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

Hello everyone. Welcome to the final day of the 2020 Bank of America Health Care Conference. My name is Alec Stranahan, and I'm an analyst on the biopharma team at Bank of America, along with Geoff Meacham, who is also on the line. This session with Chi-Med will last approximately 30 minutes and will include prepared remarks and slides by the company, followed by some brief Q&A. If you are accessing the event through the Veracast platform, you will have the option to submit questions at any time throughout the session. Your questions will be kept anonymous. And with that, it's my pleasure to introduce Christian Hogg, CEO of Hutchison China MediTech or Chi-Med. Christian, I'll turn it over to you, and then we can jump into questions with Geoff and I after.

I will give a brief maybe 10-, 15-minute status update on Chi-Med [Audio Gap] So Page #3 is our global strategy. I mean I think one of the big points of differentiation of Chi-Med versus many of the China biotechs today is that we are very much focused on the global market. So we have spent the last 20 years building the business, last 15 years heavily investing in oncology, research and development. We have now 8 clinical drug candidates. Well, actually, we have 9, almost our IDH 1/2 dual inhibitor is about to start in Phase I. So all of those have been in-house developed and -- or discovered and developed assets. I think it goes -- it's fairly broadly the consensus that Chi-Med has the deepest discovery organization in oncology in China, having produced all of those 9 assets ourselves. But all of those assets have been designed for the global market. We don't sit in China designing oncology drugs for the China market. We are very much trying to become the first or one of the first global biopharmaceutical companies to be based in China, but to be bringing innovations to the global market. So on Page 3, you can see we have an R&D organization that's now actually up to well over 500 people in Shanghai primarily. But also, we've built a terrific clinical regulatory team over in New Jersey now that is managing 5 of our unpartnered assets in the clinic, 2 late-stage programs and 3 early stage. So very broad global view and big footprint. The second area of our focus is China oncology. There's been a lot of regulatory changes in China over the last 5, 8 years. The reforms have been fantastic. They've opened up the market in China. There's an enormous unmet medical need in China in oncology, and we are in a very strong position. We became the first Chinese biotech company to bring a homegrown oncology drug from discovery all the way through to unconditional approval and launch. That was fruquintinib in late 2018. We submitted our NDA on our second drug, surufatinib, for neuroendocrine tumors last November, and that's now moving through towards approval, hopefully, late this year. And our third drug, savolitinib, our selective c-MET inhibitor, we are in very close proximity to our NDA in MET Exon 14 deletion being accepted in China. So our first 3 assets have all made it through development to NDA submission, and I think we're probably the only company that can say that they've done that on 3 novel drugs discovered in China. Commercial organization. We've spent the last 20 years also building up an enormous commercial footprint in China. We have well over 3,000 salespeople in China. A number of mature products that we -- prescription drugs that we sell in China, and we're very familiar with the hospital system in China. We -- our commercial team covers over 25,000 hospitals in China and details drugs to over 80,000 physicians. So it's a big organization. We are in the midst of building out our oncology commercial team to launch surufatinib late this year. By the middle of this year, we'll have 350 people on the ground in readiness for that launch in China. So that's a very big focus for us this year. If you move on to Page 4, I think you can see it's just a summary of the organization. It's a very big group, well established. When you build up over 20 years, you tend to find people who stick with the company and who commit to the company. And as we look through the management team, most of those people have been in senior management team, of those sort of 14, 15 people listed there have been with the company for over a decade. As we've expanded into new areas like North America, we've hired in some really capable new people, but it's a terrific organization. Page 5 is the pipeline chart. I obviously don't have enough time to go through it in detail today, but you can see on the far right-hand side of that pipeline chart, surufatinib, NDA filed; fruquintinib, already launched. Looking at the registration intent studies, you start to see more red blocks, which are global registration studies, so savolitinib, fruquintinib and surufatinib all either in or about to start global registration studies. Then you see below that, the blue boxes, which are China studies, MET Exon 14, NDA about to be accepted in China. And then surufatinib in pancreatic NET, a positive Phase III readout in January just before COVID, and we're preparing the NDA for that. That will be our fourth NDA in China. So very active on the registration intent studies. And actually, if you go back one step further to the proof-of-concept studies we show you there, you see savolitinib Exon 14 non-small cell lung cancer. That's the global strategy for savolitinib. That will be moving into registration intent studies this year. And then beneath that, you can see kidney cancer. We just presented some -- or published an abstract yesterday on the savolitinib in the papillary renal cell carcinoma. Some extremely exciting data for us, and that also will lead to restarting global registration development in kidney cancer. So we have a very large portfolio of activities moving globally as well as in China. At the bottom of the proof-of-concept column, you can see HMPL-523 and 689. These are our hematological malignancy assets. We're hoping that we can at least bring one of those assets into registration studies late this year. We have a big data set across multiple indolent non-Hodgkin's lymphoma patient subgroups, and we're really identifying the patient populations that benefit from those 2 highly selective small molecules, one a Syk inhibitor, one a PI3K delta. One step further back, you see all the PD-1 combinations with our VEGFR inhibitors. So we partnered with Innovent, with Junshi, with another company in China called Genor. We have further PD-1 combinations -- collaborations that are on the horizon. Our VEGFR inhibitors are just very well suited for combinations with PD-1s, and we're starting to see some great data. We presented some data from surufatinib Tuoyi, the Junshi PD-1. That combination, we presented it at AACR about a month or so ago. Just really spectacular efficacy in some very difficult patient populations for that combination. I think the synergies between our VEGFR inhibitors and PD-1s are really meaningful. So that data, I think, will build and build over time. So moving on to the next page, savolitinib. Page #6. Really approaching it in, as we do with most of our assets in 2 key areas, firstly, looking for the fast monotherapy approval. You can see there on that Page 2 boxes in the monotherapy arrow. In blue, it's Exon 14. That will be the first NDA in China. Actually, the first global NDA, but it will be the first, hopefully, approval of savolitinib worldwide. We're