LONDON (ShareCast) - (ShareCast News) - Hutchison China MediTech's prescription drug joint-venture received $59.5m on Friday from the Shanghai government under its land compensation agreement.
The joint-venture with a subsidiary of Shanghai Pharmaceuticals, Shanghai Hutchison Pharmaceuticals, entered into a compensation agreement in December 2015, for the surrender of its remaining 35 year land-use rights on its 58,000 square meter old factory site.

Shanghai Hutchison Pharmaceuticals will gain $113.1m, and to date it has received $97.2m in cash, including a $31.1m first instalment received in December 2015, $6.6m in subsidies already in-hand and Friday's $59.5m second instalment at current exchange rates.

The final $15.9m is expected to be received by the end of 2016 or early 2017.

Hutchison China MediTech will book a one-off $38.2m gain from the compensation payment in the fourth quarter, which represents its share of the compensation less the $10.3m net book value of the old site and its buildings, as well as taxes and other costs.

After repayment of bank debt and taxes, about $80m of the compensation is expected to be distributed equally to Chi-Med and Shanghai Pharmaceuticals next year.

The site was re-zoned in 2014 from industrial use into a science and technology, commercial and residential development area, which prompted the joint venture to build a new $95m factory with increased production capacity, which opened in September.

Chief executive Christian Hogg said: "Under the Chi-Med Commercial Platform, our SHPL prescription drug business has grown sales over ten-fold during the past 10 years to $126.8m in the first half of 2016. The establishment of a new production facility in Shanghai, with expanded production capacity, is important to support this profitable and cash generative business.

"This cash flow, along with the cash provided by our partners AstraZeneca, Eli Lilly & Company and Nestlé Health Science, is what supports our core strategic objective of sustained investment in clinical development of Chi-Med's seven innovative small molecule drug candidates."

Hutchison China MediTech is currently enrolling patients in 25 clinical trials around the world, including four phase three studies the first of which, fruquintinib in third-line colorectal cancer, will report results in early 2017.

Shares in Hutchison were up 0.21 % to 1,879p to 1034 GMT.

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