HUTCHMED (China) Limited (HCM) Earnings Call Transcript & Summary

Okay. Good afternoon, everyone. I'm David Li from JPMorgan Equity Research. Now it's my pleasure to introduce Mr. Hogg, the CEO of Hutchison China MediTech. Thank you.

Thank you, David. Okay. So we've got 25 minutes. I'm going to take everybody through a brief summary of our business and the current status and the outlook for the year. So on a high level, what is Hutchison China MediTech trying to achieve? We're obviously a China-based biotech that is endeavoring to become a global biotech. We have developed -- discovered and developed a range of small molecule targeted therapies, all of which have been designed for the global market. But obviously, with our location in China, and that being our home market, our first step is to maximize the potential in China. But we are very much focused on becoming a global based -- a global science-focused biotech based in China. So looking at our operations, it sort of breaks down into 3 areas. What are we doing on a global level ex China? We have 5 small molecule targeted therapies in clinical development outside of China. One of them is in partnership with AstraZeneca, 4 of them we're developing independently on our own. We have, obviously, a very large discovery organization. All of our programs have been discovered in-house. Our home base is China. So you can obviously -- most people here would understand the reforms that are happening in China at the moment in the pharmaceutical industry and we're very well positioned to benefit from that. Last year, we were one of the first companies, if not the first company to bring an innovative oncology drug from discovery all the way through to unconditional approval and launch, and that was fruquintinib. This year, we have our second drug, surufatinib that should reach approval and launch. And we will also have our third drug savolitinib, NDA being submitted in the next couple of months, but I'll talk more about that later. The third aspect of our business is a profitable China commercial business that's helped fund our research and development over the last many years. And it generates around USD 40 million after-tax every year and help us fund the commercial business -- the research. So the organization is large. I think one of the biggest points of differentiation with China is we've been operating for 20 years. So our organization is very well established. Our development platform is very well established. Our commercial organization now is very large. We run a commercial team that -- of over 3,000 salespeople across China. So on the 1 side, we have a deep innovation platform. On the other side, 20 years of experience running commercial operations in China which puts us in a great position with regards to our oncology launches in China that are coming up. But our management team has been in place for many years with a lot of continuity. Our portfolio, just on a high level, and I'll go into more details with the presentation as we go through it, but we break it down into 4 segments: the marketed products, which is fruquintinib, Elunate and then some of the legacy commercial products that we have. Registration studies. We have 6 registration studies that are underway at the moment. The red boxes here are global studies, the blue boxes are China studies. The boxes with an arrow on them show that they're moving to the next stage. So if we look at the column here for registration studies, you can see 2 yellow arrows, 1 of them is savolitinib, our c-MET inhibitor and MET Exon 14 deletion non-small cell lung cancer, that Phase II registration study is now complete and we're now moving into the NDA being submitted shortly. And the second yellow arrow is surufatinib in neuro -- extrapancreatic neuroendocrine tumors. This is a Phase III that read out last year. We submitted the NDA in China in October, we were granted priority review in November, and we expect approval on that program in neuroendocrine tumors later this year. And launch, I'll talk more about that later. On the proof-of-concept side, you see many yellow arrows moving into registration. So you've got a whole wave of programs that are moving now into registration studies. On a global level, that's kidney cancer for savolitinib, it's MET Exon 14 deletion globally for savolitinib. You've got fruquintinib in colorectal cancer, moving into a global Phase III. You've got surufatinib in neuroendocrine tumors moving into a global Phase III. Then in the blue boxes here, you can see savolitinib plus Iressa moving into a China Phase III or registration study. And then the last 2 arrows on the proof-of-concept column there is our Syk inhibitor and our PI3K-delta inhibitor that are both intended to move into registration studies this year. So a very large amount of proof-of-concept programs that are moving into registration now during 2020. And then the final column on the far left-hand side covers the dose-finding studies that we have underway, mostly for our PD-1 VEGFR combination. So we've partnered with Innovent. We've