Hutchmed Regulatory News (HCM)

Chi-Med Reports 2018 Full Year Results and Provides Updates onKey Clinical Programs

London: Monday, March 11, 2019: Hutchison China MediTech Limited ("Chi-Med") (AIM/Nasdaq: HCM) today announces its audited financial results for the year ended December 31, 2018 and provides updates on key clinical programs.

Video webcast presentation at 9:00 a.m. GMT and additional conference call at 9:00 a.m. EDT.

"With the launch of Elunate® underway and doing well, and with its financial prospects enhanced by the recent Lilly amendment, we are focused on our broader late-stage clinical development program with multiple important opportunities being pursued in parallel," said Simon To, Chairman, Chi-Med. "We took a big step in 2018 to expand our U.S. 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."

"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."

Financial Highlights

The items below are selected financial data for the year ended December 31, 2018. All dollars are expressed in US dollar currency unless otherwise stated. For more details, please refer to "Financial Review", "Operations Review" and "Audited Consolidated Financial Statements" below.

OVERALL GROUP: in-line with our most recent guidance

INNOVATION PLATFORM: increased investment in R&D driven by expansion of our operations and progress on our clinical development pipeline

COMMERCIAL PLATFORM: continued solid net income growth amid shift in revenue model and over-the-counter ("OTC") logistics divestment

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U.K. Analysts Meeting and Webcast Scheduled Today at 9:00 a.m. GMT (5:00 p.m. HKT) - at Citigate Dewe Rogerson, 3 London Wall Buildings, London, EC2M 5SY, U.K. Investors may participate in the call at +44 20 3003 2666 (800 900 476 toll free in Hong Kong), or access a live video webcast of the call via Chi-Med's website at www.chi-med.com/investors/event-information/. 

U.S. Conference Call Scheduled Today at 9:00 a.m. EDT - to participate in the call from the U.S., please dial 1 866 966 5335.

Additional dial-in numbers are also available at Chi-Med's website. For both calls please use conference ID "Chi-Med."

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Innovation Platform - Operating HIGHLIGHTS

The points below summarize some of the pipeline development highlights during 2018 and to-date in 2019. For more details, please refer to "Operations Review - Innovation Platform" below.

FRUQUINTINIB - Highly selective tyrosine kinase inhibitor ("TKI") of vascular endothelial growth factor receptor ("VEGFR") 1/2/3 - focus on maximizing commercial potential of our first approved drug:

· FRESCO China Phase III in third-line CRC, potentially best-in-class in terms of both efficacy and safety. 

o China NDA - approval and launch: received full approval for launch of fruquintinib (under the brand name Elunate®) in CRC in September 2018, including Good Manufacturing Practice ("GMP") certification of our manufacturing facility in Suzhou. In partnership with Lilly, we launched fruquintinib in China in late November 2018 in a series of national launch meetings across China;

o Material financial impact: during 2018 Chi-Med recognized revenue from Lilly totaling $26.9 million including $14.0 million in milestone and upfront payments, $9.3 million service fees and costs, and $3.6 million in revenue from product purchases and royalties since the late-November 2018 launch;

o JAMA publication: in June 2018, the full FRESCO results were published in the Journal of the American Medical Association ("JAMA"), which we believe to be the first China-based novel oncology therapy Phase III trial to be published in the JAMA, a landmark achievement; and

o Two further analyses of FRESCO data presented at the annual meeting of the American Society of Clinical Oncology ("ASCO") in June 2018: (1) a subgroup analysis by prior anti-VEGF or anti-epidermal growth factor receptor ("EGFR") target therapy showed that fruquintinib had clinically meaningful benefits regardless of prior targeted therapy (PTT) without observed cumulative toxicity; and (2) an ad-hoc analysis of quality-adjusted time without symptoms or toxicity ("Q-TWiST") showed relative improvement of Q-TWiST with fruquintinib, representing a potentially clinically important quality-of-life benefit for patients;

· 2018 Lilly Amendment: an important amendment to the original 2013 agreement that we believe secures the long-term commercial potential fruquintinib. Chi-Med will pay the full cost of any future clinical development in China. In return, Chi-Med gains:

o Full freedom to operate in selecting and pursuing any future indications in China;

o Materially higher milestones and royalties;

o Freedom to collaborate with any third-party in clinical development; and

o Possible promotion rights in 30-40% of China for fruquintinib, based on territorial sales. This transition is not expected before 2021. Until then, Lilly is responsible for all costs associated with the launch and commercialization of fruquintinib in China. If Chi-Med assumes fruquintinib promotion in the 30-40% of China, we will receive service fees, which we expect to be net income accretive to Chi-Med.

· FALUCA China Phase III in third-line NSCLC: completed enrollment of 527 patients and in November 2018 we read-out top-line results in which fruquintinib demonstrated tolerable safety and strong anti-tumor efficacy in NSCLC, meeting all secondary endpoints, however it did not achieve its primary overall survival ("OS") endpoint;

· Global clinical development: Chi-Med retains all rights to fruquintinib outside of China. In 2018, the U.S. recommended Phase II dose for fruquintinib was determined to be the same as the dose in China. Planning is ongoing for a Phase II/III registration study in CRC in the U.S. / Europe in addition to multiple exploratory studies of fruquintinib in the U.S.; and

· PD-1 collaborations: in late 2018 we entered into collaboration agreements with Innovent Biologics (Suzhou) Co. Ltd. ("Innovent") globally and Genor Biopharma Co. Ltd. ("Genor") in China to explore fruquintinib in combination with their respective PD-1 monoclonal antibodies Tyvyt® (sintilimab) and genolimzumab. Safety run-in studies are now underway/being planned.

SAVOLITINIB - Highly selective TKI of MET:

· Lung cancer - MET is an increasingly important target in NSCLC both in first-line and as a major resistance mechanism in EGFR TKI-refractory patients

o In EGFR-TKI refractory NSCLC: following ongoing encouraging data in the TATTON Phase Ib/II studies in late 2018, AstraZeneca proceeded with initiation of SAVANNAH, a Phase II study of the Tagrisso® / savolitinib combination therapy in MET-positive, third-generation EGFR TKI-refractory NSCLC (principally second-line and third-line after Tagrisso®). SAVANNAH is a global study in North and South America, Europe and Asia which, subject to positive clinical outcome, is designed to support potential NDA submission. Primary data completion is anticipated in 2021;

o In MET Exon 14 mutation/deletion NSCLC: China Phase II registration intent study is ongoing with primary data completion anticipated in 2020 and potential to be the first NDA for savolitinib.

· Kidney cancer - immunotherapy combinations rapidly changing the treatment landscape in RCC

o CALYPSO Phase II combination of savolitinib with Imfinzi® programmed death-ligand 1 ("PD-L1") inhibitor: interim data for the PRCC cohort of the CALYPSO Phase II study were presented last month at the 2019 American Society of Clinical Oncology Genitourinary Symposium ("ASCO GU") reporting an objective response rate ("ORR") of 27% (11/41). For previously untreated patients ORR was 32% (9/28). The savolitinib / Imfinzi® combination was tolerable. Investigators concluded that the combination is associated with durable responses in PRCC and that both progression free survival ("PFS") and OS data were immature but encouraging. This compares to savolitinib monotherapy which reported a 7% ORR in PRCC patients (18% ORR in MET-positive; and 0% ORR in MET-negative) in a previously reported Phase II study; and

o SAVOIR Phase III in MET-positive PRCC: AstraZeneca and Chi-Med decided to suspend enrollment in the SAVOIR study due to multiple factors. These included our molecular epidemiology study which as well as emerging favorable data in PRCC for immunotherapies. We intend to reassess PRCC strategy in favor of potential combinations of savolitinib and immunotherapy.

SURUFATINIB (HMPL-012 or sulfatinib) - unique angio-immuno kinase inhibitor of VEGFR, fibroblast growth factor receptor ("FGFR") 1, and colony stimulating factor-1 receptor ("CSF-1R"):

· China Phase IIIs in neuroendocrine tumor ("NET"): enrollment continued in the two Phase III registration studies in pancreatic-NET patients (SANET-p) as well as the broader non-pancreatic-NET population (SANET-ep). Interim analyses are expected for 2019; if results are positive and support NDA submission in early 2020, surufatinib could potentially be Chi-Med's first novel drug candidate to be launched by our own commercial team; 

· China Phase II/III in biliary tract cancer ("BTC"): based on our Phase Ib study, planning is close to complete for a randomized, open-label Phase II/III study to evaluate efficacy and safety of surufatinib in second line BTC patients in comparison to capecitabine. Study initiation is expected imminently;

· U.S. Phase Ib expansion: our U.S. dose escalation study completed in 2018 and a Phase Ib dose expansion study in NET and BTC patients is ongoing;

· PD-1 collaborations: in late 2018 we signed collaboration agreements with Shanghai Junshi Biosciences Co. Ltd. ("Junshi") globally and Taizhou Hanzhong Pharmaceuticals, Inc. ("Hanzhong") in China to explore surufatinib in combination with their respective PD-1 monoclonal antibodies Tuoyi® (toripalimab) and HX008. The safety run-in study of surufatinib plus Tuoyi® is now underway.

