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

Okay. Good morning, everyone. I'm Paul Choi, I cover SMID Cap biotechnology here at Goldman Sachs, and it's my pleasure to welcome you to day 2 of the Global Healthcare Conference. Our first session today is with HUTCHMED and joining us from HUTCHMED is CEO, Christian Hogg. What we'll do is follow the format of prior sessions, and I'll kick it off with some introductory remarks here and turn it over to Christian, who will give his overview, and then we'll go into Q&A. If clients along the way have any questions, please feel free to submit them via the webcast portal. Alternatively, you can e-mail them to me directly, and time permitting, I will read them out loud. But otherwise, I'll turn it over to Christian.

Thanks, Paul. I'll keep the overview brief, so we can get into the Q&A. So HUTCHMED is a company that, as many of you know, has been operating now for over 20 years based in China, really the first China-based drug R&D operation or biotech in that context. What we've done over the last 20 years and particularly in the last 15 years since we've been focusing on small molecule oncology research and development is we have built up now a research and development team of well over 600 people on the ground in China. We've developed in-house portfolio of 10 small molecule oncology assets that are now at various stages of development, with the first 2 already approved and the third about to be approved. We cover both solid tumors and hematological malignancy indications and are moving this very broad portfolio. With those first 2 drugs that have been approved, we've now built out our own commercial infrastructure in China. We've just passed 500 commercial people on the ground in oncology, so we've built a big team, and are making great progress on the commercialization of those first 2 approved therapies, fruquintinib and surufatinib. I think one of the things that differentiates us from other Chinese biotechs is that we have a global ambition. These 10 assets that we've developed have been designed for the global market. And as a result, over the last 3, 4, 5 years, we've built out a pretty material presence in the U.S. in terms of clinical regulatory. Our clinical regulatory team in the U.S. now is up to about 80 people. It's managing development of 5 assets in the U.S., Europe and Japan. Sort of all ex China development is managed out of our Florham Park, New Jersey team. And we've just submitted our first NDA in the U.S. recently and are now preparing for the launch of that first product. And we intend to launch it ourselves in the U.S. So by the end of this year, our commercial footprint in the U.S. will be up to about 65 people in readiness to launch surufatinib. So I think strategically, what we're trying to do is be self-determined to control our own destiny in the China market and the U.S. market, markets that represent about 50% of the global pharmaceutical market. Outside of that, we will partner. So as we launch our products into Europe, we'll do that through partnerships, for example, or Japan, for example. So that's what we are at the moment. It's been a long journey, but we're now, I think, at a very important inflection point for the company with our first products launched in China. Our first product, hopefully, set to launch in the U.S. late this year or very early next year and a great pipeline coming behind. So that's HUTCHMED in a nutshell.

Great. Thanks for that overview, Christian. You've certainly highlighted that a lot is going on with the company. And so as you speak to investors or guide investors, can you maybe point to 2 or 3 things that you think are the best either catalysts or events to focus on that will give the investors a good sense of how to measure your progress, how you're tracking against your stated goals over, let's say, the next 12 to 18 months?