working closely with AstraZeneca right now to prepare for that launch. AstraZeneca's capability in China is just remarkable in the lung cancer field. And we also are working on the global plan for Exon 14, but probably the fastest path to monotherapy approval for savolitinib globally will be papillary renal cell carcinoma. So that is the data that we present later this month at ASCO and the abstract yesterday. Where you saw relative to Sutent in MET positive PRCC patients really significant overall survival benefit in a relatively small patient, only 60 patients, but you had a hazard ratio of 0.51. So very profound efficacy for savolitinib. Then the combinations, PD-L1 combo with Imfinzi and savolitinib in kidney cancer and exploring other indications potentially. And then the biggest value driver on Chi-Med is the Tagrisso savolitinib combination. We are moving really rapidly now with the savolitinib Tagrisso combo. It's in the SAVANNAH study, which is a global Phase II registration intent study, expecting an interim analysis midyear. And hopefully, that will then lead to regulatory dialogue and expanding and accelerating development further. So we're very excited about that. Page #7. I won't go through it in a lot of detail, but this is obviously where MET shows up in the non-small cell, EGFR mutation-positive non-small cell lung cancer treatment algorithm. I think the biggest area of interest is in post-Tagrisso patients, where you're seeing a minimum of 30% of patients with MET-driven disease. So as Tagrisso gets approved in the adjuvant setting, approved in the first-line, approved in second-line setting, start to see Tagrisso being believed to eventually get to $6 billion to $8 billion in peak sales. 30% plus of those patients are going to need savolitinib. So this is why we're working so hard with Astra on this. Page 8 just shows some of the profound efficacy of that combination. I won't go through it in detail. Page 9, you can see surufatinib. Again, going back to the strategy of rapid monotherapy approval followed by combination activities. So on the monotherapy side, we expect to launch in neuroendocrine tumors this year in China. We presented that data, profound PFS advantage in extrapancreatic NET. So this is a patient population that has very relatively large amounts of unmet medical need. The global registration approach for neuroendocrine tumors is very interesting. We have a pre-NDA meeting with the U.S. FDA later this month to discuss the fastest approach for savolitinib -- or what will be the approach for registration of surufatinib, sorry, in neuroendocrine tumors in the United States. So when we when we come out of that meeting, we will have a better understanding. We believe that the data set that we already have should be sufficient for an NDA submission. We have 2 very large Phase III studies in China. We have compelling Phase Ib/II data in the United States showing efficacy very similar to that in China. We've got a standard of care in the United States that is very similar to the standard of care for NET patients in China. We have real-world studies that show that. And on top of that, we have pharmacokinetic, pharmacodynamic profile of surufatinib in Asian patients versus Caucasian patients or Western patients that show almost identical drug exposure. So we feel we have a strong case, but it cannot be guaranteed. And best case is we can use the China data for an NDA submission. I'd say, maybe base case or worst case is there'll be further clinical studies, but we feel we have a strong case there, but we'll have to wait and see. We'll have to wait and see. Biliary tract cancer, we have a Phase II/III study underway. On the combination opportunities, a lot of PD-1 combo work going on with surufatinib. So moving on to Page 10. You can see that the SANET-ep study was profound efficacy, 9.2 months median PFS versus placebo of 3.8. Very rapid growth in the diagnosis of NET, and China with 300,000-plus NET patients. So it's a big patient population. Page 11 shows the scale of our buildup of our commercial organization for the launch of surufatinib in China. 350 commercial people on the ground by the middle of this year. Page 12 and 13, I'll briefly go through fruquintinib. Fruquintinib, obviously, colorectal cancer has been approved in China and has been launched. Eli Lilly is the commercial agent in China. We're working closely with Lilly to accelerate the growth of fruquintinib in China. We were recently included on the national reimbursement drug list in China. So that's starting to see things move more rapidly in China. We also now are starting a global registration study in colorectal cancer in the middle of this year, probably June, July in the U.S., Europe and Japan. Our clinical regulatory team in the U.S. are managing that. And combination opportunities, combos with PD-1s, moving rapidly with multiple partners and chemotherapy combos. So fruquintinib in combination with paclitaxel in second-line gastric. So that's moving towards an interim on our Phase III next month. We expect to complete enrollment in that Phase III in gastric cancer this year. That's a big patient population, probably 4 to 5x the size of the third-line colorectal cancer patient population. So we're running short of time. I won't -- Page 13 just briefly talks about fruquintinib launch. Before we were on the reimbursement list, we got about 5% penetration in the market. The reduction of price out of pocket to patients starting January 1 was enormous. So because of being on the reimbursement list, patients are now paying 1/6 of what they were paying last year. So it's a very attractive opportunity now for patients in China. Page 14 just shows the quality and selectivity of fruquintinib. Very clean drug. Low -- no off-target toxicity. And obviously, the main competitor in third-line colorectal is Stivarga from Bayer with a black box warning for liver tox. So we're in good position there. Page 15, cash. So Chi-Med, we're sitting on about a little bit over $300 million in cash, another $120 million in unused banking facilities and a burn this year of between $140 million to $160 million. So we've got plenty of cash at the moment. One of the reasons we're able to limit our burn is because our commercial business is so profitable, last year making around $47 million after tax. So that was cash coming from our partners, is very helpful. Page 16 shows the 2020 target. So surufatinib launch, building out the commercial team; savo, the submission of the NDA in China; Exon 14, the interim analysis on the Tagrisso combo study, SAVANNAH and the presentation and the strategy on papillary renal cell carcinoma; Elunate is about -- fruquintinib is about getting on the reimbursement list and establishing ourselves as best-in-class VEGFR TKI in China; and then in the U.S., Europe and Japan, it's about continuing to build out our development infrastructure, start those global Phase III studies and move our hematological malignancy assets through early development. On the M&A side, we're looking at large molecule programs. We've got a lot in the discovery side on the large molecule side, and we're working to consider partnerships there. And then also considering divesting some noncore assets, such as our legacy OTC business, which has been very profitable for us over the last few years, but it's not really where the company is going with more of a focus on the oncology side and prescription drug side. So I'll leave that there and maybe open it up to any questions.

