Drug research and development business

Hutchison MediPharma is dedicated to transforming scientific discoveries into innovative therapies for cancer and auto-immune diseases.

We believe that Hutchison MediPharma is now generally accepted as one of the leaders in China's Pharmaceutical drug discovery arena. Our strategy continues to be for Hutchison MediPharma to build strategic alliances with multi-national pharmaceutical groups; identify global partners with which to co-develop our lead drug candidates; and advance our in-house preclinical programs into clinical proof-of-concept ("POC") studies taking advantage of China's low cost research and development structure and vast patient population.

Hutchison MediPharma Limited (“HMPL”) more than doubled its revenues to $4.8 million in 2009, reflecting increased research and milestone payments from HMPL's collaborations with Eli Lilly and J&J.

It also substantially cut its operating loss from $15.4 million in 2008 to $9.9 million in 2009, reflecting both revenue growth as well as the capitalisation of expenses incurred in the development of our lead drug candidate, HMPL-004. We expect HMPL's operating performance to continue to improve in 2010.

Through its preclinical and clinical successes, we believe that HMPL has developed to be one of the leading drug discovery and development operations in China. In 2009, its lead drug candidate, HMPL-004, returned both encouraging Phase II results for Crohn's disease as well as break-through Phase IIb results for UC in which all primary and secondary end points were met. HMPL is now in a position to out-license HMPL-004 to a global partner for continued Phase III development and commercialisation.

Three novel, small molecule drugs emerged from pre-clinical during 2009. HMPL-011 is a first-in-class drug for inflammation, that was approved to enter Phase I trials in Australia. HMPL-012 and HMPL-013 are two angiogenesis inhibiting oncology drugs which are currently under IND review by the China State Food and Drug Administration (“SFDA”). The two latter projects open up what we consider to be a major opportunity as they represent the first “home grown” oncology drug candidates developed in China by a Chinese company. As such, they are attracting significant attention and support from the SFDA. The cancer treatment market in China is believed likely to become the largest in the world over the next twenty years. HMPL-012 and HMPL-013 represent the first steps on a pathway for HMPL to evolve from being a drug discovery and development company into a fully integrated China pharmaceutical company and eventually, we hope, one of China's leading cancer treatment companies.

HMPL has also continued to build its strategic partnerships, which balance financial risk in discovery and development stages, to generate increasing third-party income and augment our in-house know-how. During 2009, we progressed multiple “co-ownership” drug candidates through the research and pre-clinical stages under the collaborations with Eli Lilly and J&J.

It is focused on the following portfolio of products and technology platforms:

• HMPL-004, for the treatment of inflammatory bowel disease (IBD), is an orally available botanical product that acts on multiple targets in the pathogenesis of inflammation. HMPL-004 completed phase II clinical trials in 2009. It demonstrated positive results in a Phase II proof-of-concept in UC patients in China, it completed a US/European Phase II trial for the treatment of Crohn's Disease ("CD") that showed an encouraging trend of efficacy and demonstrated an excellent safety profile, and completed a US/European Phase IIb trial for Ulcerative Colitis ("UC") that clearly succeeded in meeting all its endpoints including its primary efficacy endpoints of clinical reponse with a decrease in rectal bleeding.
• A pipeline of discovery projects in the auto-immune/inflammatory diseases and oncology therapeutic areas which have shown activity against both novel and clinically validated targets.
• A number of technology platforms including molecular and cell biology, high throughput screening, genomics and informatics, to enable and support drug research and development projects.
• A number of patents and patent applications globally to protect existing preclinical and clinical candidates against potential generic competition.

The Directors believe that Hutchison MediPharma's competitive advantages lie in the following areas:

• An experienced research and development team, many of whom are Western-trained, with a track record of success and expertise in Western and Chinese pharmaceutical development providing the basis for innovative and high quality research.
• A sustainable tripartite discovery chemistry strategy (based on new botanical drugs, semi-synthetic natural product drugs and synthetic single chemical entity drugs) aimed at creating a diversified portfolio.
• The ability to carry out faster and lower cost pre-clinical and human proof of concept studies in China thereby reducing the risk of failure in subsequent US trials.
• The ability to leverage HWL's presence in China to negotiate collaborations and obtain in-licensing opportunities, thereby providing access to external drug candidates and proprietary technologies and data, including unique botanical composition samples.

A clear element of HMPL's strategy is to seek strategic partnerships to help further enhance our discovery and development pipelines and to mitigate risks and capture upside potential, as well as to form the basis for potential major long-term value creation through milestones and royalties on successful projects. In 2009, HMPL generated income of $4.8 million (2008: $2.3m) from these partnerships, which helped reduce the cash burn on the overall HMPL businesses.

http://www.hmplglobal.com