royalty revenues are
recognized as future sales occur as they meet the requirements for
the sales-usage based royalty exception, and are included in
Commercial Platform revenues.
Deferred revenue is recognized if allocated consideration is
received in advance of the Group rendering research and development
services. Accounts receivable is recognized based on the terms of
the contract and when the Group has an unconditional right to bill
the customer, which is generally when research and development
services are rendered.
(ii) Commercial Platform
The Commercial Platform reportable segment principally generates
revenue from (1) sales of goods, which are the manufacture or
purchase and distribution of products including a prescription drug
product developed by the Innovation Platform and other consumer
health products, (2) royalty revenues from license and
collaboration contracts and (3) sales of services, which are the
provision of sales, distribution and marketing services to
pharmaceutical manufacturers. The Group evaluates whether it is the
principal or agent for these contracts, which include prescription
drug products and consumer health products. Where the Group obtains
control of the goods for distribution, it is the principal (i.e.
recognizes sales of goods on a gross basis). Where the Group does
not obtain control of the goods for distribution, it is the agent
(i.e. recognizes provision of services on a net basis). Control is
primarily evidenced by taking physical possession and inventory
risk of the goods.
Revenue from sales of goods is recognized when the customer
takes possession of the goods. This usually occurs upon completed
delivery of the goods to the customer site. The amount of revenue
recognized is adjusted for expected sales incentives as stipulated
in the contract, which are generally issued to customers as direct
discounts at the point--of--sale or indirectly in the form of
rebates . Sales incentives are estimated using the expected value
method. Additionally, sales are generally made with a limited right
of return under certain conditions. Revenues are recorded net of
provisions for sales discounts and returns.
Revenue from provision of services is recognized when the
benefits of the services transfer to the customer over time , which
is based on the proportionate value of services rendered as
determined under the terms of the relevant contract. Additionally,
when the amounts that can be invoiced correspond directly with the
value to the customer for performance completed to date, the Group
recognizes revenue from provision of services based on amounts that
can be invoiced to the customer.
Deferred revenue is recognized if consideration is received in
advance of transferring control of the goods or rendering of
services. Accounts receivable is recognized if the Group has an
unconditional right to bill the customer, which is generally when
the customer takes possession of the goods or services are
rendered. Payment terms differ by subsidiary and customer, but
generally range from 45 to 180 days from the invoice date.
Prior accounting policy-ASC 605
Sales
Revenue from sales of goods in the Commercial Platform segment
are recognized when goods are delivered and title passes to the
customer and there are no further obligations to the customer.
Recognition of revenue also requires reasonable assurance of
collection of sales proceeds and completion of all performance
obligations. Sales discounts are issued to customers as direct
discounts at the point--of--sale or indirectly in the form of
rebates. Additionally, sales are generally made with a limited
right of return under certain conditions. Revenues are recorded net
of provisions for sales discounts and returns.
Revenue from sales of services in the Commercial Platform
segment are recognized based on amounts that can be invoiced to the
customer. The amount that can be invoiced corresponds directly with
the value to the customer for performance completed to date.
Revenues from research and development projects
The Group recognizes revenue for the performance of services
when each of the following four criteria are met: (i) persuasive
evidence of an arrangement exists; (ii) services are rendered;
(iii) the sales price is
fixed or determinable; and (iv) collectability is reasonably assured.
The Group follows ASC 605--25, Revenue
Recognition-Multiple--Element Arrangements and ASC 808,
Collaborative Arrangements, if applicable, to determine the
recognition of revenue under the Group's license and collaborative
research, development and commercialization agreements. The terms
of these agreements generally contain multiple elements, or
deliverables, which may include (i) licenses to the Group's
intellectual property, (ii) materials and technology, (iii)
clinical supply, and/or (iv) participation in joint research or
joint steering committees. The payments the Group may receive under
these arrangements typically include one or more of the following:
non--refundable, upfront license fees; funding of research and/or
development efforts; amounts
due upon the achievement of specified milestones; and/or royalties on future product sales.
ASC 605--25 provides guidance relating to the separability of
deliverables included in an arrangement into different units of
accounting and the allocation of arrangement consideration to the
units of accounting. The
evaluation of multiple--element arrangements requires management to make judgments about (i) the identification of deliverables, (ii) whether such deliverables are separable from the other aspects of the contractual relationship, (iii) the estimated selling price of each deliverable, and (iv) the expected period of performance for each deliverable.
To determine the units of accounting under a multiple--element
arrangement, management evaluates certain separation criteria,
including whether the deliverables have stand--alone value, based
on the relevant facts and circumstances for each arrangement.
Management then estimates the selling price for each unit of
accounting and allocates the arrangement consideration to each unit
utilizing the relative selling price method. The Group determines
the estimated selling price for deliverables within each agreement
using vendor-specific objective evidence ("VSOE") of selling price,
if available, or third party evidence of selling price if VSOE is
not available, or the Group's best estimate of selling price, if
neither VSOE nor third party evidence is available. Determining the
best estimate of selling price for a deliverable requires
significant judgment. The Group typically uses its best estimate of
a selling price to estimate the selling price for licenses to
development work, since it often does not have VSOE or third party
evidence of selling price for these deliverables. In those
circumstances where the Group applies its best estimate of selling
price to determine the estimated selling price of a license to
development work, it considers market conditions as well as
entity--specific factors, including those factors contemplated in
negotiating the agreements as well as internally developed
estimates that include assumptions related to the market
opportunity, estimated development costs, probability of success
and the time needed to commercialize a product candidate pursuant
to the license. In validating its best estimate of selling price,
the Group evaluates whether changes in the key assumptions used to
determine its best estimate of selling price will have a
significant effect on the allocation of arrangement consideration
between deliverables. The Group recognizes consideration allocated
to an individual element when all other
revenue recognition criteria are met for that element.
The allocated consideration for each unit of accounting is
recognized over the related obligation period in accordance with
the applicable revenue recognition criteria.
If there are deliverables in an arrangement that are not
separable from other aspects of the contractual relationship, they
are treated as a combined unit of accounting, with the allocated
revenue for the combined unit recognized in a manner consistent
with the revenue recognition applicable to the final deliverable in
the combined unit. Payments received prior to satisfying the
relevant revenue recognition criteria are recorded as unearned
revenue in the accompanying balance sheets and recognized as
revenue when the related revenue
recognition criteria are met.
The Group typically receives non--refundable, upfront payments
when licensing the Group's intellectual property, which often
occurs in conjunction with a research and development agreement. If
management believes that the license to the Group's intellectual
property has stand--alone value, the Group generally recognizes
revenue attributed to the license upon delivery provided that there
are no future performance requirements for use of the license. When
management believes that the license to the Group's intellectual
property does not have stand--alone value, the Group will recognize
revenue attributed to the license ratably over the contractual or
estimated performance period. For payments payable on achievement
of milestones that do not meet all of the conditions to be
considered substantive, the Group recognizes a portion of the
payment as revenue when the specific milestone is achieved, and the
contingency is removed. Other contingent event--based payments for
which payment is either contingent solely upon the passage of time
or the result of a collaborator's performance are recognized when
earned. The Group's collaboration and license agreements generally
include contingent milestone payments related to specified
pre--clinical research and development milestones, clinical
development milestones, regulatory milestones and sales-based
milestones. Pre--clinical research and development milestones are
typically payable upon the selection of a compound candidate for
the next stage of research and development. Clinical development
milestones are typically payable when a product candidate initiates
or advances in clinical trial phases or achieves defined clinical
events such as proof--of--concept. Regulatory milestones are
typically payable upon submission for marketing approval with
regulatory authorities or upon receipt of actual marketing
approvals for a compound, approvals for additional indications, or
upon the first commercial sale. Sales--based milestones are
typically payable when annual sales reach specified levels.
At the inception of each arrangement that includes milestone
payments, the Group evaluates whether each milestone is substantive
and at risk to both parties on the basis of the contingent nature
of the milestone. This evaluation includes an assessment of whether
(a) the consideration is commensurate with either (i) the entity's
performance to achieve the milestone or (ii) the enhancement of the
value of the delivered item(s) as a result of a specific outcome
resulting from the entity's performance to achieve the milestone;
(b) the consideration relates solely to past performance; and (c)
the consideration is reasonable relative to all of the deliverables
and payment terms within the arrangement. The Group evaluates
factors such as the scientific, regulatory, commercial and other
risks that must be overcome to achieve the respective milestone,
the level of effort and investment required to achieve the
respective milestone and whether the milestone consideration is
reasonable relative to all deliverables and payment terms in the
arrangement in making this assessment.
Research and Development Expenses
Research and development expenses consist primarily of salaries
and benefits, share--based compensation, materials and supplies,
contracted research, consulting arrangements and other expenses
incurred to sustain the Group's research and development programs.
Research and development costs are expensed as incurred.
Government Incentives
Incentives from governments are recognized at their fair values.
Government incentives that are received in advance are deferred and
recognized in the consolidated statement s of operations over the
period necessary to match them with the costs that they are
intended to compensate. Government incentives in relation to the
achievement of stages of research and development projects are
recognized in the consolidated statement s of operations when
amounts have been received and all attached conditions have been
met. Non-refundable incentives received without any further
obligations or conditions attached are recognized immediately in
the consolidated statements of operations.
Leases
Summary of impact of applying ASC 842
The Group applied ASC 842 to its various leases at the date of
initial application of January 1, 2019. As a result, the Group has
changed its accounting policy for leases as detailed below. The
core principle of ASC 842 is that a lessee should recognize the
assets and liabilities that arise from leases. Therefore, the Group
recognizes in the consolidated balance sheets liabilities to make
lease payments (the lease liabilities) and right-of-use assets
representing its right to use the underlying assets for their lease
terms. The Group applied ASC 842 using the optional transition
method by recognizing the cumulative effect as an adjustment to
opening accumulated losses as at January 1, 2019. The comparative
information prior to January 1, 2019 has not been adjusted and
continues to be reported under ASC 840, Leases ("ASC 840").
The Group assessed lease agreements as at January 1, 2019 under
ASC 842, except for short-term leases. The Group elected the
short-term lease exception for leases with a term of 12 months or
less and recognizes lease expenses for such leases on a
straight-line basis over the lease term and does not recognize
right-of-use assets or lease liabilities accordingly. As a result
of this assessment, the Group recorded an aggregate US$0.7 million
in additional lease expenses as a cumulative adjustment to opening
accumulated losses upon adoption. Additionally, the Group
recognized right-of-use assets and lease liabilities of US$5.7
million and US$6.4 million respectively as at January 1, 2019.
The lease liabilities were measured at the present value of the
remaining lease payments, discounted using the lessees' incremental
borrowing rate as at January 1, 2019. The Group's weighted average
incremental borrowing rate applied on January 1, 2019 was 3.97% per
annum.
A reconciliation of the Group's reported operating lease
commitments as at December 31, 2018 and the Group's lease
liabilities recognized upon adoption of ASC 842 as at January 1,
2019 is as follows:
(in US$'000)
-------------
Operating lease commitments as at December 31, 2018 (note
(a)) 8,835
Less: Leases not commenced as at January 1, 2019 (3,676)
Less: Short-term leases (5)
Add: Adjustment as a result of the treatment for a termination
option (note (b)) 1,409
Less: Discount under the lessees' incremental borrowing
rate as at January 1, 2019 (206)
-------------
Lease liabilities recognized as at January 1, 2019 6,357
=============
Notes:
(a) Future aggregate minimum payments under non--cancellable
operating leases under ASC 840 were as follows:
December
31, 2018
-------------
(in US$'000)
Not later than 1 year 3,026
Between 1 to 2 years 2,735
Between 2 to 3 years 1,056
Between 3 to 4 years 882
Between 4 to 5 years 810
Later than 5 years 326
-------------
Total minimum lease payments 8,835
=============
(b) The Group leases its corporate offices in Hong Kong through
a support service agreement with an indirect subsidiary of CK
Hutchison Holdings Limited ("CK Hutchison"), which is the Company's
indirect major shareholder. The support service agreement may be
terminated by giving 3--month advance notice; therefore, there was
no lease commitment beyond the 3 month advance notice period as at
December 31, 2018. This termination option is not considered
probable of exercise for the purposes of applying ASC 842.
