Hutchmed Regulatory News (HCM)

Hutchison China MediTech Limited ("Chi-Med") Reports Final Results for the Year Ended December 31, 2016 and Updates Shareholders on Key Clinical Programs

Group: Record revenue, net income and clinical investment in 2016

· Group revenue up 21% to $216.1 million (2015: $178.2m);

· Net income attributable to Chi‑Med up 46% to $11.7 million (2015: $8.0m), including $76.1 million in research and development expenses on an as adjusted basis (2015: $55.8m).

Innovation Platform: First successful pivotal Phase III outcome with launch now targeted for 2018

· Fruquintinib: Positive Phase III pivotal study in third-line colorectal cancer ("CRC") - designed to be global best-in-class in terms of efficacy and safety relative to Stivarga® (regorafenib), full data set to be presented mid-2017. Target 2018 launch in China as the first approved treatment for third-line CRC patients;

· 8 drug candidates now in 30 active clinical trials (2015: 19) around the world with four pivotal Phase III studies underway; and plans to initiate a further four Phase III studies during 2017;

· Presented positive proof-of-concept data over the past year on savolitinib in papillary renal cell carcinoma ("PRCC"); fruquintinib non-small cell lung cancer ("NSCLC") and gastric cancer in combination with Taxol® (paclitaxel); epitinib in NSCLC patients with brain metastasis; and sulfatinib in neuroendocrine tumors ("NET"). All now moved/moving to Phase III pivotal studies;

· Currently conducting Phase I studies on multiple novel drug candidates including HMPL-523 against spleen tyrosine kinase ("Syk"); HMPL-453 against fibroblast growth factor receptor 1/2/3 ("FGFR"); and HMPL-689 against phosphoinositide 3-kinase delta ("PI3Kδ").

Commercial Platform: High-performance drug marketing and distribution platform covers ~300 cites/towns in China with >3,300 sales people. High value products and household-name brands

· Total consolidated sales up 43% to $180.9 million (2015: $126.2m);

· Total sales of non-consolidated joint ventures up 14% to $446.5 million (2015: $392.7m);

· Total consolidated net income attributable to Chi-Med up 180% to $70.3 million (2015: $25.2m), or up 19% to $29.9 million on an adjusted basis which excludes a one-time property gain.

Strengthened cash position: Expected to be sufficient to progress full pipeline well into 2019

· Completed Nasdaq listing, raising net proceeds of $95.9 million; Cash resources of $173.7 million at Group level as of December 31, 2016 ($38.8m as of December 31, 2015), including cash and cash equivalents, short-term investments and unutilized bank facilities.

Catalysts targeted for 2017:

· Initiate two global Phase III studies on savolitinib in c-Met-driven PRCC and second-line NSCLC in combination with Tagrisso® (osimertinib);

· Submit China New Drug Application ("NDA") and present full fruquintinib Phase III data in third-line CRC at a major scientific conference in mid-2017;

· Initiate two further Phase III pivotal studies in China, epitinib in NSCLC patients with brain metastasis and fruquintinib in second-line gastric cancer in combination with Taxol®;

· Proof-of-concept data likely on four studies involving savolitinib, sulfatinib and HMPL-523.

References in this announcement to adjusted research and development expenses, consolidated net income attributable to Chi-Med from our Commercial Platform, consolidated operating profit and consolidated net income attributable to Chi-Med from our Prescription Drugs business 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.

U.K. Analysts Meeting and Webcast Scheduled Today at 9:00 a.m. BST (5:00 p.m. HKT) - at Citigate Dewe Rogerson, Third Floor, 3 London Wall Buildings, London, EC2M 5SY. Investors may participate in the call 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 U.S. call, please dial +1-212-999-6659. For all dial-in numbers please use conference ID "Chi-Med."

London: Monday, March 13, 2017: Chi-Med (AIM/Nasdaq: HCM), the China-based biopharmaceutical company focused on discovering and developing targeted therapies for oncology and immunological diseases for the global market, today announces its final results for the year ended December 31, 2016.

Simon To, Chairman of Chi-Med, said: "Chi-Med has had an important year in 2016, making progress at both the operating and strategic levels, in both the Innovation and Commercial Platforms.

Our Innovation Platform has eight drug candidates in 30 active clinical trials, delivering a flow of pivotal Phase III trial results from this year onwards, with its first drug targeted to launch next year. This is a sequence of potential new drugs capable of delivering meaningful benefit to patients and value for shareholders. Chi-Med has a solid cash position to fund the pipeline, fueled by its increasingly valuable and cash generative Commercial Platform, a flow of property compensation profits, clinical and regulatory milestone payments and the proceeds of the Nasdaq listing.

On March 3, Chi-Med and its partner Eli Lilly and Company ("Lilly"), announced that fruquintinib had convincingly met all the primary and secondary endpoints of its Phase III pivotal study, the FRESCO study, in third-line CRC. The NDA will be submitted in China in mid-2017 and, subject to approval, fruquintinib will be launched in 2018. This will be a first for the China biotech industry - fruquintinib is the first new mainstream cancer drug, with global best-in-class positioning, to be discovered and developed in China. Chi-Med believes fruquintinib has the potential to become one of the largest drugs in China, if successful in the many other solid tumor indications that it is pursuing. This year, U.S. trials are being initiated, aiming to introduce fruquintinib to the global as well as the China market.

The proof-of-concept data presented over the past twelve months on savolitinib, fruquintinib in combination with Taxol®, epitinib, and sulfatinib as well as the Phase I data on HMPL-523, Chi-Med's Syk inhibitor was all positive. This high rate of success is believed to result from the superior kinase selectivity and unique pharmacokinetic ("PK") properties of these drug candidates. In 2017, data up-dates on four further proof-of-concept studies will be released, and it is anticipated that there will be multiple clinical and regulatory milestones.

In parallel, the Commercial Platform continues to perform well. In addition to growing sales and profits, it provides a very strong China marketing and distribution platform for the drugs to come from the Innovation Platform if approved. It is also now well positioned to benefit from the tripled production capacity of its new factories and the substantial flow of land compensation profits, which started last year and is set to continue into 2018. Its brands are household names in China and many products hold market leading positions, representing a set of very valuable and highly sought after assets.

All this, and the proceeds of the Nasdaq listing, mean cash and available resources at year-end were $173.7 million, up by about $135 million, despite the sharp increase in clinical investment, and expected to be sufficient to cover development needs well into 2019. This financial strength has also allowed for re-negotiation of the collaboration agreement with AstraZeneca AB (publ) ("AstraZeneca"), enabling Chi-Med to take a greater share in the potential long-term economic value of savolitinib in return for increasing its investment.

Over fifteen years of consistent commercial and scientific strategies, along with a pragmatic approach to finance and risk management, has led Chi-Med to today's position. The first wave of new drug candidates, led by fruquintinib, and including savolitinib, sulfatinib and epitinib, are progressing towards potential registration and launch in major markets. The second wave of novel drug candidates including theliatinib, HMPL-523, HMPL-689 and HMPL-453 are now mostly in proof-of-concept studies. In addition Chi-Med's discovery platform is generating a third wave of innovation with a strong immuno-oncology focus.  Combining this innovation pipeline with a valuable China marketing and distribution platform, important international partners and a robust cash position lead Chi-Med to view the future with confidence."

FINANCIAL HIGHLIGHTS:

Consolidated financial results of the Group are reported under U.S. generally accepted accounting principles ("U.S. GAAP") and in U.S. dollar currency unless otherwise stated. Chi-Med also conducts its business through three non-consolidated joint ventures, which are accounted for under the equity accounting method as non-consolidated entities in our consolidated financial statements. Within this announcement, certain financial results reported by such non-consolidated joint ventures are referred to, which are based on figures reported in their respective consolidated financial statements prepared pursuant to International Financial Reporting Standards (as issued by the International Accounting Standards Board). Unless otherwise indicated, references to "subsidiaries" mean the consolidated subsidiaries and joint ventures (excluding non-consolidated joint ventures) of Chi-Med.

Group Results

· Consolidated revenue up 21% to $216.1 million (2015: $178.2m).

· Net income attributable to Chi-Med of $11.7 million (2015: $8.0m).

· Strengthened cash position: Available cash resources of $173.7 million as of December 31, 2016 (December 31, 2015: $38.8m) at the Chi-Med Group level, including cash and cash equivalents, short-term investments and unutilized banking facilities. Increase in cash reflects the strong performance of our Commercial Platform and the $95.9 million net proceeds of our March 2016 Nasdaq listing.

Innovation Platform - a broad, risk-balanced, global oncology/immunology pipeline

· Consolidated revenue of $35.2 million (2015: $52.0m) and net loss attributable to Chi-Med of $40.7 million (2015: -$3.8m) driven by $76.1 million (2015: $55.8m) in research and development expenses on an as adjusted basis spent on our 30 active clinical trials, four of which are pivotal Phase III studies on fruquintinib and sulfatinib, as well as the continued expansion of our scientific team, which now numbers about 330 scientists and staff.

· Amendment to our collaboration with AstraZeneca under which Chi-Med agreed to provide up to $50 million for the joint-development costs of savolitinib in return for a 5 percentage point increase in royalties payable on savolitinib sales across all indications in all markets outside of China.