Thanks, Christian. From your presentation, I think it's clear that Chi-Med is at a bit of a turning point in its roughly 20-year history with 3 internally developed cancer drugs potentially approved in China by the end of 2021. But maybe for those who may be new to your story, how would you say Chi-Med is differentiated from other Chinese biotechs like Innovent, BeiGene, Zai Lab and others in terms of your innovation platform?

Yes, thanks. I think actually, BeiGene and Chi-Med sort of have been established the longest. I think we both have a global view and are being -- investing pretty significantly and moving our assets both inside China and outside China. I think a lot of the other China biotechs these days are focused on the China market, and that is a big market. So licensing assets -- like Zai Lab is a good company and capable people. But licensing assets from biotech outside of China, bringing them into the China market, it benefits patients, and that's all good, but it's a slightly different approach than we're taking. We are -- we have built out and sustained a large discovery organization in China for the last 15 years, and the depth of portfolio we have is all self-created, and it's all designed for the global market. So we are, I'd say, more globally focused at this stage than pretty much all of the China biotechs other than BeiGene, and I think that's our big point of difference. Building out this organization in New Jersey for us has been a 3-year effort. We have a fantastic team of people in New Jersey that are moving, as I said, 5 assets now globally. 2 of them in -- fruquintinib about to start global Phase III; surufatinib, regulatory discussions in the U.S., Europe and Japan around potential use of China data for submissions. No promises, but that's what we're hoping. And obviously, on top of that, we've got working with Astra on savolitinib on multiple global registration studies by the end of this year. So it's a global view as the difference. I think we've been a bit more low profile through the years because we've raised less money. We've done less follow-on offers. We've not put as much new equity out there into the system just because we've got a cash-generative business in China that's helped fund a lot of our activities. So maybe we're slightly quieter than the others, but we're certainly as ambitious as anybody. And I think that this year, as you say, is going to be a real sort of step change year for us as our assets make it through to either approval in China or late-stage development outside China.

