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

Hello, and welcome to the Deutsche Bank Depository Receipt Virtual Investor Conference, DBVIC. My name is Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that today's presentation will be from HUTCHMED from Hong Kong. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box below the slides. Once the Q&A session has ended, don't log out. You will be automatically transferred to the HUTCHMED booth, where you can continue the conversation via chat and access shareholder materials. On a final note, today's presentation is recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Christian Hogg, Executive Director and CEO. Over to you, Christian.

Thanks very much, Zafar. Hello, everybody, wherever you are. Welcome to the HUTCHMED presentation. What I plan to do is spend probably 20 minutes going through some slides with a brief update on the business and then see if there are any questions to answer. So if you have questions, just put them in the Q&A, and I'll get to them if I can. So starting on Page #3, HUTCHMED in -- from 30,000 feet is a global science-focused biopharmaceutical company. We're based in China, but we have operations now all over the world. A good-sized organization in the United States and running our clinical and regulatory operations and building commercial there. But you can see here from this chart on Page #3, we've built this company over 20 years. Currently, there are around 4,500 personnel across the HUTCHMED Group. We have around 1,400 people in our oncology/immunology operation, which is really the core of our innovation. The 3 core areas that we have activity: #1 there in blue, you can see we have a global novel drug discovery and manufacturing base in China. So over 770 R&D staff based in China, working on creating novel oncology drugs for the global market and manufacturing them in China for the global market. In pink, you can see clinical and regulatory operations in all major markets. We have 11 clinical novel molecular entities, all discovered in-house that are in clinical trials around the world; 3 have been approved and launched in China and 3 are in advanced global development. The balance are in between early and late-stage development. In the green area, you can see the commercial side, we've built out very rapidly in recent years. We now have really a dual focus. United States and China, those are the 2 markets that we want to run extensive self-controlled commercial operations. We have today 600 people in oncology on the ground in China, covering 2,500 China oncology hospitals and clinics. And we have an emerging U.S. commercial team in place in readiness for a potential launch of surufatinib next year in the U.S. So you can see, we have our base in China. We are developing our drugs all over the world, and we're getting ready to really commercialize those products in the United States to build on top of our already existing deep oncology commercial activities in China. The pipeline, I won't go through it in detail, but you can see the 11 assets that we have in clinical trials. The top 3, surufatinib or SULANDA, ELUNATE and ORPATHYS, these are all products that have been approved and launched in China. SULANDA is unpartnered. We've partnered with Lilly on ELUNATE and we've partnered with AstraZeneca on ORPATHYS. And all 3 of those drugs are in late-stage development outside of China. Going down the list, amdizalisib is our PI3K-delta, very exciting data that we published recently in -- on that asset. Very high efficacy and a safety profile unlike any other PI3K-delta in global development. Syk inhibitor, EZH2 in partnership with Epizyme, that sort of rounds out our B-cell malignancy assets, PI3K-delta, Syk and EZH2. You can see at the bottom of the list is CD47 antibody. All 4 of those assets are going to be used in combination to attack any number of lymphoma and leukemia or indolent non-Hodgkin's lymphoma subtypes. And you can see throughout the balance of the portfolio, probably most notable are the IDH 1/2 dual inhibitor, the ERK inhibitor. We have a big program on the MAP kinase pathway that we're working on. And then another B-cell malignancy asset, a third-generation BTK coming along as well and soon to start clinical trials. So a broad portfolio of assets. The first half highlights or really more like the first part of 2021 highlights. We've had a really big year this year so far. Obviously, first half revenues were up a lot on the oncology/immunology business. We launched SULANDA and ORPATHYS in the first half, fruquintinib or ELUNATE made great progress in the first half and then we submitted the NDA and the European MAA on surufatinib early in the year. The pipeline continues to make great progress. I'll touch on some of those activities as we go through the rest of the presentation. But amdizalisib was granted Breakthrough Therapy Designation in China. We've started registration studies on our Syk inhibitor in immune -- ITP, immune thrombocytopenic purpura. Savolitinib started 3 new global and China registration studies and 2 more set to kick off later this year and very early next year. We're about to finish enrollment of the fruquintinib colorectal cancer study globally, which is exciting. A lot of progress has been made on the PD-1 combos with surufatinib and fruquintinib, and then the earlier stage pipeline moving quite rapidly along with the partnership with Epizyme. On the right-hand side, organizational progress. Continue to build out the clinical and regulatory team and the U.S. commercial team outside of China. The commercial team in China, as I said earlier, is now over 600 staff. Big new manufacturing facility being built in Shanghai to support both small molecule and large molecule activities. And an IPO in Hong Kong that has led to a balance sheet of close to USD 1.2 billion. The guidance for sales of our oncology products this year is between $110 million and $130 million. We've not changed that guidance really all year. We expected to deliver that, and it looks like we're on track to deliver that. That's up a lot from 2020 where we did about $30 million in oncology/immunology revenues. So fruquintinib or ELUNATE, SULANDA, and ORPATHYS, all doing well in China and have all been subject to negotiations recently on the National Reimbursement Drug List. So a lot of progress is going on there. I see there's a question in the Q&A.