partnered with Junshi. We've partnered with Genor biosciences in China to take their PD-1s and combine them with our VEGFR inhibitors in a multitude of solid tumor settings now. As far as the upcoming events for the year, I'll just briefly touch on it. The ones with the stars, very difficult for you to all read this, but all these presentations are on our website if you want to get it in more detail. The 5 -- 4 or 5 stars that are on that chart for this year, you've got savolitinib, Tagrisso, an interim readout in the registration study will come midway through the year. You've got data at ASCO on savolitinib also in kidney cancer and papillary renal cell carcinoma. So we will -- in both of those cases, we are quite optimistic about the prospects for completing registration studies and submitting. In China, you can see savolitinib Exon 14 NDA submission, surufatinib in extrapancreatic NET approval. And then down at the bottom, just recently, we received approval to put fruquintinib or Elunate on to the national reimbursement drug list in China. So we think that will lead to ramp-up in sales of our business on fruquintinib this year. So very high level, savolitinib, the c-MET inhibitor, it's really quite far ahead in many cases as far as c-MET inhibitors around the world. We've tested savolitinib now in over 1,000 patients in many different solid tumor settings. We've been in partnership with Astra on this for -- AstraZeneca for over 8 years now. And I think savolitinib is one of -- is probably the most advanced c-MET inhibitor globally in the small molecule space. Fruquintinib, VEGFR inhibitor, highly selective with a great safety profile, obviously, positive data in colorectal cancer and expanding rapidly. We've been -- tested fruquintinib in almost 1,700 patients to this point. Surufatinib in neuroendocrine tumors, 800 patients have been treated on surufatinib through the years in -- primarily in neuroendocrine tumors and biliary tract cancer. And then 523 and 689, our Syk inhibitor and PI3K-delta both in proof of concept, both moving quite rapidly towards registration studies. These are just 5 of the 9 assets that we have either in or about to start clinical trials. Scientifically, our team, led by Dr. Wei-Guo Su has been very focused for many years designing highly selective small molecule targeted therapies with the intention ultimately to use them in combinations either with large molecules or with other small molecules to address the resistance pathways that emerge in oncology and in cancer. So first example is the Tagrisso combination in EGFR inhibitors, EGFR mutation-positive non-small cell lung cancer. And then the second being the B-cell signaling pathway in hematological malignancies, where our Syk inhibitor and PI3K-delta are perfect combinations for Rituxan or for the BTK inhibitor. So we're working in those areas in great detail. Combinations with the PD-1s is another area where we're doing a lot of work. Again, our VEGFR inhibitors are very well positioned to be combined with the PD-1s. You can see the synergistic effect of combinations of VEGFR inhibitors and PD-1s and you can really see a significant increase in efficacy. And because of the clean safety profiles of surufatinib and fruquintinib or VEGFR inhibitors, they're really perfectly positioned to be combined with the PD-1. So we have partnerships, as I said, with the Junshi, with Innovent and are looking into combinations with -- of Imfinzi with savolitinib, AstraZeneca's PD-L1. So on a high level, that's what we do. We design highly selective small molecule targeted therapies that are perfect combination partners with other small molecules, large molecules, immunotherapies or other targeted therapies, and we're developing many of them. What's next from our discovery organization? The -- historically, we've been in the small molecule space. Increasingly, we're doing both now large molecule and small molecule. The team has a number of large molecule innovations that have been developed over the last few years. And we are now looking to get into the large molecule space. A number of exciting targets that we will be bringing into the clinic over the next year or 2. You can expect 1 to 2 novel drug candidates a year to come out of our discovery organization of now close to 300 people. So looking at savolitinib in a bit more detail. Again, this is a pretty small screen. So it's probably quite hard to see it. But you can see the colored areas, the -- in the various lines of treatment for non-small cell lung cancer. In the first-line setting, c-MET is about 6% of patients. That area is c-MET gene amplification and MET Exon 14 deletion. That's the area, the red area in the first-line pie chart, where we will be submitting the NDA in 2 or 3 months for savolitinib. The second and third line settings, c-MET becomes much more prevalent. It's a resistance pathway to VEGFR inhibitors. And actually, the biggest area of MET presence is post Tagrisso. So this is why AstraZeneca partnered with Chi-Med, is as Tagrisso's obviously done very well, this year, we'll