HCM 和黄医药(ADR)

Christian Hogg

Okay. I assume I'm ready to start now. Okay, great. Thanks. Welcome everybody to the Hutchinson China MediTech interim results presentation for first half of 2019. This is the first of two analysts' meetings today. We will do here for obviously the UK and Hong Kong people calling in and then later today at 9:00 a.m. eastern time we'll do another call with U.S. analysts. So, what I'd like to do is take you through primarily the financial highlights for the first six months as well as the operating highlights. A lot has happened during the first half of the year for the Company and we have a lot of positive things to talk about. Then, at the end, we'll talk about the pipeline and the upcoming events and cash and guidance. This is a very detailed presentation, as always with Chi-Med so I will do my best to cover each slide on a relatively high level. But for the most part, this is a presentation that is drafted for people to spend a lot of time really understanding each of the slides and the data in them. So, on a high level just as we always do just to explain what we're trying to do as a company broadly, really looking to establish ourselves as a global, science-focused biopharmaceutical company from our established base in China. The global innovation, all of it signified or shown throughout the presentation with the red globe is the work that we're doing to bring our most advanced assets out into the global market. First of all, in the U.S. and Europe and beyond. We currently have five assets, five drug candidates that are in clinical trials outside of China. I'll update you on the progress of those programs as we go through the presentation. China oncology obviously is our bedrock, our foundation in our operation in China. Last year, as you all know, we became the first company to bring an innovative therapy from discovery all the way through to unconditional approval and launch. The news today is that we have two more that are coming soon behind Fruquintinib, obviously depending on clinical data. But the pipeline really has reached this point of flow with these assets now starting to come through to NDA submission and approval. We'll go through that in a moment. We have eight clinical drug candidates in China that are progressing and Elunate Fruquintinib, I'll give you a full detailed update on the progress of Elunate and how we should be thinking about how it's progressing. And then obviously, our existing China business continues to be a cash-generating tool for us to help fund out research and development. On a high level, the organization really there's one new addition to the organization chart senior management. We just recruited a Senior Vice President of Human Resources for MERCK. His name is Andrew Shih. He'd been with MERCK for 16 years running their Asia oncology organization. So, what we're trying to do with Andrew and building out, as we all know the battle for talent in Asia is particularly strong. There's a lot of investment going into China biotech these days and there's a great demand for talented people in this field. So, what we're trying to build out is a best practice compensation and benchmarking structure underneath Paul Carter who's the head of our renumeration committee. Paul Carter is a former head of commercial for Gilead. He's our Senior Independent Director. As we build out our organization and we talk about that through the presentation, we're able to bring in really high-quality people into the team. You can see the organization on the innovation side is now up to over 440 people. On the commercial side is many thousands of people across China today. Financial highlights, no surprises aside from the RMB depreciating 6% relative to last year because of all the global trade wars etcetera. So, we now are showing our results at constant exchange rate just to give perspective there. Everything was on track. The revenues were a little bit over $100 million up 5% on a CER basis. Innovation platform continues to invest deeper into our pipeline. So, we put a further 29% over last year into the R&D. Commercial platform was up 9% on a net income basis on a CER basis so that is on track with what we expected driven by a strong performance in the prescription drug business as usual. Relatively high costs on the group level primarily around the preparation for listing in Hong Kong, which we can talk about more later. Overall group net loss of $45 million. Ahead of last year but very much on track. I'll talk about our guidance later. On the innovation side, revenues were down a little bit to $12 million but now we're starting to see a transformation from historically our revenues on the innovation side were driven by milestone payments and were driven fee for service as we provided service to our partners in managing development of our collaboration products. Now, we're transitioning more toward royalty and manufacturing revenue structure. So, most of our revenues is now starting to come from sources that are going to continue into next year, are going to be less lumpy basically which is a good thing. R&D expenses for the period, $74.5 million very much driven by the development of those five programs outside of China as well as the eight inside China. Building out our GMP manufacturing facilities that we're now expanding. Establishing the U.S. clinical regulatory team and now also expanding into the commercial side on oncology. We've built up a team of about 60 or so people on the commercial side in oncology in China that are doing the prep work for Surufatinib as we start to get ready to consider launching Surufatinib next year. The preparation work needs to start happening now. That team is growing rapidly and is very functional. On the commercial platform, revenue is up 7% of Constant Exchange Rates. Those are the consolidated revenues. The JVs were up also around 8% to almost $277 million. Our main cardiovascular drug, She Xiang Bao Xin pill did very well. Sales up 15% of Constant Exchange Rates. So, that was really good performance in the period. Net income $27.7 million which was 11% or so up versus last year on Constant Exchange Rate basis for the prescription drug side. The overall charts, I won't go into this in a lot of detail but this commercial platform has generated a lot of cash