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

Welcome to the HUTCHMED Company Update. I will now hand the session to Mr. Christian Hogg, CEO of HUTCHMED, to begin today's presentation.

Okay. Thanks very much, Mark. So welcome, everybody, to the presentation today to talk about the strategic collaboration that we've just signed with Epizyme with regards to TAZVERIK. The plan today is that we have myself, Dr. Wei-Guo Su, our Chief Scientific Officer; and Mark Lee, our Senior VP, Corporate Finance and Development on the line. But the plan is to spend maybe 20 minutes to take you through the deal and our plans and then open it up for Q&A for maybe another 20 minutes after that. So a relatively short call today unless there's an extended set of questions. What we're going to cover here on Page #3 is the overview of the transaction, a little bit of background on TAZVERIK for those analysts or investors that -- of ours that have not had much exposure to TAZVERIK to this point. Then Wei-Guo will take you through synergy with our portfolio with HUTCHMED's oncology portfolio as well as -- then I'll take us through the impact on commercial and manufacturing and then open it up for Q&A. So next slide, Slide 4, please. Slide 5. So on a high level, this is an in-licensing deal for Greater China. So Mainland China and Hong Kong, Macau and Taiwan, so Greater China. It's an exclusive deal in terms of commercialization, but co-exclusive in certain other areas, obviously, manufacturing, development and research. There's a lot of synergies between TAZVERIK and our portfolio, and we'll talk about that in the upcoming presentation. TAZVERIK is approved in the U.S. in epithelioid sarcoma, which is an ultra-rare indication and follicular lymphoma, which is an indication that HUTCHMED is engaged in quite deeply with 689, our PI3K-delta inhibitor. And the intention here is that HUTCHMED's involvement with Epizyme and with TAZVERIK will help to accelerate global development. We will be responsible for running global trials at least the China part of global trials so that will help accelerate enrollment into these global trials. Next slide, Slide 6, please. So the deal itself, the customary upfront payment of $25 million. We have development and regulatory milestones of $110 million. That covers 8 potential indications. So that's not -- this is broken up into a total of about 15 different potential milestones, 15 or 16 potential milestones. And the sales milestones up to $175 million. So what we have here is a structure that is very much success-based. If we're able to explore TAZVERIK in many areas in combination with our assets, and they are successful, then we would expect to be -- to be paying some of those milestones and achieving the sales that could trigger further sales milestones. The royalties are from the mid-teens to the very low 20s. And obviously, that's contingent on sales. We also have a warrant, which is the right to purchase up to $65 million worth of Epizyme shares during a period or a term of 4 years, with an exercise price of $11.50. So obviously, the purpose of this warrant is really to put both Epizyme and HUTCHMED in the same boat. We will succeed if Epizyme succeeds as it were with this warrant. Our hope is our development in China is going to lead to both approvals in China as well as outside of China. Epizyme will do well as a result of that. And the value of this warrant will rise as Epizyme share price rises. So that's a unique aspect to this licensing deal that's not very common in deals of this nature. Next slide, Slide 7, please. So overall, the rationale for it is TAZVERIK is a first-in-class EZH2 inhibitor, inhibiting as well as regulating epigenetics which affects cell proliferation. It has a highly favorable safety profile. That's probably what attracted us. Aside from its mechanism of action, it's highly favorable safety profile is what attracted us greatly to TAZVERIK in the context of combinations. And in HUTCHMED, we all know that our objective is to combine many of our assets to hit the disease from multiple angles. So TAZVERIK works very well in that context. And as I said, the pipeline synergy, Wei-Guo will take you through that in more detail, but there is a great deal of pipeline synergy between an EZH2 inhibitor and the HUTCHMED portfolio. Finally, it's going to accelerate our China hematological malignancy commercialization plans. Our intention would be to bring TAZVERIK to China very quickly, build out a focused hematology sales team and localized manufacturing of TAZVERIK drug substance and drug product in China as quickly as possible for efficiency reasons. Slide #8, please. High level, TAZVERIK has been approved in epithelioid sarcoma as well as follicular lymphoma, both for EZH2 mutant patients as well as wild-type for patients that have no satisfactory alternative treatment options. So it's got a good broad indication in FL. And obviously, ES is a relatively niche indication. On the right-hand side there, first in its class durable responses, highly tolerated, no black box warnings. And as with all the other HUTCHMED oncology assets to this point is oral administration. Slide 10, please. Very high-level efficacy data in follicular lymphoma, you can see in the EZH2 mutant patient population, almost 70% response rate and a meaningful duration of response for those -- for those mutation positive third-line patients. Wild type, the efficacy is less but still meaningful that led to the approval. On epithelioid sarcoma, this is a very difficult and rare disease. And so really, any therapy that's going to provide benefit to patients is welcomed by the regulatory authorities. So yes, it's very strong efficacy, and we believe that, that will translate in a number of other areas. Next slide, please, Slide 11. What's interesting about the safety profile of TAZVERIK is that it doesn't overlap with our other assets in follicular lymphoma. So actually 689, as we all know, has a -- has quite a unique safety profile. And we'll obviously publish data on 689 at ESMO in a couple of months. But needless to say, this safety profile doesn't overlap with 689. And actually 689 has a very, very clean safety profile. So that's what's encouraging that we believe that TAZVERIK can be combined with not just 689 but any number of our programs without creating overlapping toxicities and therefore, tolerability issues. Next slide, please, Slide 12. So I'll hand it over to Wei-Guo now to take you through the high-level thinking on this collaboration on the development side. Over to you, Wei-Guo.