Sure. Of course, Paul. 2 or 3 things, it's difficult for me to say 2 or 3 things just because we've got so many things kind of on the boil. But as far as near-term catalysts, I think the approval of savolitinib in China, our selective c-MET inhibitor, as the first-in-class selective c-MET inhibitor in China will be a very important step for us. Obviously, capmatinib from Novartis and Incyte and tepotinib from Merck have beaten us to -- will come out into the U.S. market and tepotinib to the Japan market. But we will be the first in China, and we'll be the first by some distance. It's unlikely that any competitive MET inhibitor is going to get into market in China in the next 12 to 18 to 24 months. So we've got quite a lead there, and that will allow us to get on the national reimbursement drug list. There's a lot of MET-driven disease in the solid tumor environment. Obviously, we will be hopefully be approved in MET Exon 14 deletion non-small cell lung cancer as a monotherapy. But we have extensive development underway in EGFR mutation-positive TKI refractory non-small cell lung cancer, also in papillary renal cell carcinoma MET-driven patients. And in gastric cancer now, we're about to start a registration study. So that approval of a first-in-class asset in China, while there are only about 13,000 Exon 14 patients a year in China, so it's quite small. There are, in our view, well over 100,000 patients that are suffering from MET-driven disease across all the indications. So being the first selective MET inhibitor will be a big step. And we're partnered obviously with AstraZeneca in that space, so we have a very big commercial launch plan for savolitinib in China. That's the first thing. And I expect that approval should come by the end of June if all goes well. The second thing would be the progress that we've made on surufatinib globally. We submitted our rolling NDA -- well, last year, we were able to secure a Fast Track Designation for surufatinib in extrapancreatic and pancreatic neuroendocrine tumors. We were then able to submit the rolling NDA at the end of last year. We completed that NDA submission in April -- late April. We expect that by the end of June this year, so at the end of this month, we hope that the FDA will formally accept the NDA. And that could then also potentially lead to priority review. If that all plays out, we have the potential for our first launch of surufatinib late this year in the U.S. And that's -- it's really only the second China discovered asset that has come through to this point by a Chinese biotech company acting alone. So BeiGene obviously did it with their BTK. And now we're doing it with surufatinib. There are a number of other companies, Chinese companies, that are working with partners to submit NDAs, but us doing it alone is a big challenge. And just as a side note, NDA had 860,000 pages of information in that NDA. So that's the sort of scale of work that is required to submit an NDA in the U.S. And doing it on our own was a big challenge, but we've done very well there. So suru potential approval and fast track -- sorry, priority review in the U.S. would be a big catalyst. And the third one is we are following surufatinib in Europe as well. So our MAA will be submitted in Europe shortly, probably also by the end of this month. And that's pretty important because that allows us to then look to find the right commercial partners for markets outside of China and the U.S. And so we're in a number of discussions at the moment on that side. Beyond those kind of pipeline catalysts, I would say, we have some macro corporate steps that we'll be taking, I think, in [ BD ] area as well as in the equity capital markets areas, so there are a lot of catalysts that lay out over the rest of the year. And finally, I'll say, we -- from Q2 to Q4 of this year, we will be starting 10 registration studies on 4 different assets. And so what you're seeing is a real acceleration of our late-stage pipeline. So that's -- in a nutshell, those are the things to look out for.

Okay. Maybe continuing on savo. I guess one of the primary questions is, given the evolution of the EGFR landscape particularly in the context of the FLAURA study, and the move into adjuvant, can you maybe talk about how you see the treatment paradigm evolving there, you and your partner Astra, given the significant presence in China in that space and then just how you think about what will be the role of EGFR plus your MET inhibitor as a developmental strategy?