for us through the years. You can see net income to Chi-Med here on this chart, page 11, almost $300 million has come to Chi-Med from our commercial platform over the last 10, 12 years. It's been very helpful in helping fund a sustained investment on the R&D side. Operating highlights, I think probably the biggest operating highlight in the first half has been the early un-blinding of our Phase III SANET-ep Study in non-pancreatic NET. That independent data monitoring committee analysis in June led to un-blinding basically a year ahead of schedule for this indication. I'll go into that in more detail as we go through the presentation. The Surufatinib we also started a biliary tract Phase IIb/III in China and have set off on multiple combination studies with PD-1 antibodies. Elunate Fruquintinib off to a reasonable start in China and I'll talk about that later. One of the biggest things that's going to now take our focus is looking to get on the national reimbursement list in China. I will give you an update on that in a moment. Savolitinib, I'd say the big news on Savolitinib is the completion of enrollment of our registration study in Exon 14 deletion non-small cell lung cancer. We've now reached the enrollment target for the registration study. That data will mature over the next few months. Objective response rate is the primary endpoint. Subject to that data being positive, we'll be targeting to submit the NDA early next year on Savolitinib in China. So, that's a big step for us. Also, great data was present in EGFR mutation-positive non-small cell lung cancer, the combo with Tagrisso. The SAVANNAH study was started up and we saw good data in renal cell carcinoma. I'll take you through, now, in a bit more detail all of those things. So, Surufatinib, just so that everybody understands what Surufatinib is it's a multi-kinase inhibitor but it really focuses on two key areas, VEGEFR inhibition. So, cutting off the blood flow to the tumor. But unique to Surufatinib is it's inhibition of CSF-1R. CSF-1R is a receptor or target that's involved in the production of tumor associated macrophages that defend the tumor cell from t-cell attack. So, inhibiting CSF-1R reduces that shroud of tumor associated macrophages allowing the t-cells to do their job and to kill those cancer cells. We've seen this sort of angio-immuno response in patients. We're cutting off the blood flow but also activating the host immune system to really go after those cancer cells. Our focus area has been on development in neuroendocrine tumors. We've never really talked too much about the scale of the opportunity on NET. In the U.S., you've got about 140,000 NET patients. Neuroendocrine tumors is cancer that essentially emerges from the endocrine cells and the nerve cells in patients across all of the body's organs. You get functional NET. You get non-functional NET. Functional NET have hormone-related symptoms like flushing and heavy diarrhea. About 40% of patients have functional NET. About 60% have non-functional where there are no symptoms. They're very difficult to grade. They're quite broad range and it makes it quite difficult when you actually come to assessing the CT scans of patients to really understand where those patients are. But you have well-differentiated patients and those are patients where the cells look very similar to normal cells. Those are generally earlier patients. You have poorly differentiated patients where the cells look very different from healthy cells and those are generally later stage patients. You also have the ability to use biomarkers to evaluate the grading, the mitotic count and the Ki-67 antigen index. These are both biomarkers you can track to gauge the grading of the tumors. But in general, on the right hand side of this chart you can see there are really three key groups of neuroendocrine tumors. There's gastroentero pancreatic which is 55% to 75%. There's lung/bronchus which is 25% to 30% and there's another 10% to 20% of unknown primary origin. The GEP, gastroentero pancreatic NET is split into two groups. Pancreatic gets a lot of attention because there are approved drugs in pancreatic NET but it's actually a very small portion of overall NET. You can see on this chart in the U.S. pancreatic NET represents about 6% of patients. It's quite small. Other gastro intestinal NET is another 50plus%. You can see the treatment that are available today are also quite fragmented. The somatostatin analogues are used generally for earlier stage NET, the sort of 40%, 50% of patients that are earlier stage. What the somatostatin analogues do is particularly in functional NET they alleviate the symptoms. What they tend to do is they tend to allow those NET tumors to stabilize and not grow, but they're not going to shrink the tumors. So, somatostatin analogues are used earlier in the treatment setting but they're not going to really lead to major levels of response. As patients go later, you start to see targeted therapies emerging into the treatment of advance neuroendocrine tumors. As I said earlier, in Pancreatic NET you have both Sutent and Afinitor. You now have Lutathera which is a somatostatin receptor radio therapy. It's not a targeted therapy. It's a radio therapy that targets the somatostatin receptors. So, you have some targeted therapies for later, advanced treatment in pancreatic. Afinitor is approved in certain other gastrointestinal and lung indications, but it's fragmented. So, what we tried to do with Surufatinib with the SANET-ep Study is study everything. So, Surufatinib across all neuroendocrine tumors. We have two Phase III studies. One is in pancreatic NET, so it's in that niche indication, the other the SANET-ep Study that read out positive covers everything. And that's probably the most exciting aspect of Surufatinib is its broadness of spectrum of activity and efficacy. This is a chart on page 16 I'm not going to take you through in a lot of detail. It's enormous detail but I think it's important. It lays out the scale of the therapies today. You can see the somatostatin analogues are Sandostatin LAR and Somatuline Depot Who does Somatuline? It's Ipsen. Yes, sorry. Ipsen, yes. So, you've got basically a billion dollars' worth of sales now on the somatostatin analogues. You can see on Luthathera it's still less than a couple