Hutchison China Meditech (LSE: HCM) isn’t a firm that many investors will have heard of, let alone invested in. But the AIM-listed biopharmaceutical company better-known as Chi-Med could be on the cusp of making it big… and I mean REALLY big.
Last month Chi-Med, along with its partner US pharmaceuticals giant Eli Lily, announced positive results from final stage clinical trials for Fruquintinib, its experimental treatment for Bowel Cancer. The new drug could be in a position to launch as early as next year once it gains approval from the China Food and Drug Administration.
I see huge potential here. Bowel cancer, also known as colorectal cancer, is the second most common type of cancer in China, with around 380,000 new cases each year. Globally the figure is estimated at 1.5m new cases annually. Chi-Med continues to press ahead with its promising pipeline, with eight new drugs currently in active clinical trials worldwide.
Full-year results for 2016 revealed a 21% increase in group revenue to $216.1m, with net attributable income to Chi-Med up 46% to $11.7m, compared to just $8m for 2015. The group’s Commercial Division which manufactures, markets and distributes prescription drugs and consumer health products in China, reported a 43% rise in consolidated sales to $180.9m, with sales of non-consolidated joint ventures up 14% to $446.5m.
However, these figures were offset by the group’s Innovation Platform which reported a $16.8m fall in revenues to $35.2m, along with a $40.7m loss as a result of research and development costs. I’m not too worried about these figures, as this is the division of Chi-Med responsible for developing the promising new pipeline of oncology and immunology drugs.
Perhaps not surprisingly, news of the positive drug trial combined with the very encouraging set of full-year results have helped propel the company’s share price to new all-time highs. But many believe this is just the start. Chi-Med also has high hopes for another cancer drug which it has been developing with Anglo-Swedish multinational AstraZeneca (LSE: AZN). Savolitinib is being developed for patients with multiple tumour types including kidney, lung and gastric cancers, and is currently in 12 active clinical studies worldwide.
Clearly Chi-Med is one for more adventurous investors hoping to capture big gains whilst accepting a higher level of risk. Of course, that may not be everyone’s cup of tea. Risk-averse investors may feel more comfortable parking their hard-earned cash with proven income generators like FTSE 100 blue chip AstraZeneca. Trading on a reasonable earnings multiple of 16 and offering a reliable dividend with a near-5% yield, Astra may be deemed boring but will probably help you sleep better at night.
Personally I think there is room for both Chi-Med and AstraZeneca in a well-balanced portfolio. Astra can continue to generate dependable income, while a small holding in Chi-Med could help appease our craving for excitement.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.