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Chi-Med: Cancer drug could be a blockbuster

The pharmaceutical company has made big progress in scientific developments, supported by its strong commercial division and a recent US fundraising
August 4, 2016

The commercial branch of Hutchison China Meditech (HCM) is raking in cash after sales in the first six months of 2016 rose by almost half. That included a strong performance by recently launched bi-polar drug Seroquel, with sales rising to $17.2m (£12.9m) from $4.5m in the previous comparable period. The recent Nasdaq listing has also hugely enhanced the group's financial position, bringing in net proceeds of $95.9m. However it's the progress in the group's innovation arm which is keeping bulls interested.

IC TIP: Buy at 1935p

Chi-Med's innovation division now includes seven products with four in final clinical studies. Arguably the most exciting of these projects is tumour drug Savolitinib, being developed in collaboration with AstraZeneca (AZN) which has recently successfully completed mid-stage trials and would soon be starting a final study. Chi-Med will contribute $50m to this trial and in return will receive 14 to 18 per cent of royalties from sales - a 5 percentage point increase on the previously agreed terms.

The progress in innovation has seen research and development costs accelerate to $31m, up $10m on the same period in 2015. This, along with a 35 per cent increase in corporate expenses, primarily a result of the US listing, came at a cost to profitability.

Broker Panmure Gordon is still reviewing forecasts, having suspended coverage in the run-up to the Nasdaq listing.

HUTCHISON CHINA MEDITECH (HCM)

ORD PRICE:1,935pMARKET VALUE:£1.17bn
TOUCH:1900-1970p12-MONTH HIGH:2,908pLOW: 1,625p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:294ȼNET CASH:$123m

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (p)
2015*82-0.14-49nil
2016105-16.81nil
% change+27---

Ex-div: na

Payment: na

£1=$1.33 *Restated to reflect for new accounting methods