of hundred million. One of the reasons for it being less than a couple of hundred million is that it's quite a difficult drug to administer because of the radio therapy aspect of it, 72-hour half-life. So, it makes it basically pretty impractical for China given the logistics implications there. But then Afinitor, Sutent, and Surufatinib are all oral doses. But you can see Afinitor and Sutent primarily they're relatively large businesses, but they're obviously approved in many other indications. So, this chart I won't go through it in any more detail other than to say again the treatments today are very fragmented. The epidemiology of NET is fragmented. The treatment environment is fragment and for Surufatinib the big opportunity is to address as broad a spectrum of NET as possible. You can see the Phase II data that we've presented previously obviously is pretty impressive. Response rates in the sort of 15% to 17% rate in the Phase II. Obviously, as you go into Phase III, you'd expect those to be slightly lower. But still, response rates and progression-free survival in Phase II was very positive and that's what lead us into the Phase III programs. As far as China NET is concerned, we talked a little bit about the U.S. NET patient population being 140,000. NET is a very slow-growing disease. So, what you tend to find is relatively low incidents. So, the incidents in the United States is 19,000 new NET patients per year but you've got 140,000 prevalence. So, you've got seven times the prevalence as you do the incidents. That's quite rare in the field of cancer. It is a slow-growing solid tumor. And in China there's less data available, but we do know the incidence of NET in China is roughly 67,000 patients a year. If you use the same prevalence/incidents ratio as in the United States, that would lead to you assuming that there might be a prevalence of up to 490,000 NET patients in China. That's a big patient population. Our hunch though as a company and also working with investigators in China is that that prevalence number in China is probably lower just because patients are less. There's less diagnosis of NET. There are less treatment options and more likely these patients are, today at least, before there are treatment options available, they're progressing and dying faster, meaning a lower level of prevalence. So, we estimate that overall in NET there's probably around 300,000 NET patients in China living with neuroendocrine tumors. The split between pancreatic and extra-pancreatic NET in China we think is about 80/20 whereas in the west it's probably 90/10. Again, that's probably because you've got Sutent and Afinitor approved in pancreatic NET in China so they're looking for it. They're diagnosing it. It's more evident. I think we'll have to see as we go along what the actual split is and what the actual prevalence is. You can also see here for Surufatinib as far as the potential, you see the biliary tract cancer patient population about 64,000 patients that we're also targeting. So, this is a chart that shows the sales of some of the products in China, Sutent and Afinitor. Obviously, Sutent and Afinitor are approved in beyond pancreatic NET so Sutent in renal cell carcinoma and GIST and Afinitor in renal cell carcinoma as well. You can see in 2018 the sales of Sutent in China was $24 million. The sales of Afinitor was about $13 million. So, they're not that big products in China. Sandostatin LAR just purely in GEP NETs was about $15 million. Now, they've all gone on the reimbursement list recently. You can see Sandostatin LAR went on in October last year. Sutent went in October last year, Afinitor one year earlier. So, the growth of those sales is now going to start increasing as those patients are getting their drugs reimbursed. But from this we can take away assuming that the split in China is about 80/20 we can take away that maybe pancreatic NET today is about 20 million and extra-pancreatic is probably about 100 million give or take. So, total NET as of today could be something in the order of 100 million to 120 million. We would hope that as Surufatinib comes into the market that there would be better diagnosis. It would be much broader scale usage of the product and patients would live longer, thereby creating a larger market potential. Summarizing now on page 20, the two Phase III, obviously the first one at the top SANET-ep has read out positive, at least met its primary endpoints of PFS. The study has been stopped. We intend to present the data in full at a conference later on in 2019 and we expect to submit the NDA in China sometime in the next few months, maybe September/October of this year. That will be our second NDA as a company. The SANET-p study which is the pancreatic NET study, obviously the smaller patient population, is expected to hit its interim analysis probably early next year now. And if positive would follow the same path that SANET-ep is following. You can see the chart there on the bottom left of page 20 a Q4 of '19 potential NDA submission based on this. Now, in red here on page 20 you see what we're doing globally. We've been running a Phase II study in the U.S. in patients in pancreatic NET that have failed on Afinitor and failed on Sutent. We're very excited about this as a potential indication. We're now looking at expanding it to potentially EP-NET globally and we will engage in an end of Phase II meeting with the U.S. FDA probably around the end of this year. Hoping to start our global registration study in neuroendocrine tumors on Surufatinib early next year. Okay, Fruquintinib, Elunate. This is a chart many of you have seen before on page 22. The epidemiology, there's about 55,000-60,000 patients a year 3rd-line colorectal cancer. You can see the launch pricing. It was launched relatively high at a little bit over $3,000. A strong patient access program that required patients to pay for three months and then beyond that the drug was for free. So, that patient access program today represents about 35%, 40% of our unit sales. We've been working hard to broaden drug reimbursement. So, just last month in June the Shanghai Regional Reimbursement Drug List added Fruquintinib and essentially is providing a 60% discount to patients. So, that's a good step but it doesn't show up in the first-half results. So, actual