HUTCHMED (China) Limited (HCM) Q2 2017 Earnings Report, Transcript and Summary

Hello ladies and gentlemen, and welcome to the China 2017 Half Year Results Call. My name is Courtney and I'll be your coordinator for today's event. For the duration of the call, you will be on listen-only. However at the end of the call you will have the opportunity ask questions. [Operator Instructions] I will now hand you over to your host Mr. Christian Hogg to begin today's conference. Thank you.

Okay, thank you, Courtney. Welcome to our half year results presentation analyst call with the U.S. What I'm planning on doing is taking you through the presentation, but on a high level just sort of identifying areas of change or progress, or things that have developed over the last four months or so since our last analyst call. I am intending to do that over about maybe 40 minutes and then we'll have 20 minutes or 15-20 minutes at the end for Q&A. I'm also assuming that you've got the presentation in front of you. I will try and mention the page numbers as I go through. So if we go to page 4 and 5, you can see the financial results. Basically page 4 the - on a high revenues at the Group were up 21% to $126.6 million in the first half of the year. A lot of that was driven by our prescription drug commercial business in China. We saw overall net income attributable to Chi-Med of $1.7 million. I mean not really that relevant in the big picture as to what we're trying to achieve as a company. I think the most important number is probably that we're able to invest or burn around $37.5 million in our pipeline in the first half. So at the end there is a lot of activity moving our pipeline forward. I'll take you through that in due course. On page 5 you can see overall we are sitting on about $192.5 million of cash and available resources. About $80 million of that are unutilized banking facility. So cash wide we have about $110 million in available cash. And then also on page 5 you can see our commercial platform continues to progress first half $25.2 million after-tax was the net income, up about 14% versus last year. And on the innovation side revenues were about equal to last year, $22.7 million and that's a couple of milestones $5 million from AstraZeneca for the start of the papillary renal cell carcinoma global Phase III and about $4.5 million from Lilly around the submission of the NDA on fruquintinib in China and then various other service fees and payments from our partners, and the total net loss of around $15 million on the innovation side. So pretty much consistent performance with what we've done in previous periods. And we're just all trying to make our commercial business make more money and trying to move our pipeline faster and more aggressively. So moving on to page seven, really very similar story to before. I think the total cash that we and our partners are going to invest is on the innovation pipeline. To this point it's now approaching $500 million. So over a long period of time and the results of that investment is starting to see some of our most advanced assets approaching approvals and we'll talk more about that later. I want to talk about page 8 and 9, this for the people who are on this call, who are very familiar with our strategy, our scientific strategy of focus on selectivity to allow for better tolerability and prolonged target coverage for better efficacy. And I think, as we talk about Savolitinib and fruquintinib in the presentation you will see that this scientific strategy and basic premise around superior kinase selectivity is really starting to play out in superior efficacy and safety profile of our key assets. So moving on to page 10 and 11, you see the pipeline chart. There has been quite a lot of updates on this in the last few months. Obviously in Savolitinib we started the global Phase III in papillary renal cell carcinoma. So that's been an exciting development. I think studies 6, 7 and 8, these are the Phase II studies on Tagrisso-Savolitinib combination in second line and third line non-small cell lung cancer as well as the Savolitinib-Iressa combination in the second line setting. These three Phase II studies are now ready to go. I mean the data is maturing a little bit and we are intending to present this data at a scientific event in - later in 2017, probably around the beginning of the fourth quarter. We're very energized about the publication of the presentation of this data, and what that will trigger is AstraZeneca's strategy on global Phase III as well as the subject of the strength of that data, the breakthrough therapy potential of Savolitinib in combination with Tagrisso, in these MET driven patients. So it's a really an opportunity for Savolitinib to take the next step in the context of non-small cell lung cancer and we are really rather excited about this for Savolitinib and for the company. On fruquintinib, on third line colorectal cancer, we all know the NDA was submitted in June. We're - the dossier is now and the NDA has been now forwarded up to Beijing from the Shanghai FDA. It's moving at sort of record speed for many reasons. And so we're hopeful to establish a new benchmark for speed of approval post-NDA submission. And I think if everything goes as we hope we would look to be able to launch fruquintinib in China early next year. The FALUCA third line non-small cell lung cancer Phase III is 75% enrolled, moving now very rapidly, which is encouraging. I think the positive FRESCO result has given a big of a shot in the arm to the FALUCA enrollment. And so we expect to complete enrollment in FALUCA sometime around the end of the year, maybe early next year. And we'll start the Phase III in second line gastric cancer in combination, fruquintinib in combination with paclitaxel or taxel probably around September/October of this year. That is the big indication for fruquintinib in China. Second line gastric cancer it's 200,000 or so new patients a year, it's use for fruquintinib in an earlier line of treatment setting, and we'll talk more about that later. Sulfatinib, the Phase III studies in neuroendochrine tumors are progressing now a bit faster. And before I put them at about 30% enrolled and we expect to have an interim analysis later in 2018. Also phase II studies, proof-of-concept studies in Thyroid cancer, biliary tract, carcinoma that are progressing. And so - and also the Phase I bridging study in Caucasian patients is now almost complete and we're ready to look at the next steps of development in the United States for Sulfatinib, we'll talk about that later. Epitinib, the Phase III in EGFR mutation positive non-small cell lung cancer patients with brain MET. We're working on that. I think the Phase III will kick-off sometime early next year, late this year, early next year. And then on the page 11, you can see, obviously the second wave of drug candidates. They're all in sort of late Phase I/Phase II proof-of-concept studies. Theliatinib, we talked about in our last call was starting to show signs of really attractive or interesting efficacy in EGFR protein over expressions patients in esophageal cancer. So we're moving on that as fast as we can. I think Syk, the 523 - HMPL-523, particularly in hematological cancer patients is going to be real focus area for us over the next six to nine months. I believe that we will start to be able to present initial efficacy data on the Syk inhibitor that will excite, and it's certainly is exciting us. And we're hoping to start moving that very rapidly in hematological cancer. 