What are the drivers behind 161% revenue growth in the oncology business? The driver is the new launches of surufatinib and savolitinib, as well as us taking back commercial control on fruquintinib or ELUNATE from Eli Lilly late last year. We've really expanded our commercial team footprint, and that business has taken off. The rest of the questions, do we expect similar performance in the second half as in the first half or -- and into 2022? We expect these businesses to continue to grow rapidly. I think 2022, we'll see a major step-up relative to what we've seen in 2021. So next year should be a good year for our oncology business. Moving on. This shows a little bit of the complex [chart] and it shows the change that happened when HUTCHMED took over marketing ELUNATE compared to Eli Lilly. You can see in the first half of 2020, so the first half a year ago, Eli Lilly did $14 million in sales on ELUNATE. In the first half of '21, since HUTCHMED took over, we did $40.1 million, so an increase of 186%, driven by a broader commercial footprint and just a very aggressive commercial program behind ELUNATE. Next slide. SULANDA was launched very early this year. It's early. We've been requiring patients to pay out of pocket all year. We've just negotiated potential for NRDL inclusion next year. So we obviously can't yet publish the outcome of those negotiations. But our view is SULANDA has got off to a pretty good start this year. It's well established. It's well established as the sort of the new treatment for neuroendocrine tumors. There are a good amount of patients in China. The problem is neuroendocrine tumors are quite a difficult tumor to diagnose. We've seen a high degree of increase in diagnosis in the United States as clinicians have become more familiar with NETs through the year. That's still to happen in China, but we hope to be a driver of that change. ORPATHYS, launched by AstraZeneca. We are the market authorization holder. We are the manufacturer. AstraZeneca is effectively the commercial agent for ORPATHYS in China. You can see down there on the bottom right, there are multiple oncology drugs marketed by AstraZeneca in their lung cancer franchise in China. Astra is the biggest multinational pharma company in China at the moment with about $5.4 billion in sales in 2020 and represents about 1/4 of AstraZeneca's total global sales in China. So they're a very powerful team in China, particularly in the lung cancer space. So ORPATHYS fits very well with TAGRISSO, Iressa and IMFINZI in lung cancer. A lot of synergy. On ORPATHYS, it's been approved in Exon 14 deletion non-small cell lung cancer, which is a relatively small indication of about maybe 13,000 patients a year. But you can see from this chart that ORPATHYS has been developed and published in many other solid tumor settings. MET amplification is prevalent across many solid tumor settings such as lung cancer, gastric cancer, colorectal cancer and kidney cancer. And so we've published data -- compelling data in all of these areas. On the right-hand side of this chart, you can see the 5 registration studies that have been -- either have been already started or about to start in China and outside of China. The SAMETA study is a global Phase III in papillary renal cell carcinoma, a MET-driven patient population. We've recently dosed our first patient. The next 3 studies are all lung cancer studies in combination with TAGRISSO, AstraZeneca's successful EGFR inhibitor. And then the last study there is in gastric cancer, MET-amplified gastric, where we've published some terrific data from the VIKTORY study, showing 50% response rate in those MET-driven patients. So a lot going on, on savolitinib, continues to be a really important year for that therapy. If you look at the broad spectrum of registration studies that we started during 2021, you can see we started 10 new registration studies on savolitinib, surufatinib, fruquintinib, amdizalisib, the Syk inhibitor 523 and through our partnership with Epizyme, the SYMPHONY-1 study for TAZVERIK. So that's a lot of clinical studies kicking off this year. In addition to that, you can see 3 new INDs have been submitted and cleared in the case of the BTK inhibitor and INDs being planned on the CSF-1R and the CD47 antibodies. So continued flow of innovation coming through to the clinic. So very, very active time for us. Savolitinib in lung cancer. Multiple Phase III is kicking off, all of it driven by this data. If you look at the chart on the left-hand side, you can see the data that we've already published for the savolitinib, TAGRISSO combination. Most recently, data we published on the ORCHARD study at ESMO late this year. And you can see just terrific efficacy across those quite difficult MET-driven EGFR refractory TKI -- sorry, EGFR TKI refractory patients. So 40-odd percent in the second line and above patients and more