The Group recognized right-of-use assets as at January 1, 2019
measured at their carrying amounts as if ASC 842 had been applied
since their commencement dates, but discounted using the lessees'
incremental borrowing rate as at January 1, 2019.
Recognized right-of-use assets upon adoption were as
follows:
(in US$'000)
-------------
Offices 4,877
Factories 383
Others 487
-------------
5,747
=============
There were no adjustments to net cash generated from/(used in)
operating activities, investing activities or financing activities
in the consolidated statement of cash flows.
In applying ASC 842 for the first time, the Group has used the
following practical expedients permitted by the standard: (i) no
reassessment of whether any expired or existing contracts are or
contain leases; (ii) no reassessment of the lease classification
for any expired or existing leases; (iii) the exclusion of initial
direct costs for the measurement of the right-of-use assets at the
date of initial application; and (iv) the use of hindsight in
determining the lease term where the contract contains options to
extend or terminate the lease.
Updated accounting policy-ASC 842
In an operating lease, a lessee obtains control of only the use
of the underlying asset, but not the underlying asset itself. An
operating lease is recognized as a right-of-use asset with a
corresponding liability at the date which the leased asset is
available for use by the Group. The Group recognizes an obligation
to make lease payments equal to the present value of the lease
payments over the lease term. The lease terms may include options
to extend or terminate the lease when it is reasonably certain that
the Group will exercise that option.
Lease liabilities include the net present value of the following
lease payments: (i) fixed payments; (ii) variable lease payments;
and (iii) payments of penalties for terminating the lease if the
lease term reflects the lessee exercising that option, if any.
Lease liabilities exclude the following payments that are generally
accounted for separately: (i) non-lease components, such as
maintenance and security service fees and value added tax, and (ii)
any payments that a lessee makes before the lease commencement
date. The lease payments are discounted using the interest rate
implicit in the lease or if that rate cannot be determined, the
lessee's incremental borrowing rate being the rate that the lessee
would have to pay to borrow the funds in its currency and
jurisdiction necessary to obtain an asset of similar value,
economic environment and terms and conditions.
An asset representing the right to use the underlying asset
during the lease term is recognized that consists of the initial
measurement of the operating lease liability, any lease payments
made to the lessor at or before the commencement date less any
lease incentives received, any initial direct cost incurred by the
Group and any restoration costs.
After commencement of the operating lease, the Group recognizes
lease expenses on a straight-line basis over the lease term. The
right-of-use asset is subsequently measured at cost less
accumulated amortization and any impairment provision. The
amortization of the right-of-use asset represents the difference
between the straight-line lease expense and the accretion of
interest on the lease liability each period. The interest amount is
used to accrete the lease liability and to amortize the
right--of--use asset. There is no amount recorded as interest
expense.
Payments associated with short-term leases are recognized as
lease expenses on a straight--line basis over the period of the
leases.
Subleases of right-of-use assets are accounted for similar to
other leases. As an intermediate lessor, the Group separately
accounts for the head--lease and sublease unless it is relieved of
its primary obligation under the head-lease. Sublease income is
recorded on a gross basis separate from the head-lease expenses. If
the total remaining lease cost on the head-lease is more than the
anticipated sublease income for the lease term, this is an
indicator that the carrying amount of the right-of-use asset
associated with the head--lease may not be recoverable, and the
right-of-use asset will be assessed for impairment.
Prior accounting policy - ASC 840
Leases in which a significant portion of the risks and rewards
of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the
consolidated statements of operations on a straight-line basis over
the period of the leases.
Total operating lease rentals for factories and offices for the
years ended December 31, 2018 and 2017 amounted to US$3,759,000 and
US$2,285,000 respectively. Sublease rentals for the years ended
December 31, 2018 and 2017 amounted to US$254,000 and US$274,000
respectively.
Interest Income
Interest generated from cash and cash equivalents and short-term
investments is recorded over the period earned. It is measured
based on the actual amount of interest the Group earns.
Income Taxes
The Group accounts for income taxes under the liability method.
Under the liability method, deferred income tax assets and
liabilities are determined based on the differences between the
financial reporting and income tax bases of assets and liabilities
and are measured using the income tax rates that will be in effect
when the differences are expected to reverse. A valuation allowance
is recorded when it is more likely than not that some
of the net deferred income tax asset will not be realized.
The Group accounts for an uncertain tax position in the
consolidated financial statements only if it is more likely than
not that the position is sustainable based on its technical merits
and consideration of the relevant tax authority's widely understood
administrative practices and precedents. If the recognition
threshold is met, the Group records the largest amount of tax
benefit that is greater than 50 percent likely to be realized upon
ultimate settlement.
The Group recognizes interest and penalties for income taxes, if
any, under income tax payable on its consolidated balance sheets
and under other expenses in its consolidated statements of
operations.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a
business enterprise during a period from transactions, and other
events and circumstances from non-owner sources, and currently
consists of net loss and foreign currency translation (loss)/gain
related to the Company's subsidiaries.
Losses per Share
Basic losses per share is computed by dividing net loss a
ttributable to the Company by the weighted average number of
outstanding ordinary shares in issue during the year. Weighted
average number of outstanding ordinary shares in issue excludes
treasury shares.
Diluted losses per share is computed by dividing net loss
attributable to the Company by the weighted average number of
outstanding ordinary shares in issue and dilutive ordinary share
equivalents outstanding during the year. Dilutive ordinary share
equivalents include ordinary shares and treasury shares issuable
upon the exercise or settlement of share-based awards issued by the
Company using the treasury stock method. The computation of diluted
losses per share does not assume conversion, exercise, or
contingent issuance of securities that would have an anti-dilutive
effect.
Segment Reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief executive officer who is
the Group's chief operating decision maker. The chief operating
decision maker review s the Group's internal reporting in order to
assess performance and allocate resources and determined that the
Group's reportable segments are as disclosed in Note 25.
Profit Appropriation and Statutory Reserves
The Group's subsidiaries and equity investees established in the
PRC are required to make appropriations to certain
non-distributable reserve funds.
In accordance with the relevant laws and regulations established
in the PRC, the Company's subsidiaries registered as wholly-owned
foreign enterprise have to make appropriations from their after-tax
profits (as determined under generally accepted accounting
principles in the PRC ("PRC GAAP")) to reserve funds including
general reserve fund, enterprise expansion fund and staff bonus and
welfare fund. The appropriation to the general reserve fund must be
at least 10% of the after-tax profits calculated in accordance with
PRC GAAP. Appropriation is not required if the general reserve fund
has reached 50% of the registered capital of the company.
Appropriations to the enterprise expansion fund and staff bonus and
welfare fund are made at the respective company's discretion. For
the Group's equity investees, the amount of appropriations to these
funds are made at the discretion of their respective boards.
In addition, Chinese domestic companies must make appropriations
from their after-tax profits as determined under PRC GAAP to
non-distributable reserve funds including statutory surplus fund
and discretionary surplus fund. The appropriation to the statutory
surplus fund must be 10% of the after-tax profits as determined
under PRC GAAP. Appropriation is not required if the statutory
surplus fund has reached 50% of the registered capital of the
company. Appropriation to the discretionary surplus fund is made at
the respective company's discretion.
The use of the general reserve fund, enterprise expansion fund,
statutory surplus fund and discretionary surplus fund is restricted
to the offsetting of losses or increases to the registered capital
of the respective company. The staff bonus and welfare fund is a
liability in nature and is restricted to fund payments of special
bonus to employees and for the collective welfare of employees. All
these reserves are not permitted to be transferred to the company
as cash dividends, loans or advances, nor can they be distributed
except under liquidation.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB")
issued ASU 2016-13 Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"), which replaces the incurred loss methodology with an
expected loss methodology that is referred to as the current
expected credit loss ("CECL") methodology. The measurement of
expected credit losses under the CECL methodology is applicable to
financial assets measured at amortized cost, including accounts
receivable and other receivables. The Group currently does not
expect ASU 2016-13 to have a material impact to the Group's
consolidated financial statements.
Amendments that have been issued by the FASB or other
standards--setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
Group's consolidated financial statements
upon adoption.
4. Fair Value Disclosures
The following table presents the Group's financial instruments
by level within the fair value hierarchy:
Fair Value Measurement Using
----------------------------------
Level Level Level
1 2 3 Total
--------- ------ ----- --------
(in US$'000)
As at December 31, 2019
Cash and cash equivalents 121,157 - - 121,157
Short-term investments 96,011 - - 96,011
========= ====== ===== ========
As at December 31, 2018
Cash and cash equivalents 86,036 - - 86,036
Short-term investments 214,915 - - 214,915
========= ====== ===== ========
Accounts receivable, other receivables, amounts due from related
parties, accounts payable, other payables and amounts due to
related parties are carried at cost, which approximates fair value
due to the short-term nature of these financial instruments, and
are therefore excluded from the above table. Bank borrowings are
floating rate instruments and carried at amortized cost, which
approximates their fair values, and are therefore excluded from the
above table.
5. Cash and Cash Equivalents
December 31,
---------------
2019 2018
------- ------
(in US$'000)
Cash at bank and on hand 85,990 78,556
Bank deposits maturing in three months or less
(note (a)) 35,167 7,480
------- ------
121,157 86,036
======= ======
Denominated in:
US$ (note (b)) 84,911 58,291
RMB (note (b)) 27,768 23,254
UK Pound Sterling ("GBP") (note (b)) 335 331
Hong Kong dollar ("HK$") 8,143 4,160
------- ------
121,157 86,036
======= ======
Notes:
(a) The weighted average effective interest rate on bank
deposits for the years ended December 31, 2019 and 2018 was 2.15%
per annum and 1.98 % per annum respectively (with maturities
ranging from 5 to 64 days and
from 7 to 90 days respectively).
(b) Certain cash and bank balances denominated in RMB , US$ and
GBP were deposited with banks in the PRC. The conversion of these
balances into foreign currencies is subject to the rules and
regulations of foreign
exchange control promulgated by the PRC government.
6. Short-term Investments
December 31,
---------------
2019 2018
------ -------
(in US$'000)
Bank deposits maturing over three months (note)
Denominated in:
US$ 73,986 214,538
HK$ 22,025 377
------ -------
96,011 214,915
====== =======
Note: The weighted average effective interest rate on bank
deposits for the years ended December 31, 2019 and 2018 was 2.65%
per annum and 2.18% per annum respectively (with maturities ranging
from 91 to 129 days and 91 to
100 days respectively).
7. Accounts Receivable -Third Parties
Accounts receivable from contracts with customers, net of
allowance for doubtful accounts, consisted of the following:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Accounts receivable, gross 41,426 40,217
Allowance for doubtful accounts (16) (41)
------ ------
Accounts receivable, net 41,410 40,176
====== ======
Substantially all accounts receivable are denominated in RMB,
US$ and HK$ and are due within one year from the end of the
reporting periods. The carrying values of accounts receivable
approximate their fair values due to their short-term
maturities.