689, PI3Kδ compound, it's about to start in lymphoma patients in China. It's a very clean compound with extremely positive PKPD, particularly PK profile. I think it has great potential to be best-in-class. And so we want to move that as fast as possible. And then FGFR inhibitor 453, that's in Phase I in Australia and China at the moment. And we think we've got a very good asset there as well, but only time will tell. It's very early at this point. So that's high level what's going on, on the pipeline. I won't stop on page 12 and 13. These are charts that have been presented before. I think we remain - may be on 13, we remain for third line colorectal cancer of the view that peak sales in China on third line colorectal cancer alone could be $110 million to $160 million. I think it should be more. But conservatively speaking that's what we think it can be based on the market today. But what that relates to is maybe $20 million to $35 million net income on that indication to Chi-Med. I think that's consistent with many of your forecasts. Okay, looking at Savolitinib on page 15, going straight into papillary renal cell carcinoma, I mean we all know it's a niche indication, only 7% of overall RCC maybe 25,000 new patients a year, with MET driven papillary renal cell carcinoma. But we feel very strongly that getting it approved and - getting a monotherapy Savolitinib approved in MET driven papillary renal cell carcinoma will open up the usage of Savolitinib across many MET driven patient populations as a market therapy. So that's the reason we've pushing PRCC so hard. It's not the $200 million to $300 million peak sales opportunity, but it's to become really the first approved first-in-class highly selective c-MET inhibitor approved globally. And if we're able to do that, I think the upside potential on Savolitinib is enormous. You can see on 17, the PRCC Phase II data we published early in the year. Many of you've already seen this. But it's clear that Savolitinib in MET-driven patients really helps them, great disease control rate, good durable response, an objective response rate of close to 20% in a very difficult patient population and a medium PFS in MET-Driven disease of 6.2 months versus MET-independent of only 1.4 months. So Savolitinib works in MET-driven disease. Now if you go to page 18, this is a new chart. This shows MET-driven disease in various other solid tumor indications and gastric cancer is the one I would draw your attention to, on page 18 and box number 1. And you can see that MET-driven disease just has a far worse prognosis than MET-independent disease in gastric cancer. You can see the red line there. Your major median overall survival post-surgery within two years, half of the patients have already died. Whereas MET independent or MET negative you don't hit median for 10 years. So you can see the MET, the aberration in MET is a real negative prognostic in gastric cancer. And the same can be said below, in box number two for non-small cell lung cancer. So what we are doing at the moment with AstraZeneca is we're conducting a - over 300 patient molecular epidemiology study, taking archived tissue samples from PRCC patients around the world and in Europe, Asia and America. We are taking those archived tissue samples, shipping them to Boston, where they will be screened using our diagnostic kit to determine whether they're MET-negative or MET positive. And then we'll do pooled analysis of historical data to show based on their MET status, how did those patients do. What was their survival, what was their response to the treatments they were exposed to? And we believe that - or we hope, not knowing anything yet but we hope that what we will see is a survival chart similar to what you see on gastric cancer, lung cancer where MET driven disease is a real negative as a progress outcome than MET independent disease. And if we can show that, along with our Phase II data to the U.S. FDA we would hope that we'll be able to enter into discussions around breakthrough therapy designation et cetera. So that's what we're doing off the pillar [ph] in renal cell carcinoma. And as I say - the first that it's not necessary for the $2 million to $3 million and sales in PRCC, is to be the first selective C-MET inhibitor approved globally. Page 19, a lot of you've seen that the safety profile of Savolitinib in PRCC relative to Sunitinib or Pazopanib in clear cell renal cell carcinoma patients. You can see the level of grade 3 adverse events on Savolitinib treatment related is only 19% as compared to the high 70s for Sunitinib/ Pazopanib or Sunitinib/[indiscernible]. So we've got a clean safe drug in drug candidate in Savolitinib and I think that is really the big advantage. Moving on to lung cancer, non-small cell lung cancer, page 21, shows a new - some new data that was published at ASCO in June, around MET exon 14 skipping and c-MET adherence in non-small cell lung cancer in the first line setting. And you can see that Pfizer and crizotinib's working pretty hard to go after this MET exon 14 skipping group in the first line setting but crizotinib is a multi-kinase inhibitor. It's c-MET but not as hard, not as hard or as effective as Savolinib. So we believe we've got a better MET inhibitor than a multi-kinase inhibitor in Xalkori. And you can see though, if you hit these MET Exon 14 skipping patients with the MET inhibitor the median OS, 24.6 months whereas if they are not exposed to a MET inhibitor it you got a median OS of 8 months. So there's a big benefit to the use of a MET inhibitor in the first line setting and we believe we are in a good position there. So we're working quite hard on this area. But if you go to page 22 and 23, the areas I'd say we're working most aggressively is in the second line setting in combination with both Tagrisso and in the T-cell might have negative patients in combination with Iressa. And you can see on page 23, this is data we've already published. Actually AstraZeneca has already presented this data at ASMO in 2016, but we presented in a slightly different way now. So you can de-convolute it a bit. You can see on the right hand waterfall chart on the bottom the c-MET positive T790M negative patients, a response rate in the order for four out of five patients, so 80. On the left, there you can see a response rate of about 60%. This is MET driven T790M positive and negative. So you're seeing, in a very small patient population very encouraging levels of response. Now we've also stated in the past that these are quite