sales on Fruquintinib in the first half $11.4 million, a little bit over 77 million RMB. 6,800 plus cycles of treatment and you can see our revenue came from manufacturing and royalties of about $4.7 million. So, the question is how is that? Is that good performance? Is that bad performance? How do we judge how Fruquintinib is doing in China to this point? This next chart is a very important chart on page 24. What this shows is the five small molecule VGFR inhibitors that have been launched in China by multi-nationals over the last 10 years. So, you've got Stivarga and Nexavar from Bayer. You've got Sutent and Inlyta from Pfizer, and you've got pazopanib which originally was Glasco but is now Novartis. So, these five small-molecule VGFRs have been launched into a number of different indications in China. You can see here the U.S. dollar sales for each of these products through the years since they've been launched. If you look at it, what you see is that the first six months of sales for Fruquintinib is actually well ahead of all of those five multi-national VGFR inhibitor launches in China. Regular Afitinib, Stivarga in its first six months did less than $5 million, $4.7 million I believe it was. Sorafenib did $18.6 million in its first full 12-month period, but that was launched some time ago. Sutent in its first full year did $7.4 million. You can see that Inlyta and Votrient, so axitinib and pazopanib, in their second year or first full year of sales were around $12 million. So, Fruquintinib is relative to those multi-national launches is actually in pretty good shape. Now, the question is in those first six months what happens? In China, when you launch a novel drug candidate into the system, you launch in through the retail pharmacy channel. Getting your drug in distribution into hospital pharmacies takes anywhere between six months and 12 months. It's a big process to run across all of China and it's a lot of effort. So, what companies do when they come out of the gate, when they launch a drug is, they put it into the retail pharmacies as the first point. Those retail pharmacies are generally surrounding the hospitals in which the physicians are diagnosing and prescribing the drug. Medical reps go detail the drug to those physicians in the hospitals. The patients then go outside of the hospitals to procure the drug at the retail pharmacies. No reimbursement, all out of pocket. So, it's quite labor-intensive and essentially, it's a stopgap. Now, when you get on the reimbursement list, as you can see on this chart in the blue areas, all of these drugs are now on the reimbursement list. When you get on the reimbursement list you are automatically granted access and distribution to all state-owned hospital pharmacies across China. So, it still takes a bit of time. It takes a few months, but you go from having no hospital distribution to covering everywhere. The patient that is diagnoses and is prescribed Fruquintinib in a hospital in China who is on the medical insurance, they will get that drug reimbursed if they procure Fruquintinib from the hospital pharmacy. If they procure it from a retail pharmacy, they get no reimbursement. It's complicated. The point is, coming out of the gate for the first six months you make do. You have a stopgap structure of putting your drug into retail pharmacies and directing doctors to prescribe and patients to procure that drug in a local retail pharmacy. As soon as you're on the reimbursement list it goes mainstream. That's where you see the big step up. So, if you look at regoragenib as an example, Stivarga, the first six month $5 million. 2018 was a full year at $21 million in sales. Got on the reimbursement list in October 2018. First quarter of 2019, $20 million. So, on track maybe this year for $80 million or $100 million in sales. Now, regorafenib and I'll talk through it in a minute is in our view not the best option for patients in colorectal cancer given its liver tox profile but still that's what you can do. You can look at sorafenib, a drug that's been on the market for many years in China finally getting on the reimbursement list in 2017. You saw a little uptick in 2018 up to $130 million. First quarter of 2019, $50 million. So, it's essentially doubled in the two-year period from going onto the reimbursement list. The same goes for all of the other assets. So, for Fruquintinib I think we're in a good place right now. I think Lilly is doing a reasonable job. Certainly doing as well as any other big multi-national could do in China. But getting on the reimbursement list is going to be really important for us and is going to be really what propels Fruquintinib or Elunate to another level. Now, interestingly you can see on the last two lines the local VGFR inhibitors that have been launched in recent years. One is called Apatinib from Hengrui and one is called Anlotinib from Sino Biopharm. And you see here the numbers are far greater than the numbers reported by the multi-nationals. You see Hengrui growing in its first year to $45 million and after three years up to over $250 million. More markedly, anlotinib from Sino Biopharm $190 million in its first six months. Just an enormous amount of business. These are first generation, multi-kinase VGFR inhibitors with a fair amount of toxicity approved in vary narrow indications although 3rd-line lung is not that narrow. The reason these numbers are so high is very high levels of off-label marketing by the local competitors in China, which is non-compliant. Which obviously major multi-nationals would not undertake that kind of marketing approach. So, you can see from that the market potential for these VGFR inhibitors is enormous in China. One of the reasons that we renegotiated the deal with Lilly last year is we could now go and get into a whole bunch of life cycle indications to expand the label for Fruquintinib into many different areas. Why? Because the market potential is there. The local competitors, because they're non-compliant, are pushing very hard in this space today. But if we're able to go and expand our label legitimately, that patient population is going to be a patient population that we can address. So, today, the VGFR space in China is about $1 billion in sales. I think this year it will be over a billion. I think that from