Movements on the allowance for doubtful accounts:
2019 2018 2017
--------- ----- -------
(in US$'000)
As at January 1 41 258 2,720
Increase in allowance for doubtful accounts 16 21 242
Decrease in allowance due to subsequent
collection (41) (223) -
Write-off (note) - (1) (2,874)
Exchange difference - (14) 170
--------- ----- -------
As at December 31 16 41 258
========= ===== =======
Note: In December 2015, the Group recorded a provision amounting
to approximately US$1,322,000 which represented an outstanding
balance due from a distributor. In January 2016, the Group
terminated the distributor's exclusive distribution rights and in
December 2017, the amount due was written off along with other
allowance for doubtful accounts balances carried forward from prior
years.
8. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the
following:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Prepayments 3,767 4,250
Purchase rebates 173 190
Deposits 898 856
Value-added tax receivables 8,760 6,605
Interest receivables 537 583
Others 1,634 950
------ ------
15,769 13,434
====== ======
9. Inventories
Inventories, net of provision for excess and obsolete
inventories, consisted of the following:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Raw materials 2,274 652
Finished goods 13,934 11,657
------ ------
16,208 12,309
====== ======
10. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Furniture
and
fixtures,
other
Plant equipment
Leasehold and and motor Construction
Buildings improvements equipment vehicles in progress Total
--------- ------------ --------- --------- ------------ -------
(in US$'000)
Cost
As at January 1, 2019 2,272 13,684 3,218 16,643 625 36,442
Additions - 587 247 3,470 5,329 9,633
Disposals - - - (812) - (812)
Transfers - 3,103 1,096 755 (4,954) -
Exchange differences (60) (352) (87) (485) (72) (1,056)
--------- ------------ --------- --------- ------------ ----------
As at December 31, 2019 2,212 17,022 4,474 19,571 928 44,207
--------- ------------ --------- --------- ------------ ----------
Accumulated depreciation
As at January 1, 2019 1,330 6,244 782 11,470 - 19,826
Depreciation 114 2,270 402 2,058 - 4,844
Disposals - - - (720) - (720)
Exchange differences (38) (210) (29) (321) - (598)
--------- ------------ --------- --------- ------------ ----------
As at December 31, 2019 1,406 8,304 1,155 12,487 - 23,352
--------- ------------ --------- --------- ------------ ----------
Net book value
As at December 31, 2019 806 8,718 3,319 7,084 928 20,855
========= ============ ========= ========= ============ ==========
Furniture
and
fixtures,
other
Plant equipment
Leasehold and and motor Construction
Buildings improvements equipment vehicles in progress Total
--------- ------------ --------- --------- ------------ -------
(in US$'000)
Cost
As at January 1, 2018 2,372 9,057 2,568 15,154 2,558 31,709
Additions - 920 48 1,424 4,110 6,502
Disposals - (130) (2) (223) - (355)
Transfers - 4,253 742 945 (5,940) -
Exchange differences (100) (416) (138) (657) (103) (1,414)
--------- ------------ --------- --------- ------------ ----------
As at December 31, 2018 2,272 13,684 3,218 16,643 625 36,442
--------- ------------ --------- --------- ------------ ----------
Accumulated depreciation
As at January 1, 2018 1,141 5,296 499 10,553 - 17,489
Depreciation 120 1,323 316 1,727 - 3,486
Disposals - (117) (2) (203) - (322)
Transfers 127 - - (127) - -
Exchange differences (58) (258) (31) (480) - (827)
--------- ------------ --------- --------- ------------ ----------
As at December 31, 2018 1,330 6,244 782 11,470 - 19,826
--------- ------------ --------- --------- ------------ ----------
Net book value
As at December 31, 2018 942 7,440 2,436 5,173 625 16,616
========= ============ ========= ========= ============ ==========
Depreciation for the year ended December 31, 2017 was
US$2,478,000.
11. Leases
The Group leases various offices, factories and other assets.
Lease contracts are typically within a period of 1 to 5 years.
Leases consisted of the following:
December 31,
2019
-------------
(in US$'000)
Right-of-use assets
Offices (note) 5,281
Factories 112
Others 123
-------------
Total right-of-use assets 5,516
=============
Lease liabilities-current 3,216
Lease liabilities-non-current 3,049
-------------
Total lease liabilities 6,265
=============
Note: Includes (i) US$0.8 million right-of-use asset for offices
in the United States of America that is leased through July 2024 in
which the contract has an option to renew the lease up to an
additional 3 years; and (ii) US$0.9 million right-of-use asset for
corporate offices in Hong Kong that is leased through May 2021 in
which the contract has a termination option with 3-months advance
notice. The renewal and termination options were not recognized as
part of the right--of--use assets and lease liabilities as it was
uncertain that the Group will exercise such options.
Lease activities are summarized as follows:
Year Ended
December
31, 2019
-------------
(in US$'000)
Lease expenses:
Short-term leases with lease terms equal or less than
12 months 311
Leases with lease terms greater than 12 months (note) 3,702
4,013
=============
Sublease rental income 61
=============
Cash paid on lease liabilities 3,886
=============
Non-cash: Lease liabilities recognized from obtaining
right--of--use assets 3,197
=============
Note: Includes US$0.3 million in accelerated amortization on
right--of--use asset for retail space in the United Kingdom leased
through May 2022. The Group had subleased the retail space through
May 2022 to a third-party and in December 2019, the sublease was
discontinued and the Group recorded accelerated amortization after
determining that additional sublease rental income was
uncertain.
The weighted average remaining lease term and the weighted
average discount rate as at December 31, 2019 was 2.80 years and
4.10% respectively.
Future lease payments are as follows:
December 31,
2019
-------------
(in US$'000)
Lease payments:
Not later than 1 year 3,402
Between 1 to 2 years 1,302
Between 2 to 3 years 878
Between 3 to 4 years 796
Between 4 to 5 years 268
-------------
Total lease payments (note) 6,646
Less: Discount factor (381)
-------------
Total lease liabilities 6,265
=============
Note: Excludes future lease payments on a lease not commenced as
at December 31, 2019 in the aggregate amount of US$1.2 million.
1 2 . Investments in Equity Investees
Investments in equity investees co nsisted of the following:
December 31,
---------------
2019 2018
------ -------
(in US$'000)
HBYS 22,271 60,992
SHPL 76,226 68,812
NSPL (note) - 8,102
Other 447 412
------ -------
98,944 138,318
====== =======
Note: On December 9, 2019, NSPL became a subsidiary of the Group. Refer to Note 2.
Particulars regarding the principal equity investees are
disclosed in Note 2. All of the equity investees
are private companies and there are no quoted market price s available for their shares.
Summarized financial information for the significant equity
investees HBYS, SHPL and NSPL is as follows:
(i) Summarized balance sheet s
Commercial Platform Innovation Platform
--------------------------------------- ---------------------
Prescription
Consumer Health Drugs Drug R&D
HBYS SHPL NSPL
------------------- ------------------ ---------------------
December 31,
--------------------------------------------------------------
2019 2018 2019 2018 2019 2018
--------- -------- -------- -------- ------- ------------
(in US$'000)
Current assets 124,704 116,020 141,268 124,512 - 17,320
Non-current assets 95,096 100,353 91,098 98,532 - -
Current liabilities (124,051) (73,974) (79,533) (84,357) - (1,117)
Non-current liabilities (48,690) (17,302) (6,074) (6,909) - -
--------- -------- -------- -------- ------- ------------
Net assets 47,059 125,097 146,759 131,778 - 16,203
Non-controlling interests (2,518) (3,113) - - - -
--------- -------- -------- -------- ------- ------------
44,541 121,984 146,759 131,778 - 16,203
========= ======== ======== ======== ======= ============
(ii) Summarized statements of operations
Commercial Platform Innovation Platform
------------------------------------------------------ -----------------------
Consumer Health Prescription Drugs Drug R&D
HBYS SHPL NSPL (note (a))
------------------------- --------------------------- -----------------------
Year Ended December 31,
-------------------------------------------------------------------------------
2019 2018 2017 2019 2018 2017 2019 2018 2017
------- ------- ------- -------- ------- -------- ---- -------- -------
(in US$'000)
Revenue 215,403 215,838 227,422 272,082 275,649 244,557 - - -
======= ======= ======= ======== ======= ======== ==== ======== =======
91,
Gross profit 115,124 113,137 458 194,769 192,939 175,965 - - -
======= ======= ======= ======== ======= ======== ==== ======== =======
Impairment
provision (note
(b)) - - - - - - - (30,000) -
======= ======= ======= ======== ======= ======== ==== ======== =======
Interest income 160 81 22 0 582 673 757 250 188 -
======= ======= ======= ======== ======= ======== ==== ======== =======
Finance cost (16) (152) (117) - - - - - -
======= ======= ======= ======== ======= ======== ==== ======== =======
Profit/(loss) 24,4 ( 9,210
before taxation 22,926 20,703 34 72,324 69,138 66,497 199 (38,198) )
Income tax (3,
expense (note 629 ( 10,874
(c)) (3,634) (4,227) ) (11,015) (9,371) ) - - -
------- ------- ------- -------- ------- -------- ---- -------- -------
2 0
, 80 ( 9,210
Net income/(loss) 19,292 16,476 5 61,309 59,767 55,623 199 (38,198) )
Non-controlling
interests 505 384 (29) - - - - - -
------- ------- ------- -------- ------- -------- ---- -------- -------
Net income/(loss)
attributable
to the
shareholders ( 9,210
of equity investee 19,797 16,860 20,776 61,309 59,767 55,623 199 (38,198) )
======= ======= ======= ======== ======= ======== ==== ======== =======
Notes:
(a) The summarized statement of operations for NSPL for the year
ended December 31, 2019 is presented up to December 9, 2019 when
NSPL became a subsidiary of the Group. NSPL did not have any
operating activities for the year ended December 31, 2019 and
primarily incurred research and development expenses and an
impairment provision during the years ended December 31, 2018 and
2017.
(b) On November 19, 2018, NSPL's Board reviewed the progress of
its drug candidates. After due consideration of the timeline and
further investments required to complete NSPL's clinical trials and
reach the commercialization stage, it decided to explore
alternative strategic options to maximize the economic returns from
the drug candidates. NSPL performed an annual impairment assessment
of the recoverability of the related US$30 million intangible asset
by comparing its carrying amount to the higher of the asset's
value-in-use or its fair value less costs to sell. There was no
certainty of an available market or that a suitable buyer or
partner can be readily identified and accordingly, NSPL recorded a
full impairment provision for the year ended December 31, 2018. The
Company's attributable portion was US$15 million.
(c) The main entities within the HBYS and SHPL groups have been
granted the High and New Technology Enterprise ("HNTE") status.
Accordingly, the entities were eligible to use a preferential
income tax rate of 15% for the years ended December 31, 2019, 2018
and 2017.