And a big item of discussion, at least here in the U.S. continues to be the ongoing COVID-19 pandemic. Many companies in our coverage have had to suspend clinical studies, and I think the impact of decreased patient mobility is just beginning to be seen in our company's earnings as well. Since China is a few months ahead of where we are here, could you spend a few moments talking about the COVID-19 situation in China? And have you experienced any disruptions in your clinical studies or manufacturing of your commercial or clinical drug supply?

Yes. I could speak for 20 minutes on this, but I'll summarize it in 1 minute. There were significant disruptions in early February as this thing played out. But by March, things were starting to settle down again. In April and May, we're seeing almost a complete return to normal operations as far as manufacturing, commercialization of our products, running of our clinical studies in China. Of course, it's a new normal, but it's one that I would classify as sort of 95% of the old normal. So we have to be careful in China because there's been a fairly decent relaxation of distancing and all of the policies that were implemented to contain COVID. There has been relaxation of that very much in the last month. You're seeing little outbreaks popping up here and there. But for the most part, things are pretty stable, and so everybody just needs to keep a close eye on that. But that's it in a nutshell. It's manageable at the moment. And we're pretty encouraged by that because back in February, there was a lot of uncertainty.

Great. And I'd like to turn briefly to the ASCO abstracts that you put out last night, and you certainly have a lot going on in your clinical pipeline, which I think is further emphasized by the breadth of the abstracts that you have at the upcoming ASCO conference. So maybe we could just go through a couple of them. So savolitinib will have data in the Exon 14 non-small cell lung cancer. I think with the NDA submission in China, sort of on the cusp, this will be of interest for many. So could you sort of speak to the data and how it maybe compares to the recent capmatinib approval from Incyte?

Yes. So the objective response rate in, I think, was 61 evaluable patients was around 47.5%. So disease control rate was roughly 93%, give or take. And median PFS, it's been a long day, somewhere in the region around 8 months. So good data and certainly not materially different than what has been seen from the capmatinibs of the world and the tepotinibs of the world. But I think you have to be very careful in cross-referencing these studies because our study, the savolitinib study, as we mentioned in the abstract, 36% of patients in the savolitinib Exon 14 study were pulmonary sarcomatoid carcinoma patients, PSC patients. PSC is a really difficult disease, and those patients are really fragile with a horrible prognosis. So we had in our registration study 36% PSC patients. In the capmatinib GEOMETRY study, which was the basis for their NDA submission and conditional approval, they had 5% PSC patients. So I also think you need to watch very closely when we present the full data in -- at the end of March -- I'm sorry, at the end of May. You need to look at the patient characteristics, Chinese patients versus U.S. patients, men versus women. And there are some pretty significant, in my view, very significant differences in the group. So take great care in comparing. But I think, overall, you can basically say certainly savolitinib is no worse than capmatinib. And we -- I think we have a view that it's probably better. The second study was papillary renal cell carcinoma, where I think I mentioned in the presentation. That's an area we've been looking at for a long time. The abstract we published yesterday showed for overall survival. 60 patients. So it's roughly 33 savolitinib; 27 are control, which was sunitinib. You saw a hazard ratio of 0.51 in overall survival. So sunitinib overall survival was 13.2 months. Savolitinib overall survival had not been reached, but it's most likely very much longer than 13.2 months given that hazard ratio. So we expect there to be really material benefit for those patients, much higher response rate than sunitinib, so 27% response rate relative to sunitinib with 7% response rate. And actually, even more interesting was safety. Grade 3 and above AEs on savolitinib were around 41% -- 42% of patients. Whereas on sunitinib, grade 3 and above AEs were 81%. So from a tolerability standpoint, savolitinib showing itself to be -- because of its selectivity, showing itself to be a very tolerable therapy. So all of that said, very excited. And actually, capmatinib presented some data in papillary renal cell carcinoma in an abstract. Just 20 patients, but very modest efficacy. I think 15% response rate and another 35% stable disease. So disease control rate of about 50%, which in comparison to savolitinib is very, very low. So I think we have a very good pathway to an approval on PRCC, and that's 8% of kidney cancer, so these MET-positive PRCC patients -- total PRCC is about 15%, but MET-positive is about half of that. So very encouraging data for us, and we're looking forward to presenting -- or having our investigators present the full data at the end of May.

Okay. Perfect. Thank you. There's a lot more we could talk about, but unfortunately, I think we're going to have to leave it there. But we want to thank you for the comprehensive overview of your business and for taking the time to participate in our conference.

Pleasure. Thank you for the invitation, and looking forward to Las Vegas next year, hopefully.

All right. Well, thank you, and thank you to those on the line for your interest. Take care.

Thank you. Bye-bye.