Well, MET-driven disease is present at all sort of phases of treatment in non-small cell lung cancer. It's perhaps 4% to 6% of naive patients, so untreated patients are MET-driven. You get a relatively high degree of MET-driven resistance to the EGFR inhibitors. So following first-generation EGFR inhibitors such as Iressa and Tarceva, you look at maybe 15% to 20% MET-driven resistance. Following TAGRISSO, it's closer to 30% to 40% of patients have MET-driven disease. So it's just there, and it emerges. So as we see TAGRISSO initially being approved in the second-line setting and coming into the first-line setting behind FLAURA now in the adjuvant setting, you're bringing these EGFR inhibitors earlier in. And that, in our view, is going to lead to MET-driven resistance emerging earlier for patients. So I think it leads to an important role for savolitinib and MET inhibitors in an increasingly early setting. We have 3 Phase IIIs in lung cancer that we are planning to kick off over the second half of this year. Two of them are in China, where there's a very large EGFR mutation-positive patient population. Close to 40% to 50% of all non-small cell lung cancer patients in China are EGFR mutation positive. We have 2 Phase IIIs. One is called the SACHI study. SACHI is a study of savolitinib and TAGRISSO in patients that have failed on any EGFR inhibitor, be it first-generation, second-generation or third-generation EGFR inhibitors. And we have extensive data from the TATTON study Phase II study to support that SACHI study. So that will kick off over the next 6 months for registration, a Phase III registrational study in China. We have a second study called the SANOVO study, which is a Phase III also, which is designed to expose treatment-naive patients to the savolitinib + TAGRISSO combination, so bringing it into the first-line setting. We have a really unique biomarker strategy to identify patients that we feel will benefit from that combination at that early stage. We feel that there are probably 20% of patients that -- could be up to 20% of treatment-naive non-small cell lung cancer patients that will really benefit from that combination. Again, that's a China study. The third study is the extension of the SAVANNAH study. So SAVANNAH is a global study, now in a dozen countries around the world, enrolled and treated a well over 200 patients with the savolitinib + TAGRISSO combination. We've used SAVANNAH to determine the design of our global Phase III. And I say we, I talk about HUTCHMED and AstraZeneca. So we will complete SAVANNAH around August. We will be able to determine all sort of design elements of the Phase III at that time, including the biomarker strategy, the final dose, whether it's a QD dose or a BID dose, what that dose level is. Is it patients that fail on TAGRISSO in the first-line setting or patients who fail on TAGRISSO in any line setting? That all plays out, I think, in August. And that will allow us to design and kick off the third Phase III, which is a global Phase III of savolitinib plus TAGRISSO in TAGRISSO refractory patients. That study hasn't been named yet, but if all goes to plan, it should kick off this year.

Okay. Maybe to follow up on that, Christian, as you think about the utility of your other studies, including SAVANNAH and TATTON, how do they potentially figure as part of your global filing strategy? Could they potentially constitute fileable data sets? Or are they more informative? I guess what is your partner's view on the utility of those studies as a regulatory package?

Yes. It's a good question, Paul, and it's not a question that I have the answer to. The SAVANNAH data is really interesting data, and it's quite consistent with TATTON in many ways. But it broadens the sort of scope of study from TATTON in several areas. In my view, and this is not necessarily the view of AstraZeneca, but in my view, there are certain populations within the SAVANNAH study that certainly seem to qualify for accelerated approval and breakthrough therapy, et cetera. But at the end of the day, that sample size needs to be big enough to be compelling. If it's a portion of the SAVANNAH study, it needs to be big enough to be compelling to support that kind of regulatory approach. And I think this is -- it's too early to tell whether that's a path we will take. One thing that is certain is that come August, I think we will have all of the information we need to derisk a global Phase III of the combination and to give ourselves quite a high degree of likelihood of success for a global approval on that Phase III. So if there's a faster way using sort of TATTON combined with SAVANNAH, I'm sure if that exists, I'm sure we'll follow it. But I can't be sure that, that will be the case. But also, I can't be sure it won't be the case.

Great. I guess it sounds like one other issue as you think about the global trial is just sort of harmonizing the various regional requirements. And I guess, are there any other subtleties in that regard that you would highlight with regard to populations or endpoints or just things like that, that you would highlight as informing your Phase III trial design?

No. I think the most -- it's really complicated, basically. The biomarker strategy is really complicated. And I think it's a major competitive advantage for us, all the work that we've done to this point on this combination. I mean you add up TATTON and SAVANNAH, you've got close to probably 450-patient data, all of which has been very deep biomarker analysis and mining of data. So I think we've got the biggest pool of data with regards to how to select these patients and how to most effectively select these patients. That's a big advantage. With regards to the other complexities that come out of this, for example, as I just mentioned earlier, at what line do you start treating patients with this combination, the savo-TAGRISSO combo? Is it post first-line TAGRISSO failure or later lines as well? TAGRISSO is used in the second, third, fourth, fifth line, which does happen in some cases. The problem with EGFR mutation non-small cell lung cancer is as soon as patients start getting exposed to multiple kinds of chemotherapy, they deteriorate really rapidly, and they become quite fragile. So for us, the TATTON study and the SAVANNAH study has really helped us determine what's the right patient population, what's the right biomarker strategy and what's the right dose basically.

