Member Info for Warwis16

Hi Davey,
I have not posted for a long while. It is always nice to hear from you. Many thanks for all your highly informative and intelligent posting. I have really appreciated them. I sold two thirds of my HCM holding in 2018 at a price similar to today and now maintain a smaller position.
On point 1, I agree UK investors may be getting their cue from the US price. If the US dollar depreciates against the pound then this can cause the HCM sterling price to depreciate.
However, the US dollar has also been depreciating against other currencies and has depreciated against the renminbi. Hence, I would have expected the value of future cash flows from internal sales in China and the price of Chinese held assets ie HCM to appreciate in dollar terms for a US investor. This should have largely offset your impact in point 1 for a UK investor. Hence my argument there must be other factors causing the fall in the sterling price.
However on your point 2, if investors are anticipating future sales and profits to mainly come for the US rather than China, then future potential dollar cash flows will be materially lowered in pound sterling terms which should as you state cause the valuation of HCM in sterling terms to fall.
It remains to be seen whether the US would find it palatable to be paying $10k per cycle when China is paying $2 per cycle. That is one for the future. It may even be solved by the US forcing China to pay more for drugs from the US which could help HCM in their home market. Another potential political issue further down the road.

Most of the assets are based in China. Profits from drug sales are mainly coming from China. The majority of future sales, I would also suggest will be mainly coming from China and not from the US. For UK investors, the main currency impact will presumably be the renminbi exchange rate against the pound.
The slide in the share price has very little to do with the falling US $. If the US $ falls against both the Remninbi and pound sterling by 10% then the pound Remninbi exchange rate will be unchanged.
Lots of spending and sourcing of new finance accompanied by little news I would suggest is the main reason for the share price drift down.

In Dec 2017 I sold all my shares in igc and posted the following on this site:
This investment trust has an excellent investment manager. However I do have my doubts on the the Board running this excellent investment trust. I can see no advantage to a listing on the main market which is currently being considered and I do not believe it is in the interests of the shareholders. The disadvantages of a main listing are:.

Stamp duty would be become payable when shareholders make further purchases.

Inheritance tax would become payable on holdings in India Capital Growth Fund (at present exempt on Aim if held for two years)

Higher regulatory fees

The Directors were going to reduce the discount to NAV once it was on the Main Market. All they have done is drive away small private investors such as myself. The discount has gone for around 15 /16 per cent when on Aim to about 32 per cent.
The Board needs sacking.

HCM gets a paragraph in this weeks investors chronicle.
It makes the point cancer is a major area of high demand which is obvious. Suggests GSK and Johnson and Johnson hoping to make up lost ground and ride the next wave of oncology innovation. Mentions Astra, Merck and Hutchinson China could be targets with their impressive pipelines on new cancer drugs. Interesting but I would have thought the suggestion was a little premature. Personally I would prefer to see the company remain independent.

The spread on UK listed shares is not quite that bad.
HCM currently quoted at 430.5 - 460 at Hargreaves Lansdown ie spread of just under 7%.
However a dummy sell produced a price of 430.5 and a dummy buy produced a price of 444 ie spread of about 3%.

Many thanks for the research posting. Really informative.

I note on the Bloomberg site there is talk of postponing the Hong Kong share issue. Hardly surprising given the protests in Hong Kong. Might as well wait for the opportunity to list in more favourable times.

I do not believe it was the potential loss of rights to Seroque that caused HCM to fall in price in the US last night. It only accounts for 1.4% of net income on the commercial platform. It also looks as though HCM will contest this.

It is possible some investors may have been spooked by the increase in R&D spending along with some of the other costs increasing. Although would have thought investors expecting this.

The thing that worried me most in the accounts was the lack of information on Elunate sales and profits. This was the one piece of information which was missing. If you do not provide the information investors may draw their own conclusions rightly or wrongly.