our view Fruquintinib has the potential to be the best in its class. I think once we are able to expand life cycle indications and get on the reimbursement list, I think we'll see the benefit of that. This chart on page 25 you can see the NRDL reimbursement status. So, end of July a list will be published. It's actually this week or next week, although you never know. That list will be all the drugs that a panel of key opinion leaders over China of the last six months have decided these are the drugs that we want on the reimbursement list. Once that list is published, the government will engage with all manufacturers, including ourselves and Lilly, to determine or negotiate what would the price discount be that we would provide Fruquintinib to the government for to go on the reimbursement list. So, that goes over the next couple of months and then the full reimbursement list and the discounts will be published in September, October some time. At that point, that would then trigger the distribution of Fruquintinib across all the hospital pharmacies in China. Just on a very high level, I won't go into this in detail. These are charts we've shown before. But 26 in the context of colorectal cancer, these data show, again, you've got to be careful comparing cross-trials but regorafenib which is approved in third-line colorectal cancer relative to Fruquintinib approved in third-live colorectal cancer. You see a solid advantage in efficacy for Fruquintinib. You also see two areas of, in our view, differentiation. First it is the use post VGFR antibodies, so post Avastin where you're seeing Fruquintinib doing well with a low hazard ratio in patients that have already been exposed to Avastin. Avastin is coming off, well the biosimilars are starting to get introduced into China over the next year or so. So, having Fruquintinib delivering a benefit to patients post Avastin is a really positive thing. Regorafenib doesn't show much of an advantage after Avastin. And the second area is in toxicity. Regorafenib has a black box warning in the U.S. for hepatotoxicity. Obviously, Fruquintinib in our view has an attractive liver tox safety profile. That will be a bid advantage with 70% or so of third-line colorectal cancer patients already with liver metastasis. So, you do not want to be treating those patients with a drug that has high levels of liver toxicity. That's a big advantage for Elunate. I think once Elunate gets onto the reimbursement list, once we're able to broaden our distribution in hospital pharmacies, our medical sales team or actually Lilly's medical sales team will be out there pushing the differentiation around post Avastin usage benefits and around better applicability for patients with liver metastasis. On top of that, better overall efficacy in the FRESCO study relative to what was see in the CONCUR study from regorafenib. Okay, so that's Fruquintinib. I think everything is basically on track there. Savolitinib I won't go through in a lot of detail. This chart you've all seen many times before on page 29. The only update here is Tagrisso. First half 2019 results $1.414 billion. I think for the first time when Astra presented their results the other day were asked a question, maybe some of you were there, around the resistance pathways to Tagrisso and cMET and savolitinib were both mentioned as areas that Astra is looking into to solve resistance on Tagrisso. The big step this first half driven really by Liger and team is the MET Exon 14 deletion program in China. You can see here on page 30 there are three or so competitors in this space globally. Capmatinib from Novartis, Tepotinib from Merck Serono. The response rates in these Exon 14 patients in global studies is somewhere in the range of 40%-60% depending on the line of treatment. We presented data at AACR in late March that showed that savolitinib in Chinese MET Exon 14 deletion patients efficacy was give or take not a lot different than what's being seen on Capmatinib and Tepotinib. It's of the same range. Difficult obviously to compare cross-trials but certainly we're not at a disadvantage. So, we are way ahead of everybody in China. We've now completed enrolment of the registration study, are now waiting the two or three months for that ORR data to mature and subject to that being positive we'll be submitting the NDA next year. That's laid out in the chart here on the bottom of page 31, bottom left. As far as the patient population is concerned, the China market opportunity for Exon 14 deletion patients is 2% maybe 3% of the over 700,000 non-small cell lung cancer patients a year. There is an adjacent population of patients in early non-small cell lung cancer that are MET gene amplified maybe doubles the size of the patient population. But I think for us getting savolitinib approved as the first cMET inhibitor in China, while we obviously will be compliant in our marketing activities, we won't be promoting off label like some of these local players do, but getting a selective cMET inhibitor into the market in China will give physicians the alternative to prescribe that drug to MET driven patients across many solid tumor types, so gastric cancer et cetera. We obviously won't be pushing it but if the drug is available it will be used in China across many MET driven patient populations. So, we're very excited about savolitinib and moving rapidly on this. This data you've seen in the past. You've seen response data for the savolitinib/Tagrisso combination but for the first time at AACR we presented the duration of response data for the savolitinib/Tagrisso combo. So, here you can see in the 2nd-line setting for patients with a T790M MET+ the duration of response was somewhere around seven months and a response rate of over 50%, close to 56%. So, very encouraging data. Post Tagrisso in later line patients, 2nd and 3rd-line patients you're seeing a lower level of response because generally those patients are sicker and maybe have more genetic drivers of disease in play, but you're seeing really good durational response in the patients that do respond, so 9.7 months there. Pretty encouraging. This data is what led to the start of the SAVANNAH study which is the global Phase II registration intense study of Savolitinib and Tagrisso. It's being enrolled in 11 countries around the world. They're