durable responses. And so what will do in October, when this data, the Phase II data is published - presented in full, is we will give a much clearer picture of the combination of Savolitinib and Tagrisso in the second line setting, a clear picture of Savolitinib-Tagrisso in the third line setting which I'll come to in a moment, and also Savolitinib and Iressa in the second line setting. We're very excited to be getting this data out and it's on its way. And I think you can take page 23 as a kind of slippage of what is to come. Going to page 24 and 25, at ASCO we saw a study, relatively small study but an important study published by Harvard Medical School and the Massachusetts General Hospital, and it's around resistance pathways to Tagrisso. So what are the molecular pathways of resistance to Tagrisso, which obviously Tagrisso now first half of this year did over $400 million in sales and is probably on track to be a $1 billion drug this year in its second year post launch. So Tagrisso is doing really well in an EGFR mutation positive non-small cell lung cancer. You also saw last week in the AURA3 study that Tagrisso has achieved all its endpoint in the first line setting. So that - what does that mean for Savolitinib. I think it means a great deal for Savolitinib. The more patients are using Tagrisso, the more potential there is for Savolitinib. If you look at the study published by Massachusetts General Hospital and the Harvard Medical Center - Medical School you can see that about 30% of Tagrisso-resistant patients are MET-driven patients. And you can also see in the chart the CT scans and underneath in the bottom left hand side of the page 24, you can see that three out of those seven patients were exposed to Savolitinib in combination with Tagrisso. And three out of three had confirmed partial response. In the CT Scan there you can see - it's a pretty significant response when you're talking about a patient who has failed on Iressa or Tarceva, who has then failed on Tagrisso, and then you see a 70% or so response for tumor shrinkage in combo with Savolitinib. So if you go to page 25, the treatment algorithm for non-small cell lung cancer is very clear that Tagrisso and Savolitinib are prefect bed fellows and are going to be working well together in many, many areas. So that's Savolitinib. I want to talk about gastric arm, that's progressing as we discussed in exploratory studies in various gastric cancer, MET-driven gastric patient populations. I think we can go to page 30 and 31 on fruquintinib. Looking at the FRESCO data in third line colorectal cancer, we've all seen this obviously from the ASCO Oral Presentation, meeting all the primary endpoint and we're obviously very happy with these results. I think in the context of Regorafenib, you can see page 31 shows the CONCUR study of Regorafenib in third line colorectal cancer patients in China. It's probably the most relevant comparator for FRESCO. And you can see, I mean it's arguable of course and difficult to compare study with study, but you can clearly see that fruquintinib in a much more highly powered study of over 400 patients, clearly is a drug that has certainly arguably superior efficacy over Regorafenib. But the most important thing for fruquintinib is shown on page 32, and that's its safety profile. I mean as we've always talked, Dr. [indiscernible] and a whole team have focused on selectivity as one of the main criteria for the discovery for most of our assets, clinical drug candidates. And fruquintinib is a highly selective VEGFR inhibitor. And you see that in the safety profile. I mean basically the only adverse events from fruquintinib are target related. So hypertension and hyper syndrome, everything else is very, very low. And as compared to Regorafenib the CONCUR study in Chinese patients, the sort of real apples-to-apples type of comparison, you see much higher levels of liver tox and AEs related to hepatic function with Regorafenib. So I mean Regorafenib has a black box warning in the U.S. for a reason, that patients need to be very careful and monitor - their liver functions needs to be monitored. Liver enzyme levels need to be monitored, and if they are elevated in any way they are taken off Regorafenib. You don't want to be getting into a situation where you have highs and low cases. So what that plays out at is a high level of dose interruption on Regorafenib. You can see on the chart on Page 32, that's almost 70 dose interruption for Regorafenib. And what that means is you're taking the drug off the target, allowing VEGF to signal and allowing for angiogenesis to occur. And that's obviously not a good thing. So fruquintinib has far lower levels of dose interruption and better tolerability, better target coverage a more uniform target coverage and as a result we believe better efficacy. So I think fruquintinib does a good job of making a case for why a selective TKI is better than a long selected TKI. Page 33, FALUCA, this is just the Phase II data, you've seen it all before, but the update is that the Phase III is about 75% enrolled, and picking up speed. Hoping to begin with that enrollment around the end of the year, maybe very early next year. Page 35, gastric cancer combination. You've all seen this data, 36% response rate in second line setting as compared to about 20% for paclitaxel alone. Most of the AEs around the combination are paclitaxel related. In fact all of them are paclitaxel related. So we feel good about this combination and we'll progress into the phase III. It will initiate probably in September, October of this year. It's all ready to go and investigator meetings are being are on the way. So we are very keen because this patient population, as I said earlier is four or five times the patient population of third line colorectal and third line non-small cell lung cancer. Sulfatinib, not much more to report. If we go to page 39, the neuroendochrine tumor data that was presented as the European Neuroendochrine Tumor Society meeting in Barcelona this year; great efficacy, great medium PFS. And the Phase IIIs are enrolling. We've now pretty much completed the Phase I dose finding or dose study in Caucasian patients in the U.S. and we're ready to now expand into the next stage of developments in the U.S. which we would consider an expansion study in some in pNET patients for certain types, maybe those that have failed on Sutent or Afinitor and that's what we're going to do. Epitinib, on page 42 and 43, just an update, likely the Phase III will start around the end of the year, maybe very early next year. As that data matures, as the spider block mature, we just becoming increasingly confident that Epitinib is a terrific therapy for EGFR mutation positive patient with brain metastases. So we are moving fast on that. Touching on page 46, HMPL-523 the syk inhibitor. So not that this is new. I think the data that Entospletinib, syk inhibitor published at ASCO last year and the year before. So 2015 and 2016 clearly shows that syk is an important target in