Great. Maybe turning to surufatinib, and we can start with the commercial piece in China so far. Can you maybe provide us a sort of a midyear update on your commercial progress since you reported your initial results? And how do you think about maybe the role of NRDL in terms of driving future uptake? And how critical is that to your commercial strategy there?

So the NRDL in China is just absolutely critical. We've seen from -- in the case of fruquintinib or Elunate, our results on Elunate are terrific so far this year. We've only, to this point, put out 2 months of unaudited data January, February. I believe that was somewhere between USD 14 million and USD 15 million in sales. We indicated at that time we expected Q1 to be around USD 20 million, slightly above USD 20 million. And that's the kind of rate we're on, and it's a big step-up from the year before. So the reason for that is it's on the reimbursement list, and mind you, it's on the reimbursement list last year. So in theory, you could say, why did it take so long? Well, it took so long because we took over commercial on-the-ground medical detailing promotion and marketing on Elunate in October last year. And we've increased the size of our commercial team. Prior to that Eli Lilly had a team of about 120 to 140 people on Elunate. Now we have over 500 people. So there's a big difference in depth and scope of coverage. But as I say, coverage is a given. But getting on the NRDL is important because that opens up accessibility to patients and manage its costs as well. But also being on the NRDL allows you to move rapidly to secure hospital listings. So the hospital pharmacies will list you if you're on the NRDL. If you're not on the NRDL, it's very difficult to get listed in the hospital pharmacies. So what you have to do is you have to get listed in the retail pharmacies around the hospitals, which is not really optimal. So yes, so fruquintinib, we're seeing the benefits of NRDL inclusion, expansion of the commercial team and a good increase in the hospital listing. On surufatinib, we launched it in January of this year, very early January, I think January 10, roughly. We got off to a very good start. We put out the numbers. I think in the first 2 months, the unaudited sales numbers was around USD 4.9 million. Now a good amount of that obviously is pipeline fill. You're putting the drug out into the system in China, but I've been happy with the penetration so far. And I mean, in neuroendocrine tumors, there's a lot of neuroendocrine tumor patients in China who historically have been diagnosed relatively late and haven't really had -- I mean they do have exposure to everolimus. They do have exposure to pancreatic NET to sunitinib. They do have exposure to the somatostatin analog. But in general, neuroendocrine tumors was quite a quiet indication. So we've changed that. We've now come in very aggressively and are making great headway in identifying their patients and educating clinicians and physicians to identify them early and treat them. It's still all being done not on the reimbursement list, so we're still fully out of pocket. The cost of surufatinib today is about RMB 17,000 a month, which is equivalent to about USD 2,800 per month. That's all out of pocket. That's a lot of money for patients to pay. We do have -- in China that is. We do have various patient access programs that are means tested. So we are ensuring that sort of the lowest income or patients with the least resources are getting at least a material discount versus our price. So yes, it's working, and I'm happy. I'm very happy with the way the commercial team is working. I think we will work hard to get on the reimbursement list over the balance of this year for surufatinib, and that will mean potential NRDL inclusion early next year, at which point, I think, you see the takeoff that you see for fruquintinib. But in the meantime, I think we're making good progress on surufatinib as a fully out-of-pocket product.

Maybe turning to the U.S. opportunity. You did highlight earlier that your potential NDA assessments could come near term. And with the priority review, you could be on the market in early next year, call it, roughly speaking. I guess can you maybe update us on your commercial preparations and maybe give us a sense for what is U.S. physician awareness of the product and profile? And I guess as a follow-up question, this is an interesting test case in the sense that your study is largely China-based. What is the clinician receptivity to what is largely a China-run study here?