For the years ended December 31, 2019, 2018 and 2017, other
immaterial equity investees had net income of approximately
US$95,000, US$ 236,000 and US$117,000 respectively.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented
to the carrying amount of investments in equity
investees is as follows:
Innovatio n Platform
Commercial Platform (note)
--------------------------------------------------------- ---------------------------
Consumer Health Prescription Drugs Drug R&D
HBYS SHPL NSPL
--------------------------- ---------------------------- ---------------------------
2019 2018 2017 2019 2018 2017 2019 2018 2017
-------- ------- -------- -------- -------- -------- -------- -------- -------
(in US$'000)
Opening net
assets after
non-controlling
interests as
at January
1 121,984 110,616 127,072 131,778 132,731 150,134 16,203 38,401 33,611
Impact of change
in accounting
policy (ASC
842) (19) - - (2) - - - - -
Net income/(loss)
attributable
to the
shareholders
of equity ( 9,210
investee 19,797 16,860 20,776 61,309 59,767 55,623 199 (38,198) )
Acquisition
(Note 2) - - - - - - (16,402) - -
Dividends ( 45,128 ( 81,299
declared (93,957) - ) (41,654) (54,923) ) - - -
Other
comprehensive
(loss)/income (3,264) (5,492) 7,896 (4,672) (5,797) 8,273 - - -
Investments - - - - - - - 16,000 14,000
-------- ------- -------- -------- -------- -------- -------- -------- -------
Closing net
assets after
non-controlling
interests as
at December
31 44,541 121,984 110,616 146,759 131,778 132,731 - 16,203 38,401
======== ======= ======== ======== ======== ======== ======== ======== =======
Group's share
of net assets 22,271 60,992 55,308 73,380 65,889 66,365 - 8,102 19,201
Goodwill - - - 2,846 2,923 3,052 - - -
-------- ------- -------- -------- -------- -------- -------- -------- -------
Carrying amount
of investments
as at December
31 22,271 60,992 55,308 76,226 68,812 69,417 - 8,102 19,201
======== ======= ======== ======== ======== ======== ======== ======== =======
Note: The Innovation Platform includes other immaterial equity
investees besides NSPL which became a subsidiary of the Group on
December 9, 2019. As at December 31, 2019, the aggregate carrying
amount of other immaterial equity investees was approximately
US$447,000. As at December 31, 2018 and 2017, the aggregate
carrying amount of investments in NSPL and other immaterial equity
investees was approximately US$ 8,514,000 and US$19,512,000
respectively.
The equity investees had the following capital commitments:
December
31, 2019
-------------
(in US$'000)
Property, plant and equipment
Contracted but not provided for 2,426
=============
13. Accounts Payable
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Accounts payable-third parties 19,598 14,158
Accounts payable-non-controlling shareholder
s of subsidiar ies (Note 22(iv)) 4,363 4,960
Accounts payable-related party (Note 22(ii)) - 6,507
------ ------
23,961 25,625
====== ======
Substantially all accounts payable are denominated in RMB and
US$ and due within one year from the end of the reporting period.
The carrying values of accounts payable approximate their fair
values due to their short-term maturities.
14. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the
following:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Accrued salaries and benefits 12,970 8,715
Accrued research and development expenses 48,531 28,883
Accrued selling and marketing expenses 3,337 4,675
Accrued administrative and other general expenses 8,699 6,181
Deferred government incentives 445 1,817
Deposits 1,778 1,230
Dividend payable to non-controlling shareholder
of subsidiary (Note 22(iv)) - 1,282
Others 5,864 3,544
------ ------
81,624 56,327
====== ======
15. Bank Borrowings
Bank borrowings consisted of the following :
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Non-current 26,818 26,739
====== ======
The weighted average interest rate for outstanding bank
borrowings for the years ended December 31, 2019, 2018 and 2017 was
3.30% per annum, 2.79% per annum and 1.90% per annum respectively.
In addition, the Group incurred guarantee fees of US$320,000 for
the year ended December 31, 2017, which was 0.76% per annum of the
weighted average outstanding bank borrowings. No guarantee fees
were incurred subsequent to December 31, 2017. The carrying amounts
of the Group's bank borrowings were denominated in HK$.
(i) 3-year term loan and 18-month revolving loan facilities
In November 2017, the Group through its subsidiary, entered into
facility agreements with a bank for the provision of unsecured
credit facilities in the aggregate amount of HK$400,000,000
(US$51,282,000). The credit facilities included (i) a
HK$210,000,000 (US$26,923,000) 3-year term loan facility and (ii) a
HK$190,000,000 (US$24,359,000) 18-month revolving loan facility.
The term loan bore interest at the Hong Kong Interbank Offered Rate
("HIBOR") plus 1.50% per annum and an upfront fee of HK$1,575,000
(US$202,000). The revolving loan facility bore interest at HIBOR
plus 1.25% per annum. These credit facilities were guaranteed by
the Company. The term loan was drawn in May 2018 and was fully
repaid in June 2019. The revolving loan facility expired in May
2019.
(ii) 2-year revolving loan facilities
In August 2018, the Group through its subsidiary, entered into
two separate facility agreements with banks for the provision of
unsecured credit facilities in the aggregate amount of
HK$507,000,000 (US$65,000,000). The first credit facility is a
HK$351,000,000 (US$45,000,000) revolving loan facility, with a term
of 2 years and an interest rate at HIBOR plus 1.35% per annum. The
second credit facility is a HK$156,000,000 (US$20,000,000)
revolving loan facility, with a term of 2 years and an interest
rate at HIBOR plus 1.35% per annum. These credit facilities are
guaranteed by the Company. As at December 31, 2019 and 2018, no
amount has been drawn from either of the revolving loan
facilities.
In February 2017, the Group through its subsidiary, entered into
two separate facility agreements with the banks for the provision
of unsecured credit facilities in the aggregate amount of
HK$546,000,000 (US$70,000,000). The first credit facility included
(i) a HK$156,000,000 (US$20,000,000) term loan facility and (ii) a
HK$195,000,000 (US$25,000,000) revolving loan facility, both with a
term of 18 months and an interest rate at HIBOR plus 1.25% per
annum. The second credit facility included (i) a HK$78,000,000
(US$10,000,000) term loan facility and (ii) a HK$117,000,000
(US$15,000,000) revolving loan facility, both with a term of 18
months and an interest rate at HIBOR plus 1.25% per annum. The term
loans from the first and second credit facilities were repaid in
May 2018. Both revolving loan facilities were terminated in August
2018.
(iii) 3-year revolving loan facility and 3-year term loan and revolving loan facilities
In November 2018, the Group through its subsidiary, renewed a
3-year revolving loan facility with a bank in the amount of
HK$234,000,000 (US$30,000,000) with an interest rate at HIBOR plus
0.85% per annum. This credit facility is guaranteed by the Company.
As at December 31, 2019 and 2018, no amount has been drawn from the
revolving loan facility.
In May 2019, the Group through its subsidiary, entered into a
separate facility agreement with the bank for the provision of
additional unsecured credit facilities in the aggregate amount of
HK$400,000,000 (US$51,282,000). The 3-year credit facilities
include (i) a HK$210,000,000 (US$26,923,000) term loan facility and
(ii) a HK$190,000,000 (US$24,359,000) revolving loan facility, both
with an interest rate at HIBOR plus 0.85% per annum, and an upfront
fee of HK$819,000 (US$105,000) on the term loan. These credit
facilities are guaranteed by the Company. The term loan was drawn
in October 2019 and is due in May 2022. As at December 31, 2019, no
amount has been drawn from the revolving loan facility.
The Group's bank borrowings are repayable as from the date s
indicated as follows:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Not later than 1 year - -
Between 1 to 2 years - 26,923
Between 2 to 3 years 26,923 -
------ ------
26,923 26,923
====== ======
As at December 31, 2019 and 2018, the Group had unutilized bank
borrowing facilities of HK$931,000,000 (US$119,359,000).
16. Commitments and Contingencies
The Group had the following capital commitments:
December 31,
2019
-------------
(in US$'000)
Property, plant and equipment
Contracted but not provided for 1,502
=============
The Group does not have any other significant commitments or
contingencies.
17 . Ordinary Shares
Pursuant to a resolution passed in the Annual General Meeting on
April 24, 2019, the Company's authorized share capital was
increased from US$75,000,000 to US$150,000,000 by the addition of
75,000,000 ordinary shares of US$1.00 each (equivalent to
750,000,000 ordinary shares of US$0.10 each after the share split
effective on May 30, 2019) in the share capital of the Company.
Pursuant to a resolution passed in the Extraordinary General
Meeting on May 29, 2019, with effect from May 30, 2019, each
ordinary share of the Company was subdivided into 10 ordinary
shares and the par value per ordinary share was changed from
US$1.00 to US$0.10. All Company ordinary share and per share
amounts presented were adjusted retroactively as the share split
was effective when the consolidated financial statements were
issued.
As at December 31, 2019, the Company is authorized to issue
1,500,000,000 ordinary shares.
A summary of ordinary shares transactions (in thousands) is as
follows:
2019 2018 2017
------- ------- -------
As at January 1 666,577 664,470 607,058
Public offering (note) - - 56,849
Share option exercises 329 2,107 563
As at December 31 666,906 666,577 664,470
======= ======= =======
Note: In October 2017, the Company issued 56,849,050 ordinary
shares in the form of 11,369,810 ADS for gross proceeds of US$301.3
million. Issuance costs totaled US$8.6 million.
Each ordinary share is entitled to one vote. The holders of
ordinary shares are also entitled to receive dividends whenever
funds are legally available and when declared by the Board of
Directors of the Company.
18. Share-based Compensation
(i) Share-based Compensation of the Company
The Company conditionally adopted a share option scheme on June
4, 2005 (as amended on March 21, 2007) and such scheme has a term
of 10 years. It expired in 2016 and no further share options can be
granted. Another share option scheme was conditionally adopted on
April 24, 2015 (the "HCML Share Option Scheme"). Pursuant to the
HCML Share Option Scheme, the Board of Directors of the Company
may, at its discretion, offer any employees and directors
(including Executive and Non-executive Directors but excluding
Independent Non-executive Directors) of the Company, holding
companies of the Company and any of their subsidiaries or
affiliates, and subsidiaries or affiliates of the Company share
options to subscribe for shares of the Company.
As at December 31, 2019, the aggregate number of shares issuable
under the HCML Share Option Scheme is 23,130,970 ordinary shares
and the aggregate number of shares issuable under the prior share
option scheme which expired in 2016 is 1,516,180 ordinary shares.
Additionally, the number of shares authorized but unissued was
833,093,550 ordinary shares.
Share options granted are generally subject to a four--year
vesting schedule, depending on the nature and the purpose of the
grant. Share options subject to the four--year vesting schedule, in
general, vest 25% upon the first anniversary of the vesting
commencement date as defined in the grant letter, and 25% every
subsequent year. However, certain share option grants may have a
different vesting schedule as approved by the Board of Directors of
the Company. No outstanding share options will be exercisable or
subject to vesting after the expiry of a maximum of eight to ten
years from the date of grant.
A summary of the Company's share option activity and related
information is as follows:
Weighted average
Number of Weighted average remaining Aggregate
share e xercise price in c ontractual life i ntrinsic value
options GBP per share (years) (in GBP'000)
----------- ------------------ ----------------- ----------------
Outstanding at January 1, 2017 10,395,960 1.50 6.77 7,900
Granted 1,500,000 3.11
Exercised (563,090) 0.52
Cancelled (68,750) 0.61
-----------
Outstanding at December 31, 2017 11,264,120 1.77 6.29 43,158
===========
Granted 10,606,260 4.69
Exercised (2,107,080) 1.40
Cancelled (1,208,450) 4.30
-----------
Outstanding at December 31, 2018 18,554,850 3.31 7.35 15,158
===========
Granted 2,315,000 3.18
Exercised (329,000) 0.61
Cancelled (1,012,110) 4.61
Expired (96,180) 4.65
-----------
Outstanding at December 31, 2019 19,432,560 3.27 6.67 18,668
===========
Vested and exercisable at December 31,
2017 9,514,120 1.55 5.81 38,508
Vested and exercisable at December 31 ,
2018 8,032,040 1.68 4.84 14,843
Vested and exercisable at December 31 ,
2019 10,139,170 2.39 4.89 16,654
In estimating the fair value of share options granted, the
following assumptions were used in the Polynomial model for awards
granted in the periods indicated:
Year Ended December 31,
---------------------------------
2011 2013 2017 2018 2019
----- ----- ----- ----- -----
Weighted average grant
date fair value of share
options (in GBP per share) 0.18 0.32 1.27 1.67 1.07
Significant inputs into
the valuation model (weighted
average):
Exercise price (in GBP
per share) 0.44 0.61 3.11 4.69 3.18
Share price at effective
date of grant (in GBP per
share) 0.43 0.61 3.11 4.66 3.07
Expected volatility (note
(a)) 46.6% 36.0% 36.3% 37.6% 38.4%
Risk--free interest rate
(note (b)) 3.13% 3.16% 1.17% 1.46% 0.56%
Contractual life of share
options (in years) 10 10 10 10 10
Expected dividend yield
(note (c)) 0% 0% 0% 0% 0%
Notes:
(a) The Company calculated its expected volatility with
reference to the historical volatility prior to the issuances of
share options.