Okay. Thank you, Christian. Really briefly, as you are familiar with this chart that we presented multiple times before. So all programs are mostly targeting genetic alterations, whether it's, for instance, c-MET mutation or FGFR mutation and so forth. We also have programs targeting tumor micro environment such as the anti-angiogenesis -- tumor angiogenesis, for instance, as well as on large molecule programs in IO. We do have a program, which is IDH1/2 inhibitor, which falls into the epigenetic area, and we are increasingly more and more interested in epigenetics. We believe it's an area under-explored. It's an area has broad implications and will add additional ammunition in our toolbox. So if you go to the next slide, we have -- the TAZVERIK adds another epigenetic modifier in our pipeline. We believe it has great potential to combine with our existing and maybe even future pipeline, which targets a different -- from different angles to best manage cancer. Next slide. So EZH2 can be activated in a number of ways. Overexpression is 1, gain-of-function alterations, mostly mutations or in some rare cases, amplification, for instance, as well can be quite broad, both in hem-onc as well as solid tumors. And also, it serves as a very critical checkpoint for a number of tumor suppressors, for instance, the INI1 which is a very critical, very important tumor suppressor, and it's missing, for instance, in the ES tumors, that epithelioid sarcoma, which is as a result of that, the down -- it leads to the activation of EZH2. So and it will demonstrate some interesting activity and that led to the approval of ES. And these tumor suppressors are quite broadly distributed in a solid tumor. So we think there's a lot to explore basically. Next slide. And so we are between -- I think you may see at this point, we are really interested in -- for instance, in hem-oncs, particular in the lymphoma space. At this point, follicular is already proven, but obviously, particularly in the mutant population. And also in wild type as well in late lines. But there's also a great deal of evidence that it's overexpressing multiple tumor types, DLBCL, which is being a very difficult disease to treat. And as you know, we reported last year at ASH, our just [indiscernible] delta compound HMPL-689, has really a very interesting level of activity there. And we believe combining the 2 will further add to the activity, we have actually in-house data in combining the 2 demonstrated interesting level of synergies. So clearly, it's a very -- a large patient population with a very strong unmet medical need. And it's only worth exploring that. T cell lymphoma is another area where there's a lot of evidence that both PI3K delta and EZH2 are activated -- single-agent activity has been demonstrated for both PI3 delta and EZH2 in recent months. So it's a combination of the 2 would hopefully really make a big step change there. And then in solid tumors, of course, overexpression as well as, in some cases, mutations or as I mentioned at the tumor suppressor loss of function quite often in there. And also, interestingly, it has -- in the met kinase pathway we talked a lot about before, right, in the -- starting from ship -- down to KRAS, all the way down to RAF and MEK and ERK, we already -- being in this area for some time, we have our first ERK compound in Phase I. We are working on some other upstream targets at the moment, expect to have additional candidates to go into clinic in due course. EZH2 being in the nucleus, basically downstream of ERK, we think it will have also synergistic potential when combined with upstream targets. So that's also a very interesting area. Could potentially better -- offer an avenue to better control in the KRAS pathway -- those mutant tumors. And obviously, a lot more evidence are emerging in the tumor microenvironment, particularly the immune microenvironment in terms of its role -- the role of EZH2 in modulating T cell differentiation and proliferation as well as the NK cell as well. So as we are investing in this area, we think combining with our small molecules as well as our large molecules hopefully, will lead us to new ways to activate the immune system. So conceptually, there are a lot synergy