Unexpected bonus to see a set of accounts for HCM for the three months ended 31 March 2019.
I did not see any real unexpected shocks although not had time to look at all the detail. I note the following:
Income receivable from partners collaborating on drugs research down and large increase in R&D. Both to be expected as we move from partnered drugs to our own drugs.
Commercial income at first sight slightly disappointing as only 3.3% increase in $ terms but against the backdrop of the depreciation of the Renminbi probably quite good.
The potential loss of rights to Seroquel worrying at first sight. However only provides 1.3% of net income from commercial platform. Also does not imply a deterioration of relations with Astra Zeneca as they previously sold the rights to Luye Pharma so dispute with them.
HCM preparing for more R & D future expenditure by drawing up credit facilities. Probably prudent to prepare this facility.
Would really like to have seen monthly breakdown of Elunate revenue and costs.

I have also been a surprised by the apparent spread on the share between the buying and selling price. On Hargreaves Lansdown HCM is quoted as 405-440 ie a spread of about 8.5%. However a pretend buy and sell on 500 HCM shares produced a sell of 420 and a buy of 435 ie a more reasonable spread of 3.5%.

I have not been charged stamp duty on HCM when buying through Hargreaves Lansdown. My last purchase was last week and again no stamp duty.

A company listed on Aim does not pay stamp duty and has certain inheritance tax advantages. The last time I looked at this, the fact that it is on Nasdaq stops the inheritance tax advantages but as far as I am aware a listing on Nasdaq does not stop the stamp duty exemption,

I think it is worthwhile raising a query Amones.

The buy at £4.85 could be someone thinking they were getting the bargain of a lifetime not realising there had been a scrip issue.

Thanks for all your great postings Davey. I slimmed down my holding last summer but have been increasing my holding back up in the last few weeks thanks in part to your postings. Your posting on drugs being excluded from the US trade tariff was particularly interesting,

Hi Amones

As far as I am aware HCM issued 7.5m new American Depositary shares (with each ADR equivalent a London share) when it listed on Nasdaq three years ago. It received 101.25m dollars to fund its research.

Hi Davey
A worthy attempt at valuing HCM in 2025. However, the P/S ratio in 2025 (and other similar ratios) for HCM will probably be more determined by the future prospects of drug development in 2025 rather than sales of what will be existing drugs. As we have difficulty estimating future drug prospects in 2018, estimating prospects in the year2025 based on information in 2018 is probably one of Donald Rumsfield’s unknown unknowns.

What we can draw comfort from is that this company has an impressive management team, it has and is delivering on very impressive targets, it is centred on a market (China) with an impressive expected health care growth rate in the future and the company is transforming its international reach. A P/S of 24 may well be achievable but to get there we need to navigate through a lot of unknown unknowns. I like this company and remain a backer.

Part of an interesting article by Andrew Hoare in Interactive Investor showing shifting your stock market listing to Nasdaq does not always guarantee riches. Of the 12 listed only 4 showing a profit. Hutchinson China is one of these.

AIM originals
The focus of the table below is to list those companies that were originally quoted on AIM and subsequently gained a Nasdaq listing, some of which did not stay on AIM. Those that did not are priced in US dollars - sometimes they are traded on Nasdaq as an ADS which includes a number of ordinary shares.
Shares showing a gain since listing on Nasdaq
GW Pharmaceuticals 2013 – gain 1,501.2%
Hutchinson China Meditech 2016 – gain 156.4%
GenMark Diagnostics 2010 – gain 8.8%
Motif Bio 2016 – gain 7.1%

Shares showing a loss since listing on Nasdaq
Akers Biosciences 2014 – Loss 95%
Aqua Bounty Technologies 2018 - Loss 72%
Lombard Medical Technology 2014 – loss 100%
Medatech pharma 2015 – loss 90%
Ocean Power Technologies 2007 - loss 96%
Realm Therapeutics 2018 – loss 1%
Summit Therapeutics 2015 – loss 72%
Verona Pharma 2017 – loss 7%

The comment on Hutchinson China Meditech:
Hutchison China Meditech Ltd ADR has also done well, with the share price more than doubling in just over two years. The broad range of oncology and immunology treatments in development has undoubtedly helped. The later stage oncology treatments offer potential upside in the next few years, although Hutchison remains loss-making despite significant revenues.