Lymphoma and leukemia. I think box number three on page 46, shows clearly that patients, that are either resistant or intolerant to BTK inhibitors or PI3Kδ compound they do pretty well on a syk inhibitor. So this is the area we are extremely excited about and are working very hard to expand the data set of HMPL-523 both in Australia in Caucasian patients as well as increasingly in China now, where there is a very big hepatological cancer patient population that is really [indiscernible]. So the more data we get in this the better. I think Entospletinib, as we always say you can see on box number four, on page 46 it's not a perfect compound, poor solubility, high variation in drug exposure, syp inhibition, high levels of grade 3 AEs as well as almost 50% severe - SAEs. So they are ahead but I think we have got - we think we have got a really superior compound in 523 and are very excited to see this through. Immunology is - in our view is important, but is secondary to us at the moment in the context of hematological cancer that we are working on, continuing to develop our ideas in immunology rheumatoid arthritis et cetera, that continues. Theliatinib, we covered this in March. The encouraging activity in patients with high levels of EGFR, protein over expression in esophageal cancer. The update on this chart is box number three on page 49 where you can see esophageal cancer in China, you have got almost 500,000 new patients a year. So it's an enormous problem. Now there is a lot of work going on with immunotherapy agents against these patients population but we feel Theliatinib really has the potential to benefit these patients and we are working hard on that. Page 50, HMPL-689, so or the Australian phase I is complete in healthy volunteers. We've seen none of the toxicities associated with idelalisib or Zydelig, the Gilead PI3Kδ compound. No liver toxicity, no colitis. Granted it was only a single authentic dose, Phase I study in healthy volunteers but that gives us confidence on the PK, for 689 as well as initial safety. We intend to start Phase I in hematological cancer patients in China very soon. And I am really looking forward to getting data in these patients on 689. So then 453, our FGFR inhibitor now is under way in Phase I in Australia and China, and it's very early. I won't say any more than that but we are optimistic on 453, and we will let that data play out. So that's the high level on the innovation platform. Commercial platform, page 53 I am not going to go through it in a lot of detail, other than to say overall net income attributable to Chi-Med was up 14%. That's an indication of the strength of the product and the brand and the infrastructure and the organization we have in China. It wasn't easy in the first half. There were few things that went against us. The influenza season was quiet in China, some material popped in price during the first half. That put pressure on some of our OTC gross margin. And we took a price increase on our prescription drug business in late 2016. That led to the first quarter being pretty quiet and then the second quarter really bounced back on our prescription drug business, where we saw 15%, 20% growth compared to the year ago. So we did a few things, we moved the factory, 1,400 kilometers on our consumer health business which caused the disruption and capacity challenges. With all of this, we still manage to make a net profit increase of about 14% over last year. So it's a robust, resilient high quality business, our commercial platform. And with that on page 54, as we always talk the key strategic value of it being, an infrastructure that will allow us to launch our off the counter assets into China when we are ready. Moving on to upcoming milestones and cash and guidance, and then I'll open it up for questions. But on page 57 we really try to draw your attention to the most important things that are playing out over the next, call it six months, and they have got stars next to them. So on Savolitinib it's all about the presentation of the Phase II data in second line non-small cell lung cancer combination with Tagrisso and Savolitinib and the Phase II data of Savo in combination with Iressa. And then what will come from that is AstraZeneca's global strategy on Phase III in non-small cell lung cancer, as well as our approach towards breakthrough therapy designation. We are obviously very hopeful that the levels of response and durability of those responses will be sufficient to meet the criteria that we would expect for breakthrough therapy designation. This is a very difficult patient population, that is not served very well today by treatment options that we believe Salvotinib/Iressa is spectacular. So that should play out over the next six months and we really look forward to that. Fruquintinib, it's all about the approval knowledge, all about time to approval. We have seen fantastic support from the regulatory authorities in China, great transparency and support for the novel nature of fruquintinib, the high level of efficacy and safety in this very difficult to treat third line colorectal cancer patient population. So we have got great support and help from the regulatory authorities and we hope that, that will manifest itself in a gateway to fastest approval of a new drug from NDA to approval ever. Hopefully it sets a new benchmark but that's still to be determined and we will see how it plays out over the coming few months up to the end of the year. And then the last star on that list is 523. Starting to see efficacy data play out from the dose escalation study in hematological cancer. I mean obviously we are keen to assemble a very compelling data set to sort of prove the concept, doesn't necessary need to be a Phase 1b or Phase 2 or expansion or whatever. It's just about getting as many patients as we can and being able to present that data in as compelling a manner as possible. And we are obviously quite optimistic about that. So that's the major milestone. The rest of it is the start of multiple Phase IIIs and a lot of progress on a bunch of stuff. Page 58 and 59, 58 just shows the cash, $192 million, $80 million unutilized bank facilities, the JVs. And we have about $88.8 million in available cash in our joint ventures in the commercial side. And we will pay the dividend of over $40 million U.S. in the first half of this year from our China joint ventures. So they generate cash and that was primarily resulting from the property transaction we were paid last year. Finally the guidance on page 59, I mean no real change on this. The only question is it the land gain that we get from our Guangzhou property handing that back for compensation, is that going to come this year or next year. It's looking increasingly like next year but we haven't changed our overall guidance because everything - even if it gets pushed into next year we feel that everything else is going well enough that can make up for that. So that's it, in a high level. Maybe now it's 42 minutes, I'll open it up for any questions.