It's actually 2 China-run studies, 2 big Phase IIIs in China with, in aggregate, close to 400 patients. But also, we have conducted quite an extensive expansion-bridging study in the U.S. among U.S. patients to essentially corroborate the China data with U.S. data. And what's really encouraging is down to the PK, down to the drug exposure, the tox profile, the efficacy profile in heavily pretreated patients, where patients have been on the therapies that I mentioned before, in all cases, the China data and the U.S. data is almost identical. So that's very encouraging. And I think it's that ability to take a broad set of China data and validate it with U.S. -- the U.S. patient population is what gives you the credibility when it comes to the regulatory authorities in the U.S. as well as ultimately the prescribers of these therapies. So yes, I don't think we have any problem there. It's a very broad data set that covers both China and the U.S. and Europe for that matter. As far as the commercial team are getting ready to launch it, we've recruited a Senior Vice President of Commercial for the U.S. His name is Tom Held. Tom spent well over 20 years with Novartis and actually led their neuroendocrine tumor business, the rare cancer franchise in the U.S., so has deep experience in the neuroendocrine tumor space, which is very important. Tom has built now a really very capable and experienced senior management team underneath him, again, with certain individuals coming from neuroendocrine tumor-focused businesses at Novartis, for example, and outside of Novartis. So that senior management team covering marketing, covering sales, covering access, covering analytics, et cetera, is all in place. We're now going to the next level and hiring our field organization in the various markets around the U.S. The thing about neuroendocrine tumors is it's fairly concentrated in terms of the academic centers and the referral centers. And so you're seeing there is a relatively concentrated footprint of these prescribing locations. So as we build out our commercial team, the sales team, you're going to start to see our coverage across the U.S. emerge, and we expect to be up to the sort of the full scope team by the end of this year.

Great. Maybe in our remaining time here, turning a little bit to the pipeline, Christian, and talking about some of the things you've been working on a little bit earlier stage. You are also pivoting increasingly into immunotherapy, and you have a CSF-1R asset. Can you talk about what you and why [ I see ] it as the scientific rationale and just how does this asset potentially fit into the IO space from your perspective?

So our strategy on our portfolio -- you don't get too many biotechs that have 10 clinical-stage assets, all of which have been designed to be sort of globally differentiated. We've also recently informed the market that we are expecting 3 more NDAs -- sorry, 3 more INDs to be submitted over the balance of this year. One of them, as you say, is a selective CSF-1R. We have a third-generation BTK inhibitor that we intend to submit our IND in the U.S. And we have a CD47 antibody that will be also submitting an NDA -- an IND on. After that, we have half a dozen assets that we expect to come to IND stage over the next couple of years. So the point I'm trying to make is we -- our scientific strategy is a portfolio strategy. It's about creating a portfolio of assets against a number of targets that we will ultimately work to combine with our own assets as well as third-party assets. The CSF -- the selective CSF-1R inhibitor is really important. We feel it's an important backbone asset that could be combined with a number of our other programs. It's the same as our CD47 antibody. That is a backbone asset that we can use across a number of combinations. CSF-1R and the downregulation of tumor-associated macrophages is just really important. We've seen it with the surufatinib PD-1 combination, surufatinib along with being a VGFR inhibitor and FGFR1 inhibitor, it is a potent CSF-1R inhibitor. And we've seen terrific synergy between the PD-1s and surufatinib. We've just presented some data at an abstract for ASCO in that area showing really good progress of those combinations. So I think what we plan to do with the selective CSF-1R inhibitor is look for the right opportunities to combine it with other assets and look for those synergies. So that's really -- it's just another tool for us to try to attack cancer from multiple angles at the same time.

Maybe as a follow-up to that, Christian, as you think about combination trials for these pipeline assets and maybe just the question here is, there are obviously commercially available PD-1s, but how do you think about partnering that asset at this point? Do you want to first explore it on your own in terms of development given the potential costing and sizing of these trials, at least the later-stage trials? Is the aim, I guess, to initially assess the signal yourself? Or would you want to partner it out?

You're talking about the CSF-1R...

Yes.