(b) The risk-free interest rates used in the Polynomial model
are with reference to the sovereign yield of the United Kingdom
because the Company's ordinary shares are currently listed on AIM
and denominated in GBP.
(c) The Company has not declared or paid any dividends and does
not currently expect to do so in the foreseeable future, and
therefore uses an expected dividend yield of zero in the Polynomial
model.
The Company will issue new shares to satisfy share option
exercises. The following table summarizes the Company's share
option exercises:
Year Ended December
31,
-----------------------
2019 2018 2017
------- ------ ------
(in US$'000)
Cash received from share options exercised 251 3,868 380
Total intrinsic value of share options exercised 1,189 9,394 2,290
The Group recognizes compensation expense on a graded vesting
approach over the requisite service period. The following table
presents share--based compensation expense included in the Group's
consolidated statements of operations:
Year Ended December
31,
-----------------------
2019 2018 2017
------- ------ ------
(in US$'000)
Research and development expenses 6,634 7,280 1,284
Administrative expenses 539 623 -
------- ------ ------
7,173 7,903 1,284
======= ====== ======
As at December 31, 2019, the total unrecognized compensation
cost was US$9,229,000, and will be recognized on a graded vesting
approach over the weighted average remaining service period of 2.74
years.
(ii) LTIP
The Company grants awards under the LTIP to participating
directors and employees, giving them a conditional right to receive
ordinary shares of the Company or the equivalent ADS (collectively
the "Awarded Shares") to be purchased by the Trustee up to a cash
amount. Vesting will depend upon continued employment of the award
holder with the Group and will otherwise be at the discretion of
the Board of Directors of the Company. Additionally, some awards
are subject to change based on annual performance targets prior to
their determination date.
LTIP awards prior to the determination date
Performance targets vary by award, and may include targets for
shareholder returns, free cash flows, revenues, net profit after
taxes and the achievement of clinical and regulatory milestones. As
the extent of achievement of the performance targets is uncertain
prior to the determination date, a probability based on
management's assessment on the achievement of the performance
target has been assigned to calculate the amount to be recognized
as an expense over the requisite period with a corresponding entry
to liability.
LTIP awards after the determination date
Upon the determination date, the Company will pay a determined
monetary amount, up to the maximum cash amount based on the actual
achievement of the performance target specified in the award, to
the Trustee to purchase the Awarded Shares. Any cumulative
compensation expense previously recognized as a liability will be
transferred to additional paid--in capital, as an equity--settled
award. If the performance target is not achieved, no Awarded Shares
of the Company will be purchased and the amount previously recorded
in the liability will be reversed through share-based compensation
expense.
Granted awards under the LTIP are as follows:
Maximum cash amount per annum Covered Performance target
Grant date (in US$ millions) financial years determination date
--------------------------------- ----------------------------- --------------- ------------------
October 19, 2015 1.8 2014 - 2016 note (a)
March 24, 2016 0.3 note (b) note (b)
March 15, 2017 0.4 note (c) note (c)
March 15, 2017 and August 2, 2017 6.0 2017 - 2019 note (d)
December 15, 2017 0.5 2018 - 2019 note (d)
August 6, 2018 0.1 2018 - 2019 note (d)
December 14, 2018 1.5 2019 note (d)
August 5, 2019 0.7 2019 note (d)
October 10, 2019 0.1 note (b) note (b)
Notes:
(a) The annual performance target determination date is the date
of the announcement of the Group's annual results for the covered
financial year and vesting occurs one business day after the
publication date of the annual report of the Company for the
financial year falling two years after the covered financial year
to which the LTIP award relates.
(b) This award does not stipulate performance targets and is
subject to a vesting schedule of 25% on each of the first, second,
third and fourth anniversaries of the date of grant.
(c) This award did not stipulate performance targets and vested
one business day after the publication date of the annual report
for the 2017 financial year.
(d) The annual performance target determination date is the date
of the announcement of the Group's annual results for the covered
financial year and vesting occurs two business days after the
announcement of the Group's annual results for the financial year
falling two years after the covered financial year to which the
LTIP award relates.
The Trustee has been set up solely for the purpose of purchasing
and holding the Awarded Shares during the vesting period on behalf
of the Group using funds provided by the Group. On the
determination date, if any, the Company will determine the cash
amount, based on the actual achievement of each annual performance
target, for the Trustee to purchase the Awarded Shares. The Awarded
Shares will then be held by the Trustee until they are vested.
The Trustee's assets include treasury shares and funds for
additional treasury shares, trustee fees and expenses. The number
of treasury shares (in the form of ordinary shares or ADS of the
Company) held by the Trustee were as follows:
Number of
treasury Cost
shares (in US$'000)
---------- --------------
As at January 1, 2017 629,215 2,390
Additions 350,940 1,367
Vested (420,380) (1,800)
As at December 31, 2017 559,775 1,957
Additions 795,005 5,451
Vested (233,750) (731)
---------- --------------
As at December 31, 2018 1,121,030 6,677
Additions 60,430 346
Vested (240,150) (944)
---------- --------------
As at December 31, 2019 941,310 6,079
========== ==============
Based on the actual achievement of performance targets for the
2019 financial year, the Group expects to purchase up to
US$6,766,000 of treasury shares in 2020.
For the years ended December 31, 2019, 2018 and 2017,
US$262,000, US$692,000 and US$79,000 of the LTIP awards were
forfeited respectively.
The following table presents the share-based compensation
expenses recognized under the LTIP awards:
Year Ended December 31,
---------------------------
2019 2018 2017
-------- -------- -------
(in US$'000)
Research and development expenses 2,640 1,000 1,894
Selling and administrative expenses 1,779 1,227 1,529
-------- -------- -------
4,419 2,227 3,423
======== ======== =======
Recorded with a corresponding credit to:
Liability 2,694 764 2,336
Additional paid-in capital 1,725 1,463 1,087
-------- -------- -------
4,419 2,227 3,423
======== ======== =======
For the years ended December 31, 2019, 2018 and 2017,
US$526,000, US$1,770,000 and US$451,000 were reclassified from
liability to additional paid-in capital respectively upon LTIP
awards reaching the determination date. As at December 31, 2019 and
2018, US$3,403,000 and US$1,235,000 were recorded as liabilities
respectively for LTIP awards prior to the determination date.
As at December 31, 2019, the total unrecognized compensation
cost was approximately US$10,808,000, which considers expected
performance targets and the amount expected to vest, and will be
recognized over the requisite periods.
19 . Revenues
The following table presents disaggregated revenue:
ASC 606
-----------------------------------
Year Ended December 31, 2019
-----------------------------------
Commercial
Innovation Platform
Platform (note (a)) Total
----------- ------------ --------
(in US$'000)
Goods-Innovative Medicines (note
(b)) - 8,113 8,113
Goods-Distribution - 175,514 175,514
Services 16,026 2,584 18,610
Royalties (note (b)) - 2,653 2,653
----------- ------------ --------
16,026 188,864 204,890
=========== ============ ========
Third parties 15,532 181,227 196,759
Related parties (Note 22(i)) 494 7,637 8,131
----------- ------------ --------
16,026 188,864 204,890
=========== ============ ========
ASC 606
-----------------------------------
Year Ended December 31, 2018
-----------------------------------
Commercial
Innovation Platform
Platform (note (a)) Total
----------- ------------ --------
(in US$'000)
Goods-Innovative Medicines (note
(b)) - 3,324 3,324
Goods-Distribution - 161,216 161,216
Services 25,513 11,660 37,173
Royalties (note (b)) - 261 261
Licenses (note (c)) 12,135 - 12,135
----------- ------------ --------
37,648 176,461 214,109
=========== ============ ========
Third parties 29,816 168,155 197,971
Related parties (Note 22(i)) 7,832 8,306 16,138
----------- ------------ --------
37,648 176,461 214,109
=========== ============ ========
ASC 605
-----------------------------------
Year Ended December 31, 2017
-----------------------------------
Commercial
Innovation Platform
Platform (note (a)) Total
----------- ------------ --------
(in US$'000)
Goods-Distribution - 203,346 203,346
Services 26,540 1,860 28,400
Milestones (note (d)) 9,457 - 9,457
35,997 205,206 241,203
=========== ============ ========
Third parties 26,315 196,720 223,035
Related parties (Note 22(i)) 9,682 8,486 18,168
35,997 205,206 241,203
=========== ============ ========
Notes:
(a) Sales of goods are recognized at a point-in-time and sales
of services are recognized over time. The implementation of the
two-invoice system in China over the periods presented resulted in
a shift from a gross sales of goods revenue model to a net
fee-for-service revenue model in the Group's Commercial Platform,
as the Group does not obtain control of the goods for distribution
for relevant transactions and is thus considered an agent under ASC
606. Refer to Note 3.
(b) Goods-Innovative Medicines and royalties relate to revenue
from a prescription drug developed by the Innovation Platform and
launched into the market. It was represented under the Commercial
Platform due to its transition to the commercial stage for segment
reporting. Refer to Note 25.
(c) Under ASC 606, relates to the proportionate amount of
milestone payment allocated to the license to the commercialization
rights of a drug compound transferred at the inception date of the
relevant license and collaboration contract. During the year ended
December 31, 2018, the Group received a milestone of US$13.5
million, of which US$12.1 million was allocated to licenses and
US$1.4 million was allocated to services.
(d) Under ASC 605, relates to milestone payments recognized under the milestone method.
The following table presents liability balances from contracts
with customers:
December 31,
----------------------
2019 2018
---------- ----------
(in US$'000)
Deferred revenue
Current-Innovation Platform (note ( a) ) (1,753) (2,353)
Current-Commercial Platform (note (b)) (353) (187)
---------- ----------
(2,106) (2,540)
========== ==========
Non-current-Innovation Platform (note ( a)
) (133) (408)
---------- ----------
Total deferred revenue (note (c) and (d)) (2,239) (2,948)
========== ==========
Notes:
(a) Innovation Platform deferred revenue relates to the
unamortized upfront and milestone payments and advance
consideration received for cost reimbursements, which are
attributed to research and development services that have not yet
been rendered as at the reporting date, as well as payments in
advance from a customer for goods that have not been transferred as
at the reporting date.
(b) Commercial Platform deferred revenue relates to payments in
advance from customers for goods that have not been transferred and
services that have not been rendered to the customer as at the
reporting date.
(c) Estimated deferred revenue to be recognized over time as
from the date indicated is as follows:
December
31, 2019
-------------
(in US$'000)
Not later than 1 year 2,106
Between 1 to 2 years 133
2,239
=============
(d) As at January 1, 2019, deferred revenue was US$2.9 million,
of which US$ 2.2 million was recognized during the year ended
December 31, 2019.
Innovation Platform
Innovation Platform revenue is mainly from license and
collaboration agreements as follows:
License and collaboration agreement with Eli Lilly
On October 8, 2013, the Group entered into a licensing,
co--development and commercialization agreement in China with Eli
Lilly and Company ("Lilly") relating to fruquintinib ("Lilly
Agreement"), a targeted oncology therapy for the treatment of
various types of solid tumors. Under the terms of the Lilly
Agreement, the Group is entitled to receive a series of payments up
to US$86.5 million, including upfront payments and development and
regulatory approval milestones. Fruquintinib was successfully
commercialized in China in November 2018, and the Group receives
tiered royalties in the range of 15% to 20% on all sales in China.