Further progress in early/proof-of-concept clinical trials, including:

· HMPL-523 - highly selective Syk TKI:  

o Non-Hodgkin's lymphoma: a Phase Ib dose expansion study is ongoing in both China and Australia in multiple sub-types of non-Hodgkin's lymphoma including chronic lymphocytic leukemia; small lymphocytic lymphoma; follicular lymphoma; marginal zone lymphoma; diffuse large B-cell lymphoma; and mantle cell lymphoma;

o Gained U.S. clearance for IND application; and

o Initiated a Phase I study in combination with azacitidine, an approved hypo methylation agent, in elderly patients with acute myeloid leukemia in China. Dose escalation is now ongoing.

· HMPL-689 a highly selective PI3Kδ TKI: a Phase I dose escalation study is approaching completion in China in non-Hodgkin's lymphoma patients; and our U.S. IND application has also been cleared.

· Epitinib Phase Ib/II in EGFR gene amplified glioblastoma, a type of primary brain cancer: a dose escalation study was initiated in China in the first quarter of 2018 with epitinib.

Expansion of U.S. and international operations, and recruitment of key personnel: established new office in New Jersey to support our multiple unpartnered compounds through proof-of-concept and registration trials outside of Asia.

Innovation Platform - KEY EVENTS IN 2019

· Early 2019:

o Savolitinib - Phase Ib/II data (CALYPSO) - PRCC cohort dataset for the Imfinzi® / savolitinib combination presented at ASCO GU (February 2019);

o Surufatinib - Phase I start - PD-1 combinations - initiate China safety run-in study for surufatinib combination with Tuoyi®;

o Savolitinib - Phase Ib/II data (TATTON) - presentation of Tagrisso® / savolitinib combination updated interim dataset in MET positive EGFR TKI refractory NSCLC at the 2019 American Association of Cancer Research ("AACR") conference in March 29 to April 3, 2019;

o Savolitinib - Phase II data - MET Exon 14 NSCLC - preliminary China Phase II data to be presented at the 2019 AACR conference;

o Fruquintinib - Phase III interim analysis (FRUTIGA) - interim analysis for futility in second-line gastric cancer Phase III in China of fruquintinib / Taxol® (paclitaxel) combination;

o Surufatinib - Phase II/III start - expected start of China Phase II/III study in biliary tract cancer;

o HMPL-523 (Syk) - Phase I start - expected start of U.S. / E.U. Phase I/Ib study in indolent non-Hodgkin's lymphoma;

o Fruquintinib - Phase I start - PD-1 combinations - initiate China safety run-in studies for fruquintinib combinations with Tyvyt® and genolimzumab; and

o HMPL-689 (PI3Kδ) - Phase I start - expected start of U.S. / E.U. Phase I/Ib study in indolent non-Hodgkin's lymphoma.

· Mid-2019:

o Savolitinib - Phase II data (VIKTORY) - publication of the results of Phase II umbrella trial in metastatic gastric cancer based on tumor molecular profiling with MET-positive patients represented in three out of twelve VIKTORY treatment arms;

o Surufatinib - Phase III interim analysis (SANET-ep) - planned interim analysis in non-pancreatic NET Phase III in China of surufatinib monotherapy; and

o Fruquintinib - Phase III data (FALUCA) - intend to submit full analysis of third-line NSCLC registration study for presentation at a scientific conference.

· Late-2019:

o Savolitinib - Enrollment completion - expect to complete enrollment of China Phase II registration study in MET Exon 14 NSCLC;  

o Fruquintinib - Phase II/III start - expected initiation of U.S. / E.U. Phase II/III study in metastatic CRC;

o HMPL-523 - Registration study start - expected initiation of China registration study in indolent non-Hodgkin's lymphoma;

o Surufatinib - Phase Ib/II data - submit for publication of the results of Phase Ib/II study in biliary tract cancer in China; and

o Surufatinib - Phase III interim analysis (SANET-p) - planned interim analysis in pancreatic NET Phase III in China of surufatinib monotherapy.

Commercial Platform - Operating Highlights

The points below summarize some of the operational and financial highlights of our Commercial Platform during 2018. For more details, please refer to "Operations Review - Commercial Platform" below.

Large-scale, high-performance drug marketing and distribution platform covering ~320 cities/towns in China with approximately 3,400 sales personnel. Targeting multiple indications with several household-name brands:

· Sales of our non-consolidated Prescription Drugs joint venture, Shanghai Hutchison Pharmaceuticals Limited ("SHPL") grew by 13% to $275.7 million (2017: $244.6m). SHPL's main product, She Xiang Bao Xin ("SXBX") pill, an oral vasodilator and pro-angiogenesis prescription therapy approved to treat coronary artery disease, saw sales increase by 11% to $233.1 million.

· Our consolidated Prescription Drugs business, operated through Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited ("Hutchison Sinopharm"), saw sales decrease by 20% to $132.8 million (2017: $166.4m) as a result of the Chinese government's phased implementation of the new Two-Invoice System, pursuant to which Hutchison Sinopharm had converted to earning service fees from the commercialization of certain third-party products instead of recognizing the gross sales; regardless of the Two-Invoice System change, sales performance on key third-party products, such as Seroquel®, was strong resulting in 51% growth in service fees to $17.2 million (2017: $11.4m);

· Sales of our non-consolidated Consumer Health joint venture, Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ("HBYS"), grew by 14% to $215.8m (2017: $188.8m, excluding divested operations), driven by progress on certain secondary products.

· Our consolidated Consumer Health sales increased by 3% to $40.1 million (2017: $38.8m).

FINANCIAL GUIDANCE

We provide streamlined Financial Guidance for 2019.

The ramp-up of manufacturing and royalty revenues from Lilly on Elunate® is expected to significantly benefit the Company's financial results in years to come, with a gradual start in 2019 - the product's first full year on the market. On the broader Innovation Platform, we plan to continue to increase our investment in R&D particularly on clinical development of our main assets in the U.S. and Europe as well as in China (as discussed in the "Product pipeline progress" section below).

On the Commercial Platform, we expect to continue to generate cash flow directly through our subsidiaries and via dividends from our joint ventures. Two government reforms, the Two-Invoice System and the 4+7 Quality Consistency Evaluation ("QCE") System, could narrow growth rates this year before having a positive mid- to long-term impact for Chi-Med (both reforms are discussed in detail the "Commercial Platform," section below).

2019 U.S. dollar guidance takes into account the weakening of the RMB, which is down 5% relative to the first half average last year due to global macroeconomic factors.

Use of Non-GAAP Financial Measures - References in this announcement to adjusted R&D expenses, adjusted consolidated net income attributable to Chi-Med from our Commercial Platform, adjusted consolidated operating profit from our Commercial Platform, adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business, adjusted revenues of HBYS and non-consolidated joint ventures, adjusted service fees for Seroquel®, adjusted Group net cash flows and adjusted Group net cash flows excluding financing activities are based on non-GAAP financial measures. Please see the "Use of Non-GAAP Financial Measures and Reconciliation" below for further information relevant to the interpretation of these financial measures and reconciliations of these financial measures to the most comparable GAAP measures, respectively.

FINANCIAL STATEMENTS

Chi-Med will today file with the U.S. Securities and Exchange Commission its Annual Report on Form 20-F.

ANNUAL GENERAL MEETING

The Annual General Meeting of Chi-Med will be held at 4th Floor, Hutchison House, 5 Hester Road, Battersea, London SW11 4AN on Wednesday, April 24, 2019 at 11:00 a.m.

About Chi-Med

Chi-Med (AIM/Nasdaq: HCM) is an innovative biopharmaceutical company which researches, develops, manufactures and markets pharmaceutical products. Its Innovation Platform, Hutchison MediPharma, has about 420 scientists and staff focusing on discovering, developing and commercializing targeted therapeutics and immunotherapies in oncology and autoimmune diseases. It has a portfolio of eight cancer drug candidates currently in clinical studies around the world. Chi-Med's Commercial Platform manufactures, markets, and distributes prescription drugs and consumer health products, covering an extensive network of hospitals across China.

Dual-listed on the AIM market of the London Stock Exchange and the Nasdaq Global Select Market, Chi-Med is headquartered in Hong Kong and majority owned by the multinational conglomerate CK Hutchison Holdings Limited (SEHK: 1). For more information, please visit: www.chi-med.com.