Good morning, congratulations on all the progress. So you had a couple of minutes to breathe now, Christian. So actually I have just one very high level question and then one very detail question. But so you are getting close to your first approval, and you have a sales force. Is that enough? Is this the same sales force? Do we expect any additional spend? Will these sales be kind of free from an SGA point of view? Just your thoughts there if there is an expense when we would start to see it? I don't think any of us have any experience on building a sales force in China. So whatever detail you can give us would be great?

Okay, well that one's relatively easy. I mean fruquintinib is going to be brought to market by Eli Lilly. We partnered with Lilly on these things. So we are working really closely with Eli Lilly on this at the moment and planning for the launch. I think that if we are able to see an approval around the end of this year, the actual launch itself would happen probably three or four months after approval. So maybe in the first half of next year. And Lilly has already tooled up its commercial team to launch fruiquintinib. Fruiquintinib is the first major drug launch that Lilly will have launched into China in the last 10 years. So it's a big deal for Lilly and I think, I feel very comfortable that the full resources of Eli Lilly China are being put again the launch of fruiquintinib. So for us, from a Chi-Med standpoint we don't have to build any infrastructure around this. Lilly does it all at their expense. We've built the infrastructure on manufacturing. So we will producing the drug and then Lilly will be bringing it to market. But the scale of the commercial team, it's a bit early to say but it will be several 100 dedicated reps that will be working on fruiquintinib.