do over $3 billion in sales likely to probably be $4 billion or $5 billion drug. When patients fail on Tagrisso, 30% of them are c-MET positive or c-MET gene amplified. So this is why the savolitinib Tagrisso combination is so relevant. Looking at the first pie chart, the MET Exon 14 deletion non-small cell lung cancer. We've now completed a Phase II registration study, 70 patients. We've published data on it. This is some of that data. You can see it's obviously got brain penetration, which is very important in non-small cell lung cancer. We expect to submit the NDA in March or April of this year. The response rates that we've presented at various scientific conferences are roughly 50% response rates in these very difficult patients. So we're hoping for accelerated approval here based on that study. And as I said, the NDA will be going in shortly. That will hopefully lead to a launch of savolitinib in China very early next year. On the EGFR mutation-positive patients that are TKI refractory, so failing on Iressa, failing on Tagrisso. You can see the TATTON B and TATTON D studies, this is roughly 180 patient Phase II study that was completed last year showing outstanding efficacy. So in Tagrisso failure patients, you're seeing about a 30% response rate and a PFS of around 5 months, although that is the pink area, these are very sick patients. These are patients that have been on many lines of treatment. So this is outstanding efficacy for those very late-stage and non-small cell lung cancer patients who failed on multiple targeted therapies. The orange area, these are slightly earlier stage patients in the second-line setting, generally, where you see 65% response and 9-month medium PFS, so very exciting data. And that's led to our global registration studies. So the SAVANNAH study in Tagrisso failure patients is enrolling in 14 countries around the world. It's been enrolling for about 12 months already. We have an interim analysis planned for Q2 of this year, probably late Q2 this year, in which we're hopeful that the data will be adequately strong to engage with regulators and to talk about potential breakthrough therapy designation and accelerated approval. But this year, that SAVANNAH study will play out and it will complete enrollment by the end of this year. So I think this is probably the single largest individual or single component of value within the Chi-Med portfolio. Kidney cancer is also another area that we spend a lot of time developing savolitinib. We'll present data at ASCO this year in papillary renal cell carcinoma, where there's high levels of c-MET gene amplification. And I think that over the next couple of months, the registration pathway and late development plan will become very clear to everybody. So we'll take a big step forward, I think, in kidney cancer this year on savolitinib. Looking at surufatinib, just sort of from a pictorial standpoint. What surufatinib is, it's a VEGFR inhibitor with CSF-1R activity and FGFR1 activity. So essentially, you're cutting off the blood flow to the tumor and also down regulating the production of tumor-associated macrophages. So you're allowing the T-cells to get in and kill those cancer cells. So on surufatinib, we've had 2 big Phase IIIs that have been run. SANET-ep, that has led to the submission of the NDA last year. And then SANET-p, which is in pancreatic neuroendocrine tumors, were set for a very late-stage interim analysis very soon. So we would hope that we would also, if successful, be able to terminate that study and submit the NDA in pancreatic NET. But for extrapancreatic, which is the larger group of patients, you can see NDA was accepted in Q4 '19, and the launch in China will be around 2020 -- late 2020. During this year, we are building out our commercial organization in China. By midyear, we'll be at about 350 medical reps on the ground ready to launch surufatinib. So that's a big commercial team getting ready to launch surufatinib. Big patient population in NET, an incidence of about 60,000, 70,000 patients a year. A prevalence of, at a minimum, 300,000 patients in China and very few treatment options in China. So we think surufatinib has a great opportunity to provide benefit to these patients. This chart, way too complicated for you to see from back there, but what it shows is, in the field of neuroendocrine tumors, the treatments are fairly sporadic. There's a lot of white spaces, but surufatinib treats all neuroendocrine tumors across all organ types. At least the SANET-ep study has supported that. Aside from pancreatic NET, the sole white space there on the surufatinib column. And that Phase III in pancreatic NET is soon to read out. So our hope is that all neuroendocrine tumors across all types and whether they're functional, nonfunctional will be treated with surufatinib. So surufatinib, multiple studies underway. Life cycle indications are big, Phase III -- Phase II/III in biliary tract cancer, PD-1 combos with Innovent, who's our commercial partner in China on fruquintinib, chose to launch at a high price. We -- just last