This remarkable nine-bagger has further to go
For me, Hutchison China Meditech(LSE: HCM) will always be the one that got away. A stockbroker contact tipped this growth monster four or five years ago, and I hesitated, then saw its share price rise so rapidly I assumed I had missed the opportunity. I was wrong. It has continued to climb and climb.
This AIM-listed biopharmaceutical company, also known as Chi-Med, aims to become a global leader in targeted therapies for oncology and immunological diseases, and investors have bought into the story with the share price soaring an incredible 885% in the past five years alone. The runaway success story continues, with the shares up 56% in the last six months alone.
Today the company reported its unaudited financial results for the six months ended 30 June, and they look strong, if a little unexciting, as the share price is broadly flat this morning. Group revenue jumped 21% to a record $126.6m, up from $104.5m in the first half of 2016. Chi-Med generated consolidated revenues of $22.7m, only slightly up on last year's $22.3m, aided by milestone payments of $4.5m from Lilly, $5m from AstraZeneca, and service fee payments from Lilly, AstraZeneca and Nutrition Science Partners, the firm's 50/50 joint venture with Nestlé Health Science.
Profit and loss
The group also incurs major research and development expenses as it pursues 31 active or completing clinical trials, which totalled $31.6m in the first half, up slightly from $31.2m. Chi-Med group operating profit was $6.3m, up 18.87% on $5.3m in 2016. The group boasts a solid cash position, with available resources of $192.5m on 30 June, up from $173.7m on 31 December. Chi-Med received first-half dividends from its non-consolidated joint ventures of $42.6m, up from $15.9m in 2016.
As these results show, Hutchison China Meditech is all about the future. It has posted a pre-tax loss for each of the past three years (2014: $5m, 2015: $10.54m, 2016: $47.36m) and City analysts predict it will lose $39.92m in full-year 2017 and $35.14m in 2018. What matters is the quality of its drugs pipeline, which will drive company profitability in the longer run. Today's results include a dizzying list of drug applications, registration studies, pivotal Phase III studies, clinical drug candidates, drug evaluations and proof-of-concept data.
The drugs may work
Obviously, investors are in no position to work out whether these will be a success and as we saw last week with FTSE 100 pharmo behemoth AstraZeneca, unexpected setbacks can punish the share price. However, Hutchison China Meditech has had its share of successes, and the pipeline is strong.
Progress may be erratic. In 2016, the company posted full-year revenues of $216.8m, almost 10 times the $22.37m it reported five years earlier. However, forecasters reckon the revenues could dip to $181.56m in 2017, before recovering to a new company record $225.69m in 2018. However, this suggests it could struggle to repeat recent breakneck rates of growth.
Despite its recent successes, it remains relatively high risk. But the potential rewards are high as well, as investors who were wiser than me and got in early will happily testify.
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Harvey Jones 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.