with our pipeline. There are a lot of targets that we are already interested in and we are investing quite a bit and we think that this will add a major piece into the puzzle. Hopefully, that can help solve the puzzle. Next slide, please. So this is what Epizyme has been working on and what they are planning to do. A lot obviously, on this slide, very busy, both in lymphoma and also in solid tumors. Obviously, all science driven and we really like this kind of approach. And a lot of combinations will also being planned. And if you go to the next slide, I can share with you a few -- a few of -- this is just a study that we will be highlighted on the previous slide, but we will be participating immediately EZH-302 study, which was not only a new indication, but it will serve as a confirmation for the current approval indication. So this is a study that IND in China has been cleared, and we are going to immediately engage with CDE and we'll take over this -- the clinical operation in China, we'll be contributing to the enrollment of the Phase III portion of the study. As you probably heard a while ago, just maybe an hour ago when they released their second quarter results that the safety run-in is ongoing, and it's going -- it's doing very well. And as expected, it's -- is well tolerated when combined with R2. And we're eager to get going on this in China. But in addition, we think there are a lot more we could do. I think some of those ideas are summarized on the next slide. So as you know, VEGF inhibition leads to EZH2 activation. So you can immediately have potential to buy in with VEGFR inhibitors, and we have, as you know, 2 approved kind of very small fonts here, but we are thinking likely to pursue, for instance, combining with fruquintinib in lung cancer and ovarian cancer. And surufatinib, obviously, plays -- is now already approved in neuroendocrine tumors. And very interesting, its role in blocking solid tumor, neuroendocrine differentiation. It's not -- these are solid tumors over time develop a feature called neuroendocrine differentiation. So these tumors will have some partial feature similar to neuroendocrine tumors. So these tumors will start to secrete, for instance, hormones and have -- and patients would have similar symptoms as well. And these are patients with a much worse prognosis. So surufatinib, given its proven activity in neuroendocrine tumors and now when combined with PD-1 also showing emerging exciting activity in neuroendocrine cancer. So we think whether it is able to block the NED, we think it's -- it's quite interesting to explore, particularly for prostate cancer where Epizyme already has the program ongoing. So we think in China, we would add a VEGFR inhibitor on top of that. And sarcoma building on to the epithelioid sarcoma is obviously EZH2 is broadly overexpressed in multiple subtypes of sarcoma, [ Sinovel ], instance, is another one. And we already have the program, both in China and in the U.S. in Phase Ib/II exploring surufatinib activity in this patient population. So we think combining the two will make a lot sense there. And longer term, when additional -- all additional pipeline compounds reach the recommended Phase II dose, we certainly would have a lot of interesting for instance our ERK inhibitor targeting KRAS mutant tumors. Obviously, in the in -- and then in a hematological malignancies, I think the most obvious, as I already alluded to, would be PI3K inhibitor in combination with TAZVERIK in DLBCL in T-cell in PTCL, for instance, will be a lot of interest. And obviously, going forward, when our newer compounds like our third generation BTK, our CD47 antibody, and we also have a number of bispecifics in this space as well when these compounds move towards proof of concept, it would be great to have an opportunity to combine with TAZVERIK. So we -- there's a lot obviously on the radar, and we need to prioritize. And I think we'll figure out a way in China to get these things going. Next slide. So I think that's all. And obviously, the first thing first is to bring it to China to get it registered in China. And it's all -- this will be in parallel to the global 302 study, and it's all being planned, and we'll get it in motion quickly. .

