Member Info for Warwis16

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 There is no precedent that the discount to net asset would narrow on the main market. I hold two further main market Asian based investment trusts with discounts in excess of the discount on the Aim listed India Capital Growth Fund. I am almost certain the Aberdeen New india Investment Trust is on the main market and that is on a higher discount to net asset value at today's date.

Hi Miti An interesting point you make regarding Inheritance tax. On the internet - promotional material to encourage purchase of the book Ray and Mclaughlin's Practical Inheritance Tax Planning. Some pages shown (most pages not). - have a look at page 598 which is shown- third paragraph from the bottom - covers a company listed on aim which gets a subsequent listing on a foreign exchange. Ray and Mclaughlin's Practical Inheritance Tax Planning https://books.google.co.uk/books?isbn=1784513733 Mark McLaughlin, ‎Paul Davies, ‎Geoffrey Shindler - 2017

Thanks for all those great postings Davey Another interesting article by Jonathan Faison. This time specifically on Hutchinson China Meditech. https://seekingalpha.com/article/4133199-hutchison-china-meditech-outlook-2018?auth_param=1d501m:1d3neeu:70e20d2cb197bd5272065b7f42e4147b&uprof=46&dr=1

In 2006 Hutchinson China Meditech was admitted to Aim. On 18 September 2007, 10 years ago the shares were trading at £1.77. They then fell to £0.365 towards the end of 2008 before beginning their amazing ascent to today’s price of £37. If you had bought 10 years ago your average return would have been 35% p.a over these 10 years. If you had bought 5 years ago your average return would have been 53% p.a. If you had caught them at their nadir during the 2008 financial crisis your average return would have been about 65% p.a When the shares were trading at between £2 and £3 I decided against buying them as they were on a PE of over 200. A few years later they were trading at over £6 and still on a PE of over 200 and I bought them. Today they are trading at £37 and still on a PE of over 200. Davey highlights (31 Aug) an interesting comment from the Chairman Mr To who said at the time of this year’s interims:- “Chi-Med’s consistent strategy over the past 16 years has generated considerable shareholder value, and we believe it is now poised to deliver substantially more." Simon To has been with parent Hutchison China for over thirty years, building its business from a small trading company to a billion dollar investment group, and was instrumental in the AIM flotation of Hutchison Chi-Med in 2006. Short term movements will be determined by HCM news flow and unknown macro events. However if we also go with the estimates provided by Fintech and Davey (24 Aug) then they forecast profits before interest and tax of $154m in 2021. Deducting 20% for tax (although might not be paying tax as may have large research costs carried forward) and converting to sterling gives profits after tax of £92m. As a nascent drug company centred on a rapidly expanding Chinese health market and if we assume some modest progress in the drugs pipeline, I find it hard to believe it would be on a PE of less than 50 in 2021 – implying a valuation of £4.6bn compared with £2.23bn today. This equates to an annual return of 20% up to 2021. There are a lot of potential pot holes for a biotech company today especially with the technological pace of change, but my instinct is that I would not like to bet against these Directors especially with the projected increase in Chinese healthcare spending, their past record and the confidence the Directors are showing in their share buying. Time will tell.

More Director purchases for the month of August Simon To (Chairman) ADRs 5,554 at $24.47, 9194 at $24.36 ie 14.748 at a cost of about £279,000 Adding this to earlier purchases in the month of £280,000 now makes £559,000 Edith Shih (Company Secretary) purchases for the month Total purchased 23,856 ADRs and 10,000 ordinary shares at a total cost of about £900,000 Three non execs Paul Carter, Dan Elder, and Karen Ferrante spent £19,300, £66,300 and £58,000 earlier this month Total cost of £143,600 Director purchases in August now amount to about £1.6m.

Hi Davey, Thanks for listing all the news due soon. I was a little concerned about Eli Lilly not rushing ahead with the global development of Fruquintinib earlier this year. However as you rightly point out lots of news due. The large number of Director purchases would tend to indicate all going very well behind the scenes.

Hi Azurite, Edith Shih is probably buying in dribs and drabs because the market makers only have so much stock available at any one time and are unable to satisfy her order in one go. Director purchases in Aug to 22 Aug Simon To (Chairman) ADRs 1,748 at $22.97, 1826 at $22.93, 3188 at $24.47, 4900 at $24.50 Total purchased 11, 662 ADRs at a total cost of about £280,000 Edith Shih (Company Secretary) ADRs 7,712 at $23.29, 1807 at $26.18, 5001 at $25.67, 5336 at $24.92, 4000 at $24.99 Ordinary shares 10,000 at £34.75 Total purchased 23,856 ADRs and 10,000 ordinary shares at a total cost of about £900,000 Paul Carter (Non exec) 724 ordinary shares at £34.25 Total cost £19,300 Dan Elder (Non exec) 1900 ordinary shares at £34.93 Total cost £66,300 Dr Karen Ferrante (Non exec) 3,245 ADRs at $22.94 Total cost £58,000 Why hasn’t Christian Hogg been buying any? Possibly because he already owned over a million ordinary shares- as shown in the last accounts (Value about £40m). Director purchases in first three weeks of August amount to about £1.3m – are they trying to tell us something?