Commercial Platform - a deeply established, cash-generative, pharmaceutical business in China - a commercialization framework for our Innovation Platform candidate drugs

· Total consolidated sales up 43% to $180.9 million (2015: $126.2m) mainly due to progress on the Prescription Drug commercial services business and expansion on Seroquel®.

· Total sales of non-consolidated joint ventures up 14% to $446.5 million (2015: $392.7m) due primarily to continued expansion of coronary artery disease prescription drug business.

· Total net income attributable to Chi-Med from our Commercial Platform up 180% to $70.3 million (2015: $25.2m) which includes a one-time property compensation gain from Shanghai Hutchison Pharmaceuticals Limited ("SHPL") of $40.4 million which was triggered by the payment of $113 million in land compensation and subsidies from the Shanghai government.

· Growth achieved despite the weakening of the Chinese RMB during 2016 which reduced both our top- and bottom-line growth rates by over -6% in U.S. dollar terms.

KEY 2016 OPERATIONAL HIGHLIGHTS:

Innovation Platform: First positive Phase III read-out, fruquintinib in third-line CRC, reported on March 3, 2017 - a major achievement for Chi-Med and the biotech industry in China. Multiple opportunities for near-term pivotal success: three further Phase III studies underway and four more planned to start in 2017 with multiple read-outs expected over the next three years.

· Savolitinib: Potential global first-in-class selective mesenchymal epithelial transition factor ("c-Met") inhibitor currently in 12 active clinical studies worldwide in multiple tumor types including kidney, lung and gastric cancers as a monotherapy or in combination with other targeted and immunotherapy agents. Developing globally in partnership with AstraZeneca:

1. Kidney cancer:

a. Presented Phase II global multicenter study in advanced PRCC at the 2017 ASCO Genitourinary Cancers Symposium with clear efficacy signal with savolitinib monotherapy in c-Met-driven patients. Median progression free survival ("PFS") of 6.2 months in c-Met-driven patients as compared with 1.4 months (p

b. Initiated global Phase Ib dose finding study of savolitinib in combination with anti-programmed death-1 receptor ligand ("PD-L1") antibody, durvalumab, in clear cell renal cell carcinoma ("ccRCC") patients. A combination dose now confirmed and ccRCC expansion phase initiated.

2. Lung cancer: 

a. Initiated global Phase IIb study of savolitinib in combination with Tagrisso® in second-line NSCLC patients with epidermal growth factor receptor ("EGFR") mutations who have failed first-line EGFR tyrosine kinase inhibitor ("TKI") therapy and harbor c-Met gene amplification. This triggered a $10 million milestone from AstraZeneca to Chi-Med in June 2016. Phase IIb results will be presented at a scientific event in 2017 and we hope to initiate a global Phase III registration study in 2017;

b. Initiated or continued four further Phase Ib/II studies in NSCLC patients, including: (i) as a monotherapy in first-line NSCLC patients with c-Met mutations that result in Exon 14 skipping; (ii) as a combination therapy with Iressa® (gefitinib) in NSCLC patients with EGFR mutations and who have failed first-line EGFR TKI therapy; (iii) as a monotherapy in pulmonary sarcomatoid carcinoma ("PSC") patients with c-Met mutations; and (iv) as a combination therapy with Tagrisso® in third-line NSCLC patients who have failed Tagrisso® therapy.

3. Gastric cancer:

a. A proof-of-concept study of savolitinib as a monotherapy in gastric cancer patients with c-Met gene amplification is ongoing in both South Korea and China; promising response data was presented by Dr. Jeeyun Lee of Samsung Medical Center in 2016;

b. Two Phase Ib studies of savolitinib in combination with Taxotere® (docetaxel) in gastric cancer patients with c-Met over-expression or c-Met gene amplification is ongoing in South Korea.

· Fruquintinib: Designed to be a global best-in-class selective inhibitor of vascular endothelial growth factor receptor 1/2/3 ("VEGFR") - developing in China in partnership with Lilly and independently outside China: 

1. CRC (third-line or above): Reported that fruquintinib has convincingly met the primary endpoint of overall survival ("OS") and all secondary endpoints in the FRESCO Phase III study as a monotherapy among third-line CRC patients in China; further, that the adverse events ("AEs") demonstrated in FRESCO did not identify any new or unexpected safety issues; plan now to submit the China NDA and present full data-set at a scientific conference in mid-2017; subject to China FDA approval we, and our partner Lilly, expect to launch fruquintinib in China in 2018; based on the patient population in third-line CRC in China, as well as the sales performance of TKIs launched in recent years in China, we estimate peak fruquintinib revenues in third-line CRC alone could reach ~$110-160 million resulting in peak net income to Chi-Med of ~$20-35 million.

2. NSCLC (third-line): Presented positive Phase II study showing fruquintinib was well tolerated with an ORR of 16.4% vs. 0% (p=0.02) and median PFS of 3.8 months vs. 1.1 months (pin 2017; top-line Phase III data expected to be reported in 2018; subject to positive FALUCA outcome, we plan to submit China NDA during 2018;

3. Gastric cancer (second-line): Presented positive Phase I/Ib dose finding/expansion study which established a well-tolerated combination dose of 4mg fruquintinib with 80mg/m2 weekly of Taxol® with encouraging efficacy, including ORR of 36%; DCR of 68%; ≥16 week PFS of 50% and ≥7 month OS of 50%. On-track now to initiate a Phase III registration study in China during 2017;

4. NSCLC (first-line): In January 2017, we initiated a Phase II study of fruquintinib in combination with Iressa® in first-line EGFR-mutant NSCLC patients in China;

5. Production facility in Suzhou, China, fully operational and ready to support potential commercial launch of fruquintinib in 2018;

6. Received U.S. FDA Investigational New Drug ("IND") application clearance for fruquintinib in 2016 and plan to initiate Phase I dose confirmation study in Caucasian patients in the U.S. in 2017.

· Sulfatinib: A unique angio-immuno kinase inhibitor therapy with high potency against VEGFR, FGFR1 and colony stimulating factor receptor 1 ("CSF-1R") with emerging strong efficacy in multiple solid tumor settings - enrolling two pivotal Phase III studies:  

1. Neuroendocrine tumors ("NET"):

a. Presented positive Phase II study showing sulfatinib was well tolerated with highly encouraging efficacy in both pancreatic NET (ORR 17.1%; DCR 90.2%; and median PFS 19.4 months) and non-pancreatic NET (ORR 15.0%; DCR 92.5%; and median PFS 13.4 months) with 100% DCR in twelve patients that had previously failed on targeted therapies such as Sutent® (sunitinib) and Afinitor® (everolimus); now enrolling two Phase III studies in China, named SANET-p (in pancreatic NET patients) and SANET-ep (in non-pancreatic NET patients), with primary endpoint median PFS; Phase III top-line data expected in 2018;

b. U.S. Phase I dose confirmation study in Caucasian patients is near completion and dose expansion in tumor types of interest is being planned.

2. Thyroid cancer: In March 2016, we initiated a Phase II proof-of-concept study in patients with locally advanced or metastatic radioactive iodine-refractory differentiated thyroid cancer or medullary thyroid cancer in China; we have observed encouraging early efficacy.

3. Biliary tract cancer: Initiated a Phase II proof-of-concept study in China in January 2017.

· Epitinib: Highly differentiated EGFR TKI designed for optimal blood-brain barrier penetration allowing for higher drug exposure in the brain than currently marketed first generation EGFR TKIs:

1. NSCLC with brain metastasis: Presented positive Phase Ib study in EGFR mutation positive NSCLC patients with brain metastasis showing epitinib was well tolerated and demonstrated encouraging efficacy with an overall ORR (lung and brain) of 62% in all EGFR TKI naïve patients (those patients not previously treated with an EGFR TKI) and an ORR of 70% in EGFR TKI naïve patients who also had measurable brain metastasis and were c-Met negative, including both confirmed and unconfirmed Partial Response ("PR"). Based on these data we plan to initiate a Phase III registration study in 2017. 

2. Glioblastoma: Planning underway to start a Phase II study in glioblastoma, a primary brain cancer that harbors high levels of EGFR gene amplification, in 2017.

· HMPL-523:  Potential global first-in-class Syk inhibitor in oncology and immunology:

1. Hematological cancer: China FDA granted IND approval in May 2016 and we subsequently initiated China Phase I dose escalation study in patients with hematologic malignancies in late 2016 which we expect to complete during 2017, at which time we will begin dose expansion with single agent HMPL-523 and/or innovative combination regimens.

2. Immunology: Australia Phase I study completed with no evidence of the hypertension/gastrointestinal toxicities encountered by the first-generation Syk inhibitor (fostamatinib); U.S. IND application submitted in 2016 - U.S. FDA feedback received, now preparing to submit additional data.

· HMPL-689: Potential global best-in-class, highly selective PI3Kδ inhibitor, which is over five times more potent than Zydelig® (idelalisib):

Hematological cancer: Completed Phase I study in healthy volunteers in Australia, with recommended starting dose in Phase I hematology study of 5mg twice daily; now progressing into Phase I in patients with lymphomas in China where we received IND clearance in February 2017.