Okay perfect. And then the second question is on theliatinib, you are treating more and more patients. Where is the - what's the rash situation, look like? Is that, looking a viable drug or just any thoughts you can give. I think most of us find it surprising it is as safe as it is?

I'll let Weiguo answer that question. He's right here.

Yes, thanks for the question Tom. So basically it's - we are seeing some rash but it's not - it's very similar to what we reported earlier, mostly grade one, grade 2, very tolerable and manageable rash. So it's quite surprising to us, as well with regard to level and severity of rash that we have - on that boxes we are seeing with Theliatinib to-date..

So this does look like a drug to you, it's in - within the tolerable window?

Yeah I feel pretty good. I am actually quite positive.

Okay, terrific, thanks a lot. Thanks again for all the details.

Thanks Tom.

The next question comes in from the line of Andrew Peters. Andrew, please go ahead.

Hi, thanks for taking my questions and congrats on all the progress. So two quick ones for me. So the first on Savolitinib. Do you have an internal cut off for what would be considered good enough to apply for breakthrough therapy status, as we await data later this year. And then with National drug reimbursement list updated earlier this month how does this impact your view of the commercial market in China, especially the potential for you. So other kind of targeted cancer drugs may be off-label and how does that impact both fruiquintinib and some of the other drugs that you are developing? Thank you.