CONTACTS

References

Unless the context requires otherwise, references in this announcement to the "Group," the "Company," "Chi-Med," "Chi-Med Group," "we," "us," and "our," mean Hutchison China MediTech Limited and its consolidated subsidiaries and joint ventures unless otherwise stated or indicated by context.

Past Performance and Forward-Looking Statements

The performance and results of operations of the Group contained within this announcement are historical in nature, and past performance is no guarantee of future results of the Group. This announcement contains forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by words like "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "pipeline," "could," "potential," "believe," "first-in-class," "best-in-class," "designed to," "objective," "guidance," "pursue," or similar terms, or by express or implied discussions regarding potential drug candidates, potential indications for drug candidates or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these statements. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that any of our drug candidates will be approved for sale in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such drug candidates will achieve any particular revenue or net income levels. In particular, management's expectations could be affected by, among other things: unexpected regulatory actions or delays or government regulation generally; the uncertainties inherent in research and development, including the inability to meet our key study assumptions regarding enrollment rates, timing and availability of subjects meeting a study's inclusion and exclusion criteria and funding requirements, changes to clinical protocols, unexpected adverse events or safety, quality or manufacturing issues; the inability of a drug candidate to meet the primary or secondary endpoint of a study; the inability of a drug candidate to obtain regulatory approval in different jurisdictions or gain commercial acceptance after obtaining regulatory approval; global trends toward health care cost containment, including ongoing pricing pressures; uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales and marketing practices, intellectual property disputes, and government investigations generally; and general economic and industry conditions, including uncertainties regarding the effects of the persistently weak economic and financial environment in many countries and uncertainties regarding future global exchange rates. For further discussion of these and other risks, see Chi-Med's filings with the U.S. Securities and Exchange Commission and on AIM. Chi-Med is providing the information in this announcement as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise.

In addition, this announcement contains statistical data and estimates that Chi-Med obtained from industry publications and reports generated by third-party market research firms. Although Chi-Med believes that the publications, reports and surveys are reliable, Chi-Med has not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above.

Inside Information

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Ends

Financial Review

Chi-Med Group revenue for the year ended December 31, 2018 was $214.1 million (2017: $241.2m). Revenue from the Commercial Platform decreased to $172.9 million (2017: $205.2m) driven by the adoption of the Two-Invoice System which caused our consolidated joint venture Hutchison Sinopharm to cease recognizing gross sales from certain third-party products and instead earn service fees from such sales in 2018. This has had no effect on net income. Revenue from the Innovation Platform increased to $41.2 million in 2018 (2017: $36.0m), reflecting higher milestone income in 2018 of $13.5m from Lilly (2017: $5.0m from AstraZeneca and $4.5m from Lilly), and first-time recorded fruquintinib product revenue of $3.3m and royalty income of $0.3m. It should be noted that Group revenues do not include the revenues of our two large-scale, 50/50 joint ventures in China, SHPL and HBYS, since these are accounted for using the equity method.

In 2018, our Commercial Platform, which is a consistent source of profit and cash for Chi-Med, grew operating profit by 10% to $47.0 million (2017: $42.6m on an as adjusted (non-GAAP) basis excluding one-time gains of $2.5m). This reflected growth in SHPL's coronary artery disease business and service fees on Seroquel® and Concor®. The Innovation Platform incurred an operating loss of $102.6 million (2017: operating loss of $52.0m) as a result of substantial expansion of virtually all aspects of our R&D operations including clinical development of our pipeline of eight drug candidates; and also including certain non-cash share-based incentive scheme charges and intangible asset impairment provisions. 

Net corporate unallocated expenses, primarily Chi-Med Group overhead and operating costs, declined to $10.7 million (2017: $11.5m) mainly due to higher interest income from short-term investments.

Consequently, Chi-Med Group's operating loss was $66.3 million (2017: operating loss of $18.4m).

The aggregate of interest and income tax expenses of Chi-Med Group, as well as net income attributable to non-controlling interests was $8.5 million (2017: $8.3m) mainly due to higher profit taxes in the Commercial Platform.

The resulting total Group net loss attributable to Chi-Med was $74.8 million (2017: net loss of $26.7m).

As a result, Group net loss attributable to Chi-Med in 2018 was $1.13 per ordinary share / $0.565 per American depositary share ("ADS"), compared to net loss attributable to Chi-Med of $0.43 per ordinary share / $0.215 per ADS, in 2017.

Cash and Financing

We have used, and will continue to use, financial discipline in aiming to partially offset increasing clinical investment with cash generated in our operating activities. This includes cash from dividends paid by our non-consolidated Commercial Platform joint ventures, as well as collaboration payments received from our multi-national pharmaceutical company partners. In 2018, these cash inflows offset more than half of our R&D expenses. As a result, the total Chi-Med Group net cash flow during 2018 was -$57.3 million despite R&D expenses of $142.2 million, both on an adjusted (non-GAAP) basis.

As of December 31, 2018, we had available cash resources of $420.3 million (December 31, 2017: $479.6m) at the Chi-Med Group level. This included cash and cash equivalents and short-term investments of $301.0 million (December 31, 2017: $358.3m) and unutilized bank borrowing facilities of $119.3 million (December 31, 2017: $121.3m). In addition, as of December 31, 2018, our non-consolidated joint ventures (SHPL, HBYS and NSP) held $59.2 million (December 31, 2017: $67.0m) in available cash resources.

Outstanding bank loans as of December 31, 2018 amounted to $26.7 million (December 31, 2017: $30.0m) at the Chi-Med Group level, with a weighted average cost of borrowing in 2018 of 2.8% (2017: 2.7%). As of December 31, 2018, our non-consolidated joint ventures had no outstanding bank loans. 

In summary, we believe that the cash resources that we currently hold are sufficient to fund development of our clinical drug pipeline through multiple major value inflection points, including the potential NDA submissions on savolitinib, surufatinib and fruquintinib.

Operations Review

Innovation Platform

The Chi-Med pipeline of drug candidates has been created and developed by our Innovation Platform, an in-house R&D operation which was started in 2002. Since then, we have built a large team of about 420 scientists and staff (December 31, 2017: ~360) based mainly in China. We operate a fully-integrated drug discovery and development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls for clinical and commercial supply, clinical and regulatory and other functions. Looking ahead, we plan to continue to build and leverage this platform, as we have in the past decade, to produce a stream of novel drug candidates with global potential.

Innovation Platform revenue in 2018 was $41.2 million (2017: $36.0m) mainly from service fee payments from AstraZeneca, Lilly and NSP, as well as $13.5 million in milestone payments from Lilly following the approval of fruquintinib capsules and then, during the final five weeks of 2018, first-time Elunate® product revenue and royalties of $3.6 million.

Net loss attributable to Chi-Med increased to $102.4 million (2017: net loss of $51.9m) as a result of increased R&D expenses of $142.2 million (2017: $88.0m) on an as adjusted (non-GAAP) basis driven by broad scale expansion of clinical development activities in both China and global markets as well as the establishment of small molecule manufacturing operations. Two non-cash items totaling $22.3 million were also included in the 2018 net loss - (1) an intangible asset impairment provision in regard to a drug candidate under NSP; and (2) amortized expenses related to the grant of options to the Innovation Platform middle management team.

Since inception, the Innovation Platform has dosed approximately 4,400 patients/subjects in clinical trials of our drug candidates with over 700 dosed in 2018 in over thirty active studies.

U.S. and International Operations Expanded

In early 2018, we commenced operations of Hutchison MediPharma (US) Inc. at our new U.S. offices in Florham Park, New Jersey. While we have been conducting clinical and non-clinical development in North America and Europe for over a decade, the activities conducted by this new U.S. office will support our growth strategy outside of China and significantly broaden and scale-up our non-Asia clinical development and international operations. As part of this strategy, we recruited two experienced senior personnel, namely the U.S. Chief Medical Officer, and the Head of International Operations. They will support our expansion of clinical development and regulatory activities for fruquintinib, surufatinib, HMPL-523 (Syk) and HMPL-689 (PI3Kδ) in the U.S. and the E.U. during 2019.

Product Pipeline Progress

Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted development of several other selective MET inhibitors. In clinical studies to date, involving approximately 900 patients, savolitinib has shown promising signs of clinical efficacy in patients with MET gene alterations in NSCLC, PRCC and gastric cancer with an acceptable safety profile. We are currently testing savolitinib, in partnership with AstraZeneca, in multiple Phase Ib/II studies, both as a monotherapy and in combinations. Two studies, which subject to positive clinical outcome, are designed to support NDA submission are underway in lung cancer. Several additional studies, mostly proof-of-concept, have or will report in 2019 and could potentially warrant further development.