Development costs after the first development milestone are shared
between the Group and Lilly.
In December 2018, the Group entered into various amendments to
the Lilly Agreement (the "2018 Amendment"). Under the terms of the
2018 Amendment, the Group is entitled to determine and conduct
future life cycle indications ("LCI") development of fruquintinib
in China beyond the three initial indications specified in the
Lilly Agreement and will be responsible for all associated
development costs. In return, the Group will receive additional
regulatory approval milestones of US$20 million for each LCI
approved, for up to three LCI or US$60 million in aggregate, and
will increase tiered royalties to a range of 15% to 29% on all
fruquintinib sales in China upon the commercial launch of the first
LCI.
The 2018 Amendment provides the Group rights to promote
fruquintinib in provinces that represent 30% of the sales of
fruquintinib in China upon the occurrence of certain commercial
milestones by Lilly. Such provinces will expand to 40% of the sales
of fruquintinib in China subject to additional criteria being met.
In return, Lilly will pay the Group service fees for such promotion
and marketing services performed. Additionally, Lilly has provided
consent, and freedom to operate, for the Group to enter into joint
development collaborations with certain third-party pharmaceutical
companies to explore combination treatments of fruquintinib and
various immunotherapy agents.
Upfront and cumulative milestone payments according to the Lilly
Agreement received up to December 31, 2019 are summarized as
follows:
(in US$'000)
Upfront payment 6,500
Development milestone payments achieved 40,000
=============
In addition, the Group signed an option agreement which grants
Lilly an exclusive option to expand the fruquintinib rights beyond
Hong Kong and China. The option agreement further sets out certain
milestone payments and royalty rates that apply in the event the
option is exercised on a global basis. The option was determined at
the inception of the contract to have minimal value, and in January
2019, Lilly elected not to exercise the option.
The Group adopted ASC 606 on January 1, 2018 and reassessed the
Lilly Agreement under the new standard, which resulted in US$0.1
million recognition of previously deferred revenue as a cumulative
adjustment to opening accumulated losses as at January 1, 2018,
summarized as follows (in US$ millions).
ASC 605 ASC 606
--------- ----------
January 1,
December
31, 2017 Opening Adjustments 2018
--------- ------------------- ----------
Cumulative amounts recognized to
accumulated losses from:
Upfront payment (note (a)) 5.7 0.5 6.2
Milestone payments (note (b)) 23.7 (0.4) 23.3
--------- ------------------- ----------
29.4 0.1 29.5
========= =================== ==========
Notes:
(a) Upfront payment amounts deferred under ASC 605, but was
allocated to the license to fruquintinib transferred at inception
under ASC 606, resulting in additional revenue recognition on
adoption.
(b) Milestone payments had been fully recognized under ASC 605's
milestone method, but was allocated to the portion of research and
development services that had not been performed under ASC 606,
resulting in deferral of revenue on adoption.
Under ASC 606, the Group identified the following performance
obligations under the Lilly Agreement: (1) the license for the
commercialization rights to fruquintinib and (2) the research and
development services for the specified indications. The transaction
price includes the upfront payment, research and development cost
reimbursements, milestone payments and sales-based royalties.
Milestone payments were not included in the transaction price until
it became probable that a significant reversal of revenue would not
occur, which is generally when the specified milestone is achieved.
The allocation of the transaction price to each performance
obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the
contract. Based on this estimation, proportionate amounts of
transaction price to be allocated to the license to fruquintinib
and the research and development services were 90% and 10%
respectively. Control of the license to fruquintinib transferred at
the inception date of the agreement and consequently, amounts
allocated to this performance obligation were recognized at
inception. Conversely, research and development services for each
specified indication are performed over time and amounts allocated
are recognized over time using the prior and estimated future
development costs for fruquintinib as a measure of progress.
Royalties are recognized as future sales occur as they meet the
requirements for the sales-usage based royalty exception.
The Group identified the following performance obligations under
the 2018 Amendment: (1) the research and development services for
the LCI and (2) the promotion and marketing services. As at
December 31, 2019, no regulatory approval milestones were achieved
and no promotion and marketing services had commenced.
Revenue recognized under the Lilly Agreement by transaction
price type is as follows:
ASC 606 ASC 605
----------------- --------
Year Ended December 31,
---------------------------
2019 2018 2017
-------- ------- --------
(in US$'000)
Research and development cost reimbursements 3,910 9,309 12,145
Amortization of the upfront payment 88 122 1,589
Recognition and amortization of the milestone
payment s (note) 7 13,849 4,494
Royalties 2,653 261 -
Goods - Innovative Medicines 8,113 3,324 -
-------- ------- --------
14,771 26,865 18,228
======== ======= ========
Note: During the years ended December 31, 2017 and 2018, the
Group achieved milestones in relation to the acceptance and
approval respectively, of a new drug application by the National
Medical Products Administration of China for fruquintinib as a
treatment of patients with advanced colorectal cancer. During the
year ended December 31, 2019, no milestones were achieved.
License and collaboration agreement with AstraZeneca
On December 21, 2011 (as amended on August 1, 2016), the Group
and AstraZeneca AB (publ) ("AZ") entered into a global licensing,
co--development, and commercialization agreement for savolitinib
("AZ Agreement"), a novel targeted therapy and a highly selective
inhibitor of the c--Met receptor tyrosine kinase for the treatment
of cancer. Under the terms of the AZ Agreement, the Group is
entitled to receive a series of payments up to US$140 million,
including upfront payments and development and first-sale
milestones . Additionally, the AZ Agreement contains possible
significant future commercial sale milestones. Should savolitinib
be successfully commercialized outside China, the Group would
receive tiered royalties from 9% to 13% on all sales outside of
China. Subject to approval of savolitinib in papillary renal cell
carcinoma, the Group would receive increased tiered royalties from
14% to 18% on all sales outside of China, and after total aggregate
sales of savolitinib have reached US$5 billion, this royalty will
step down over a two-year period to an ongoing tiered royalty rate
from 10.5% to 14.5%. Should savolitinib be successfully
commercialized in China, the Group would receive fixed royalties of
30% based on all sales in China. Development costs for savolitinib
in China will be shared between the Group and AZ, with the Group
continuing to lead the development in China. AZ will lead and pay
for the development of savolitinib for the rest of the world.
Upfront and cumulative milestone payments according to the AZ
Agreement received up to December 31, 2019 are summarized as
follows:
(in US$'000)
Upfront payment 20,000
Development milestone payments achieved 25,000
=============
The Group adopted ASC 606 on January 1, 2018 and reassessed the
AZ Agreement under the new standard, which resulted in US$1.2
million deferral of previously recognized revenue as a cumulative
adjustment to opening accumulated losses as at January 1, 2018,
summarized as follows (in US$ millions).
ASC 605 ASC 606
--------- ----------
January 1,
December
31, 2017 Opening Adjustments 2018
--------- ------------------- ----------
Cumulative amounts recognized to
accumulated losses from:
Upfront payment (note (a)) 19.6 (0.3) 19.3
Milestone payments (note (b)) 24.9 (0.9) 24.0
--------- ------------------- ----------
44.5 (1.2) 43.3
========= =================== ==========
Notes:
(a) Upfront payment amounts allocated to research and
development services recognized under ASC 606 differed from ASC 605
due to a different basis in measuring progress on adoption ,
resulting in deferral of revenue.
(b) Milestone payments had been fully recognized under ASC 605's
milestone method, but was allocated to the portion of research and
development services that had not been performed under ASC 606 ,
resulting in deferral of revenue on adoption.
Under ASC 606, the Group identified the following performance
obligations under the AZ Agreement: (1) the license for the
commercialization rights to savolitinib and (2) the research and
development services for the specified indications. The transaction
price includes the upfront payment, research and development cost
reimbursements, milestone payments and sales-based royalties.
Milestone payments were not included in the transaction price until
it became probable that a significant reversal of revenue would not
occur, which is generally when the specified milestone is achieved.
The allocation of the transaction price to each performance
obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the
contract. Based on this estimation, proportionate amounts of
transaction price to be allocated to the license to savolitinib and
the research and development services were 95% and 5% respectively.
Control of the license to savolitinib transferred at the inception
date of the
agreement and consequently, amounts allocated to this
performance obligation were recognized at inception. Conversely,
research and development services for each specified indication are
performed over time and amounts allocated are recognized over time
using the prior and estimated future development costs for
savolitinib as a measure of progress.
Revenue recognized under the AZ Agreement by transaction price
type is as follows:
ASC 606 ASC 605
----------------- --------
Year Ended December 31,
---------------------------
2019 2018 2017
-------- ------- --------
(in US$'000)
Research and development cost reimbursements 10,883 5,876 3,058
Amortization of the upfront payment 302 273 66
Recognition and amortization of the milestone
payment s (note) 342 387 4,963
-------- ------- --------
11,527 6,536 8,087
======== ======= ========
Note: During the year ended December 31, 2017, the Group
achieved a milestone in relation to the Phase III initiation for
the secondary indication papillary renal cell carcinoma . During
the years ended December 31, 2018 and 2019, no milestones were
achieved.
20 . Research and Development Expenses
Research and development expenses are summarized as follows
:
Year Ended December 31,
---------------------------
2019 2018 2017
--------- -------- ------
(in US$'000)
Clinical trial related costs 87,777 73,693 45,250
Personnel compensation and related costs 46,246 35,340 24,848
Other research and development expenses 4,167 5,128 5,425
--------- -------- ------
138,190 114,161 75,523
========= ======== ======
21. Government Incentives
The Group receives government grants from the PRC Government
(including the National level and Shanghai Municipal City).
Government grants in the Innovation Platform are primarily given in
support of Drug R&D activities and are conditional upon i) the
Group spending a predetermined amount, regardless of success or
failure of the research and development projects and ii) the
achievement of certain stages of research and development projects
being approved by the relevant PRC government authority. They are
refundable to the PRC Government if the conditions, if any, are not
met. Government grants in the Commercial Platform are primarily
given to promote local initiatives. These government grants may be
subject to ongoing reporting and monitoring by the PRC Government
over the period of the grant.
Government incentives, which are deferred and recognized in the
consolidated statements of operations over the period necessary to
match them with the costs that they are intended to compensate, are
recognized in other payable, accruals and advance receipts (Note
14) and other non-current liabilities. For the years ended December
31, 2019, 2018 and 2017, the Group received government grants of
US$8,742,000, US$1,798,000 and US$1,323,000 respectively.
The government grants were recognized in the consolidated
statements of operations as follows:
Year Ended December 31,
---------------------------
2019 2018 2017
--------- -------- ------
(in US$'000)
Research and development expenses 6,133 1,422 876
Other income 780 573 -
--------- -------- ------
6,913 1,995 876
========= ======== ======
2 2 . Significant Transactions with Related Parties and
Non-Controlling Shareholders of Subsidiaries
The Group has the following significant transactions with
related parties and non-controlling shareholders of subsidiaries,
which were carried out in the normal course of business at terms
determined and agreed by the relevant parties.
