Hutchison loss widens as China legislation hampers revenue

Hutchison China Meditech on Monday reported a drop in sales and increased annual loss after the implementation of new government policy in China.

The pharmaceutical company, which is also know as Chi-Med, reported a loss before tax of $86.7m for the year ended 31 December, an increase of 62% compared to the year before, after revenues dropped by 20% to $156.2m.

The AIM traded company said the decrease in revenue was due to a new two-invoice system in China, a new government policy intended to restrict the number of layers in the drug distribution system in China and to improve transparency, compliant business conduct, and efficiency and thereby lower the cost of drugs

Chi-Med said this has led to a shift in the company's revenue recognition for some third-party drugs, with the sales model for Seroquel, in which consolidated revenues historically reflected total gross sales of Seroquel, shifted to a fee-for-service model.

Losses were also exacerbated by an increase in research & development expenses on an adjusted basis to $142.2m from $88.0m the year before, as development of the company's eight clinical drug candidates picks up pace.

Simon To, chairman of Chi-Med, said: "We took a big step in 2018 to expand our US development capability in order that we can take full advantage of the global potential of our assets. We also entered the immuno oncology arena through multiple development collaborations combining PD-1 antibodies with our highly selective small molecules. The increased investment in all these activities is partially offset by robust income from our commercial operation in China, which also serves as a very powerful platform for future product launches."

Chi-Med had cash and cash equivalents of $86.0m at the end of the year, down from $85.3m at the same point the year before

"Looking ahead, we target multiple NDAs in the coming two or three years, covering savolitinib, surufatinib and fruquintinib, as well as registration studies with our hematological cancer assets. We believe that these activities will address a broad range of unmet medical needs and benefit a large number of patients," said To.

Hutchison China Meditech's shares were up 3.02% at 4,100.00p at 1636 GMT.