Savolitinib - Lung cancer: MET is an increasingly important target in NSCLC. The table below shows a summary of the clinical studies for savolitinib in lung cancer patients.

Tagrisso® (osimertinib) resistance in NSCLC: Since its first approval in November 2015, Tagrisso® has been established as a new standard of care in the treatment of EGFR mutation positive ("EGFRm") NSCLC, approved in over 80 countries it had sales of $1.9 billion in 2018. Understanding the mechanism of acquired resistance following Tagrisso® treatment is a key clinical question to inform the next treatment choice.

At the European Society of Medical Oncology Congress 2018, AstraZeneca presented the first results on the acquired resistance spectrum detected in patient plasma after progression in the first-line (FLAURA) and second-line T790M (AURA3) Phase III studies. MET amplification was among the most frequent mechanisms of acquired resistance to Tagrisso® with 15% of patients in the FLAURA study, and 19% of patients in AURA3.

TATTON (NCT02143466) - The combination of Tagrisso®/savolitinib as a treatment option for MET amplified EGFR-TKI refractory NSCLC: In 2016, we initiated a global Phase Ib/II expansion study in NSCLC, the TATTON (Part B) study, aiming to recruit sufficient MET amplified patients, who had progressed after prior treatment with EGFR TKI (e.g. Iressa®/Tarceva®/Tagrisso®), to support a decision on global Phase II/III registration strategy.

Initial data from the TATTON (Part B) study assessing the safety and preliminary efficacy of the Tagrisso®/savolitinib combination were presented at the World Conference on Lung Cancer ("WCLC") in 2017. Confirmed partial responses ("PRs") were seen in 20/34 (ORR 59%) of patients with MET+ T790M+/- EGFRm NSCLC (local testing) who had been previously treated with a first- or second-generation EGFR TKI (primarily Iressa® and Tarceva®). The majority of these patients having received only one prior line of therapy. For patients that had progressed on third-generation EGFR TKIs (primarily Tagrisso®) confirmed PRs were seen in 10/33 (ORR 33%) of patients with MET+ EGFRm NSCLC (local testing).

In late 2017, we expanded a further arm of the TATTON study, Part D, to study Tagrisso® combined with a lower savolitinib dose in the context of optimizing the long-term tolerability of the combination for patients who could be in poor condition and/or on the combination for long periods of time. Enrollment of TATTON Part B and D have now been completed and patients continue to be treated and clinical data continues to mature. Finalization of the registration study dose of Tagrisso® and savolitinib is close to complete. Presentation of the full TATTON dataset is planned for the 2019 AACR conference.

SAVANNAH (NCT03778229) - Based on the encouraging TATTON results, Chi-Med and AstraZeneca have initiated a global Phase II study of Tagrisso®/savolitinib combination in patients with MET+ EGFRm NSCLC who have progressed following Tagrisso® - SAVANNAH is a single-arm study, in North and South America, Europe and Asia with primary data completion anticipated in 2021.

Iressa® / Savolitinib combination (NCT02374645) - Separately, a Phase Ib study combining AstraZeneca's first-generation EGFR TKI Iressa® with savolitinib has been completed in China. Chi-Med and AstraZeneca will continue to evaluate this opportunity during 2019.

MET Exon 14 deletion NSCLC (NCT02897479) - MET Exon 14 deletion is present in 2-3% of NSCLC patients, or approximately 10,000 new patients per year in China. The China Phase II study of savolitinib monotherapy is currently enrolling in NSCLC patients with MET Exon 14 deletion who have progressed following prior systemic therapy, or are unable to receive systemic therapy. Primary data completion is expected in 2020 with potential to be savolitinib's first NDA.

Savolitinib - Kidney cancer: The table below shows a summary of the clinical studies for savolitinib in kidney cancer patients.

CALYPSO Phase II in RCC of savolitinib or savolitinib with Imfinzi® PD-L1 inhibitor combination (NCT02819596) - The CALYPSO study is an investigator initiated open-label Phase I/II study of savolitinib in combination with Imfinzi®, AstraZeneca's anti-PD-L1 antibody. The study is evaluating treatment of PRCC and clear cell renal cell carcinoma (ccRCC) patients at sites in the U.K. and Spain.

PRCC cohort - Interim data for the PRCC cohort of the CALYPSO Phase II study were presented at the 2019 ASCO GU showing encouraging efficacy across all PRCC patients (both MET-positive and -negative). The CALYPSO data, reported ORR of 27% (11/41), while median PFS was 5.3 months (95% CI: 1.5-12.0 months). Median OS was immature/not reached. For previously untreated patients (n=28), ORR was 32% (9/28). The combination was tolerable with edema (10%), nausea (5%), and transaminitis (5%) being most frequent treatment related Grade ≥3 adverse events. The investigators concluded that the Imfinzi® / savolitinib combination is associated with durable responses in PRCC and that both PFS and OS data were immature but encouraging.

The above CALYPSO combination data compares to the savolitinib monotherapy (Phase II) which reported an ORR of 7% in all PRCC patients (18% ORR in MET-positive; and 0% in MET-negative).

These data led AstraZeneca and Chi-Med to suspend enrollment in the SAVOIR Phase III study (NCT03091192) targeting the MET-positive PRCC patient population with savolitinib monotherapy in order to reassess PRCC strategy in favor of potential combinations of savolitinib and immunotherapy.

Savolitinib - Gastric cancer:

Phase II gastric cancer studies are now complete in China as well as the VIKTORY umbrella study run at and sponsored by the Samsung Medical Center in South Korea. At the end of 2018, a total of over 1,000 gastric cancer patients had been screened in these studies and those patients with confirmed MET-driven disease were treated with either savolitinib monotherapy or savolitinib in combination with docetaxel. The table below shows a summary of the clinical studies for savolitinib in gastric cancer patients.

Savolitinib monotherapy in MET amplified gastric cancer patients (NCT01985555 / NCT02449551) - Preliminary results were presented at the CSCO conference in late 2017 for the efficacy evaluable MET amplified patients in China. This China study concluded that savolitinib monotherapy demonstrated promising anti-tumor efficacy in gastric cancer patients with MET amplification, and the potential benefit to these patients clearly warranted further exploration, including continuing enrollment for a Phase II study in China. The VIKTORY Phase II study is now complete in MET amplified patients in South Korea, and the full data set is expected to be published in a scientific journal in 2019.

Savolitinib - Prostate cancer: The table below shows a summary of the clinical study for savolitinib in prostate cancer patients.

This study is sponsored by the Canadian Cancer Trials Group and designed to determine the effect of savolitinib on prostate-specific antigen ("PSA") decline and time to PSA progression, ORR as determined by RECIST 1.1 criteria, the safety and toxicity profile of savolitinib in mCRPC patients, as well as any potential predictive and prognostic factors. The umbrella study targets to enroll around 500 patients into four treatment arms based on molecular status, with one treatment arm being patients with aberrant MET activation who will receive savolitinib. High levels of MET over-expression can be prevalent in prostate cancer patients.

Fruquintinib is a highly selective and potent oral inhibitor of VEGFR 1/2/3 that was designed to be a global best-in-class VEGFR inhibitor for many types of solid tumors. VEGFR inhibitors play a pivotal role in tumor-related angiogenesis, cutting off the blood supply that a tumor needs to grow rapidly. The global market for anti-angiogenesis therapies was estimated at over $16 billion in 2018, including both monoclonal antibodies and small molecules approved in around 30 tumor settings. Chi-Med retains all rights to fruquintinib outside of China and is partnered with Lilly in China.

Fruquintinib was designed to improve kinase selectivity in comparison to other approved small molecule TKIs, to minimize off-target toxicities, improve tolerability and provide more consistent target coverage. The excellent tolerability in patients to-date, along with fruquintinib's low potential for drug-drug interaction based on preclinical assessment, suggests that it may be highly suitable for combinations with other anti-cancer therapies.

2018 Lilly Amendments for China Rights - In December 2018, we announced certain amendments (the "2018 Amendment") to the original 2013 China License and Collaboration Agreement ("2013 Agreement") on fruquintinib with Lilly.

We believe this amendment now enables both Chi-Med and Lilly to maximize the long-term commercial potential of fruquintinib, our first approved drug and currently most important asset in China. Under the terms of the 2013 Agreement, decision making on life cycle indications ("LCI") development beyond the initial indications of third-line CRC, third-line NSCLC and second-line gastric cancer was controlled by Lilly. The majority of development costs for LCIs were to be paid by Lilly, with the minority by Chi-Med.