like 60%, 65% or 70% in patients that fail on first-generation EGFR TKI. So this led us to the SAVANNAH study. The SAVANNAH study is registration intent is complete. We are currently evaluating how we're going to use this data and how we're going to publish this data, how we're going to interact with the regulatory authorities with this data. So that should all be playing out over the next few months. We're very happy with this combination, and we'll see where it takes us. But we would expect to be finalizing our global Phase III strategy for this combination, savolitinib and TAGRISSO or ORPATHYS and TAGRISSO, and kicking that off relatively soon. There's a question on the Q&A. Can you provide some color around your partnership with AstraZeneca for ORPATHYS, recent trial results and market opportunity for HUTCHMED? So it's a 10-year collaboration with AstraZeneca. We've studied savolitinib in well over 1,000 patients, probably closer to 1,200 patients now, heavily in lung cancer. Yes, it's a good collaboration. Obviously, a lot rests on the next month or 2 on this collaboration. I think we will -- one thing that's certain, with those 5 registration studies that are underway and the approval in China, we have a very important therapy here. But in China, it's first-in-class. So we're the first collective c-MET inhibitor in China. So when you have such an innovation, the collaborations tend to go fairly smoothly. Next slide. In papillary renal cell case, I mentioned it earlier. You can see on this slide, published at ASCO this year in June. 57% response rate in MET-driven patient population in papillary renal cell carcinoma. That compares to the standard of care today, which is sunitinib, as you can see on the table on the left, with a 7% response rate. So really meaningful benefit to patients for the savolitinib IMFINZI combination in MET-driven papillary renal cell carcinoma. What's actually exciting, if you look at the chart on the bottom left, you can see the Kaplan-Meier chart and you can see sunitinib, the median overall survival in MET positive PRCC patients is 13.2 months. On the right-hand side, on the CALYPSO study, you see the median overall survival for savolitinib IMFINZI combo is 27.4 months. So you're doubling the survival from a little bit over a year to well over 2 years for these very difficult and currently really untreated patients. Combinations on the PD-1s. I won't go through this in a lot of detail. We've got a lot of exploratory work underway for surufatinib in combination with PD-1s from Junshi, Innovent as well as BeiGene. And we've started up a Phase III in the most high potential indication in that second line and above, the neuroendocrine carcinoma. We're doing the -- effectively the same thing with fruquintinib, combining it with TYVYT from Innovent and tislelizumab from BeiGene. And we're seeing terrific efficacy of that combination. I see a question up in the Q&A. What is your R&D budget to support 10 new registration studies? And what do you as priorities for your R&D spend? We'll spend about USD 150 million in China and about the same outside of China in 2021. Now with all of these registration studies kicking in, next year it will be higher, but still well within the scope of resources that we have with a balance sheet of over -- or around $1.2 billion in cash. So fruquintinib, making great progress with the PD-1 combos. Amdizalisib, our PI3K-delta, we presented new data at ESMO, particularly exciting with the follicular lymphoma data, where you're seeing a very high proportion of patients in complete response. And that's led us to, on the left-hand side of this chart, start 2 registration studies in China, 1 in marginal zone lymphoma, 1 in follicular lymphoma. When you look at the chart here on the right-hand side, you can see the complete response rate for amdizalisib is way higher than any of the other approved PI3K-delta. In fact, the ORR is way higher also. So we think we've got a potential best-in-class asset here. There's no chart here on the safety, but the safety profile of amdizalisib is highly unique, very -- the PI3K-delta inhibitors have always had problems with gastrointestinal toxicity and liver toxicity. Amdizalisib is not showing any of those issues. So at least for now, we have a very exciting asset. On Syk inhibitor, 523 in ITP. This is data that will be presented at ASH shortly. This is the data that is in the abstracts that are already published. And you can see here in this very difficult immune -- autoimmune disease or immune-driven disease that effectively ends up with patients with very low platelet counts. Treatment with our Syk inhibitor, you can see on the left-hand side there in the blue table, we're seeing very high levels of response and durable response to the Syk inhibitor. The approved therapy on the market in the U.S. for ITP using Syk is fostamatinib from