(i) Transactions with related parties:
Year Ended December 31,
---------------------------
2019 2018 2017
------- -------- --------
(in US$'000)
Sales to:
Indirect subsidiaries of CK Hutchison 7,637 8,306 8,486
======= ======== ========
Revenue from research and development
services from:
Equity investees 494 7,832 9,682
======= ======== ========
Purchases from:
Equity investees 2,465 2,827 1,182
======= ======== ========
Rendering of marketing services from:
An indirect subsidiary of CK Hutchison 430 546 372
An equity investee 2,682 12,703 10,195
------- -------- --------
3,112 13,249 10,567
======= ======== ========
Rendering of management service s from:
An indirect subsidiary of CK Hutchison 931 922 897
======= ======== ========
Interest paid to:
An indirect subsidiary of CK Hutchison - - 132
======= ======== ========
Guarantee fee on bank borrowing to:
An indirect subsidiary of CK Hutchison - - 320
======= ======== ========
(ii) Balances with related parties included in:
December 31,
--------------
2019 2018
------- -----
(in US$'000)
Accounts receivable-related parties
Indirect subsidiaries of CK Hutchison (note
(a)) 1,844 2,709
An equity investee (note (a)) - 73
1,844 2,782
======= =====
Amounts due from related parties
Equity investees (note (a) and (b)) 24,623 889
======= =====
Amount due from a related party
An equity investee (note (b)) 16,190 -
======= =====
Accounts payable
An e quity investee (note (a)) - 6,507
------- -----
Amounts due to related parties
An indirect subsidiary of CK Hutchison (note
(c)) 366 432
======= =====
Other deferred income
An equity investee (note (d)) 1,103 1,356
======= =====
Notes:
(a) Balances with related parties are unsecured, repayable on
demand and interest-free. The carrying values of balances with
related parties approximate their fair values due to their
short-term maturities.
(b) As at December 31, 2019, dividend receivables from an equity
investee of approximately US$23,481,000 and US$16,190,000 were
included in amounts due from related parties and amount due from a
related party respectively . Amount due from a related party is
included in non-current assets as the Group and investee have
agreed that payment will be deferred until 2021.
(c) Amounts due to an indirect subsidiary of CK Hutchison are
unsecured, repayable on demand and interest-bearing if not settled
within one month.
(d) Other d eferred income represents amount s recognized from
granting of promotion and marketing rights.
(iii) Transactions with non-controlling shareholders of subsidiaries:
Year Ended December 31,
---------------------------
2019 2018 2017
-------- -------- -------
(in US$'000)
Sales 27,343 19,981 13,307
======== ======== =======
Purchases 13,380 15,568 21,236
======== ======== =======
Interest expense - 62 66
======== ======== =======
Dividend declared - 2,564 1,594
======== ======== =======
(iv) Balances with non-controlling shareholders of subsidiaries included in:
December 31,
--------------
2019 2018
------ ------
(in US$'000)
Accounts receivable-third parties 5,228 5,070
Accounts payable 4,363 4,960
Other payables, accruals and advance receipts
Dividend payable - 1,282
====== ======
Other non-current liabilities
Loan 579 579
====== ======
23 . Income Taxes
(i) Income tax expense
Year Ended December 31,
---------------------------
2019 2018 2017
-------- ------- --------
(in US$'000)
Current tax
HK (note (a)) 321 436 572
PRC (note (b)) 708 1,293 782
U.S. and others (note (c)) 636 235 -
-------- ------- --------
Total current tax 1,665 1,964 1,354
Deferred income tax 1,609 2,000 1,7 26
-------- ------- --------
Income tax expense 3,274 3,964 3, 080
======== ======= ========
Notes:
(a) The Company, two subsidiaries incorporated in the British
Virgin Islands and its Hong Kong subsidiaries are subject to Hong
Kong profits tax. In March 2018, the Hong Kong two-tiered profits
tax rates regime was signed into law under which the first HK$2.0
million (US$0.3 million) of assessable profits of qualifying
corporations will be taxed at 8.25%, with the remaining assessable
profits taxed at 16.5%. Hong Kong profits tax has been provided for
at the relevant rates on the estimated assessable profits less
estimated available tax losses, if any, of these entities as
applicable.
(b) Taxation in the PRC has been provided for at the applicable
rate on the estimated assessable profits less estimated available
tax losses, if any, in each entity. Under the PRC Enterprise Income
Tax Law (the "EIT Law"), the standard enterprise income tax ("EIT")
rate is 25%. In addition, the EIT Law provides for, among others, a
preferential tax rate of 15% for companies which qualify as HNTE.
HMPL and its wholly--owned subsidiary Hutchison MediPharma (Suzhou)
Limited quali fy as a HNTE up to December 31, 2019 and 2020
respectively .
Pursuant to the EIT law, a 10% withholding tax is levied on
dividends paid by PRC companies to their foreign investors. A lower
withholding tax rate of 5% is applicable under the China--HK Tax
Arrangement if direct foreign investors with at least 25% equity
interest in the PRC companies are Hong Kong tax residents, and meet
the conditions or requirements pursuant to the relevant PRC tax
regulations regarding beneficial ownership. Since the equity
holders of the major subsidiaries and equity investees of the
Company are Hong Kong incorporated companies and Hong Kong tax
residents, and meet the aforesaid conditions or requirements, the
Company has used 5% to provide for deferred tax liabilities on
retained earnings which are anticipated to be distributed. As at
December 31, 2019 and 2018, the amounts accrued in deferred tax
liabilities relating to withholding tax on dividends were
determined on the basis that 100% of the distributable reserves of
the major subsidiaries and equity investees operating in the PRC
will be distributed as dividends .
(c) The Company's subsidiary in the U.S. with operations in New
Jersey and New York States is subject to U.S. taxes, primarily
federal and state taxes, which have been provided for at
approximately 21% (federal) and 9% and 16.55% (New Jersey and New
York state respectively) on the estimated assessable profit
respectively. Certain income receivable by the Company is subject
to U.S. withholding tax of 30%. One of the Group's subsidiaries is
subject to Finland corporate tax at 20% on the estimated assessable
profits in relation to its permanent establishment in Finland.
The reconciliation of the Group's reported income tax expense to
the theoretical tax amount that would arise using the tax rates of
the Company against the Group's loss before income taxes and equity
in earnings of equity investees is as follows:
Year Ended December 31,
-----------------------------
2019 2018 2017
--------- -------- --------
(in US$'000)
Loss before income taxes and equity in earnings ( 53,536
of equity investees (141,105) (86,655) )
========= ======== ========
Tax calculated at the statutory tax rate
of the Company (23,282) (14,298) (8,833)
Tax effects of:
Different tax rates available in different
jurisdictions 2,027 1,349 2,531
Tax valuation allowance 25,498 19,414 11, 410
Preferential tax rate difference (177) - -
Preferential tax deduction (5,444) (5,800) (3,347)
Expenses not deductible for tax purposes 4,098 1,902 391
Utilization of previously unrecognized tax ( 387
losses (285) (329) )
Withholding tax on undistributed earnings
of PRC entities 1,894 1,983 1,98 0
Others (1,055) (257) (665)
--------- -------- --------
Income tax expense 3,274 3,964 3,08 0
========= ======== ========
( i i) Deferred tax assets and liabilities
The significant components of deferred tax assets and
liabilities are as follows:
December 31,
2019 2018
-------- --------
(in US$'000)
Deferred tax assets
Tax losses 68,481 48,046
Others 1,733 1,555
-------- --------
Total deferred tax assets 70,214 49,601
Less: Valuation allowance (69,399) (49,021)
-------- --------
Deferred tax assets 815 580
======== ========
Deferred tax liabilities
Undistributed earnings from PRC entities 3,081 4,728
Others 77 108
-------- --------
Deferred tax liabilities 3,158 4,836
======== ========
The movements in deferred tax assets and liabilities are as
follows:
2019 2018 2017
------- ------- -------
(in US'000)
As at January 1 (4,256) (3,819) (4,989)
Utilization of previously recognized withholding
tax on undistributed earnings 3,390 1,373 3,179
(Charged)/Credited to the consolidated statements
of operations
Withholding tax on undistributed earnings (1, 980
of PRC entities (1,894) (1,983) )
Deferred tax on amortization of intangible
assets 18 19 1 8
Deferred tax on provision for assets 267 (36) 236
Exchange differences 132 190 (283)
------- ------- -------
( 3,819
As at December 31 (2,343) (4,256) )
======= ======= =======
The deferred tax assets and liabilities are offset when there is
a legally enforceable right to set off and when the deferred income
taxes relate to the same fiscal authority.
The tax losses can be carried forward against future taxable
income and will expire in the following years:
December 31,
----------------
2019 2018
------- -------
(in US$'000)
No expiry date 40,897 52,866
2021 - 9
2022 182 182
2023 - -
2024 3,716 4,081
2025 35,648 34,319
2026 47,661 48,328
2027 62,794 63,303
2028 106,793 111,753
2029 154,454 -
------- -------
452,145 314,841
======= =======
The Company believes that it is more likely than not that future
operations will not generate sufficient taxable income to realize
the benefit of the deferred tax assets. The Company's subsidiaries
have had sustained tax losses, which will expire within five years
if not utilized in the case of PRC subsidiaries (ten years for
HNTEs), and which will not be utilized in the case of Hong Kong
subsidiaries as they do not generate taxable profits. Accordingly,
a valuation allowance has been recorded against the relevant
deferred tax assets arising from the tax losses.
The table below summarizes changes in the deferred tax valuation
allowance:
2019 2018 2017
------- ------- -------
(in US$'000)
As at January 1 49,021 31,662 20,145
Charged to consolidated statements of
operations 25,498 19,414 11, 410
Utilization of previously unrecognized
tax losses (285) (329) ( 387 )
Write-off of tax losses (3,142) - (558)
Others - (105) (89)
Exchange differences (1,693) (1,621) 1,141
------- ------- -------
As at December 31 69,399 49,021 31,662
======= ======= =======
As at December 31, 2019 and 2018, the Group did not have any
material unrecognized uncertain tax positions.
( i ii) Income tax payable
2019 2018 2017
------- ------- -------
(in US$'000)
As at January 1 555 979 274
Current tax 1,665 1,964 1,354
Withholding tax upon dividend declaration
from PRC entities (note (a)) 2,581 1,373 3,179
( 3,836
Tax paid (note (b)) (2,970) (3,752) )
Exchange difference (3) (9) 8
------- ------- -------
As at December 31 1,828 555 979
======= ======= =======
Notes:
(a) The amount for 2019 excludes a non-current withholding tax
of US$0.8 million which is included under other non-current
liabilities.
(b) The amount for 2019 excludes the PRC EIT of US$0.3 million
prepaid by HSPL which is included under other receivables,
prepayments and deposits.
24 . Losses per Share
(i) Basic losse s per share
Basic losses per share is calculated by dividing the net loss
attributable to the Company by the weighted average number of
outstanding ordinary shares in issue during the year . Treasury
shares held by the Trustee are excluded from the weighted average
number of outstanding ordinary shares in issue for purposes of
calculating basic losses per share.
Year Ended December 31,
-------------------------------------
2019 2018 2017
----------- ----------- -----------
Weighted average number of outstanding
ordinary shares in issue 665,683,145 664,263,820 617,171,710
=========== =========== ===========
Net loss attributable to the Company
(US$'000) (106,024) (74,805) (26,737)
Losses per share attributable to the
Company (US$ per share) (0.16) (0.11) (0.04)
(ii) Diluted losse s per share
Diluted losse s per share is calculated by dividing net loss
attributable to the Company by the weighted average number of
outstanding ordinary shares in issue and dilutive ordinary share
equivalents outstanding during the year . Dilutive ordinary share
equivalents include shares issuable upon the exercise or settlement
of share option and LTIP awards issued by the Company using the
treasury stock method.
For the years ended December 31, 2019, 2018 and 2017, the share
options and LTIP awards issued by the Company were not included in
the calculation of diluted loss es per share because of their
anti-dilutive effect. Therefore, diluted losses per share were
equal to basic losses per share for the years ended December 31,
2019, 2018 and 2017.