The 2018 Amendment now gives Chi-Med full control of clinical development for fruquintinib in China. Chi-Med will take on all LCI development costs, the scale of which will be determined solely by Chi-Med and be based on the LCIs we select to pursue. In return for Chi-Med's investment of capital and resources, Lilly will pay Chi-Med a $20 million milestone upon approval of each fruquintinib LCI in China, for up to three LCIs, totaling up to $60 million. Furthermore, upon the launch of the first LCI, the tiered royalty structure, payable by Lilly to Chi-Med on total sales in China, will be raised from the range of 15-20% in the 2013 Agreement to a new level of 15-29% under the 2018 Amendment.

Chi-Med now has freedom to collaborate with any third-party in China, for example PD-1 immunotherapy manufacturers such as Innovent and Genor.

In addition to the above, Chi-Med may assume exclusive promotion rights in 30-40% of China on fruquintinib, based on territorial sales. Until this possible transition occurs, which is not expected to occur before 2021, Lilly is responsible for all costs associated with the launch and commercialization of fruquintinib in China. If Chi-Med does eventually assume fruquintinib promotion in the 30-40% of China, we will receive service fees in that territory and believe that this arrangement would be net income accretive to Chi-Med.

The table below shows a summary of the clinical studies for fruquintinib.

Fruquintinib - Colorectal Cancer:

In September 2018, the National Medical Products Administration of China approved the first NDA for fruquintinib for the treatment of patients with advanced CRC. The NDA is supported by data from the successful FRESCO study, a Phase III pivotal registration trial of fruquintinib in 416 patients with CRC in China, which was highlighted in an oral presentation at the ASCO Annual meeting on June 5, 2017 and was published in JAMA, in June 2018.

In late November 2018, we announced the first commercial launch of Elunate® (fruquintinib capsules) with the initiation of product sales in China. Elunate® is for the treatment of patients with metastatic CRC that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan, including those who have previously received anti-VEGF therapy and/or anti-EGFR therapy (Ras wild type).

Elunate® launch update - Elunate® has been able to secure inclusion on certain city level Reimbursement Lists in early 2019. This will quickly give us a sense for the longer-term market potential for Elunate® in third-line CRC. Aside from these reimbursed cities, to start with, all sales are currently paid for out of pocket by patients. To broaden access to Elunate® ahead of potential National Drug Reimbursement List ("NDRL") inclusion, Lilly is implementing a means-tested patient access program ("PAP"). The PAP requires patients to pay for three 28-day cycles of Elunate® (cycles one, two and five) at the full price. Outside of these three paid-for cycles, Elunate® will be provided for free.

Since launch in late November 2018, Lilly has been working to roll-out Elunate® in China, province-by-province. Early market up-take suggests that the pricing strategy and PAP are working well and overall prescription and distributor sales performance for Elunate® is encouraging. To broadly access the approximately 55,000 to 60,000 new third-line CRC patients per year in China, Elunate® would need to gain access to the NDRL, a major priority for Lilly and Chi-Med in 2019.

Global development of fruquintinib in CRC - In addition, the U.S. recommended Phase II dose for fruquintinib was established in a Phase I study during 2018. In 2018, we started also planning for a Phase II/III registration study in the U.S. and Europe in third- or fourth-line metastatic CRC patients who are resistant to or intolerant of prior Stivarga®/Lonsurf® treatment.

Fruquintinib - Gastric Cancer:

Phase III study of fruquintinib in combination with Taxol® in gastric cancer (second-line) (NCT03223376) - In October 2017, we initiated the FRUTIGA study, a randomized, double-blind, Phase III study to evaluate the efficacy and safety of fruquintinib combined with Taxol® compared with Taxol® monotherapy for second-line treatment of advanced gastric or gastroesophageal junction adenocarcinoma, in patients who had failed first-line standard 5-flourouracil-based chemotherapy. A total of over 500 patients are expected to be enrolled into the FRUTIGA study at a 1:1 ratio. The primary endpoint is OS, with secondary endpoints including PFS, ORR, disease control rate ("DCR") and quality-of-life score. Biomarkers related to the anti-tumor activity of fruquintinib will also be explored. We intend to conduct an early interim analysis (n~100) of the FRUTIGA study for proof-of-concept, on PFS and 6-month trending OS, during the first half of 2019.

Fruquintinib - NSCLC:

Phase III study of fruquintinib monotherapy in third-line NSCLC (NCT02691299) - In November 2018, we announced the outcome of FALUCA, the Phase III trial of fruquintinib in advanced NSCLC patients in China who have failed two lines of systemic chemotherapy. The trial did not meet the primary endpoint to demonstrate a statistically significant increase in OS compared to placebo. However, fruquintinib demonstrated a statistically significant improvement in all secondary endpoints including PFS, ORR, DCR and duration of response ("DoR") as compared to the placebo. The safety profile of the trial was in line with that observed in prior clinical studies. We intend to submit full analysis of the FALUCA study for presentation at a scientific conference in 2019.

Phase II study of fruquintinib in combination with Iressa® in first-line NSCLC (NCT02976116) - In early 2017, we initiated a multi-center, single-arm, open-label, dose-finding Phase II study of fruquintinib in combination with Iressa® in the first-line setting for patients with advanced or metastatic NSCLC with EGFR activating mutations. We have enrolled about 50 patients in this study with the objective of evaluating the safety and tolerability as well as the efficacy of the combination therapy. Preliminary data were presented in late 2017 at the WCLC, showing an encouraging response and safety profile. Fruquintinib's unique safety and tolerability profile, resulting from its high kinase selectivity, combined with better flexibility to manage treatment emergent toxicities due to its shorter half-life than monoclonal antibody anti-angiogenesis therapies, makes it a suitable combination partner for EGFR TKIs. The primary objective of this exploratory study is to determine the safety and tolerability and median PFS of the fruquintinib / Iressa® combination. Primary data completion is anticipated in late 2019.

Fruquintinib - Combinations with Checkpoint Inhibitors:

In November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of fruquintinib in combination with checkpoint inhibitors. These include a global collaboration to evaluate the combination of fruquintinib with Tyvyt® (sintilimab, IBI308), a PD-1 monoclonal antibody approved in China in late 2018 by Innovent and a collaboration in China to evaluate the fruquintinib combination with genolimzumab (GB226), a PD-1 monoclonal antibody being developed by Genor. Safety run-in studies are currently being planned/underway to establish the safe and effective dose regimens for the fruquintinib combinations with either Tyvyt® or genolimzumab.

Surufatinib is a novel, oral angio-immuno kinase inhibitor that inhibits VEGFR and FGFR which both inhibit angiogenesis, and CSF-1R which regulates tumor-associated macrophages, promoting the body's immune response against tumor cells. Surufatinib's dual mechanism of action may be very suitable for combination use with other immunotherapies. We currently retain all rights to surufatinib worldwide. Surufatinib, as a monotherapy, is in proof-of-concept clinical trials in the U.S. and late-stage clinical trials in China. A summary of these clinical studies is shown in the table below.

Surufatinib - NET:

Phase III study of surufatinib monotherapy in pancreatic NET (SANET-p) (NCT02589821) - In 2016, we initiated the SANET-p study, which is a pivotal Phase III study in patients with low- or intermediate-grade, advanced pancreatic NET in China. Patients are randomized in a 2:1 ratio to receive either surufatinib or placebo, on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time-to-response, DoR, safety and tolerability. We expect to deliver an interim analysis in late 2019 and complete enrollment in 2020.

Global development of surufatinib in pancreatic NET - The encouraging data from the Phase II study of surufatinib in pancreatic NET in China, and the ongoing Phase Ib study in the U.S., has led us to decide to proceed with planning for a U.S. and Europe registration study of surufatinib in pancreatic NET patients who have progressed on Sutent® or Afinitor®.

Phase III study of surufatinib monotherapy in non-pancreatic NET (SANET-ep) (NCT02588170) - In December 2015, we initiated the SANET-ep study, which is a pivotal Phase III study in patients with low or intermediate grade advanced non-pancreatic NET in China. Patients are randomized at a 2:1 ratio to receive either surufatinib or placebo, on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time to response, DoR, safety and tolerability. We expect to deliver an interim analysis in mid-2019 and complete enrollment in 2020.

Surufatinib - Biliary Tract Cancer:

Phase Ib/II study of surufatinib monotherapy in biliary tract cancer (NCT02966821) - In early 2017, we began a Phase Ib/II proof-of-concept study in patients with biliary tract cancer, a heterogeneous group of rare malignancies arising from the biliary tract epithelia and the gallbladder. This is a major unmet medical need for patients who have progressed on first-line chemotherapy, and there is currently no standard of care for these patients. Surufatinib may offer a new targeted treatment option in this tumor type. We expect to publish the results of the Phase Ib/II study in China during 2019 and intend to start a Phase II/III study in China in early 2019.