Always nice to hear your positive opinion on HCM, Davey. HCM is by far my biggest position. I would like to buy more but if more than one fifth of my holdings are in one position, I am not at ease and start to sell when the stock goes down. As an investor we must all know ourselves. This stock remains my clear favourite. As long as Savolitinib gets through approvals, I remain highly positive on this stock. The positive dialogue you report back from the AGM would indicate events still well on track. Great pipeline coming through as well. I can well understand your enthusiasm for a regulatory office in the US. I have no early exit plans from this stock. I have already held for over five years. Hopefully I will see you and other investors at the AGM next year

Hi Davey � thanks for the words of wisdom on the documents required for the AGM. I am hoping to attend the AGM next year. My only concern is my wife�s birthday is towards the end of April and I do not think she would be too impressed with a trip to an AGM on her birthday. Fingers crossed on the date. The price differential between the US and the UK for HCM seems to have narrowed lately. For large parts of time this week there seems to have been restricted buying periods for HCM shares in the UK � I have even tried putting through trial buys as low as 10 shares for lots of periods without success. There have always been takers when I offered HCM shares for a trial sale. Looking at Bloomberg I see the US price for HCM has risen by 79% over the last 12 months. Quite a substantial rise � but massively overshadowed by Beigene (a similar Chinese company which floated at about the same time) which has risen by 335% over the same period. When I looked at Beigene at the time of its float my instinct was HCM had the much better pipeline of drugs. Now Beigene valued at more than twice the price of HCM. Obviously got that one wrong.

Many thanks Davey for your feedback from the AGM and to hear the up to date views of Mark Slater on HCM. It is much appreciated. I heard Mark Slater talk at the UK Investor show a couple of weeks ago. He did not say a lot about HCM other than in the context of once you find an excellent company be willing to run profits for many years. I seem to remember he said the price of HCM had gone up 25x since he bought the shares. I am hoping to attend the HCM AGM next year. Am I right in assuming you do not have to bring proof of share ownership when attending the HCM AGM?

These falls might seem relentless but to date we have been here before: On 4 Jan 2016 HCM traded at �27.90 per share and had fallen to �19.10 on the 29 March 2016 representing a fall of 31.5%. There did not seem to be an apparent reason for the fall then. It then flatlined soon after for months and then proceeded in an upwards fashion till December 2017 when it hit about �58.90. On 4 Jan 2018 HCM traded at �58.60 per share. On the 28 March 2018 HCM is trading at about �41.50. This represents a fall of 29.2% (compared to 31.5% over the same period in 2016).

Thanks Davey for all those great updates you highlighted recently especially the possibility of novel orphan drugs and biologics enjoying an extended period of exclusivity of ten, rather than the usual six years" Jonathan Faison recently published an interesting article on one of our competitors in China Beigene BeiGene: A Promising Start To 2018 He had one comment on BeiGene which I found interesting from Hutchinson China point of view. �BeiGene announced an exclusive license agreement for Mirati Therapeutics� (MRTX) sitravatinib in Asia (except Japan), Australia and New Zealand. Mirati gets to keep rights for the rest of the world for the asset. The deal was not expensive, involving upfront cash of $10 million from BeiGene along with being on the hook for up to $123 million of milestone payments plus �significant� royalties on future sales.� Hutchinson China has taken over sales of Seroquel from Astra Zeneca and Concor Cor from Merck Sorono in China. I am surprised that Hutchison China has not used its sales network more aggressively to hook with more global pharma companies especially smaller global pharma companies with patented drugs without the resources to break into China. This could be a really interesting further way of growing the company.

A Merry Christmas and Happiness and good health to you Azurite, Davey and the the small, elite group of HCM posters.