Good question. Thanks Andrew. So what's our internal - and actually probably more appropriate what is AstraZeneca's internal benchmark for what would be considered an acceptable level of response to lead to breakthrough therapy dialogue with the regulators in the U.S.? I think the way we have always talked about this is the kind of the starting threshold is somewhere in the region of 40% response rate with a durable response. I think if you below that you are probably going to struggle to get traction around breakthrough therapy designation. I don't think it's impossible but that's the kind of the rule of thumb threshold that we have always looked at, and to some extent Astra has also. So I think that so for us we look at that and we probably - we presented in this presentation a very small patient population, sort of 60% odd, 80% odd, I mean obviously this is very small snapshot of what we will be presenting in - later in this year, but I think anything I will report to you would be - we certainly would be interested in about 40%, 45%, would be interested in a dialogue with the U.S. FDA on breakthrough therapy designation. On the national drug reimbursement list, this is really interesting development in China and actually it's one of many things that the government, the State Council and SFDA are doing to try to expand access to break the - it's a really innovative therapy for the people in China to sort of improve, speed, registration to get rid of the backlog of all the applications that have been submitted in China, getting - so weeding all the garbage submissions that have been made through the years and they have done a really job on this. Now the national drug reimbursement list, that just published about a week or two ago, a new list of 44 drugs, that innovative drugs that will not be reimbursed. Now what that list has actually laid down is that the new prices for 36 of the 44. So the regulatory authorities published a list of 44. Than they entered into negotiations with all of these manufacturers, to try to agree pricing that the manufacturer would come down to if the drugs were reimbursed. So they were able to agree with 36 out of the 44 drugs on that list, the manufacturers of 36 out of 44. And on average have price reductions that they agreed, were in the order of sort of between 30 and in some cases 60%. Now that seems very high relative to sort of the sort of the global pricing. That seems like a very large discount, but actually in China the practice has been to execute patient access programs that really improved the access to patients through either asking patients to pay through first two or three months than they get the drug for free thereafter, or many other ways of expanding access to patients. So while those 30% and 60% price reduction seems like big number, actually the real reduction, relative to what the practice is in China today is probably nowhere near that level of reduction. So that's the good thing, is that yes, on a high level the banner price reductions are high, but the reality is they are not that high. Now the other thing that doesn't really come across here, and is not known yet, is while these drugs are now on the national reimbursement list, what than happens is the provinces, is the 30 odd provinces that than actually have to reimburse the drug. So they are limited by budgetary constraints. And so for example Avastin in China, now it comes down as a charge in our back in the appendices that shows all the price reduction. So Avastin comes down from 5,000 a cycle down to 1,000, 2,000 a cycle, a big drop. But that doesn't mean that every patient in China is going to get access to Avastin. I mean there are financial limitations. So each province will have a budget of dollars available to support the reimbursement of Avastin and that would be limited. And so nobody yet knows how much reimbursement there will be and that I guess will only play out after the January 1 when this stuff all starts kicking in and we will get a sense of what the reimbursement really is. So how does that affect us? I think that in general, I don't think it makes that much of a difference. What it does for me though, is it gives me more confidence that we will be able to reach peak sales on our China business faster than previously estimated. Historically reaching peak sales in China would take a long time because you are basically just grinding away, trying to get province after province to reimburse you and support you. Whereas now, you are seeing drugs that has been launched a couple of years ago and going straight on to this reimbursement list, obviously depending on how much reimbursement that will actually be. But at least this is a step in the right direction. So I don't think there is any negative impact on our strategy. If anything it's going to accelerate the time to peak sales for our launches in China, and most importantly it's going to give patients in China access to more medicines, which is ultimately what the Chinese government is trying to do. I hope that answers your question.

It does. Thank you.

The next question comes in from the line of John Newman. John, please go ahead.

Hey good morning, Christian. Congrats on all the progress with very deep pipeline. I just have a couple questions. I wonder if you could talk to us just a bit more about what type of data we might see for the Savolitinib combinations later this year, if there any specific things that you will be highlighting or perhaps anything on the safety side that we should be watch for as we saw with fruiquitinib? Thanks.