not all started yet but in the third quarter they should be started up in all 11 countries. You're seeing a 50/50 split between patients coming off Tagrisso in the 1st-line setting and the other 50% is patients coming off Tagrisso in the 2nd-line setting. We've been working on the dose. We've been looking at a weight-based dosing algorithm for the combination. We've not been running a Phase IB expansion called the TATTON D study at a slightly lower dose and we are very close to concluding that work and we believe it's a very positive outcome. So, SAVANNAH next year we'll see hopefully an interim analysis on SAVANNAH some time middle of the year, maybe this time next year. At that point, subject to the data we'll go and talk to the regulatory authorities in the U.S. The Savol and Imfinzi combination, I won't go into a lot of detail but basically the combination of Savolitinib and Imfinzi looks like it's delivering some synergistic efficacy. There are multiple theories around the interplay between MET and the immune system. This early data that was presented in February of this year, I believe, starts to show how a MET inhibitor and a PD-L1 can really benefit patients that are not even MET driven patients because you are effecting the body's immune system and reducing the neutrophils that are protecting the cancer cells. Other operating highlights on the B-cell malignancy programs 523, we've now dosed over 150 patients in China and Australia. We've got a good data set and we're working on thinking about how to start potential registration studies late this year early next year. 689, the PI3Kδ is now through our Phase I dose escalation study and is now entering into expansion. And importantly, our teams it the U.S. and Europe are now screening patients to start global Phase I on 523 and 689. The organization has expanded clinical regulatory as well as the commercial team in China. And discovery, Liger and the team has now just taken our ninth drug candidate into an IND. Hopefully we'll be able to start development of our HMPL-306 which is an IDH 1/2 dual inhibitor sometime early next year, hopefully. Here you can see the various targets we're working on both large molecule and small molecule, Syk inhibitor, root one kinase, IDO, etcetera. Just on a high level, page 40 the pipeline chart. We tried to simplify this a bit but I think the most important boxes to look at are those with the yellow arrows. These are studies that are now transitioning to the next stage. So, you can see MED Exon 14 hopefully transitioning to an NDA early next year and Surufatinib SANET-ep transitioning to NDA late this year. You've got AstraZeneca is aligned now to expand our Exon 14 deletion development global. So, that will transition. Fruquintinib and Surufatinib there coming out of proof of concept and into global registration studies run by Chi-Med. So, unpartnered Fruquintinib we own the rights outside of China. Surufatinib, obviously also. Our team in New Jersey will be launching those registration studies for Fruquintinib and Surufatinib over this next 12-month period. Savolitinib and Iressa transitioning as well and obviously 523, the Syk inhibitor transitioning. So, there's good movement across our broader pipeline. Page 41 just lays out the upcoming events. You can see there's a lot going on in the second half of this year and the first half of next year with two NDA submissions targeted, the Surufatinib in extra pancreatic NET and Exon 14 or Savol. We have a second Fruquintinib interim analysis on the FRUTIGA study in gastric cancer. We conducted an interim analysis earlier this year in March, April, I believe it was. The independent data monitoring committee, it was a very early interim analysis on the first 100 patients for six month trending overall survival in PFS. The independent data monitoring committee were happy with the progress of the study and the study continues untouched or unchanged. So, we'll have a second interim on that FRUTIGA study either late this year or early next year some time. I think aside from the two NDA submissions, probably the reimbursement on Elunate inclusion in the NRDL is probably one of the biggest factors as well. Okay, so finally, I'm going to leave us with 10 minutes for questions. Looking at cash and guidance for 2019. We've got cash and resources of around $380 million. That's cash of $230 million to $240 million and unutilized banking facilities of almost $150 million. In the first half we paid down a credit facility with Scotia Bank of Canada and have consolidated that over to HSBC. So, we'll actually draw down that same $27 million we paid down in the first half in the second half. Our debt by the end of the year will be about $27 million and our cash position will be $27 million higher. You can see that we've shaved our losses for the year. So, our previous guidance was about $120 million to $150 million net cash outflow. This year we've shaved that down to $90 million to $120, taking off about $30 million. Two reasons drove that. Number one, the weakening of the RMB actually helps us on the R&D side. When the RMB depreciates by 6%, our cost of running clinical trials in U.S. dollars terms in China is significantly lower. So, while it hurts us on the earnings side on the commercial side, it helps us on the R&D expense side. Also, we've now scheduled or planned our end of Phase II meetings with the U.S. FDA on Surufatinib and Fruquintinib for the end of this year, early next year. That means that the start of those registration studies will more likely be in early next year versus this year. In the original plan we have them starting up late this year. So, pushing that out a little bit around those regulatory interactions is what allows us to shave the losses. So, essentially $90 million to $120 million cash burn this year. Resources we have are in great shape. It allows us to really take our pipeline through multiple value inflation points like the NDA submission for surufatinib, savolitinib, the Elunate NRDL inclusion and the readout on savolitinib in gastric cancer which will come later at Phase II. So, we feel that we're in good shape from a cash standpoint. So, that's it. In summary, that's where we are today on the business. Since we've got 10 minutes left, I'll open it up for some questions. Yes, Richard?