· Theliatinib:  EGFR inhibitor, with high binding affinity to wild-type EGFR protein, with potential in patients with solid tumors presenting EGFR gene amplification or protein overexpression:

Esophageal cancer:  Phase I dose escalation study is continuing, with preliminary activity observed; a Phase II expansion in esophageal cancer patients with a high level of EGFR activation, including gene amplification and protein over expression has been initiated.

· HMPL-453:  Potential global first-in-class and/or best-in-class selective FGFR 1/2/3 inhibitor:

Solid tumors:  In February 2017, we initiated a Phase I dose escalation study in Australia; the IND in China has also been cleared and Phase I dose escalation is set to initiate in Q2 2017.

Commercial Platform: Continued strong growth in cash flow and profit - representing a stable financial base that underpins a significant portion of Chi-Med's current market value.

· Prescription Drugs business continuing to drive growth - consolidated sales up 42% to $149.9 million (2015: $105.5m); and total sales of non-consolidated Prescription Drugs joint venture up 23% to $222.4 million (2015: $181.1m).

1. She Xiang Bao Xin ("SXBX") pill - our most important commercial product, is a prescription vasodilator proprietary to our joint venture: Accounted for about 12% of China's over $1.5 billion botanical coronary artery disease prescription drug market, full patent protection through 2029; 2016 sales up 23% to $195.4 million (2015: $159.3m); SXBX pill represents 88% of the sales of SHPL, our joint venture, which contributed 89% of the $22.3 million (2015: $16.4m) consolidated Prescription Drugs business operating profit on an adjusted basis which excludes the one-time property gain.

2. Seroquel® - prescription antipsychotic under exclusive commercial license from AstraZeneca within China: Accounted for approximately 5% of China's antipsychotic prescription drug and 46% of the generic quetiapine market; Seroquel® is the only extended release ("XR") quetiapine formulation approved in China; 2016 sales were up 63% to $34.4 million (2015: $21.1m); 2016 is the first full year of Seroquel® commercialization under Chi-Med.

· Completed move to new factory in Shanghai, almost tripling the manufacturing capacity of our Prescription Drugs joint venture. Triggering $113 million total cash compensation and subsidies to SHPL for the surrender of the land-use rights to its old factory site.

· Consumer Health business stable despite over-the-counter ("OTC") drug production capacity constraints - consolidated sales up 50% to $31.0 million (2015: $20.7m); and total sales of non-consolidated Consumer Health joint venture up 6% to $224.1 million (2015: $211.6m). Sales in our OTC drug joint venture increased marginally due to tight manufacturing capacity resulting from the move to our new factory in Bozhou, Anhui province; despite this, our OTC drug joint venture's portfolio of market leading products contributed 88% of our $11.6 million (2015: $11.8m) consolidated Consumer Health business operating profit in 2016.

2017 CATALYSTS:  We target to present multiple clinical data updates during 2017, including:

· Savolitinib:

1. Phase II median OS data (mature) in PRCC;

2. Phase II data in second-line NSCLC in combination with Tagrisso® and Iressa®;

3. Phase II dose finding data in ccRCC in combination with durvalumab (PD-L1).

· Fruquintinib: Phase III FRESCO study full data set publication in third-line CRC.

· Sulfatinib: Preliminary Phase II data in medullary and differentiated thyroid cancer.

· HMPL-523: Preliminary Phase Ib expansion proof-of-concept data in hematological cancer.

We target to achieve multiple clinical and regulatory milestones during 2017, including:

· Savolitinib:

1. Initiate global Phase III study in PRCC;

2. Initiate global Phase III study in second-line NSCLC in combination with Tagrisso®.

· Fruquintinib:

1. Submit NDA in China in third-line CRC;

2. Initiate China Phase III study in second-line gastric cancer;

3. Complete enrollment of Phase III FALUCA study in third-line NSCLC;

4. Initiate U.S. Phase I dose confirmation study in Caucasian patients.

· Epitinib:

1. Initiate China Phase III study in first-line EGFR-mutant NSCLC patients with brain metastasis;

2. Initiate China Phase II study in glioblastoma (primary brain cancer).

· Sulfatinib: Initiate U.S. Phase II study in NET.

· HMPL-523 (Syk): Initiate Australian Phase Ib/II expansion study in hematological cancer.

· HMPL-689 (PI3Kδ): Initiate Phase I study in China in hematological cancer patients.

· HMPL-453 (FGFR-1/2/3): Initiate Phase I studies in Australia/China in solid tumor patients.

FINANCIAL GUIDANCE: The over-performance in actual 2016 revenue and net income, as compared to our most recent guidance, provided in our interim results announcement for the six months ended June 30, 2016 dated August 2, 2016, reflects the general strength of our Commercial Platform performance including the scale of property compensation received. We provide reconciliation of 2016 guidance versus actual performance and full year 2017 financial guidance, as detailed below:

Notes: [1] Company Guidance August 2, 2016; [2] Attributable to Chi-Med; [3] Joint ventures.

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 Thursday, April 27, 2017 at 10:00 a.m.

Contacts:

About Chi-Med

Chi-Med is an innovative biopharmaceutical company which researches, develops, manufactures and sells pharmaceuticals and healthcare products. Its Innovation Platform, Hutchison MediPharma Limited, focuses on discovering and developing innovative therapeutics in oncology and autoimmune diseases for the global market. Its Commercial Platform manufactures, markets, and distributes prescription drugs and consumer health products in China.

Chi-Med is majority owned by the multinational conglomerate CK Hutchison Holdings Limited ("CK Hutchison") (SEHK: 0001). For more information, please visit: www.chi-med.com. 

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 Chi-Med 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, including Frost & Sullivan, an independent market research firm, and publicly available data. All patient population, market size and market share estimates are based on Frost & Sullivan research, unless otherwise noted. Although Chi-Med believes that the publications, reports and surveys are reliable, Chi-Med has not independently verified the 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

CHAIRMAN'S STATEMENT

Chi-Med's aim remains to become a large-scale innovative global biopharmaceutical company based in China.

The progress in 2016 in advancing savolitinib and fruquintinib toward submissions for approval is particularly encouraging. Approval of these drug candidates, if successful, would propel Chi-Med into a new era, in which its six other clinical drug candidates, and the proven discovery capability of its scientific team, could take the company to new heights.

For over fifteen years, Chi-Med and its partners have invested over $400 million in pursuit of this aim. The approximately 330-person strong scientific team has created a broad portfolio of differentiated products in the global targeted therapy arena in oncology and immunology. Chi-Med has focused on creating highly selective drug candidates against multiple novel and validated molecular targets with the potential to be global first-in-class or best-in-class. It is intended that these drug candidates will be used as monotherapies or in combination treatments with other oncology and immunology therapies and as a result, improve global patient outcomes and create shareholder value.

The 2016 amendment of the global collaboration agreement on savolitinib with AstraZeneca is further evidence of our belief in savolitinib's potential across multiple oncology indications.

Key elements of Chi-Med's strategy are:

To design novel drug candidates against well-characterized targets with global first-in-class potential - Chi-Med believes its most significant market opportunity is developing innovative drug therapies that have global first-in-class potential in areas of high unmet needs. In order to limit its risk, the scientific team has focused on novel tyrosine kinase targets, which have a deep body of evidence to support their role in cell signaling in cancer or inflammation, such as c-Met, Syk and FGFR.

To use a chemistry-focused approach centered on kinase selectivity to create global best-in-class products - In addition to novel targets, risk is also balanced by creating drug candidates against proven validated targets including VEGFR, EGFR and PI3Kδ. The belief being that there is a lot of room to improve on the first generation of TKIs that have emerged over the last fifteen years. Chi-Med works to develop differentiated next generation TKIs characterized by high selectivity and superior PK properties leading to improved patient tolerability and efficacy. This scientific approach should be strongly validated once the full data set of the FRESCO study on fruquintinib is presented in mid-2017.

To pursue a practical, efficient and global best practice clinical and regulatory strategy - China's large patient population, combined with lower clinical trial costs, as compared to the West, allows for rapid and lower risk development through proof-of-concept on validated targets. All studies in China are conducted to global Good Clinical Practice standards, predominantly using global Contract Research Organizations. On novel targets, Chi-Med accepts higher risk and pursues global clinical development from day one in order to maximize the chance of achieving a global first-in-class position.

To deploy a risk-balanced approach to financing long-term investment in innovation - Chi-Med has followed an unconventional path to reach its current stage of development as a company. Risk has been balanced in every manner possible, focusing on building a financially sustainable operation with a low chance of negative binary outcome. Starting with the above risk-balanced portfolio approach to choosing the novel/validated kinase targets on which to focus research; to the partnerships with AstraZeneca and Lilly which have broadened development plans, and provided technical support and global reach; to basing the operations of Chi-Med in China where generally lower operating costs allow for a scientific team large enough to manage development of such a broad pipeline; to building a powerful Commercial Platform which provides steady cash flow; and finally, to the relationship with its majority shareholder, CK Hutchison, who has had a long-term, practical, mind-set. These factors distinguish Chi-Med from, and provide competitive advantages over, the more common path of evolution of many emerging biotech companies.