Surufatinib - Combinations with Checkpoint Inhibitors:

Similar to fruquintinib, in November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of surufatinib in combination with checkpoint inhibitors. These include a global collaboration to evaluate the combination of surufatinib with Tuoyi® (toripalimab, JS001), a PD-1 monoclonal antibody approved in China in late 2018 by Junshi and a collaboration in China to evaluate the combination of surufatinib with HX008, a PD-1 monoclonal antibody being developed by Hanzhong. Safety run-in studies are currently being planned/underway to establish the safe and effective dose regimens for the fruquintinib combinations with both Tuoyi® and HX008.

HMPL-523 is an oral inhibitor targeting Syk, a key protein involved in B-cell signaling. We currently retain all rights to HMPL-523 worldwide. The table below shows a summary of the clinical studies for HMPL-523.

In 2016 and 2017, we initiated Phase I studies of HMPL-523 in hematological cancer in Australia and China respectively which to-date in dose escalation and expansion have enrolled over 100 non-Hodgkin's lymphoma patients. Since early 2018, we have been increasing the number of active clinical sites, now totaling 18, in Australia and China to support a large dose expansion program in a broad range of hematological cancers. We intend to use safety and efficacy data from these Phase I/Ib dose escalation/expansion studies in B-cell malignancies to guide registration strategy in China during late 2019.

In October 2018, we initiated a Phase I study of HMPL-523 in combination with azacitidine, an approved demethylating agent inhibitor, in elderly patients with acute myeloid leukemia in China. This is a Phase I, open-label, multicenter study to evaluate the safety, pharmacokinetics ("PK") and preliminary efficacy of the combination in previously untreated elderly patients with acute myeloid leukemia. The primary outcome measures safety with a secondary endpoint of efficacy. The two-stage study will have a dose escalation and dose expansion stage.

In addition, our U.S. IND application for HMPL-523 was cleared by the FDA in mid-2018 and we are now planning to start a Phase I/Ib study in indolent non-Hodgkin's lymphoma patients in the U.S. and Europe in the first half of 2019. We also continue to consider immunology applications for HMPL-523 including immune thrombocytopenia and potentially rheumatoid arthritis.

HMPL-689 is a novel, highly selective and potent small molecule inhibitor targeting the isoform PI3Kδ, a key component in the B-cell receptor signaling pathway. We have designed HMPL-689 with superior PI3Kδ isoform selectivity. HMPL-689's PK properties have been found to be favorable with good oral absorption, moderate tissue distribution and low clearance in preclinical PK studies. We also expect that HMPL-689 will have low risk of drug accumulation and drug-to-drug interaction. We currently retain all rights to HMPL-689 worldwide. The table below shows a summary of the clinical studies for HMPL-689.

In 2016, we completed a Phase I dose escalation study in Australia in healthy adult volunteers to evaluate HMPL-689's PK and safety profile following single oral dosing. Results were as expected with linear PK properties and tolerable safety profile. We subsequently initiated a Phase I dose escalation and expansion study in patients with hematologic malignancies in China in August 2017. We will aim to complete dose escalation and begin dose expansion in China in 2019. We also plan to start a Phase I/Ib study in indolent non-Hodgkin's lymphoma in the U.S. and Europe in the first half of 2019.

Epitinib is a potent and highly selective oral EGFR inhibitor which has demonstrated brain penetration and efficacy in both pre-clinical and clinical studies. Epitinib is designed for optimal blood-brain barrier penetration, allowing for high drug exposure in the brain. We currently retain all rights to epitinib worldwide. The table below shows a summary of the clinical studies for epitinib.

Glioblastoma: Glioblastoma is a very aggressive disease with poor prognosis. There are currently no targeted therapies approved for glioblastoma. EGFR gene amplification has been identified in about half of glioblastoma patients, according to The Cancer Genome Atlas Research Network, and hence is a potential therapeutic target in glioblastoma. In March 2018, we initiated a Phase Ib/II, multi-center, single-arm, open-label study to evaluate the efficacy and safety of epitinib as a monotherapy in patients with EGFR gene amplified, histologically confirmed glioblastoma.

EGFRm NSCLC with brain metastasis: In late-2016, we presented encouraging efficacy data from an open-label, multi-center, Phase Ib dose expansion study. For EGFR TKI naïve patients treated with epitinib 160mg QD dose, ORR was in the range of 60-70% (including confirmed and unconfirmed PRs), with a tolerable safety profile. In 2017 and 2018 we worked to finalize epitinib dose regimen while planning our Phase III registration study. During this time, the EGFR TKI treatment landscape has evolved rapidly. First, the launch of Tagrisso®, a third-generation EGFR TKI with blood-brain barrier penetration, at accessible pricing in China with NDRL inclusion; and secondly, the launch of generic first-generation EGFR TKIs (gefitinib and erlotinib) at approximately one-quarter of their previous NDRL price. We are studying the impact of the above two factors on epitinib's market potential and Phase III investment case in EGFRm NSCLC with brain metastasis in China.

Theliatinib is a novel EGFR inhibitor under investigation for the treatment of solid tumors. Tumors with wild-type EGFR activation, for instance, through gene amplification or protein over-expression, are less sensitive to first-generation EGFR TKIs, Iressa® and Tarceva®, due to their sub-optimal binding affinity. Theliatinib has been designed with strong affinity to the wild-type EGFR kinase and has been shown to be five to ten times more potent than Tarceva®. Consequently, we believe that theliatinib could benefit patients with tumor-types with a high incidence of wild-type EGFR activation. We currently retain all rights to theliatinib worldwide. The table below shows a summary of theliatinib clinical studies.

In early 2017, we began a Phase Ib proof-of-concept expansion study of theliatinib in esophageal cancer patients with EGFR protein over-expression or gene amplification, a patient population with limited treatment options and very poor prognosis. During the Phase I study, we observed efficacy, primarily in the form of stable disease or short duration response, which while encouraging does not warrant continued development of theliatinib monotherapy in esophageal cancer at this time. We now plan to look at alternative uses of theliatinib and could consider the potential for use in combinations with immunotherapy.

HMPL-453 is a novel, highly selective and potent small molecule inhibitor that targets FGFR 1/2/3, a sub-family of receptor tyrosine kinases. Aberrant FGFR signaling has been found to be a driving force in tumor growth, promotion of angiogenesis and resistance to anti-tumor therapies. To date, there are no approved therapies specifically targeting the FGFR signaling pathway. In pre-clinical studies, HMPL-453 demonstrated excellent kinase selectivity as well as strong anti-tumor potency. Abnormal FGFR gene alterations are believed to be the drivers of tumor cell proliferation in several solid tumor settings. We currently retain all rights to HMPL-453 worldwide. The table below shows a summary of the clinical studies for HMPL-453.

In early 2017, we initiated first-in-human Phase I dose escalation studies in China to evaluate safety, tolerability, PK, pharmacodynamics and preliminary anti-tumor activity in patients with advanced or metastatic solid tumors. Enrollment is ongoing.

COMMERCIAL Platform

The Commercial Platform has been built over the past 18 years and is focused on two business areas. First is our Prescription Drugs business, a higher-margin/profit business operated through our joint ventures Hutchison Sinopharm and SHPL, in which we nominate management and run the day-to-day operations. Aspects of our Prescription Drugs business form a core strategic platform that we plan to use to launch our Innovation Platform drugs once approved in China. Second is our Consumer Health business, which is a profitable and cash flow generating business primarily selling market-leading, household-name OTC pharmaceutical products through our non-consolidated joint venture HBYS.

In 2018, the Commercial Platform delivered solid net income growth despite a change in the way we recognize certain sales resulting from the implementation of the Two-Invoice System and the divestment of a non-core OTC logistics business. Consolidated sales of our Commercial Platform's subsidiaries decreased by 16% to $172.9 million (2017: $205.2m) as the Two-Invoice System caused us to shift from a gross sales revenue model to a service fee revenue model with respect to sales of certain third-party products. The sales of our Commercial Platform's non-consolidated joint ventures, SHPL and HBYS, grew by 13% to $491.5 million (2017: $433.3m excluding divested operations). This resulted in adjusted (non-GAAP) consolidated net income attributable to Chi-Med from our Commercial Platform up 10% to $41.4 million (2017: $37.5m) when one-time gains were excluded (2017: $2.5m, R&D-related subsidies to SHPL).

Regulatory reforms in the China pharmaceutical distribution system:

The new Two-Invoice System, a mandatory government policy, has been rolled-out across China. In principle, the purpose of the Two-Invoice System is 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. One impact for us is that, starting in October 2017, the Seroquel® sales model, in which our consolidated revenues historically reflected total gross sales of Seroquel®, shifted to a fee-for-service model similar to that used with respect to Concor®.