November, so 2 months ago, we're agreed a discount to get on the National Reimbursement List. So now we're on the reimbursement list. So while 2018 fruquintinib was much higher-priced than the key competitor, regorafenib that held us back, now we're actually -- our price is significantly lower than regorafenib. And in terms of efficacy, regorafenib efficacy is inferior to fruquintinib and safety is vastly inferior to fruquintinib. So now we find ourselves in a situation having been put on the reimbursement list, having a price that is 50% lower than our key competitor in third-line colorectal cancer, having superiority in efficacy and vast superiority in safety relative to regorafenib. So I think this year, you're going to see fruquintinib take off. As far as the broader portfolio of clinical activities we have underway for fruquintinib, you can see that we have a big Phase III in gastric cancer, second-line gastric cancer. So that's fruquintinib in combination with paclitaxel. The intention there would be to get into the treatment paradigm ahead of monotherapy VEGFR inhibitors, which are currently used in the third-line setting. So that study will reach an interim analysis midyear and complete enrollment. It's about a 540 patient study, which will complete enrollment late this year. So that's probably the biggest indication for fruquintinib. Then we have PD-1 combos with Innovent and Genor. Our Phase II studies will start shortly and they will be multiple indications that we'll be looking into. We've presented data with fruquintinib plus Iressa in fist line non-small cell lung cancer recently. It was very positive. Over 70% response rate and PFS in the region of 15 months are very strong, so we're looking at continuing development in that potentially. And then FDA, down at the bottom, fruquintinib now moves into global development in the U.S. and Europe this year for a Phase III basis. So cash and guidance, roughly $380 million in cash. We're burning about -- last year in 2019, we burned about a little bit around USD 100 million. Our commercial business is generating cash. So our R&D spend was somewhere in the region of $130 million to $170 million, that's going to increase in 2020 because we're obviously starting 2 big global Phase IIIs and expanding our pipeline. But we, from a cash standpoint, are in a very good position. So in summary, I think 2020 is going to be a really breakout year for Chi-Med. We've been operating, as I said, for 20 years. And certainly, for the last 5 or 6 years, we've been building out the organizational and operational foundations for a really large step change in the scale of our operation and the scope of our operation. And I think the 3 or 4 or 5 areas that will really drive this breakout year for Chi-Med are laid out on this chart. The first one being the surufatinib launch, our first unpartnered oncology drug launch in China. And we're not going to go half measures on this. We're going to go extremely hard and extremely fast. And coming out and launching with a team of 350 people on the ground is going to be very important for us. I think we'll do extremely well and leverage our 20 years of commercial experience in China. I think as I've just mentioned, savolitinib is due for a real breakout year. The NDA submission in China in March, April is going to be critical. That will be the first selective c-MET inhibitor globally submitted for an NDA, let alone for China. So that first submission is very important. The Tagrisso savolitinib combo is going to play out this year with the interim analysis and the completion of that global registration study and kidney cancer for those 8% of patients with MET driven kidney cancer, papillary renal cell carcinoma, this is going to be a big year for those patients. Elunate or fruquintinib, the NRDL inclusion, leading to a better drug with better safety and a lower price, I think, is going to leave fruquintinib or see fruquintinib expand dramatically. The fourth point there is the clinical regulatory team that we've built up now in the Florham Park, New Jersey. It's over 30 people ready to run big Phase III studies on fruquintinib and surufatinib in the Europe and -- in Europe and the U.S. as well as early development on some of our other assets. So that team just gives us that flexibility to really accelerate our programs out into the global market. And then M&A, as I said earlier on, we want to get into the large molecule space. So our small molecule expertise is very strong. The discovery work that we've been doing over the last 5 years in large molecules has now reaped some very interesting programs that we want to bring into the clinic. And so I think we will enter into the large molecule space, probably through acquisition. And then the last point here is on the commercial side, we have various noncore assets that we can sell off and raise nondilutive financing. So that's Chi-Med, Hutchison China MediTech. It's been 20 years in the making, and we're set for a very big year this year. So thanks very much for your attention, and see you next year.