I had not heard the latest President Trump comments. I had to smile Davey, while I was reading the article you kindly posted especially the bit about "making it easier to import drugs at cheaper prices." President Trump came to power with a supposedly more conciliatory attitude to drug companies and with a pro American manufacturing agenda. The bit about making it easier to import drugs at cheaper prices might even help HCM in the long run. Maybe it is a question of watching what politicians do rather than what they say.

Are these gyrations in share price caused by the uncertainty of how President Trump will treat Chinese companies in the US? I am not convinced this issue will have a big impact on HCM. The two most probable first drugs - Fruquinitinib will probably be marketed by Eli Lilly in the US and Savolitinib by Astra Zeneca in the US. In four years (or possibly less with all that is going on) there could be a new US President.

Hi Davey, We have all make mistakes. The important thing is that we learn from our mistakes. I remember seeing HCM shares at just over £2 (probably abut the time you were selling them) in 2009/10 and I looked at the accounts and read extensively about them and in 2009 I decided that with a PE of over 100 they were just too expensive. So while you were guilty of selling at £2, I was also guilty of not buying at £2. I think we have moved on from then. I looked at the accounts again towards the end of 2012 and they were now trading at just over £6 and still on a PE of over 100. By now I understood that the profits of these small biotech companies with a growing business in China could change quite dramatically if they got the marketing and research right and I bought and continued buying throughout 2013.

Hi Davey / Matt, HCM hit a low of $13.80 last night on the American market but recovered to $14.30. I am not so sure we can draw any conclusion from this frantic activity on the US market over the last few days. Disappointing 2016 for HCM. It was my worst performing share. It seemed to get too excited towards the end of 2015 about the US quote and has had to suffer a pullback. While I am quite happy to dump non performing shares this is not a share to dump. It has been a great three years owning this company. Heartened by the large share purchases by the Chairman recently and the impressive portfolio which Davey kindly alluded to recently. I look on with interest in 2017.

Thanks for all your knowledgeable posts, Davey on HCM. They are always appreciated.

Two of the four comments after this report were really interesting: “A recent report from the Chinese gov't says that up to 80% of clinical data from Chinese companies is fraudulent. How do you conduct diligence in that environment?” “I don't trust Chinese based companies at all. Even their national economic data is cooked.” There is clearly a deep distrust of China based companies and this must be affecting the valuation of HCM. I do not feel that this is a problem with HCM . It is working with two global players in the Biotec world Eli Lilly and Astra Zenecca. Its tests are outside as well inside China. HCM has a long track record. I even heard Mark Salter stated in 2014 words to the effect that the Hutchinson group was always spinning off businesses for sale and as a consequence was paranoid about reputation. He even commented on HCM having internal audits carried out on its operations. Will this distrust disappear with its first drug approval and the price move significantly to reflect this new realism? We shall see.

Interesting article http://seekingalpha.com/article/4009449-buy-biotech-deep-pipeline-china-exposure?auth_param=1d501m:1but7qc:b4030a1b94f4c94e799496f673d7ce8c&uprof=46&dr=1#alt1

If you take International Biotechnology Trust and Biotech Growth trust investment trusts as proxies for the sector then they have fallen by 8.8% and 11.3% respectively over the last 12 months. Hutchinson China Meditech has fallen by 1.9%. Perhaps some small comfort in a sector which has not had its best 12 months.

There certainly does seem to be a lack of enthusiasm in the US for biotech at the moment. I seem to remember one reason put forward for getting a quote in the US was a lack of interest generally on Aim and consequent lower valuations! Obviously drug companies are dependent on agreements reached with the Government. I was a little heartened by Steve Bohro’s comments (a prominent manager of the Biotech Growth Trust) which I posted on Friday. He reasserted his view that US politicians will not do anything about drug pricing (reasons in my post). We will see. The results of HCM were once again very positive and in line with the high standards that we expect from HCM . The commercial platform demonstrated strong growth in sales despite all the dislocations resulting from production constraints arising from the old factory now on way to being rectified. The accounts also bought news that its planned / actual pivotal stage 3 studies (two with partners) are progressing well and we have the prospect of increased royalties following agreement with Astra Zeneca which seems positive. Drug development always takes longer than expected but it quite possible we could have three / four drug candidates on the market in the next two / three years. Yet our valuation is still only just over £1bn. I continue to hold this excellent company and await “Mr Market” overcoming his depression and taking a more optimistic stance. Perhaps HCM should consider starting a phase 1 study to develop depression tablets for “Mr Market”.