As always, I would like to express my deep appreciation for the support of the investors, directors and partners of Chi-Med and for the commitment and dedication of all of the management and staff of Chi-Med.

Simon To

Chairman, March 13, 2017

FINANCIAL REVIEW

Chi-Med Group revenues for the year ended December 31, 2016 increased by 21% to $216.1 million (2015: $178.2m), due to a 43% increase in revenue generated by our Commercial Platform to $180.9 million in 2016 (2015: $126.2m) driven by the progress of our consolidated joint venture Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited ("Hutchison Sinopharm"). The foregoing was offset in part by a 32% decrease in revenue from our Innovation Platform revenue to $35.2 million in 2016 (2015: $52.0m), reflecting a lower level of milestone payments, service fees and clinical cost reimbursements received from AstraZeneca, Lilly and NSP compared to the prior year. 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 Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited ("HBYS"), since these are accounted for using the equity method. Our equity in earnings of our non-consolidated joint ventures, net of tax, increased by 193% to $66.2 million in 2016 (2015: $22.6m).

Our Commercial Platform, which continues to be Chi-Med's primary profit and cash source, grew operating profit by 163% to $74.3 million (2015: $28.2m) as a result of growth in SHPL's coronary artery disease Prescription Drug business and a major one-time property gain. The Innovation Platform incurred an operating loss of $40.8 million (2015: -$3.8m) as a result of expansion of clinical development activities, rapid organization growth to support these clinical activities and investment in the expansion of small molecule manufacturing operations.

Net corporate unallocated expenses, primarily Chi-Med Group overhead and operating costs, increased to $12.9 million (2015: $11.0m) principally due to our Nasdaq listing and the resulting increased organization and third-party advisor costs in the audit and compliance areas.

Consequently, Chi-Med Group operating profit was $20.5 million (2015: $13.4m).

The aggregate of interest and income tax expenses of Chi-Med Group, as well as net income attributable to non-controlling interests during the period increased to $8.8 million (2015: $5.4m) driven largely by 5% withholding taxes accrued on the net income of our Commercial Platform joint ventures during the period.

The resulting total Group net income attributable to Chi-Med was therefore $11.7 million (2015: $8.0m).

In 2015, in accordance with U.S. GAAP, Chi-Med recorded a non-cash accretion charge of $43.0 million which was equivalent to the estimated value of redeemable preferred shares in our Innovation Platform subsidiary, Hutchison MediPharma Holdings Limited ("HMHL"), held by Mitsui & Co., Ltd. ("Mitsui"). In July 2015, we completed a transaction to roll-up Mitsui's preferred shares in HMHL into Chi-Med ordinary shares and thereby eliminated the chance that cash would be needed to redeem the preferred shares as well as the need for further future non-cash accretion charges.

As a result, Group net income attributable to ordinary shareholders of Chi-Med in 2016, was $11.7 million, or $0.20 per ordinary share / $0.10 per American depositary share ("ADS"), compared to a net loss attributable to ordinary shareholders of Chi-Med of $35.0 million, or $0.64 per ordinary share / $0.32 per ADS, in 2015.

Cash and Financing

In the past five years, as our clinical spending has escalated, we endeavored to remain consistently cash-positive at the Chi-Med Group level and in 2016, we used $9.6 million (2015: $9.4m) in net cash in our operating activities. This result was driven by increased dividends paid by our non-consolidated Commercial Platform joint ventures, payments received from AstraZeneca, Lilly, and Nutrition Science Partners Limited ("NSP"), our joint venture with Nestlé Health Science S.A. ("Nestlé"), which, in aggregate, came close to offsetting our $76.1 million (2015: $55.8m) in research and development expenses on an adjusted basis.

In March 2016, we completed our Nasdaq listing and raised $110.2 million in new equity capital, or $95.9 million net of expenses incurred, to strengthen our balance sheet and support development plans, through to planned NDA submissions, for certain of our lead drug candidates.

As of December 31, 2016, we had available cash resources of $173.7 million (December 31, 2015: $38.8m) at the Chi-Med Group level including cash and cash equivalents and short-term investments of $103.7 million (December 31, 2015: $31.9m) and unutilized bank borrowing facilities of $70.0 million (December 31, 2015: $6.9m). Aggregate borrowing facilities of $70 million, with an average 18 month term, were subsequently renewed in February 2017.

In addition, as of December 31, 2016, our non-consolidated joint ventures (SHPL, HBYS and NSP) held $91.0 million (December 31, 2015: $80.9m) in available cash resources. In late-2016, our Prescription Drug joint venture, SHPL, received about $72 million of property compensation and subsidies from the Shanghai government. This cash injection led Chi-Med to record a one-time gain of $40.4 million in 2016 at the Group level and will fund the expected one-time dividend of approximately $40 million to the Chi-Med Group level in the first half of 2017. Subject to Guangzhou urban redevelopment policy, we hope to conclude negotiations for the return of land use rights for unused land under the HBYS joint venture in Guangzhou in 2017, thereby triggering further cash compensation.

Outstanding bank loans as of December 31, 2016 amounted to $46.8 million (December 31, 2015: $49.8m) at the Chi-Med Group level, of which $26.8 million is guaranteed by a wholly-owned subsidiary of CK Hutchison. Our total Chi-Med Group weighted average cost of borrowing in 2016 on both unsecured and guaranteed loans, including all interest and guarantees fees, was 2.4%. As of December 31, 2016, our non-consolidated joint ventures had no outstanding bank loans (December 31, 2015: $26.5m). 

In summary, we believe that the cash resources that we currently hold are sufficient to fund all our near-term activities, including the increased cash requirements resulting from the amendment to the savolitinib collaboration with AstraZeneca made in August 2016.

OPERATIONS REVIEW

INNOVATION PLATFORM

The Chi-Med pipeline of drug candidates has been created and developed by the in-house research and development operation which was started in 2002. Since then, we have assembled a large team of about 330 scientists and staff (December 31, 2015: 310) based in China and operating 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 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 2016 was $35.2 million (2015: $52.0m) reflecting a lower level of milestone payments, service fees and clinical cost reimbursements received from AstraZeneca and Lilly than last year. Net loss attributable to Chi-Med increased to $40.7 million (2015: -$3.8m) driven by $76.1 million (2015: $55.8m) in research and development spending on our pipeline of eight oncology and immunology drug candidates on an adjusted basis. Since inception, the Innovation Platform has dosed almost 2,900 patients/subjects in clinical trials of our drug candidates with about 711 dosed in 2016 (2015:705) primarily driven by the enrollment of the four Phase III studies that we currently have underway.

Product Pipeline Progress

Savolitinib (AZD6094): Savolitinib is a potential global first-in-class inhibitor of c-Met, an enzyme which has been shown to function abnormally in many types of solid tumors. We designed savolitinib to be a potent and highly selective oral inhibitor, which through chemical structure modification addressed human metabolite-related renal toxicity, the primary issue that halted development on several other selective c-Met inhibitors. In clinical studies to date, involving about 460 patients, savolitinib has exhibited no renal toxicity as well as promising signs of clinical efficacy in patients with c-Met gene alterations in PRCC, NSCLC, CRC and gastric cancer. We are currently testing savolitinib in partnership with AstraZeneca in multiple Phase Ib/II studies, both as a monotherapy and in combination with other targeted therapies, and expect to start global Phase III registration studies in 2017.

AstraZeneca collaboration amendment: On August 1, 2016, Chi-Med agreed to contribute up to $50 million, spread primarily over three years, to the joint development costs of the global pivotal Phase III study in c-Met-driven PRCC. Subject to approval in the PRCC indication, Chi-Med will receive a 5 percentage point increase in the global (excluding China) tiered royalty rate payable on savolitinib sales across all indications, thereby increasing to a tiered royalty rate of 14% to 18%. After total aggregate sales of savolitinib have reached $5 billion, the royalty will step down over a two year period, to an ongoing royalty rate of 10.5% to 14.5%. All other provisions of the 2011 agreement will remain unchanged.

Savolitinib - Kidney cancer: High proportion of MET-driven patients. Four active studies underway.

Study 1 - Completed/awaiting mature OS data (now progressing to Phase III) - Phase II PRCC savolitinib 600mg once daily ("QD") monotherapy (U.S., Canada, U.K. and Spain) - PRCC is the most common of the non-clear cell renal cell carcinomas ("RCCs") representing 14% of kidney cancer. Approximately 366,000 new cases of kidney cancer were diagnosed globally in 2015, equating to about 50,000 cases of PRCC, approximately half of whom harbor c-Met-driven disease. No systemic therapies/TKIs have been approved in PRCC, and to date only modest efficacy in non-ccRCC has been reported in sub-group analyses of broader RCC studies of VEGFR (e.g. Sutent®) and mammalian target of rapamycin ("mTOR") (e.g. Afinitor®) TKIs, with ORRs of Tannir N. M. et al.).