Rigel. And I believe the durable response for fostamatinib in ITP patients is below 20%. So this is encouraging data. We're also studying, as you can see on the left-hand side, the 523 in lymphoma as well, various indolent non-Hodgkin's lymphoma patient population. So our R&D strategy is very much about hitting cancer from multiple angles, both hitting the genetic drivers of disease, on the bottom left, as well as cutting off the blood flow to the tumor on the top right and then affecting either activating T cell response or promoting it -- affecting it. So really trying to hit the disease from many angles. Ultimately, all of our assets are designed to be combined with each other. They are highly selective in general and the tox profiles of these assets is very -- is generally unique. Back to the financial picture. You can see here, as I mentioned earlier, oncology and immunology total revenues for the year of about $110 million to $130 million. You can see in the first half, we did $43 million. Total revenues for the company of about $157 million in the first half. R&D expense is $123 million in the first half, and that will increase significantly over the second half. On the right-hand side, you can see as of the middle of the year, we had $950 million in cash, but we then went on to bring in another $250 million in cash. The $77 million from the over-allotment of our Hong Kong listing, a $25 million milestone on the first sale of ORPATHYS and about $150 million from the sale of a non-core business, an OTC business that we built up over many years and sold recently. So in general, the overall picture is we have the financial resources to support the aggressive global ambition that we have as a company. By 2025, based on the current programs we have in the clinic, we expect to have launched 5 therapies globally or outside of China and 9 inside of China, 3 have already been launched and we expect over the next 3 to 4 years to launch another 6. On the right-hand side of this chart, you can see that also by 2025, we will have an additional 15 assets or therapies in registration studies. So this is just the beginning for HUTCHMED. We've made great progress to this point. It's taken a long time to reach the scale, the size of platform that we have and the capabilities we have. But over the next few years, we expect to see major progress and building ourselves up to a really meaningful presence in the global oncology space. So that's the end of the presentation. That's 26 minutes. Looking at the Q&A, I see 1 question that I haven't answered, maybe another 1 coming in. One question. Do you have any global ambition for savolitinib in gastric cancer? The answer to that is absolutely. MET-driven gastric cancer -- [eMET] gene-amplified gastric cancer represents about 5% of all gastric cancer. And obviously, China is the biggest gastric cancer patient population in the world with over 600,000 new cases a year. And when you combine China with Korea and Japan, we've got well over 50% of all gastric cancer patients globally. So yes, we're focusing first on those big patient populations in China, but we hope to be able to use the registration study data in China for potential submissions outside of China, including the United States. Obviously, gastric cancer is a much smaller disease in the United States, but at the same time, the market potential is really significant. Another question. Curious as to your experience in challenges and benefits in being included in the Shanghai and Shenzhen Stock Connect program? We recently -- obviously, we listed in Hong Kong in June of this year. And subsequently, I believe, in late September, we were introduced into the Shanghai-Shenzhen Stock Connect program. So that allows for investors -- retail investors effectively in Shanghai and Shenzhen to buy HUTCHMED shares on the Hong Kong stock market. To this point, we haven't seen a huge impact. But what we do tend to find is companies of our type, over time, will build up potentially between 10% and 30% of the shares being held by investors in Shanghai and Shenzhen. It takes a few years for that to happen. But there are several cases of Hong Kong-listed biotechs that have now got between 10% and 30% of their shares held by those investors in China. And, you know, it's important, because those investors tend to be valuing these companies higher. They're more aware of these companies. HUTCHMED is very well known in Shanghai. We are really the first innovative drug discovery group in Shanghai. And so we've been in the press up there for many years, launching all of these products and managing various businesses up there. So I expect that to come over time. So I think that's us, 29 minutes, 58 seconds. So I'll leave it here, but thank you all very much for listening. And I hope you've learned something about the latest status of HUTCHMED. Thank you for your time.