A second major regulatory reform that emerged in 2018 was the 4+7 QCE bidding process. This is a multi-province/city government purchasing initiative aimed at driving consolidation in the fragmented generic prescription drug market in China. The 4+7 QCE System will likely gradually expand further in China over the coming years, covering more provinces and more generic drugs. In the mid- to long-term, we believe that the 4+7 QCE System will benefit Chi-Med. The system is aimed at improving drug quality while reducing generic drug prices thereby opening more headroom for the State Medical Insurance schemes to add further innovative drugs to the NDRL. During 2017 and 2018, thirty-two innovative oncology drugs were added to the NDRL, a trend that we believe could ultimately benefit Chi-Med's Innovation Platform drug candidates.

PRESCRIPTION DRUGS BUSINESS:

In 2018, sales of our Prescription Drugs subsidiaries decreased as expected by 20% to $132.8 million (2017: $166.4m) as a result of the implementation of the Two-Invoice System. Sales of our non-consolidated Prescription Drugs joint venture (SHPL) grew by 13% to $275.7 million (2017: $244.6m). The consolidated (non-GAAP) net income attributable to Chi-Med from our Prescription Drugs business was up 21% to $32.1 million (2017: $26.5m, excluding one-time gains from R&D-related subsidies to SHPL). The Prescription Drugs business represented 78% of our overall Commercial Platform net income in 2018 (2017: 72%).

SHPL: Our own-brand Prescription Drugs business, operated through our non-consolidated joint venture SHPL, is a well-established large-scale business. In 2018, SHPL delivered sales growth of 13% at $275.7 million (2017: $244.6m) as a result of both volume and price growth on SXBX pill.

SXBX pill: SHPL's main product is SXBX pill, an oral vasodilator and pro-angiogenesis prescription therapy approved to treat coronary artery disease, which includes stable/unstable angina, myocardial infarction and sudden cardiac death. There are over one million deaths due to coronary artery disease per year in China, with this number set to rise due to an aging population with high levels of smoking (28% of adults), increasing levels of obesity (30% of adults are overweight) and hypertension (25% of adults). SXBX pill is the third largest botanical prescription drug in this indication in China, with a market share of 17.0% (2017: 15.4%) nationally and 48.0% (2017: 47.0%) in Shanghai. Sales of SXBX pill have grown more than twenty-fold since 2001 due to continued geographical expansion of sales coverage, including 11% to $233.1 million in 2018 (2017: $209.2m).

In early 2018, as a result of the Two-Invoice System, SHPL was required to restructure its distribution and logistics network. Prior to the Two-Invoice System, SHPL had spent over fifteen years building a stable system which employed a group of approximately 200 primary distributors to cover China. These primary distributors in-turn used approximately 1,600 secondary distributors to work directly with hospitals, on a local level, to manage logistics and collection. The Two-Invoice system regulations required SHPL to eliminate one layer of distributors. As a result, a new system with about 800 primary distributors was established in early 2018 to work directly with hospitals. This included the original approximately 200 primary distributors in addition to about 600 new primary distributors.

In the first half of 2018, as the new system was established, SHPL sales were robust, growing by 18% to $152.7 million (H1 2017: $129.7m). All SHPL sales to new primary distributors are on a cash basis, putting a significant working capital burden on these new primary distributors. The new system is working well, although it will likely take a couple of years for all new primary distributors to reach the standards/efficiency levels of SHPL's pre-Two-Invoice System. During 2018, we also moved to increase average SXBX pill bidding price by 8%, to counter inflation in raw material and manufacturing costs. As a consequence of these two factors, we expect SHPL local currency sales during the first half of 2019 could be marginally lower than the same period in 2018, with low- to mid-single digit growth for the full year 2019, as we establish a new equilibrium.

SXBX pill is protected by a formulation patent that expires in 2029 and is one of less than two dozen proprietary prescription drugs represented on China's National Essential Medicines List, which means that all Chinese state-owned health care institutions are required to carry the drug. SXBX pill is a low-cost drug, fully reimbursed in all provinces in China, listed on China's Low Price Drug List with a 2018 average daily cost of RMB4.39 (2017: RMB4.07), or approximately $0.65. Beyond 2019, we anticipate stable growth in sales and profit for SXBX pill given the strength of its proposition and the expected expansion of the coronary artery disease market in China driven by an aging population and trends in diet leading to increasing obesity.

The SHPL operation is large-scale in both the commercial and manufacturing areas. The commercial team now has about 2,400 medical sales representatives which allows for the promotion and scientific detailing of our prescription drug products not just in hospitals in provincial capitals and medium-sized cities, but also in the majority of county-level hospitals in China. SHPL's GMP-certified factory located 40 kilometers south of Shanghai in Fengpu district holds 74 drug product manufacturing licenses and is operated by about 540 manufacturing staff. This factory, opened in 2017, has approximately tripled SHPL's capacity and therefore positions us well for continued long-term growth.

Concor®: Concor® (Bisoprolol tablets) is a cardiac beta1-receptor blocker, relieving hypertension and reducing high blood pressure. Concor® is the number two beta-blocker in China with an approximately 24% (2017: 18%) national market share in China's beta-blocker drug market and 63% of China's generic bisoprolol market. In early 2019, we re-structured our collaboration agreement with Merck Serono on Concor®, making territorial adjustments and expanding SHPL operations on Concor® to nine provinces in China (2018: six), markets that contain about 600 million people. We have created synergy with SHPL's existing cardiovascular medical sales team by detailing Concor® alongside SXBX pill. In 2018, we grew Concor® sales by 35%, resulting in service fees of $4.0 million (2017: $1.8m). We expect growth in these fees will continue to be driven by cardiovascular market expansion.

Hutchison Sinopharm: Our Prescription Drugs commercial services business, which is operated through Hutchison Sinopharm, focuses on providing logistics services to, and distributing and marketing prescription drugs manufactured by, third-party pharmaceutical companies in China. In 2018, Hutchison Sinopharm sales decreased as expected by 20% to $132.8 million (2017: $166.4m) as a result of the Two-Invoice System implementation, as previously discussed.

Seroquel®: Seroquel® (quetiapine tablets) is an anti-psychotic therapy approved for bi-polar disorder and schizophrenia, conditions that are under-diagnosed in China. Seroquel® holds a 6.0% (2017: 5.6%) market share in China's approximately $0.9 billion atypical anti-psychotic prescription drug market, and 47.5% (2017: 45.0%) of China's generic quetiapine market, primarily as a result of being the first-mover and original patent holder on quetiapine. Seroquel® is the only brand in China to have an extended release (XR) formulation, which in 2017 was included on the NDRL, thereby providing us with competitive advantage over quetiapine generics.

Since early 2015, Hutchison Sinopharm has been the exclusive marketing agent for Seroquel® tablets in China and operates through a team of about 110 dedicated medical sales representatives. The new Two-Invoice System has had no effect on profitability, with service fees paid to Hutchison Sinopharm for marketing Seroquel® during 2018 increasing 51% to $17.2 million (2017: $11.4m).

In June 2018, AstraZeneca sold and licensed its rights to Seroquel® to Luye Pharma Group, Ltd. for a total consideration of $538 million. The transaction covered countries in which Seroquel® generated total sales of $148 million in 2017, including $46 million in China. The terms of our agreement with AstraZeneca were assigned to Luye Pharma Hong Kong Ltd. and remain unchanged following this transaction. The transaction has not affected our 2018 results. Under the terms of our agreement, in order for Hutchison Sinopharm to retain exclusive commercial rights to Seroquel® in China until 2025, we were required to deliver approximately 22% in-market sales growth in 2018 and 15% per year thereafter. We achieved 22% growth in Seroquel in-market sales during 2018. Despite this, we do not rule out Luye moving to try to take back Seroquel® rights in China. We will use all available resources to protect our rights.

The expansion of the 4+7 QCE System will likely lead to a trimming of the Hutchison Sinopharm product portfolio in 2019 as inevitably some of our third-party generic drug partners fail to win 4+7 QCE bids. This would lead to a marginal decline in consolidated sales, but will not noticeably affect Hutchison Sinopharm profitability given that these products are relatively low margin to us.

CONSUMER HEALTH BUSINESS:

During 2018, sales of our Consumer Health subsidiaries increased by 3% to $40.1 million (2017: $38.8m) and sales of our non-consolidated Consumer Health joint venture (HBYS) were $215.8 million, a 14% increase (2017: $188.8m) on an as adjusted (non-GAAP) basis, excluding divested operation sales of $38.6m as discussed below. Consolidated net income attributable to Chi-Med from our Consumer Health business decreased by 16% to $9.3 million (2017: $11.0m) due to additional costs associated with the new Bozhou factory and increasing competition. The Consumer Health business represented 22% of our overall Commercial Platform net income in 2018 (2017: 28%).