In February 2017, we presented the results of our 109 patient global Phase II study in PRCC, the largest and most comprehensive clinical study in PRCC ever conducted. Of 109 patients treated with savolitinib, PRCC was c-Met-driven in 44 patients (40%), c-Met-independent in 46 (42%) and MET status unknown in 19 (17%). c-MET-driven PRCC was strongly associated with encouragingly durable response to savolitinib with ORR in the c-Met-driven group of 18.2% (8/44) as compared to 0% (0/46) in the c-Met-independent group (P=0.002). Median PFS for patients with c-Met-driven and c-Met-independent PRCC was 6.2 months (95% CI: 4.1-7.0) and 1.4 months (95% CI: 1.4-2.7), respectively (hazard ratio, 0.33; 95% CI; 0.20-0.52; log-rank P5% incidence, associated with savolitinib. Total aggregate savolitinib treatment related Grade ≥3 AEs occurred in just 19% of patients comparing very well to the 70-75% Grade ≥3 AE level recorded in VEGFR inhibitors such as Sutent® and Votrient® (pazopanib) in multiple RCC studies.

Study 2 - Enrolling - Phase II study of multiple TKIs in metastatic PRCC (U.S.) - A Phase II study, sponsored by the U.S. National Cancer Institute, and named the PAPMET study, is to assess the efficacy of multiple TKIs in metastatic PRCC including Sutent®; Cabometyx® (cabozantinib); Xalkori® (crizotinib) and savolitinib. PAPMET will enroll about 180 patients in over 70 locations in the U.S. and report in 2019.

Study 3, Study 4 and Study 5 - Enrolling - Phase Ib study of savolitinib (600mg daily) monotherapy and in combination with durvalumab (anti-PD-L1) in both PRCC and ccRCC patients (U.K.) - A Phase Ib dose finding study began in 2016, named the CALYPSO study, at St. Bartholomew's Hospital in London, to assess safety/tolerability of savolitinib and durvalumab combination therapy as well as preliminary efficacy of the savolitinib as a monotherapy or combination therapy in several c-Met-driven kidney cancer patient populations. During 2016, the dose-finding section of the CALYPSO study successfully established the combination dose of savolitinib and durvalumab and the study has now moved on to the expansion stage in ccRCC patients to further explore efficacy.

Savolitinib - Lung cancer: Savolitinib's largest market opportunity. Five active studies underway.

Study 6 - Enrolling - Phase II expansion NSCLC (second-line), EGFR TKI refractory, savolitinib (600mg QD) in combination with Tagrisso® (Global) - In June 2015, we presented the TATTON Phase I dose finding study at ASCO, reporting a 55% ORR and 100% DCR among Iressa® or Tarceva® refractory T790M+/- patients, meaning that the patient's T790M status was known. Since then we have continued to enroll patients to confirm safety and efficacy and to further define the molecular types that benefit from the combination therapy. We have now initiated a global Phase II expansion study in second-line NSCLC, for which AstraZeneca paid Chi-Med a $10 million milestone in mid-2016, aiming to recruit 25 further c-Met gene amplified and T790M- patients. We target to complete this Phase II expansion study in 2017, and if ORR and duration of response are in line with what we have seen to date, we will consider moving to a pivotal global Phase III study and seeking potential U.S. FDA Breakthrough Therapy designation. In this second-line EGFR TKI refractory NSCLC population, c-Met-driven disease exists in 15-20% of patients or approximately 35,000-40,000 new patients per year globally.

Study 7 - Enrolling - Phase II NSCLC (third-line), EGFR/T790M TKI-refractory, savolitinib (600mg QD) in combination with Tagrisso® (Global) - A second study arm has begun enrollment for a Phase II trial to evaluate the use of savolitinib in combination with Tagrisso® in patients with c-Met gene amplification who have progressed following treatment with Tagrisso® (i.e. T790M+/c-Met+). Data presented in June 2016 at ASCO (rociletinib) suggested that in this third-line EGFR/T790M TKI-resistant NSCLC population about 18% of patients harbor c-Met gene amplification.

Study 8 - Enrolling - Phase II NSCLC (second-line), EGFR TKI-refractory, savolitinib (600mg QD) in combination with Iressa® (China) - We will complete this Phase II study and present results during 2017.

Study 9 and Study 10 - Enrolling - Phase II c-Met-driven NSCLC (first-line) savolitinib (600mg QD) monotherapy (China) - Phase II studies of savolitinib are also ongoing in first-line NSCLC and PSC patients, focusing on patients with c-Met Exon-14 skipping.

Savolitinib - Gastric cancer: Three active Phase Ib gastric cancer clinical studies in China and a multi-arm Phase Ib study, named the VIKTORY study, being run at Samsung Medical Center in South Korea.

Study 11 - Enrolling - Phase Ib gastric cancer, savolitinib monotherapy, patients with c-Met gene amplification (South Korea/China) - Phase Ib study of savolitinib is ongoing, and to date we have seen promising preliminary clinical efficacy in the roughly 5-10% of gastric cancer patients that harbor c-Met gene amplification.

Study 12 and Study 13 - Enrolling - Phase Ib studies of savolitinib (600mg QD) in combination with Taxotere® in c-Met over-expression or c-Met gene amplification gastric cancer (South Korea/China) - Phase Ib dose finding studies are underway to assess safety/tolerability of savolitinib and Taxotere® combination as well as preliminary efficacy of the savolitinib monotherapy and combination therapy in the approximately 40% of gastric cancer patients harboring c-Met over-expression.

Fruquintinib (HMPL-013): 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. Fruquintinib's unique kinase selectivity has been shown to reduce off-target toxicity thereby allowing for full VEGFR inhibition 24-hours a day, as well as possible use in combination with other TKIs and chemotherapy in earlier lines of treatment. We believe these are points of meaningful differentiation compared to other approved small molecule VEGFR inhibitors, such as Sutent®, Nexavar® (sorafenib) and Stivarga® (regorafenib). In addition to the FRESCO study in third-line CRC in China, we are also enrolling FALUCA, a pivotal Phase III study of fruquintinib in third-line NSCLC, and are in final planning on a Phase III study of fruquintinib in combination with Taxol® in the second-line setting for gastric cancer. Furthermore, a Phase II study of fruquintinib in combination with Iressa® in first-line EGFR-mutant NSCLC began in early 2017 and a Phase I study of fruquintinib in the U.S. is set to start this year.

Study 14 - Primary and secondary endpoints met - Phase III study in CRC (third-line or above), fruquintinib monotherapy (China) - The FRESCO study, is a pivotal Phase III study in 416 patients with locally advanced or metastatic CRC who have failed at least two prior systemic chemotherapies. Patients were randomized at a 2:1 ratio to receive either 5mg of fruquintinib QD orally, on a 3 weeks on/1 week off cycle, plus best supportive care or placebo plus best supportive care. FRESCO met its primary endpoint (OS) as well as secondary endpoints (PFS, ORR and DCR) and fruquintinib was well tolerated in FRESCO with no unexpected safety events. We now intend to present the full FRESCO data set and are on-track to submit fruquintinib's NDA to the China FDA by mid-2017. Subject to approvals, we expect fruquintinib will launch in China in 2018 thereby benefiting the approximately 50,000-60,000 new third-line CRC patients per year across China. We believe that fruquintinib in third-line CRC has approximately $110-160 million peak sales potential, and based on the terms of our agreement with Lilly, this would equate to about $20-35 million in incremental net income to Chi-Med. The basis of these estimates are Phase II level median PFS; wholesaler acquisition cost similar to that of TKIs in China; the above estimated incidence of third-line CRC; and estimated eventual penetration to 20-30% of these patients. A relevant cross-reference point for the estimate of fruquintinib's third-line CRC potential peak sales in China is apatinib, a multi-kinase VEGFR inhibitor approved in China in third-line gastric cancer (a similar sized patient population to third-line CRC), of over $100 million in 2016, its first full year post launch - we believe apatinib's rapid growth is aided by off-label usage beyond third-line gastric cancer due to the current lack of therapeutic alternatives in third-line NSCLC and third-line CRC in China.

Study 15 - Enrolling - Phase III NSCLC third-line fruquintinib monotherapy (China) - In December 2016, we presented positive Phase II results in third-line NSCLC patients, which showed median PFS of 3.8 months for the fruquintinib group compared to 1.1 months for the placebo group (hazard ratio=0.27, pFruquintinib was well tolerated with treatment related Grade ≥3 AEs, with >5% incidence, associated with fruquintinib of hypertension (8.2%). In December 2015, we initiated the FALUCA study in China, which is a pivotal Phase III study in advanced non-squamous NSCLC patients who have failed two prior systemic chemotherapies. Patients are randomized at a 2:1 ratio to receive either 5mg of fruquintinib orally once per day, on a 3 weeks on/1 week off cycle plus best supportive care, or placebo plus best supportive care. The primary endpoint is OS, with secondary endpoints including PFS, ORR, DCR and duration of response. We expect to complete FALUCA enrollment in 2017 and reach OS endpoint maturity by 2018. There are approximately 60,000-70,000 new third-line NSCLC patients per year in China.

Study 16 - Enrolling - Phase II study of fruquintinib in combination with Iressa® in first-line NSCLC (China) - In January 2017, we initiated a multi-center, single-arm, open-label 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. The objectives of the Phase II study are to evaluate the safety and tolerability as well as preliminary efficacy of the combination therapy.