Matt, I do apologise for my poor knowledge of Star Wars and was mortified to realise I was the proposing attacking the goodies – the Jedi Warriors. To improve my obvious lack of knowledge perhaps you could come to the HCM annual meeting dressed as a Jedi warrior! I enclose some selected comments from to Sven Borho of Orbimed Advisors (that I read today), who helps run the very successful Biotech Growth Trust. We all have to remember this has been an incredibly difficult year for biotech investors....................... “In the 12 months to the end of June the Nasdaq Biotechnology index dropped 39% and the XBI composite biotechnology benchmark crashed 51% as investors ran scared from the political heat the sector attracted on the topic of high drugs prices. ‘Yes there was some kind of bubble in biotech!’ Borho told shareholders of Biotech Growth (BIOG), the £400 million investment trust he co-manages, at their annual meeting this month. Borho was puzzled by the slump, however, pointing out the decline was worse than the 27% correction in 2011 and the 18% slide in 2008 when the notoriously volatile biotech sector proved relatively resilient during the financial crisis. Borho reasserted the view from San Francisco-based Orbimed that US politicians will not do anything about drugs pricing, whoever wins the presidential election. That’s partly because of the chronic political log-jams in Washington but also because the scandal of price ‘gouging’ simply doesn’t exist when looked in the context of overall US health expenditure. ‘Drug spending has not meaningfully exceeded 10% of total healthcare costs for over 50 years,’ he said, pointing out that the rate of innovation in cancer therapies and the treatment of rare diseases continued unabated.” ........................... Against this background on 1 July 2015 HCM shares stood at £17.30 and on the 30 June 2016 they were £18.92. ie during the 12 months ended 30 June they have risen 9.3%. Seems very good against the 12 month comparisons discussed in this article. It may just feel worse for some because we had a price surge in late 2015 when the shares rose with excitement due to the US listing with rapidity and then fell back down early in 2016. On an annual basis the HCM share price movement has been very good.

And may the force be with you Matt. Anyway Matt I suspect Christian has picked up enough martial arts experience in China to deal with a Jedi warrior. (As I have never watched star wars I am guessing the Jedi warriors are the enemy - apologies if they are not) Sorry Davey my last posting was just a little jest. I do intend to hold HCM for a long period here unless circumstances change. The only time I do tend to sell here is due to one of my bad habits - peripheral greed. I am still training myself not to buy any more when I have close to 20% of my savings in a single company (as I am with HCM) because if the share goes down that day I end up panicking and selling this incremental purchase. It only ends up making me a loss on this incremental purchase and commission. Anthony Bolton said as an investor you have to know yourself and I think that is true. I certainly agree with Warren Buffett's time frame but I suspect this is not a company which Warren Buffett would buy. There are incredibly few companies which hit his stringent criteria. HCM possibly has a reasonably strong competitive advantage with a degree of control over its distribution network and if it is granted patents this will enhance its competitive advantage. It possibly has reasonably predictable earnings in its commercial operations but lacks predictable earnings on its innovation work. It is still making a loss (for not much longer) and hence would not give Mr Buffett his required good return on capital employed which he likes to see. However hopefully we can anticipate a good return on capital employed once its innovation starts to bear fruit. I remain definitely invested.

I am selling up here tomorrow if Christian Hogg up against star wars characters. Don't fancy his chances. Suggest you do the same!!

Thank you Davey for your information. I will have a look at Jiangsu Hengrui, a company I was not aware of. As for the American valuation I am sure that has been a disappointment for the management of HCM. I am sure part of the valuation problem is due to the fact that the company is Chinese. It might be in part due to the poor corporate governance exercised in Chinese companies. I have always felt that Corporate Governance at HCM is at the highest level. Maybe they feel technical excellence is that at such a high level in the States the Chinese will not catch up. China does however have a long history in medicines and maybe it can bring new ways of approach. Aside from normal commercial risks, the main cloud I can see is the Americans (esp if Hillary is elected) focus on health care costs. One cancer drug, Opdivo costs $150,000 per patient per year. When it is combined with another drug Yervoy the cost rises to $256,000 per patient per year. This cloud has been reflected in bio pharma coming off its peak. I am sure there will be lots of negotiations going forward. Depending on these negotiations this may have further impact on overall valuations. I am not too sure I would feel too relaxed if I was holding any American biotech companies. Two things in HCMs favour are it presumably has a lower cost base than a lot of these American companies and it is focused on China where there is expected to be a more friendly regime. It will be very interesting to see the interim results in early August. Hopefully it will confirm normal commercial sales are increasing at their normal historic rate, give us a positive update on these impending drugs and details of the property sales. Later in the year we may see the first successful drug approval from a China based company for many years and it may significantly bolster American confidence in this company. Time will tell.