HBYS: Our OTC business operated through our non-consolidated joint venture, HBYS, focuses on the manufacture, marketing and distribution of OTC pharmaceutical products. Its Bai Yun Shan brand is a market-leading, household name, established over 40 years ago, and is known by the majority of Chinese consumers. In addition to about 1,000 manufacturing staff in Guangdong and Anhui and 189 drug product licenses, HBYS has a commercial team of about 950 sales staff that covers the national retail pharmacy channel in China. The increased production capacity, as detailed below, resulted in solid revenue growth in 2018. However, depreciation, new factory start-up costs and increased selling expenses contributed to a decline in net income.

New Bozhou factory: In late 2017, HBYS transferred the majority of production to our new GMP-certified factory in Bozhou, Anhui. In 2018 we faced some challenges in ramping-up the new Bozhou factory to full operational status. Mostly these revolved around additional capital investment to meet evolving regulatory requirements.

Fu Fang Dan Shen ("FFDS") tablets and Banlangen granules: FFDS tablets (angina) and Banlangen granules (anti-viral cold/flu), the two main products of HBYS, are generic OTC drugs with leading national market share in China of 38% (2017: 38%) and 54% (2017: 53%), respectively. In 2018, the combined sales of these products was flat at $118.9 million (2017: $118.8m). Banlangen sales grew 4% to $62.6 million in the 2018 due to a moderate to severe flu season in early 2018. This increase was offset in by a decline in sales of FFDS which fell 4% to $56.3 million due to the competitive environment which required an increase in selling expenses, and a shift to larger-count but lower-margin package sizes. We currently await the expected 2019 approval and label expansion of FFDS for use in certain early-stage dementia indications which we believe could provide HBYS with a competitive advantage over the coming years.

Nanyang Baiyunshan Hutchison Whampoa Guanbao Pharmaceutical Company Limited ("Guanbao") divestment: In September 2017, HBYS divested its 60% shareholding in Guanbao for a consideration approximately equal to its carrying value. Guanbao was a Good Supply Practice distribution company which had been established via a joint venture in 2012. This low margin, primarily third-party OTC logistics business, with operations limited mainly to Henan province, had proven to be a business with no strategic value to Chi-Med. Sales reported under HBYS for Guanbao were nil in 2018 (2017: $38.6m).

HBYS property update: HBYS's vacant Plot 2 (26,700 sqm.) in Guangzhou has been listed for sale as part of the Guangzhou municipal government's urban redevelopment scheme plan since 2016. The date of this public auction will be determined by the Guangzhou government. While we are actively working to facilitate the transaction, changes in government policy continue to hold back the process. Land prices however continue to rise in Guangzhou, and based on precedent land transactions in the vicinity, we expect the auction value for Plot 2 to be well over $100 million of which 40 to 50% would be paid to HBYS as compensation for return of the land use rights. In addition, the move away from HBYS's larger Plot 1 (59,400 sqm.) will be contingent on how the Bozhou factory develops, but, when auctioned, we anticipate that based on recent precedent land transactions, Plot 1 could bring HBYS compensation per square meter comparable to Plot 2.

Hutchison Healthcare Limited ("HHL") and Hutchison Hain Organic Holdings Limited ("HHOH"): HHL, HHOH and other minor entities are subsidiaries involved in the commercialization of health-related consumer products. Sales of such products in 2018 grew by 3% to $40.1 million (2017: $38.8m) resulting from an increase in sales by 44% to $11.0 million (2017: $7.7m) for our Zhi Ling Tong® infant nutrition products offsetting a decline in sales by 7% to $29.1 million (2017: $31.1m) under HHOH and other minor entities as we streamlined our product range.

Commercial Platform dividends:

The profits of the Commercial Platform continue to pass on to the Chi-Med Group through dividend payments primarily from our non-consolidated joint ventures, SHPL and HBYS. Dividends of $35.2 million (2017: $55.6m) were paid from these joint ventures to the Chi-Med Group level in 2018. Dividends in 2017 were unusually high as the proceeds of one-time land compensation from SHPL were paid out. Net income from SHPL and HBYS have totaled about $550 million since 2005, of which $386 million has been paid in dividends to Chi-Med and its partners, with the balance retained by the joint ventures as cash or used primarily to fund factory upgrades and expansion. As of December 31, 2018, SHPL and HBYS held in aggregate $41.9 million in cash and cash equivalents, with no outstanding bank borrowings.

Christian HoggChief Executive OfficerMarch 11, 2019

Use of Non-GAAP Financial Measures and Reconciliation

In addition to financial information prepared in accordance with U.S. GAAP, this announcement also contains certain non-GAAP financial measures based on management's view of performance including:

· Adjusted R&D expenses;

· Adjusted consolidated operating profit from our Commercial Platform;

· Adjusted consolidated net income attributable to Chi-Med from our Commercial Platform;

· Adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business;

· Adjusted revenues of HBYS and non-consolidated joint ventures;

· Adjusted services fees for Seroquel®; and

· Adjusted Group net cash flows and adjusted Group net cash flows excluding financing activities.

Management uses such measures internally for planning and forecasting purposes and to measure the Chi-Med Group's overall performance. We believe these adjusted financial measures provide useful and meaningful information to us and investors because they enhance investors' understanding of the continuing operating performance of our business and facilitate the comparison of performance between past and future periods. These adjusted financial measures are non-GAAP measures and should be considered in addition to, but not as a substitute for, the information prepared in accordance with U.S. GAAP. Other companies may define these measures in different ways. The following items are excluded from adjusted financial results:

Adjusted R&D expenses: We exclude the impact of the revenue received from external customers and cost of goods of our Innovation Platform, which is reinvested into our clinical trials, to derive our adjusted R&D expense. Revenue received from external customers of our Innovation Platform consists of milestone and other payments from our collaboration partners. The variability of such payments makes the identification of trends in our ongoing R&D activities more difficult. We believe the presentation of adjusted R&D expenses provides useful and meaningful information about our ongoing R&D activities by enhancing investors' understanding of the scope of our normal, recurring operating R&D expenses.

Adjusted consolidated operating profit from our Commercial Platform, adjusted consolidated net income attributable to Chi-Med from our Commercial Platform and adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business: We exclude the impact of one-time gains which were triggered by the payment of R&D-related subsidies from the Shanghai government to SHPL.

Adjusted revenues of HBYS and non-consolidated joint ventures: We exclude the sales of Guanbao because Guanbao was divested by HBYS in September 2017.

Adjusted services fees for Seroquel®: Adjusted services fees for Seroquel® represents the service fees recorded for sales of Seroquel® in areas of China where the Two-Invoice System had been implemented plus the net sales recorded for sales of Seroquel® in areas of China where the Two-Invoice System had not been implemented where we recognize the gross sales and costs of goods sold for this product. We believe this comparable presentation reflecting the ongoing implementation of the Two-Invoice System provides useful and meaningful information about our ongoing Seroquel® business.

Adjusted Group net cash flows and adjusted Group net cash flows excluding financing activities: We include the change in short-term investments for the year to the change in cash and cash equivalents for the year to derive our adjusted Group net cash flows, and exclude the net cash (used in)/generated from financing activities for the year to derive our adjusted Group net cash flows excluding financing activities. We believe the presentation of adjusted Group net cash flows and adjusted Group net cash flows excluding financing activities provides useful and meaningful information about the use of our cash resources.

Reconciliation of GAAP to adjusted R&D expenses:

Reconciliation of GAAP to adjusted consolidated operating profit from our Commercial Platform:

Reconciliation of GAAP to adjusted consolidated net income attributable to Chi-Med from our Commercial Platform:

Reconciliation of GAAP to adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business:

Reconciliation of GAAP to adjusted revenues of HBYS and non-consolidated joint ventures:

Reconciliation of GAAP service fees to adjusted service fees for Seroquel®:

Reconciliation of GAAP change in cash and cash equivalents and short-term investments to Adjusted Group net cash flows and Adjusted Group net cash flows excluding financing activities:

* For the purposes of this reconciliation, 2019 guidance for net cash used in or generated from financing activities for the year is not provided and as such, cash and cash equivalents and short-term investments at the end of year excludes the effect of any net cash used in or generated from financing activities for the year.

Hutchison China MediTech Limited

Consolidated Balance Sheets

(in US$'000, except share data)

The accompanying notes are an integral part of these consolidated financial statements.

Hutchison China MediTech Limited

Consolidated Statements of Operations

(in US$'000, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

Hutchison China MediTech Limited

Consolidated Statements of Comprehensive (Loss)/Income

(in US$'000)

The accompanying notes are an integral part of these consolidated financial statements.

Hutchison China MediTech Limited

Consolidated Statements of Changes in Shareholders' Equity

(in US$'000, except share data in '000)