Study 17 - Planning - Phase I fruquintinib monotherapy in advanced solid tumors (U.S.) - Our U.S. FDA IND was cleared on fruquintinib in late 2016. A Phase I study in Caucasian cancer patients is now set to begin in the U.S. in 2017.

Study 18 - Completed (now progressing to Phase III) - Phase Ib study of fruquintinib in combination with Taxol® in gastric cancer (second-line) (China) - In early 2017, we presented results of an open label, multi-center Phase Ib dose finding/expansion study of fruquintinib in combination with Taxol® in second-line gastric cancer. A total of 32 patients were enrolled in the study and the recommended phase II dose ("RP2D") of fruquintinib was determined to be 4mg QD 3 weeks on/1 week off in combination with 80mg/m2 weekly of Taxol®. A total of 28 of 32 patients were efficacy evaluable with an ORR of 36% and a DCR of 68%. At fruquintinib RP2D, ≥16 week PFS was 50% and ≥7 month OS was 50%. Tolerability of the RP2D combination was as expected with treatment related Grade ≥3 AEs, with >5% incidence, of neutropenia (41%), leukopenia (28%), decreased hemoglobin (6%), hand-foot syndrome (6%), neurophlegmon (6%), and hypertension (6%), with higher frequencies in the 4mg cohort as compared with lower doses and with neutropenia and leukopenia being common Taxol® AEs. The combination regime resulted in a ~30% increase in Taxol® exposure in patients, indicating potential adjust down Taxol® dose in future development. Based on Phase Ib data, we plan to move directly into a Phase III registration trial in China in 2017. There are approximately 250,000-300,000 new second-line gastric cancer patients per year in China.

Sulfatinib (HMPL-012): Sulfatinib is an oral drug candidate with a unique angio-immuno kinase profile which we believe activates and effectively enhances the body's immune system, specifically T-cells, via VEGFR/FGFR and CSF-1R inhibition. Importantly, in 2016 we presented pre-clinical data for the first time that show sulfatinib, in addition to VEGFR and FGFR1, is a potent inhibitor of CSF-1R, a signaling pathway involved in blocking the activation of tumor-associated macrophages, which cloak cancer cells from attack from T-cells. Our Phase I clinical data in 21 NET patients reported strong efficacy in terms of ORR (>30%) and PFS (>18 months) across a broad spectrum of NET sub-types. These Phase I data compared favorably to the less than 10% ORR and 11.4 month median PFS for Sutent® and Afinitor®, the two approved single agent therapies for pancreatic NET. Sulfatinib is the first oncology candidate that we have taken through proof-of-concept in China and subsequently started clinical development in the U.S. We are currently conducting six clinical studies and retain all rights to sulfatinib worldwide.

Last week at the European Neuroendocrine Tumor Society conference we reported the results of an open-label, single-arm Phase II study in China to assess the efficacy and safety of sulfatinib 300mg QD monotherapy in patients with advanced grade 1 or 2 NETs. A total of 81 patients (41 pancreatic NET and 40 extra-pancreatic NET) were enrolled. The majority of patients had grade 2 disease (79%) and had failed previous systemic treatments (69%). As of January 2017, 13 patients had confirmed PR and 61 patients had stable disease ("SD") corresponding to an overall ORR of 16.0% (13/81), with 17.1% (7/41) in pancreatic NET and 15.0% (6/40) in extra-pancreatic NET, and an overall DCR of 91.4%. Median overall PFS has not been reached, but is estimated to be 16.6 months (95% CI: 13.6, 19.4) with longer median PFS in pancreatic NET estimated at 19.4 months and shorter median PFS in extra-pancreatic NET estimated at 13.4 months. Importantly, in the context of our potential global development strategy, there were twelve patients who had progressed after treatment with targeted therapies (e.g. Sutent® and Afinitor®) and all benefited from sulfatinib treatment (3 PRs and 9 SDs). Sulfatinib was well tolerated with Grade ≥3 AEs, with >5% incidence, regardless of causality of hypertension (31%), proteinuria (14%), hyperuricemia (10%), hypertriglyceridemia (9%), diarrhea (7%) and ALT increase (6%). Based on the above promising Phase I and Phase II efficacy data and tolerability in patients with advanced NETs, two randomized Phase III trials (Studies 19 and 20 below) are ongoing.

Study 19 - Enrolling - Phase III pancreatic NET sulfatinib monotherapy (China) - In March 2016, we initiated the SANET-p study, which is a pivotal Phase III study in patients with low- or intermediate-grade, advanced pancreatic NET. Patients are randomized at a 2:1 ratio to receive either 300mg of sulfatinib orally QD, or placebo, on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time to response, duration of response, OS, safety and tolerability. We expect to complete enrollment in 2018 and present top-line results in 2019. If the SANET-p Phase III data is consistent with the 17.1% ORR and estimated 19.4 month median PFS reported in the above Phase II study, the benefit to the approximately 5,000-6,000 new pancreatic NET patients per year in China will be significant over their current treatment options.

Study 20 - Enrolling - Phase III extra-pancreatic NET sulfatinib monotherapy (China) - In December 2015, we initiated the SANET-ep study, which is pivotal Phase III study in patients with low or intermediate grade advanced extra-pancreatic NET. Patients are randomized at a 2:1 ratio to receive either 300mg of sulfatinib orally QD, or placebo, on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, DCR, time to response, duration of response, OS, safety and tolerability. We expect to complete enrollment in 2018 and present top-line results in 2019. If the SANET-ep Phase III data is consistent with the 15.0% ORR and estimated 13.5 month median PFS reported in the above Phase II study, the benefit to the approximately 50,000-60,000 new non-pancreatic NET patients per year in China will also be highly significant over their current limited treatment alternatives.

Study 21 - Enrolling - Phase I sulfatinib monotherapy in advanced solid tumors (U.S.) - A Phase I study in Caucasian cancer patients began in the U.S. in November 2015. We are currently in the 300mg QD cohort and expect to complete dose escalation shortly. Once the RP2D among Caucasian patients is established, we intend to begin full development in several tumor types in 2017.

Study 22 and Study 23 - Enrolling - Phase II study in recurrent/refractory thyroid cancer patients (China) - In March 2016, we began a Phase II proof-of-concept study in patients with recurrent/refractory medullary or differentiated thyroid cancer and have observed encouraging early efficacy in this open label study in China where there are few safe and effective treatment options. We target to present preliminary Phase II data in late 2017.

Study 24 - Enrolling - Phase II study in chemotherapy refractory biliary tract cancer patients (China) - In January 2017, we began a Phase II proof-of-concept study in patients with biliary tract cancer, a heterogeneous group of rare, but fatal, malignancies arising from the biliary tract epithelia. Gemcitabine is the current approved first-line therapy for the approximately 18,000 new biliary tract cancer patients per year in the U.S. (National Cancer Institute), but median survival is less than 12 months for patients with unresectable or metastatic disease at diagnosis. As a result, we see a major unmet medical need for patients who have progressed on gemcitabine, and sulfatinib may offer a new targeted treatment option in this tumor type.

Epitinib (HMPL-813): A significant portion of patients, estimated at approximately 50%, with NSCLC go on to develop brain metastasis. Patients with brain metastasis suffer from poor prognosis with a median OS of less than 6 months and low quality of life with limited treatment options. Epitinib is a potent and highly selective oral EGFR inhibitor which has demonstrated brain penetration and efficacy in pre-clinical and now clinical studies. EGFR inhibitors have revolutionized the treatment of NSCLC with EGFR activating mutations. However, approved EGFR inhibitors such as Iressa® and Tarceva® cannot penetrate the blood-brain barrier effectively, leaving the majority of patients with brain metastasis, which total approximately 60,000-70,000 new patients per year in China, without an effective targeted therapy. We currently retain all rights to epitinib worldwide.

Study 25 - Continues to enroll (now progressing to Phase III) - Phase Ib epitinib monotherapy in NSCLC patients with activating EGFR-mutation positive with brain metastasis (China) - In December 2016 we presented the results of an open label, multi-center Phase I dose expansion study. A total of 34 patients (13 EGFR TKI pretreated and 21 EGFR TKI treatment naïve) were efficacy evaluable with an ORR of 38% (13/34), including 3 unconfirmed responses. All confirmed and unconfirmed responses occurred in EGFR TKI treatment naïve patients resulting in an ORR of 62% (13/21) and in the 11 EGFR TKI naïve patients who also had measurable brain metastasis (lesion diameter>10 mm per RECIST 1.1), the ORR was 64% (7/11). Furthermore, when the two patients with c-Met gene amplification were excluded, epitinib ORR increased to 68% (13/19) in EGFR TKI treatment naïve patients and 70% (7/10) of those patients who also had measurable brain metastasis. Epitinib was well tolerated with treatment related Grade ≥3 AEs, with >5% incidence, associated with epitinib of elevations in ALT (19%), gamma-GGT (11%), elevations in AST (11%), hyperuricemia (5%) and skin rash (5%). Based on these encouraging data, and driven by the major unmet medical need, we are now planning to start a Phase III pivotal study of epitinib in EGFR mutant NSCLC patients with brain metastasis in China in 2017.