25 . Segment Reporting
The Group determines its operating segments from both business
and geographic perspectives as follows:
(i) Innovation Platform (Drug R&D): focuses on discovering
and developing for commercialization targeted
therapies and immunotherapies for the treatment of cancer and immunological diseases; and
(ii) Commercial Platform: comprises of the manufacture,
marketing and distribution of prescription drugs and
over--the--counter pharmaceuticals in the PRC as well as consumer
health products through Hong Kong. The Commercial Platform is
further segregated into two core business areas:
(a) Prescription Drugs: comprises the development, manufacture,
distribution, marketing and sale of
prescription drugs; and
(b) Consumer Health: comprises the development, manufacture, distribution, marketing and sale of over--the--counter pharmaceuticals and consumer health products.
Innovation Platform and Prescription Drugs businesses under the
Commercial Platform are primarily located in the PRC. The locations
for Consumer Health business under the Commercial Platform are
further segregated into the
PRC and Hong Kong.
The performance of the reportable segments is assessed based on
segment operating (loss)/profit .
In the second half of 2019, the Group began including the
results from manufacturing and commercializing a prescription drug
developed by the Innovation Platform and launched into the market
under Prescription Drugs in the Commercial Platform. It has been
included in the Commercial Platform due to its transition to the
commercial stage and because commercial resources for innovative
medicines are built under the Commercial Platform. The segment
information below as at and for the year ended December 31, 2018
has been revised so that all segment disclosures are comparable.
There was no revision necessary as at and for the year ended
December 31, 2017.
The segment information is as follows:
Year Ended December 31, 2019
----------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- ----------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ ----------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ ------ ------- -------- ----------- ---------
(in US$'000)
Revenue from external
customers 16,026 154,474 11,580 22,810 188,864 - 204,890
---------- ------------ ------ ------- -------- ----------- ---------
Interest income 322 56 23 30 109 4,513 4,944
Equity in earnings
of equity investees,
net of tax 147 30,654 9,899 - 40,553 - 40,700
Segment operating
(loss)/profit (133,303) 39,421 10,019 1,702 51,142 (17,214) (99,375)
Interest expense - - - - - 1,030 1,030
( 172
Income tax expense 260 855 ) 256 939 2,075 3,274
Net (loss)/income
attributable to
the Company (133,234) 37,443 9,200 717 47,360 (20,150) (106,024)
Depreciation/amortization 4,510 155 20 89 264 168 4,942
Additions to non-current
assets (other than
financial instruments
and deferred tax
assets) 9,910 2,754 15 3 2,772 148 12,830
========== ============ ====== ======= ======== =========== =========
December 31, 2019
------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- --------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ --------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ ------ ------ -------- ----------- -------
(in US$'000)
Total assets 97,784 131,881 27,354 12,469 171,704 195,634 465,122
Property, plant and
equipment 19,422 424 65 300 789 644 20,855
Right-of-use assets 2,445 2,102 15 349 2,466 605 5,516
Leasehold land 1,110 - - - - - 1,110
Goodwill - 2,705 407 - 3,112 - 3,112
Other intangible
asset - 275 - - 275 - 275
Investments in equity
investees 447 76,226 22,271 - 98,497 - 98,944
========== ============ ====== ====== ======== =========== =======
Year Ended December 31, 2018
---------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- ----------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ ----------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ ------ ------- -------- ----------- --------
(in US$'000)
Revenue from external
customers 37,648 136,414 11,949 28,098 176,461 - 214,109
------------ ------ ------- -------- ----------- --------
Interest income 119 66 16 59 141 5,718 5,978
Equity in earnings
of equity investees,
net of tax (18,981) 29,884 8,430 - 38,314 - 19,333
Segment operating
(loss)/profit (104,594) 37,089 9,188 2,721 48,998 (10,717) (66,313)
Interest expense - - - 62 62 947 1,009
Income tax expense 81 1,063 179 420 1,662 2,221 3,964
Net (loss)/income
attributable to the
Company (104,415) 34,083 8,166 1,126 43,375 (13,765) (74,805)
Depreciation/amortization 3,334 132 23 40 195 61 3,590
Additions to non-current
assets (other than
financial instruments
and deferred tax
assets) 5,198 114 36 434 584 720 6,502
==========
December 31, 2018
------------------------------------------------------------------------
Innovation
Platform Commercial Platform
---------- --------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------- ------------ --------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
---------- ------------ ------ ------ -------- ----------- -------
(in US$'000)
Total assets 100,388 118,445 67,352 11,686 197,483 234,247 532,118
Property, plant and
equipment 15,223 204 71 418 693 700 16,616
Leasehold land 1,174 - - - - - 1,174
Goodwill - 2,779 407 - 3,186 - 3,186
Other intangible
asset - 347 - - 347 - 347
Investments in equity
investees 8,514 68,812 60,992 - 129,804 - 138,318
Year Ended December 31, 2017
Innovation
Platform Commercial Platform
------------------------------------------
Drug Prescription Consumer
R&D Drugs Health
---------------
Hong
PRC PRC PRC Kong Subtotal Unallocated Total
------ ------ ----------
(in US$'000)
Revenue from external 28,91 241,
customers 35,997 166,435 9,858 3 205,206 - 203
------ ------ ----------
Interest income 64 37 13 13 63 1,093 1,220
Equity in earnings
of equity inve stees, (4,54
net of tax 7 ) 27,812 10,388 - 38,200 - 33,653
Segment operating (51,98
(loss)/profit 6 ) 3 1,121 10,979 3,042 45,142 (11,584) (18,428)
Interest expense - - - 66 66 1,389 1,455
Income tax expense 26 934 ( 457) 509 986 2,068 3,080
Net (loss)/income
attributable to the
Company (51,880) 2 8,999 9,773 1,261 40,033 (14,890) (26,737)
2,57
Depreciation/amortization 2,400 116 17 1 8 151 27 8
Additions to non-current
assets (other than
financial instruments
and deferred tax
assets) 5, 936 56 43 8 107 30 6,073
Revenue from external customers is after elimination of
inter--segment sales. The amount eliminated attributable to sales
within Consumer Health business from Hong Kong to the PRC was
US$2,332,000 , nil and US$2,536,000 for the years ended December
31, 2019, 2018 and 2017 respec ti vely. Sales between segments are
carried out at mutually agreed terms.
There was one customer which accounted for over 10% of the
Group's revenue for the year ended December 31, 2019 and 2018
respectively. There w ere no customer s which accounted for over
10% of the Group's revenue for the years ended December 31 , 2017
.
Unallocated expenses mainly represent corporate expenses which
include corporate employee benefit expenses and the relevant
share--based compensation expenses. Unallocated assets mainly
comprise cash and cash equivalents and short-term investments .
A reconciliation of segment operating loss to net loss is as follows:
Year Ended December 31,
2019 2018 2017
--------- -------- --------
(in US$'000)
Segment operating loss (99,375) (66,313) (18,428)
Interest expense (1,030) (1,009) (1,455)
( 3,080
Income tax expense (3,274) (3,964) )
--------- -------- --------
Net loss (103,679) (71,286) (22,963)
========= ======== ========
26. Note to Consolidated Statements of Cash Flows
Reconciliation of net loss for the year to net cash used in
operating activities:
Year Ended December 31,
2019 2018 2017
(in US$'000)
Net loss (103,679) (71,286) (22,963)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of finance costs 195 76 147
Depreciation and amortization 4,942 3,590 2,578
Gain from purchase of a subsidiary (17) - -
Loss on retirement of property, plant and
equipment 17 33 57
Provision for excess and obsolete inventories 316 37 (16)
Provision for doubtful accounts (25) (202) 242
Share-based compensation expense-share
options 7,173 7,903 1,316
Share-based compensation expense- LTIP 4,419 2,227 3,423
Equity in earnings of equity investees,
net of tax (40,700) (19,333) (33,653)
Dividends received from SHPL and HBYS 28,135 35,218 55,586
Changes in right-of-use assets 224 - -
Unrealized currency translation loss/(gain) 1,679 1,515 (399)
Changes in income tax balances 304 212 (756)
Changes in working capital
Accounts receivable-third parties (1,209) (1,564) 2,160
Accounts receivable - related parties 938 1,078 363
Other receivables, prepayments and deposits (2,452) (2,385) (6,982)
Amounts due from related parties (282) 27 220
Inventories (4,215) (557) 1,049
Long-term prepayment 253 292 123
Accounts payable (1,664) 1,260 (11,173)
Other payables, accruals and advance receipts 26,019 16,286 5,194
Lease liabilities (101) - -
Deferred revenue (709) (239) (897)
Amounts due to related parties (66) (6,589) (4,287)
Other (407) (446) (275)
Total changes in working capital 16,105 7,163 (14,505)
--------- -------- --------
( 8,943
Net cash used in operating activities (80,912) (32,847) )
27 . Litigation
From time to time, the Group may become involved in litigation
relating to claims arising from the ordinary course of business.
The Group believes that there are currently no claims or actions
pending against the Group, the ultimate disposition of which could
have a material adverse effect on the Group's results of
operations, financial position or cash flows. However, litigation
is subject to inherent uncertainties and the Group's view of these
matters may change in the future. When an unfavorable outcome
occurs, there exists the possibility of a material adverse impact
on the Group's financial position and results of operations for the
periods in which the
unfavorable outcome occurs, and potentially in future periods.
On May 17, 2019, Luye Pharma Hong Kong Ltd. ("Luye") issued a
notice to the Group purporting to terminate a distribution
agreement that granted the Group exclusive commercial rights to
Seroquel in the PRC for failure to meet a pre-specified target. The
Group disagrees with this assertion and believes that Luye have no
basis for termination. As a result, the Group commenced legal
proceedings in 2019 in order to compel Luye to comply with its
obligations under the distribution agreement, or alternatively
compensate the Group's damages. The legal proceedings are still in
progress. Accordingly, no adjustment has been made to
Seroquel-related balances as at December 31, 2019, including
accounts receivable, long-term prepayment, accounts payable and
other payables of US$1.1 million, US$1.1 million, US$0.9 million
and US$1.1 million respectively.
28 . Restricted Net Assets
Relevant PRC laws and regulations permit payments of dividends
by the Company's subsidiaries in the PRC only out of their retained
earnings, if any, as determined in accordance with PRC accounting
standards and regulations. In addition, the Company's subsidiaries
in the PRC are required to make certain appropriations of net
after--tax profits or increases in net assets to the statutory
surplus fund prior to payment of any dividends. In addition,
registered share capital and capital reserve accounts are
restricted from withdrawal in the PRC, up to the amount of net
assets held in each subsidiary. As a result of these and other
restrictions under PRC laws and regulations, the Company's
subsidiaries in the PRC are restricted in their ability to transfer
their net assets to the Group in terms of cash dividends, loans or
advances, w ith restricted portion s amount ing to US$0.3 million
and US$7.4 million as at December 31, 2019 and 2018 respectively,
which excludes the Company's subsidiaries with a shareholders'
deficit. Even though the Group currently does not require any such
dividends, loans or advances from the PRC subsidiaries, for working
capital and other funding purposes, the Group may in the future
require additional cash resources from the Company's subsidiaries
in the PRC due to changes in business conditions, to fund future
acquisitions and development, or merely to declare and pay
dividends to make distributions to shareholders.
In addition, the Group has certain investments in equity
investees in the PRC, where the Group's equity in undistributed
earnings amounted to US$61.6 million and US$92.2 million as at
December 31, 2019 and 2018 respectively.
29 . Subsequent Events
The Group evaluated subsequent events through March 3, 2020,
which is the date when the consolidated financial statements were
issued .
In January 2020, the Company issued 22,000,000 ordinary shares
in the form of 4,400,000 ADS for gross proceeds of US$110 million.
In February 2020, the Company issued an additional 1,668,315
ordinary shares in the form of 333,663 ADS for gross proceeds of
US$8.3 million.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SSMFFDESSEID
(END) Dow Jones Newswires
March 03, 2020 07:15 ET (12:15 GMT)
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