So back to you, Chris.

Thank you. Thanks. Okay. Next slide, please. Slide 21. So on the commercial side, obviously, we're set up at the moment on the solid tumor side. And now the team in China on the ground, there's over 570 people, it's increasing very rapidly to support ELUNATE and SULANDA. But we will now start building out hematological malignancy expertise or a hematology team. Obviously, TAZVERIK, the speed at which we can bring it to China will be dependent on discussions now with the CDE, Wei-Guo and the team will be entering those discussions as soon as the -- that's possible. Our hope is that we could bring TAZVERIK quickly into China and start building out our hematology team. But that will then be followed by 689, 523, 306, our IDH1/2 dual inhibitor and obviously, 760, our third generation BTK inhibitors. So you can really see a broad spectrum, hematology portfolio there getting ready to be established. Next slide, please, Slide 22. We'll be bringing TAZVERIK manufacturing into China. So we'll be localizing manufacturing in China as quickly as we can. Obviously, in the short term, Epizyme will be supplying TAZVERIK for early stage exploratory development. And also the global Phase III 302 study that Wei-Guo mentioned. But we expect within 18 months to 24 months, we'll have localized manufacturing of both the API and the drug product. So finally, Page 23, this sort of sums it up. I mean I think most important here is that we feel EZH2 mutation. And Wei-Guo's just touched on it sort of briefly here, but we feel that EZH2 mutation is a really important synergy for us. Obviously, TAZVERIK is its first-in-class globally. That will allow us to bring it into China quickly. The broad potential across both solid tumors and hematological malignancies, a highly favorable safety profile. The pipeline synergy is very clear for us. Obviously, our hematological malignancy assets, that's important. But I think the solid tumor synergies is really important as well. The VEGFR inhibition leading to EZH2 activation is critical. And this MAP kinase pathway is a pathway we're working very hard on and we believe EZH2 has a role to play there or EZH2 inhibition has a role to play there. Then finally, just helps us to build out our hematological malignancy program and sales team quickly and build out our manufacturing. So yes. It's -- overall, we're very excited about this transaction. It's a great fit with our portfolio. As Wei-Guo says, we have an EZH1/2 dual inhibitor in early discovery, but this allows us access to an asset that is market-ready and allows us to accelerate by -- in 6 or 7 years. And that's why we've done this. So next slide, please. I think that brings us to Q&A. So I think we'll open it up to Q&A at this point. And happy to answer any questions.

[Operator Instructions] Our first question comes from the line of Alec Stranahan of Bank of America.

Just 2 from me. When you look at the deal, I guess, on one hand, you could say you're getting a de-risked therapy for not a lot upfront. But then I guess you aren't entering the deal based solely on the indications TAZVERIK is approved and today, so additional de-risking still to go. Given that, I guess, what gives you confidence that there's still indications left on the table. In your press release, you say up to 8 potential indications in terms of the economics owed to Epizyme. And then secondly, any additional color on what the approval process looks like in China, both in terms of timing and extent of additional studies that may be required?

Okay. Thanks, Alec. Maybe I'll answer the first part, and I'll let Wei-Guo answer around the approvals process. So on the first part of the question, de-risked, you're right, it is de-risked, but obviously, the first 2 indications, ES and third-line follicular lymphoma, relatively smaller indications. I mean I think Wei-Guo has laid it out pretty clearly here. We think there's a lot of synergies. That's one of the reasons you've got development milestones covering up to 8 indications is we believe that the use of TAZVERIK in combination with a number of our assets is going to allow us to go into all of those aforementioned hematological malignancy indications in many solid tumor indications. And I think one of the things that's strongest about HUTCHMED over the last few years is our ability to quite rapidly explore opportunities. What we've done with the PD-1s and the VEGFR inhibitor combos and go out and explore 12 indications of surufatinib plus the PD-1 or 10 or 12 indications of sintilimab plus fruquintinib. That's one of our strengths is that ability to explore areas of scientific interest, and we will do the same with TAZVERIK and many of our other assets. So I think the -- yes, that's all still to be determined, and there is risk associated with those exploratories. But we wouldn't have done this unless we believe the science was behind this. So hopefully, that answers your question. Wei-Guo, maybe you could say a few words on how you see the pathway to approval for China.

Yes. So it needs to be aligned with the CDE and we will be arranging a meeting with the CDE quickly. Current vision and based on precedents, would it be a bridging study, demonstrating similar PK, similar level of efficacy in the same patient population in China, that would obviously, combined with the package they developed overseas would be sufficient for registration in China. With regard to the sample size and so what would require some discussion with CDE in terms of the bridging study, probably somewhere around 30, 40 patients.

Our next question comes from the line of Louise Chen of Cantor.

Congratulations on the deal. So my first question is, how do you think about the sales potential of TAZVERIK? Secondly, are you just looking at combos? Are you looking at monotherapy as well? How does this fit into your commercial strategy here from a combo and mono perspective? And then the last question I have for you is scope and timing of additional hematology sales force that you were probably going to build anyhow. So just leverages your pipeline? I understand that, but what are you thinking about that?