Yes. I think our intention is to certainly take it to recommended Phase II dose on our own and then probably start expansion and exploring it into a number of combination at that point, and also looking at it in certain monotherapy indications as well where we could potentially use a monotherapy. But most likely, its true value will come in combination. So I think, Paul, these days, we're not going to sort of wait around for the right partner to arrive. We will charge ahead and do all of this ourselves. We're tooling up to be able to do that, both on an organization standpoint and from a financial standpoint. And I think when these assets show their value, then if the right partners come along and we feel that they're going to help us accelerate the programs or broaden the programs, then we'll consider that with an open mind. But at the same time, we're not going to wait for that. We'll charge ahead on our own.

Great. One of the plans that you have for Elunate, or the molecular name, which is fruquintinib, is to look at additional opportunities, I guess, outside of China. And you're working on a study there called FRESCO-2 with regard to late-line CRC. So how do you think about the development cost? I guess what is the opportunity there from your perspective for later-line CRC as you develop fruquintinib?

Well, that global Phase III is enrolling in 15 countries now with 150 sites set to open. We've opened over 100 sites already across those 15 countries. It's almost 700-patient study, around 680-patient study, and it's around halfway enrolled. We expect enrollment to complete around the end of this year. It's moving very rapidly now. So yes, I mean the cost of that is, as you would expect, almost 700-patient global study, it's not cheap. But it's an indication that's approved in China. Fruquintinib is clearly a highly effective monotherapy treatment for metastatic colorectal cancer. We believe -- although trial-to-trial comparisons are always dangerous, but we believe in terms of efficacy and safety, it is superior to what's available in the market today, talking about Stivarga and Lonsurf, et cetera. So it's an important therapy that we are very committed to bringing to those late-stage metastatic colorectal cancer patients globally. And the cost is the cost, it's manageable, and we'll see it through. And one of the benefits of setting up a commercial team in the U.S., for example, around surufatinib is that neuroendocrine tumors, half of the NET patients are gastrointestinal net patients. So bringing third-line colorectal -- metastatic colorectal cancer drug in on top of surufatinib in NET, there's a lot of commercial synergies. And I think our commercial team in the U.S., hopefully within a couple of years, has 2 very important therapies that they are marketing themselves -- we are marketing ourselves in the United States.

Great. We're coming up on time here, Christian, so maybe one more on just sort of a general strategy, which is you're managing a couple of launches in China. You're potentially launching in the U.S. here. But at the same time, you've clearly ramped up your clinical development as well as your discovery efforts. So I guess, how do you think about funding the pipeline here over the near to intermediate term? At what point does it become self-sustaining? And I guess the question is, how quickly would you be able to accelerate some of these early-stage programs?

Yes. It's a question -- it's a good question, Paul. I mean we're sitting on cash probably around $550 million, $600 million at the moment. We, in the last 12 months, have been able to raise significant resources for our pipeline at a sensible price, at sensible share prices. We've completed 3 pipe investments, each of $100 million, to major global investors. We sold our noncore OTC business for close to USD 170 million recently. That was a good deal given that we invested only about $10 million in that business to get it to where it was. So we have a lot of resources. And I think that we still have other noncore businesses that we could potentially materialize some nondiluted finances as well as the more conventional routes such as the pipes that I mentioned as well. So there's plenty of resources available for exciting assets, and I don't concern myself too much about that. The expected burn, you're right, is expected to continue to increase as we expand this pipeline globally. But at the same time, remember, we're now in the first years of commercialization of our products. And I mean we put out guidance for 2021 oncology revenues of between USD 110 million and USD 130 million, that compares to 2020. So a year ago, USD 30 million in revenues. So you're seeing a big ramp up in the revenues from our approved assets. And as more of those, as savolitinib gets approved, as surufatinib hopefully gets approved in the U.S., you're going to see more and more of our assets coming to market, and they're going to generate gross profit that's going to help us continue to expand and sustain our investment on the R&D side.

Okay. Great. We're up on time, unfortunately, so we'll have to end it on that note. My thanks to Christian and HUTCHMED for joining us today. Thank you, Christian.

Thank you, Paul. Thanks a lot. Take care.

Bye.

Bye, everybody.