Q

Yes. I've got a couple of questions. Firstly, on Surufatinib, it's obviously the first compound that you've retained full rights and profits. As you go into the filing, can you talk about what you might need to add in terms of commercial infrastructure when that product launches in China and what you can and can't leverage from the current commercial operations? And the second question was just a simple one the commercial platform. I wondered if you're expecting any impact from the four plus seven tender process during the remainder of the year that we should take into consideration?

Christian Hogg

Great. Thanks, Richard. So, on Surufatinib commercial actually this 60-person team that we've built up on the oncology side just over the last six months in China is very focused on Surufatinib even already. They're involved today in what I would not classify as medical affairs activities but it's kind of supportive work, going out to all the clinical sites, engaging with all the clinicians that have been running the Surufatinib studies. You know, getting to know the NET landscape so that when Surufatinib, subject to approval, is launched then all of that infrastructure in NET is already established. I think that commercial team for the launch of the Surufatinib will be a multiple of its size today. I think we'll see it close to 200 people by the end of next year, maybe slightly higher than that. So, the work we're doing on the commercial organization today is actually preparing for Surufatinib coming maybe late next year if all goes well. The second question on the four plus seven. Did that answer your first part? Yep. The second question on the four plus seven, obviously the four plus seven policy is a great policy in our view in China. It's really driving down the price of generic drugs in China. What that's doing is it's opening up massive headroom in the medical insurance scheme for urban employees and residents in China to open up headroom to fund reimbursement of innovative drugs. That's why you see all those oncology drugs now going onto the reimbursement list because the price of generic drugs is being squeezed. So, the question is does that squeezing of generic drug prices affect Chi-Med? If you look at our portfolio on the commercial platform, we basically don't have any generic drugs. We got out of that business a long time ago because it's a difficult business to be compliant in. It's historically a low-margin and as has been proven the case to be very volatile from a pricing pressure standpoint. So, we got out of the generic drug business a long, long time ago. Most of our business, 95% plus of our commercial platform business is proprietary therapies. Now, obviously we have OTC business, an OTC cough/cold business etcetera. That is not affected by four plus seven. That's long since been affected by pricing pressure. Seven years ago, they took the prices down there and we suffered then but it's been quite stable ever since. But in the prescription drug space 95% of our business is proprietary where we're the only people making what we make. So, the four plus seven doesn't affect us. I think overall the four plus seven policy and the Chinese government's philosophy of driving down the prices of more mundane products to open up reimbursement on more innovative products, we're helped massively in that because our whole innovative drug pipeline will benefit from that strategic activity by the government.

Unidentified Analyst

If I could just squeeze in a third. Merck is making a big investment behind KEYTRUDA and their TKI combinations. I know it's early days for Elunate in combination with PD-1, but could you talk about how your thoughts revolving and what tumor types you might target where you think there might be an opportunity despite Merck?

Christian Hogg

I'll ask Weigou to answer that question.

Dr. Weigou Su

Obviously, it's a very competitive area. Merck is in there, BMS as well. We think we're in reasonably good shape in China. At least there's a window of opportunity for us to take up some indications. So, in terms of specific tumor types with Inovan on their PD-1 combination with our Fruquintinib we're just going through a dose escalation and hope to complete dose escalation in a few months, certainly before the end of the year. We'll go into a dose expansion with multiple cohorts including renal cell, including HCC as well as Merck's KEYTRUDA and Lenvima just got breakthrough therapy designation in the U.S. So, it's clearly a valid approach but we think in China we can still get into the game. Actually, probably more than 50% of the patients are in China globally in HCC. So, we think it's a big opportunity there. Aside from there, we are also interested in endometrial cancer as well as perhaps gastric. I'm not sure if you noticed that BMS and Bayer they just announced a collaboration maybe two weeks ago post ASCO. So, they're working together to develop the Rego, Nivo combo in GI in particular gastric. So, we're interested in that as well. You know, China's got more than 50% of global gastric patients. Basically, relatively similar combinations targeting similar tumor types, but we are doing more in China with these major patient populations. A combination with Surufatinib with PD-1 we are interested in really trying to take advantage of the kinase profile of Surufatinib in particular CSF-1R and VGFR targeting hopefully to further activating the t-cell in a tumor migrating environment. So, we are looking at neuroendocrine malignancies including the NET and neck. We're also interested in breast cancer as well as small-cell lung cancer for instance. So, basically, tumors are not as hot. Actually, perhaps it would be quite interesting in OBGyn types including ovarian and cervical as well. It's wide open at this point in time. Both combinations are going through dose escalation. We think Surufatinib is a bit, maybe three months, ahead. So, we probably will wrap up the dose escalation portion sometime in August or September timeframe and we'll kick off multiple cohort dose expansion.

Christian Hogg

Mike? Can you pass the microphone forward please, Julie?

Unidentified Analyst

The national reimbursement pathway, the process is actually pretty short, and some players are through in three or four months. What are the key variables that you think you'll have to deal with and how sensitive are you on pricing?

Christian Hogg

Actually, Lilly gets to determine the price so they will judge at the end of the day what the price discount will be with the government. Obviously, Lilly knows this, and they know that it's very important for Fruquintinib to get on the reimbursement list. That said, a negotiation is a negotiation. I think if you look at very deep in this presentation, I think the last couple of pages, you can see the 32 cancer drugs that have been added to the reimbursement list over the last couple of years. You can see the discount that have been agreed vary from 30% to 60%. Some of them are as high as 70% but generally those are discount off of very high global prices. Fruquintinib is a not a very high global price. It's at a reasonable price for Chine, a little bit over $3,000. Somewhere in that range is where it's probably going to end up, I would imagine. But it's a bit premature to guess. Could we pass it over to Steve? Actually, Julie, give it to me.

Unidentified Analyst

Obviously, you've given us R&D guidance and cost guidance for this year, but as you begin global drug development and that sort of thing starts to get significantly more expensive. So, when we think of the R&D costs of the next two or three years without giving us quarter data maybe give us an idea of where the R&D spend could go and how you might consider funding that given obviously the proposed Hong Kong listing discussed over the past few months?