Study 26 - Phase II study in glioblastoma - Glioblastoma is a primary brain cancer that harbors high levels of EGFR gene amplification. Planning is underway to start a Phase study II in China during 2017.

Theliatinib (HMPL-309): Like epitinib, theliatinib is a novel molecule 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 current EGFR TKIs, Iressa® and Tarceva®, due to 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 esophageal and head and neck cancer, tumor-types with a high incidence of wild-type EGFR activation. We currently retain all rights to theliatinib worldwide.

Study 27 - Enrolling - Phase I study of theliatinib monotherapy in wild-type EGFR NSCLC (China) - We are conducting an open-label Phase I dose escalation study that has completed eight once-daily dose cohorts. While the maximum tolerated dose has not yet been reached and dose escalation is continuing, efficacy has been observed with an unconfirmed PR in an esophageal cancer patient with a high level of EGFR protein expression.

Study 28 - Enrolling - Phase Ib expansion theliatinib monotherapy in esophageal cancer (China) - In January 2017, we began a Phase Ib proof-of-concept expansion study of theliatinib 300mg QD dose in esophageal cancer patients with EGFR protein overexpression or gene amplification.

HMPL-523: HMPL-523 is a potential global first-in-class oral inhibitor targeting Syk, a key protein involved in B-cell signaling. Modulation of the B-cell signaling system has proven significant potential for the treatment of certain chronic autoimmune diseases, such as rheumatoid arthritis as well as hematological cancers. We believe HMPL-523, as an oral drug candidate, has important advantages over intravenous monoclonal antibody immune modulators in rheumatoid arthritis in that small molecule compounds clear the system faster, thereby reducing the risk of infections from sustained suppression of the immune system.

Study 29 and Study 30 - Complete (progressing to Phase II) - Phase I study (healthy volunteers) (Australia/China) - In November 2016, we presented results of our Phase I dose escalation study on HMPL-523 in healthy volunteers. We successfully completed ten single dose cohorts, from 5mg QD through to 800mg QD; and three multiple dose cohorts, from 200mg QD through 400mg QD for 14 days. A total of 118 adult male healthy subjects were enrolled at baseline and 114 (96.6%) subjects completed the study. A total of 83 treatment emergent AEs were reported with 38.9% in the HMPL-523 groups, and 32.1% in the placebo groups, respectively. Two SAEs were reported in the Phase I study and when HMPL-523 was discontinued in those subjects the SAEs were resolved. Off-target toxicities such as diarrhea and hypertension, which led to the failure of the first-generation Syk inhibitor fostamatinib, were not observed.

In an ex-vivo human whole blood pharmacodynamic ("PD") assay, HMPL-523 inhibited anti-IgE-induced basophil activation (CD63+) in a concentration-dependent manner with an estimated half maximal effective concentration (EC50) of 47.70ng/mL. Systemic exposure of HMPL-523 was increased up to 1.5 fold when administered in a fed condition compared to a fasted condition, indicating that food consumption increases the relative bioavailability of HMPL-523. Human PK exposures at 200mg QD and above can be expected to provide the target coverage required for clinical efficacy based on the preclinical PK/PD analysis and as a result, a multiple-dose regimen of 300mg or less of HMPL-523, administered QD, is the RP2D for clinical trials in autoimmune diseases. We have submitted our U.S. immunology IND application and engaged with the U.S. FDA around our plan for development in rheumatoid arthritis; we are now preparing for submission of additional data to the U.S. FDA after which we will consider our U.S. development strategy in immunology.

Study 31 and Study 32 - Enrolling - Phase I study of HMPL-523 in hematological cancer (second/third-line) (Australia/China) - In early 2016, we initiated a Phase I dose escalation study of HMPL-523 in Australia in patients with relapsed and/or refractory B-cell non-Hodgkin's lymphoma or chronic lymphocytic leukemia for whom there is no standard therapy. We have completed the 100mg, 200mg, 400mg, 600mg QD cohorts and are now in the 800mg dose level in Australia. In mid-2016, we received clearance from the China FDA on our hematological cancer IND application and as a result, in January 2017, we started Phase I dose escalation in B-cell non-Hodgkin's lymphoma or chronic lymphocytic leukemia patients in China. Once our maximum tolerated dose or RP2D is reached, we intend to expand into proof-of-concept Phase Ib/II study with several cohorts of tumor sub-types as either monotherapy or in combination with other therapies hoping in both cases to produce preliminary proof-of-concept data on HMPL-523 in hematological cancer during 2017. We base our hope to reach this objective in 2017 on the strong efficacy (albeit suboptimal safety) reported on Gilead's Syk inhibitor Entospletinib in 2016.

HMPL-689: 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, in particular to not inhibit PI3Kɣ (gamma), to minimize the risk of serious infection caused by immune suppression. HMPL-689's strong potency, particularly at the whole blood level, also allows for reduced daily doses to minimize compound related toxicity, such as the high level of liver toxicity observed with the first generation PI3Kδ inhibitor Zydelig®. HMPL-689's PK properties have been found to be favorable with expected good oral absorption, moderate tissue distribution and low clearance in preclinical PK studies. We also expect HMPL-689 will have low risk of drug accumulation and drug-to-drug interaction. Given this, we believe that HMPL-689 has the potential to be a global best-in-class PI3Kδ agent. We currently retain all rights to HMPL-689 worldwide.

Study 33 and 34 - Complete - Phase I dose escalation study in healthy volunteers (Australia) - In 2016, we completed a Phase I dose escalation study 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 good safety profile. Detailed Phase I data will be presented at a scientific conference in 2017. We have now received IND clearance in China and plan to initiate a Phase I dose escalation and expansion study in patients with hematologic malignancies in 2017.

HMPL-453: HMPL-453 is a potential first-in-class novel, highly selective and potent small molecule 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 (through tissue growth and repair), 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 superior kinase selectivity and safety profile as well as strong anti-tumor potency, as compared to drug candidates in the same class. 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.

Studies 35 and 36 - Enrolling - Phase I dose escalation (Australia and China) - In February 2017, we announced the initiation of a first-in-human Phase I dose escalation study in Australia to evaluate safety, tolerability, PK and preliminary anti-tumor activity in patients with advanced or metastatic solid tumors, who have failed or cannot tolerate standard therapies or for whom no standard therapies exist. In late 2016, we received IND clearance for HMPL-453 in China where we are now preparing to initiate a Phase I dose escalation study in solid tumor patients and expect first patient dose in Q2 2017.

HM004-6599: HMPL-004 is a proprietary botanical drug for the treatment of inflammatory bowel diseases, which we are developing through NSP a 50/50 joint venture with Nestlé. We are working with Nestlé to prepare an IND application for HM004-6599 which we expect to submit in China in 2017. HM004-6599 is an enriched/purified re-formulation of HMPL-004, our drug candidate that reported positive Phase II results in ulcerative colitis in 2010 but then went on to prove futile in an interim analysis of the subsequent Phase III study in 2014. We believe that re-formulation should effectively address the primary reasons for the results of the Phase III study.

COMMERCIAL PLATFORM

In 2016, sales of our Commercial Platform's subsidiaries grew by 43% to $180.9 million (2015: $126.2m), and sales of our Commercial Platform's non-consolidated joint ventures, SHPL and HBYS, grew by 14% to $446.5 million (2015: $392.7m) resulting in consolidated net income attributable to Chi-Med from our Commercial Platform which increased by 180% to $70.3 million (2015: $25.2m).

During 2016, Chi-Med booked a one-time gain of $40.4 million resulting from land compensation paid by the Shanghai government to SHPL. Adjusted consolidated net income attributable to Chi-Med from our Commercial Platform grew by 19% to $29.9 million (2015: $25.2m) which excludes a one-time property gain. These results were particularly encouraging given the weakening of the Chinese RMB which reduced both our top- and bottom-line growth rates by over -6% in U.S. dollar terms during 2016.

The Commercial Platform, which has been built over the past 16 years, is focused on two core business areas. The first area is our Prescription Drugs business, a high margin/profit business operated through our joint ventures SHPL and Hutchison Sinopharm, in which we nominate management and run the day-to-day operations. Our Prescription Drugs business is a platform that we plan to use to launch our un-partnered drug candidates, such as sulfatinib, epitinib, theliatinib, HMPL-523, HMPL-689 and HMPL-453 once approved in China. The second area is our Consumer Health business, which is a profitable and cash flow generating business selling primarily market-leading household-name OTC pharmaceutical products through our non-consolidated joint venture HBYS.

Prescription Drugs business:

In 2016, sales of our Prescription Drugs subsidiaries grew by 42% to $149.9 million (2015: $105.5m), and sales of our non-consolidated Prescription Drugs joint venture (SHPL) grew by 23% to $222.4 million (2015: $181.1m) and consolidated net income attributable to Chi-Med from our Prescription Drugs business increased by 284% to $61.1 million (2015: $15.9m). Adjusted consolidated net income attributable to Chi-Med grew 30% to $20.7 million (2015: $15.9m) representing 69% of our overall Commercial Platform net income which excludes a one-time property gain.