Okay, well on the data, that will come in, call it October, yeah it's basically an expansion of what that snip is or snapshot of data that we show in this presentation. It's just going to be more and more detailed and more mature as well. I think the thing that is going to be quite exciting about it is that you are going to get data pretty much from every angle. You get the Savolitinib/Iressa, you going to get in the second line setting. You are going to get Savolitinib/Tagrisso, in the second line setting. And you are going to get really exciting Savolitinib/Tagrisso in the third line setting as well. With this, as I said this Harvard study and Massachusetts General as we are talking about 30% of Tagrisso resistance being MET driven. It's just - we, I think we will be presenting the most information ever presented in this patient population, MET driven resistance in non-small lung cancer. So I think it will be very illuminating data for anybody interested in this subject. Duration response, important also, because you can see with crizotinib, with Xalkori in MET driven non-small cell lung cancer, they published or presented some pretty interesting data at ASCO but you see that the responses are not durable, or you see - if you are going to get - if you are getting 10 responses in the first tumor assessment, maybe only 60%, 70% of them are durable and still in response in the second tumors assessment. So that's because Xalkori doesn't cover the target very well. And because of all the off-target toxicities et cetera. So I think that's what you're going to get out of this. You're going to get the full understanding across all settings, Iressa combo, Tagrisso combo, second line, third line setting, and you're going to get a sense of the safety. You have seen the initial dose finding study we published, presented that data previously and Tagrisso and Savolitinib together, there is nothing significant on the tox side that would concern us. And there is also the PRCC data showing very low levels of grade 3 and above AEs. Savolitinib's a very clean drug, it's great. So I just think all of that will be laid bare and I think that will be terrific for Savolitinib and the program in general.

Definitely looking forward to that. That's Christian.

Thanks John.

Our final question comes in from the line of Ying Huang. Please go ahead.

This is Cheng Xin [ph] from Bank of America Merrill Lynch. So just two questions. The first one is the talk about the Savolitinib data. I am just wondering, you talked about the durability like what kind of threshold that you think is compelling? And can we see some like OS data as well, and when we would see the top line data, and would they be present data at the World Lung conference. And secondly on the commercial side, you reported approximate $104 million in first half but you maintain your sales guidance for the year. Does that mean that the second half seems to be some decline and what is causing that? Thank you very much.

Okay, on the Savolitinib durability response, yeah we - you'll get a sense of it, I am sure from the October presentation on all of the Phase II data. It's - the data is maturing at the moment so it's difficult for me to comment on it, and obviously it will be premature for me to talk any details. But I think we will have a very good sense of durability. I mean I think you go to look at what would these patients otherwise be being exposed to and it would be basically chemotherapy in that setting. If they fail on Tagrisso, what's their alternative. It's in the third line setting, it's just chemo, and if they fail on Iressa and c-MET positive, T790M negative again it's chemo. So if you look, it's difficult, I am sure we will give - be able to give some context as to what would be the types of response and PFS and OS for those types of patients. We will come with that later, but I won't comment on it just now. But I think when we do present all of this information in October - and when I say in October you can probably just assume at what scientific conference that is. You are going to get as much information as you can. I doubt you get a lot on OS. These are Phase II studies that are not structured for OS. It's very much a response as well as PFS and durability response that we will be looking at. On the guidance, I think that what we tend not to do is change our guidance for a few million here or there. So really the only material change I would say would be either the property compensation Guangzhou's land would come next year as opposed to this year. I think that's relatively high probability of happening. It's not a 100% but it's relatively high that it would be pushed to next year. On the balance of the business, on the commercial business, actually our commercial business first half was commercial - net income profit on our commercial platform was up 14%. I think for the full year the guidance is $32 million to $34 million for the core business and we did 29.9 last year. So it's up maybe $8 million to $12 million or $8 million to $13 million is the guidance. So we are kind of on track for that. I think hopefully we will do better than the guidance. But no need to be. I think our view is that we don't change our guidance a million dollars here or there because it's all kind of irrelevant. What's important is that we have got enough cash to move our pipeline, our commercial business is moving here in sort of high single-digit to 15% sort of gross range. And so as long as everything sorts of fits in that framework it's all very much in control. I hope that answers your question.

Thank you.

Okay thanks.

Okay we have no further questions. So I shall hand it back over to you sir, for any concluding remarks.

Okay thanks very much, Courtney. No, I have no further comments. But thanks everybody for joining and if you have any further questions please feel free to reach out to the company. We will obviously be very happy to answer any further questions. So thanks for attending and look forward to seeing you all soon. Bye.

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