Hutchison China MediTech shares tipped to hit record high

A Chinese biopharma backed by conglomerate CK Hutchison continues to power ahead on London's AIM following the success of a recent drugs trial.

Shares in Hutchison China MediTech - or Chi-Med as it is better known - jumped another 6% today after much better-than-expected annual results sustained interest in a company whose bowel cancer treatment has just cleared the final testing stage.

Fruquintinib, which has been developed in partnership with US pharmaceuticals company Eli Lilly, could be in a position to launch next year once a new drug application has been passed by the China Food and Drug Administration.

The potential of fruquintinib in China has spiked investor interest, given the country's high proportion of cancer cases. Colorectal cancer is the second most common cancer type in China, with about 380,000 new cases per year, according to the CA Cancer Journal for Clinicians.

There were approximately 1.5 million new cases globally in 2015, a figure expected to increase to about 1.7 million per year by 2020.

With fruquintinib also in advanced trials for use in fighting gastric cancer and lung cancer, the challenge now for the company will be to generate the $1 billion (£818 million) or so in Chinese sales that some analysts reportedly think could be achieved.

Such forecasts have helped Chi-Med to become the fifth-largest stock on AIM, with a market capitalisation of £1.54 billion. Having launched at 155p in 2007, the shares peaked at 2,565p Monday, near a 14-month high.

Dr Mike Mitchell, an analyst at broker Panmure Gordon, thinks they can go further: "We believe the business has started to demonstrate the quality of its strategy and ability to execute in one of the most challenging areas of medicine with some potentially transformational programmes, covering 8 drug candidates now in 30 active clinical trials.

"With today's announcement, we consider our investment thesis for Hutchison China MediTech not only affirmed but also reinforced," he says.

Still rating Chi-Med shares a 'buy', Mitchell ramps up his price target by 9% from 2,656p to 2,900p, which, if reached, would be a record high.

Beating the Big C

The drug fruquintinib is one of the first home-grown, China-discovered and developed, innovations in oncology to succeed in a pivotal Phase III registration trial.

Chairman Simon To told investors last week: "It shows that China has the resources, capability and perseverance to emerge as an innovator in the global oncology field."

In total, the company has eight small molecule drug candidates in over 30 clinical studies worldwide. This compares with 19 a year ago. There are four late-stage Phase III studies, with plans to initiate a further four during this year.

The company added: "This is a sequence of potential new drugs capable of delivering meaningful benefit to patients and value for shareholders."

Other significant catalysts targeted by Chi-Med for the year ahead include savolitinib, which it is developing with AstraZeneca for patients with kidney, lung and gastric cancers. It is currently in 12 active clinical studies worldwide.

Chi-Med is in a solid position to fund the pipeline, fuelled by its cash generative commercial platform. It also benefits from a flow of property compensation profits, clinical and regulatory milestone payments and the proceeds of a Nasdaq listing.

Revenues rose 21% to $216 million (£177 million) last year, a record and far better than the $194 million penciled in by Panmure. Net income of $11.7 million was up from $8 million, and another best. Chi-Med's cash position strengthened to $174 million.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.