SHPL:  Our own-brand Prescription Drugs business, operated through our non-consolidated joint venture SHPL, continues to perform well with 23% sales growth, primarily fueled by growth in sales of SXBX pill, leading to a 27% increase in net income after tax of $39.7 million (2015: $31.3m) excluding property compensation. Including the one-time gain of $80.8 million resulting from property compensation paid by the Shanghai government, SHPL recorded a 285% increase in net income after tax to $120.5 million (2015: $31.3m). Our 50% shareholding in SHPL therefore resulted in consolidated net income attributable to Chi-Med during 2016 of $60.3 million (2015: $15.7m).

SXBX pill: SHPL's key 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 1 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 (34% of adults), increasing levels of obesity (28% of adults overweight) and hypertension (26% of adults). SXBX pill is the third largest botanical prescription drug in this indication in China, with a 12% national market share. Sales of SXBX pill have grown more than twenty-fold since 2001, including 23% in 2016 to $195.4 million (2015: $159.3m) as a result of continued geographical expansion of sales coverage.

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 ("LPDL") with an average daily cost of RMB3.50, or approximately $0.50.  In the coming years, we anticipate stable growth in sales of SXBX pill given the strength of its proposition, head-room to potentially increase price under the LPDL 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 2,200 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. In late 2016, SHPL transitioned to a new, Good Manufacturing Practice-certified factory located 40 kilometers south of Shanghai, which holds 74 drug product manufacturing licenses and is operated by over 500 manufacturing staff. The move to this new higher capacity factory allowed SHPL to return the land use rights of its old factory located 12 kilometers from the center of Shanghai. As compensation for returning the old factory's land use rights, the local government has paid SHPL cash and subsidies totaling about $113 million. As at December 31, 2016, SHPL had received $103 million in cash thereby allowing the Chi-Med Group to record the aforementioned one-time gain of $40.4 million in 2016. The remaining $10 million was received in February 2017 and now the Chi-Med Group will likely receive a dividend of about $40 million from SHPL.

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 2016, Hutchison Sinopharm made good progress with sales up 42% to $149.9 million (2015: $105.5m) as a result of full period consolidation of the Seroquel® business versus just eight months in 2015. Hutchison Sinopharm is migrating its operation towards being a higher margin, full-service, third-party prescription drugs commercial services company in China. In 2016, Hutchison Sinopharm invested in expanding its commercial team to support the exclusive deals on Seroquel® (AstraZeneca) and Concor® (Merck Serono) as well as the full take-back of the Chi-Med owned Zhi Ling Tong brand infant nutrition business from a third-party distributor. Regulatory reform in the China pharmaceutical industry, expected to be announced in 2017, appears that it might limit the number of distributors allowed between a manufacturer and each hospital to one, which may affect the rate of sales growth of Hutchison Sinopharm in 2017. As a result, sales growth Guidance for Hutchison Sinopharm in 2017 has been limited. This regulatory reform will have no impact on Hutchison Sinopharm profitability or commercial team expansion plans.

Seroquel®: Seroquel® (quetiapine tablets) is an antipsychotic therapy approved for bi-polar disorder and schizophrenia, conditions that are underdiagnosed in China. Seroquel® holds an approximately 5% market share in China's anti-psychotic prescription drug market, and 46% 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 XR formulation which provides it with competitive advantage over quetiapine generics. In Q2 2015, Hutchison Sinopharm became the exclusive first-tier distributor to distribute and market Seroquel® tablets in China, and subsequently built a team of over 140 dedicated medical sales representatives (2015: 100) to market Seroquel®. This led to sales growth of 63% in 2016 to $34.4 million (2015: $21.1m). We target double-digit growth in sales of Seroquel® over the next several years due to the XR formulation and expected expansion in diagnosis and treatment of antipsychotic diseases in China.

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 19% national market share. We control commercial operations in three pilot territories in China and create synergy with our existing cardiovascular medical sales team by detailing Concor® alongside the SXBX pill on a fee-for-service basis. Sales of Concor® in our territories grew by 43% in 2016 resulting in service fees of $1.4 million (2015: $0.9m). We expect growth in these fees will be driven by cardiovascular market expansion as well as potential territorial expansion of Hutchison Sinopharm's activities.

Consumer Health business:

In 2016, sales of our Consumer Health subsidiaries increased by 50% to $31.0 million (2015: $20.7m) and sales of our non-consolidated Consumer Health joint venture (HBYS) increased by 6% to $224.1 million (2015: $211.6m). Consolidated net income attributable to Chi-Med from our Consumer Health business remained flat at $9.2 million (2015: $9.3m) as a result of tight OTC capacity ahead of our new factory opening in 2017, representing 31% of our overall Commercial Platform net income attributable to Chi-Med in 2016 on an adjusted basis.

HBYS: Our OTC business operated through our non-consolidated joint venture HBYS focuses on the manufacture, marketing and distribution of market-leading household-name OTC pharmaceutical products and has been an important source of cash for Chi-Med. HBYS sales have grown over five-fold since its establishment in 2005 and, during this period, HBYS has adopted a low-capex strategy of expanding mainly through the use of contract manufacturers. However, China FDA policy changes in recent years have made contract manufacturing more difficult, so HBYS recently moved to expand in-house production capacity three-fold through the establishment of a new factory in Bozhou. The Bozhou factory is approaching completion and is expected to commence operations in 2017; however, supply constraints affected HBYS results in 2016 with its sales, as shown above, increasing by 6% and leading to a 5% decline in net income after tax of $20.4 million (2015: $21.4m). Our shareholding in HBYS therefore resulted in consolidated net income attributable to Chi-Med during 2016 of $8.2 million (2015: $8.6m).

Fu Fang Dan Shen ("FFDS") tablets and Banlangen granules: FFDS tablets (angina) and Banlangen granules (anti-viral cold/flu) are generic OTC drugs with leadership national market share in China of 32% and 51%, respectively. Sales in 2016 of these two products grew marginally to $116.6 million (2015: $115.1m) due to tightness in contract manufacturer supply relating to the move to Bozhou. While sales of both products in any given year will vary based on the severity of climate/flu season, we anticipate that sales of these key OTC drugs will benefit from the underlying general market expansion and the low risk of price erosion due to our focus on the retail pharmacy channel.

HBYS is well established in the OTC industry in China. Its Bai Yun Shan brand (literally meaning "White Cloud Mountain," a famous scenic spot in Guangzhou) is a household name, established over the past 40 years, and known by the majority of Chinese consumers. In addition to its over 730 manufacturing staff and 178 drug product licenses, HBYS has a commercial team of about 1,200 sales staff that fully covers the retail pharmacy channel nationally in China. We believe that HBYS's move to build the Bozhou factory, expanding capacity and decreasing reliance on contract manufacturers, will position us well for long-term and sustainable growth.

HBYS property update - HBYS's vacant Plot 2 (26,700 sqm.) in Guangzhou has now been listed for sale as part of the Guangzhou municipal government's urban redevelopment scheme plan for 2016. Subject to Guangzhou government policy, the public auction of this land should occur in 2017. 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% 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, Plot 1 could bring HBYS compensation per sqm. comparable to Plot 2.

Commercial Platform dividends: The increasing profits of the Commercial Platform continue to pass through to the Chi-Med Group through dividend payments from our non-consolidated joint ventures, SHPL and HBYS. Dividends of $30.5 million (2015: $6.4m) were paid from these joint ventures to the Chi-Med Group level during 2016. Net income from SHPL and HBYS have totaled $369 million since 2005, of which a total of $205 million has been paid in dividends to Chi-Med and its partners, with the balance retained primarily to fund factory upgrades, expansion and relocation. As of December 31, 2016, SHPL or HBYS held in aggregate $85.6 million in cash equivalents and short term investments with no outstanding bank borrowing. We expect material one-time dividends in 2017 and 2018, resulting from property compensation payments to SHPL and HBYS.

Christian Hogg

Chief Executive Officer, March 13, 2017

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 research and development expenses;

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

· Adjusted consolidated operating profit from our Prescription Drugs business; and

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

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 research and development expenses: We exclude the impact of the revenue received from external customers of our Innovation Platform, which is reinvested into on our clinical trials, to derive our adjusted research and development 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 research and development activities more difficult. We believe the presentation of adjusted research and development expenses provides useful and meaningful information about our ongoing research and development activities by enhancing investors' understanding of the scope of our normal, recurring operating research and development expenses.

Adjusted consolidated net income attributable to Chi-Med from our Commercial Platform, adjusted consolidated operating profit from our Prescription Drugs business and adjusted consolidated net income attributable to Chi-Med from our Prescription Drugs business: We exclude the impact of a $40.4 million one-time gain which was triggered by the payment of $113 million in land compensation and subsidies from the Shanghai government to SHPL.

Reconciliation of GAAP to adjusted research and development expenses:

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

Reconciliation of GAAP to adjusted consolidated operating profit from our Prescription Drugs business:

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

Hutchison China MediTech Limited

Consolidated Balance Sheets

(in US$'000)

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 Income/(Loss)

(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)