Thanks, Louise. Yes. I mean I think as far as the -- we'll come out, I'm sure in the next few months with our views on kind of building blocks to market potential. But I think it's obviously, as Alec has just mentioned, TAZVERIK is derisked in 2 relatively small indications. We believe if we can bring this therapy into earlier line treatment in follicular lymphoma, for example, with this 302 study, this is a combination of TAZVERIK and R2 or in earlier line settings in combination with our PI3K delta, HMPL-689, then you start to really expand the patient population. DLBCL, as Wei-Guo mentioned, is a major unmet medical need. It's a really difficult patient population. You're not going to be able to deal with DLBCL with monotherapies, even though you do see some pretty encouraging clinical data emerging from 689, for example, our PI3K delta, we believe that the combinations will be the best way to go there. So I think if you start getting into these larger patient populations, the market potential can be really material. And I mean I don't want to go into estimates of sales, et cetera, at this stage of the game, it's too early. But we will lay out our thoughts on that in time. But I think it can be very material as you start getting into earlier line therapies in combinations in the larger patient populations. And then solid tumors on top of that. If you're able to see synergies with the VEGFR inhibitors, that would be really meaningful across many solid tumor settings. As far as the scope and scale of the hematology sales organization, we'll start now building out the management team. We're already identifying some relatively senior people to start bringing in to help us plan. So I think over the second half of this year, we will start putting people on the ground to help us with planning. And as you go into next year and early '23, I think we'll build that team up kind of as we did with the solid tumor team to launch surufatinib and to take over fruquintinib. So I'd expect the hematology team will -- will scale up to a similar sort of scale to what we've seen on our solid tumor team.

Our next question comes from the line of Kelly Shi of Jefferies.

My first question is about the market opportunity follicular lymphoma. So the sales of TAZVERIK, witnessed some challenges currently in the U.S. And why do you say the China market is different? I think the more specific question is, do you see potential use of TAZ in H2 wild-type [ solid tumors ] FL patients in China. And also how about using second line for the monotherapy before the combo trial actual read out. What are the efficacy bars said about available therapies for those respective patient populations in China at this moment?

Maybe I'll answer the first part, and then I'll ask Wei-Guo to talk about the second part of your question. So yes, I mean, Epizyme and actually not just Epizyme but TG Therapeutics and Karyopharm, all of these guys have had some challenges in the U.S. market launching novel therapies into the [ teeth ] of COVID, right, over the last 18 months to 24 months, it's been very difficult for them. I think there are some signs that things are starting to look a bit better. But it's been quite hard to get the scientific story out in that climate. And I think that's led to some relatively disappointing commercial results, and that's all been well documented. I think in China, we, to this point, have not really had the same level of disruption as a result of COVID. Things actually up until very recently, and there's recent delta variant situation have been pretty normal over the last 18 months, 15 months anyway. So I think that looking at China, I think we'll probably have a more straightforward time. Hopefully, by the time we get TAZVERIK approved and launched, we won't be facing these kinds of COVID headwinds that these U.S. companies have faced. So I don't feel any sort of risk there for us. I think Wei-Guo maybe you could talk about whether you feel that TAZVERIK will be used in the wild-type setting and how it could potentially be used in the second line setting for follicular lymphoma and what the current standard of care is there.

Yes, sure. I think with regard to the wild type, it's now approved for basically patients failed other therapies, right? So it would be third line and above. And even though the ORR is in mid-30s percent, but the duration of response is very attractive -- like it's over 13 months. So I think there is still a lot of patients at that point. And I think it's most attractive to us is its safety profile. It's well tolerated and most of the grade 3 AEs are under 10% and in the follicular, it was under 5%. So I think at that point, the really -- in late stage follicular patients after multiple rounds of therapies, I think it would be welcomed with a very well-tolerated therapy. In the second line, I think obviously, second line today, rituximab or rituximab plus well established there. But particularly, for instance, the R2. These all have relatively speaking, pretty strong immunosuppression. And so much so that infection is quite a serious problem. As a matter of fact, if you look at the August trial, which led to the R2 registration, the R2, the infection rate is over 50%. So it's quite -- considering these patients will be on the drug for a long time, the median PFS to R2 is over 3 years. And these patients tend to have repeated infections and sometimes it can get pretty difficult to control. So I would imagine that the patients with mutations of EZH2, when they can tolerate the second current second-line therapies, they might try -- they might actually go for TAZVERIK, particularly patients with high risk for infections and those elderly patients, or patients already had previous infection history. And so it was very difficult to manage infections, and I think it will be a good option for them. Obviously, ultimately, it's physician's decision. And until the 302 study is read out, I think it's not indicating in second line, but it could bring benefits to some patients.

Our next question comes from the line of Paul Choi at Goldman Sachs.

Just 2 from us, please. First, just with regard to the incidents, the key hematologies that you mentioned in terms of the rate in China. Sort of 20% or 25% approximately the right number for the EZH2 and how are patients currently identified? And then my second question is with regard to your combination strategies, given your plans to develop your pipeline assets in hematology globally, are you thinking about running these combination trials outside of China as well? And if that is the case, and you have clinical success there, how do the economics potentially work if that situation occurs?