Christian Hogg

Thanks, Steve. Yes. It's a good question. I think that with Fruquintinib you can see what we hope is going to happen with Fruquintinib. You get on the reimbursement list, we hope that's going to take off significantly. If that takes off significantly the cash that we're generating with Fruquintinib is going to be material to us. I think Surufatinib the fact that we own it outright, if we're able to launch it effectively next year and start generating cash from Surufatinib, that will be terrific. Our royalty on Savolitinib in China is a fixed royalty of 30%. So, as soon as Savolitinib hits the market in China, we're going to start generating some pretty material income. So, I think to answer your question, we're in this sort of transition period. Maybe the next couple of years you're going to see the R&D expense increase as we start to take certain of our assets out into the global market. So, you would expect the trend that we've seen in the last couple of years of rising R&D expenses to continue. But I think over the next year, two, three years you're going to see an offsetting amount of income coming in from our approved and our launched drugs that is going to help offset some of it. Maybe not all of that increase, but some of it. So, I would imagine, we've got a long history of kind of eating what we kill and managing our R&D expenses in the context of the income that we get from our commercial business, the income we get from our partners, and trying to balance it without ever finding ourselves as sort of into this very vulnerable binary biotech type environment. And we'll continue to do that. But to answer your question directly, I imagine you'll see a gradual increase in the R&D expenses, but I think you'll start to see incoming offset through the royalties and the revenues that we're going to generate from our approved assets. I think the other thing that we're totally open minded to is the divestiture of non-core commercial businesses. I think you look at our OTC business is a good example. In the next five, ten years Chi-Med having an OTC business is probably not necessary. You know, our focus is very much on the prescription drug side. It's very much on oncology in China. And while our OTC business has been very helpful through the years generating cash for us, it's not really strategically that core for us anymore. So, there are these aspects of sort of non-dilutive financing pools that we go to through that time to help out basically.

Unidentified Analyst

Thanks.

Christian Hogg

One for Simi.

Unidentified Analyst

Thanks for taking my questions. First one, can you just give some comments on your postponed Hong Kong IPO? And the second one, on savolutinib you mentioned that Astra is leading the effort for the global development in the MET Exon 14 patients. Are they going to initiate a global pivotal Phase III trial and also what's the royalty rate for ex-China sales?

Christian Hogg

Postponed Hong Kong listing is not the way to describe it. We've done a lot of work in preparation for a potential listing of our shares on the Hong Kong stock exchange. We've done it for the right reasons. We're a Hong Kong based company. We're well-known in the region. The region with regards to biotech is really developing quickly. There's a lot of investor interest in that part of the world on biotech as we've mentioned around the battle for talent and all this sort of stuff. But right now the Hong Kong market is a little bit shaky with all the protests that are going on. In our view, it's not the right market conditions are very important for a successful transaction. So, as we've taken you through the financial picture of the Company from a cash standpoint, we don't need to be moving forward into difficult markets. We can take our time to reach various valuation inflection points around delivery of our pipeline and our programs and then when the time is right, we're a biotech company. So, you're always going to need to raise finance at one point or another. The key is to do it when the markets are right and when your assets are really showing that they are worth further investment. We're confident that we will do that in due course. On the second question on the savolutinib Exon 14, the SAVANNAH study is registration intent, so it's a Phase II study. But it's designed to be used for registration. That would be for conditional approval if all goes well. It's a single-arm study with objective response rate as the outcome. The interim next year will determine if that Phase II can be used for registration. In other words, we'll do an interim analysis. We'll look at the strength of the data and then we'll go with AstraZeneca, talk to the regulatory authorities in the U.S., to the FDA. At that point, if we are at a level of efficacy and confidence that the SAVANNAH study itself will be sufficient for submission for conditional approval, then we'll continue to enroll and submit SAVANNAH --

Dr. Weigou Su

Actually, Exon 14.

Christian Hogg

Sorry. You were talking Exon 14. Sorry. I misunderstood your question. So, say again?

Dr. Weigou Su

Global Exon 14.

Unidentified Analyst

You mentioned that AstraZeneca is looking at taking salovutinib in MET Exon 14 deletion patients in the U.S. ex-China. So, are they going to initiate a separate pivotal trial in that patient population?

Christian Hogg

Sorry. I misunderstood. So, what we're doing because we have a very large data set in Chine in Exon 14 and are continuing to enroll patients in China, we're now opening up sites hopefully around the world and the United States and Europe to be able to potentially aggregate all that data. These are very specific patients with a very specific molecular profile. So, the intention is to try to aggregate all of the data. If the aggregated data is sufficiently strong, potentially then go and have interactions and engagement with the regulatory authorities in the U.S. around submission of the aggregated data for approval outside of China. That's the idea, today. Ultimately, we find ourselves behind Capmatinib and Tepotinib. So, what we've got to do is try and find a way to catch up and that would be our approach.

Unidentified Analyst

What's the royalty rate for ex-China sales?

Christian Hogg

So, it's quite a broad range and it's complicated. But in a nutshell, it's between 9% and 18% subject to a couple of things happening. So, it's a tiered royalty. Actually, tiered royalty of 9% to 13% but if we're able to get an approval in kidney cancer you add another 5% to the royalty. So, it's 9% to 13% plus potentially an additional 5% if kidney cancer works out.

Unidentified Analyst

Thank you.

Christian Hogg

Okay. Great. Thanks very much for coming. Thank you very much. Bye.