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

Hello, and welcome to the Deutsche Bank Depository Receipts Virtual Investor Conference, DBVIC. I'm pleased to announce that our next presentation will be from HUTCHMED China Limited from Hong Kong. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box to the left of the slides. Once the Q&A session has ended, don't log out, you'll automatically be transferred to the HUTCHMED booth, where you can continue to ask questions and chat and access shareholder materials. On a final note, all of today's presentations are recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Mark Lee, Senior Vice President, Corporate Finance and Development of HUTCHMED, which trades on the Hong Kong Stock Exchange as HCM, on NASDAQ under the symbol HCM and on the LSE also with symbol HCM. Over to you, Mark. Okay.

Thanks, [indiscernible]. Hello, everyone. I think it's been a few months since we've done this. So I will go through our corporate presentation. I think some of you have seen some of the updates from August, but given the time, I will go through it quickly. This is a brief one to remind you. This is a disclaimer and safe harbor statement on -- that there's no guarantee on what we say into the future. So just an overview. So just to remind you all, we're a global science biopharma. We are headquartered in China. We've been discovering and developing and manufacturing drugs for almost 20 years, of which we put in over a dozen drugs into clinical trials from our own labs. They're being developed in not just in China, but also in the U.S., in Europe and in Australia. We have, in fact, put 3 of those drugs into the market now in China, calling on over 3,000 hospitals, and we're intending to do commercial partnering outside of China. That is to say, these drugs have global potential, however, we are not currently planning on building our own commercial team outside of China at the moment. And so once we develop them worldwide, we're looking to find the right commercial partner outside of China. And then you see on sort of the last pill that in terms of that clinical development, it's -- we are continuing that not just in China for those compounds but also outside of China. Here's a brief overview. You can find the slide deck on our website. So I will just highlight very briefly maybe the top 6 lines here, which we'll go into more detail in a second, but you see fruquintinib, surufatinib, savolitinib and amdizalisib, sovleplenib, tazemetostat. All except tazemetostat have been discovered in-house. Tazemetostat is a drug that we've been lessened from a U.S. biotech company in Boston, which has since been acquired by Ipsen. And that drug, we have in-licensed the China rights and are developing in conjunction with Ipsen to -- for the China market. Fruquintinib has been on the market for several years in China, principally for colorectal cancer, although we just had a fantastic clinical trial about a few months ago in also in colorectal cancer, but in a worldwide clinical trial. Surufatinib for neuroendocrine tumors. This is unlike Fruquintinib, a very selective VGFR anti-angiogenesis in Surufatinib also includes CSF-1R activity, which is an immuno-oncology target. And on actually quite confident you for, for example, PD-1. It is approved and marked for several neuroendocrine tumor indications in China, and we are also looking we're in the process of doing a bridging trial in Japan and considering our options for pondering outside of that. Savolitinib in pond with AstraZeneca is a c-MET inhibitor currently on the market in China and market by AstraZeneca -- in for non-small cell lung cancer with a lot going on, a lot of development going on. We can talk more about those in a moment. Amdizalisib in the field like cancers, again, both in registrational trials in China and slightly earlier can outside of China. And then last but not least, for the moment, I'm not going to go through the rest, Tazemetostat, which is an EZH2 inhibitor, which has not only a lot of potential in its current development combinations with Ritux and REVLIMID but also looking at combinations with other drugs in our portfolio. So just to give a general review of 2022 today, and especially from the half year, three launch products in the first half of the year, and you've seen it in the next few slides, more than double the sales of the first half to $ 91 million versus the first half of last year, as well as established commercial infrastructure position for growth. The broad development programs we've already talked about, particularly, and I'll give more detail on the promising indications that we have coming up for hopefully for NDA submissions, the later drugs. And in general, we -- while it's a challenging stock market out there, we have a very healthy cash balance, and we had $826 million in the -- at the end of the first half. And our strategic focus is very much to remove the need for any near-term financing and perhaps beyond that as well. Just going back -- just going to the commercial aspects in China. We -- in August ‘22, when we presented our results the revenues guidance for oncology was $160 million to $190 million. That's of the first half revenue result of $ 91 million, and that in turn is of a sales number in market sales of $87 million. And we make that distinction because M&A in all patterns, we book -- we don't book the sales directly ourselves. And within Elunate, we look about 75% of the sales in other kinds of revenues such as royalties and sales and marketing service marine, whereas imunopath, likewise, states marketed by AstraZeneca, and hence, we look royalties as well as some sales on the cost of goods. With Elunate, it's done fantastically since we took over selling and marketing at the end of 2020. We just about tripled the sales within 4 to 5 quarters since taking on taking [indiscernible] the marketing responsibilities from [indiscernible]. And you can see even in the first half of this year, we continue to increase the sales by 26%. We renewed ourselves on to -- on the national reimbursement, the NRDL, the National Reimbursed Drug List. And you can see in the bottom right-hand corner, probably the most spectate figure on here is our market share is now leading by far at 43% versus Stivarga at 33%. With SULANDA, only launched last year from new end consumers. This is a disease that is a much lower incidence meaning there's fewer new patients per year compared to colorectal cancer for LMA, but these patients do remain on drug for a lot longer than net. So the ramp-up is excellent as expected. And you can see compared to the first half of last year, we had 287 million patients in the first half versus the first half of last year. And then thirdly, in terms of oncology products on the market ORPATHYS early launched in the second half of last year, so not quite like-for-like, but you can see a 46% improvement in 6 months to 6 months growth marked by AstraZeneca. So only in our commercial team has done a fantastic job. You can see on the left side, this chart showing compared to when Eli Lilly was marketing Elunate, we've basically tripled the number of pharmacy listings, doubled -- more than doubled the number of hospitals, cover then double the number of cities. And that's through our 800 personal oncology team covering over 30,000 physicians and hosting -- just in the first 6 months of this year 3,800 events just on Elunate and covering over 43,000 health care professionals when it comes to SULANDA. Despite all of the lockdowns in Shanghai and other parts of China in the first half of this year, our team has pivoted and really use the technology to the best of it about [indiscernible] Well, here on this page, this is probably the main focus in the future development and future value in the company. This is the -- over a dozen registration trials ongoing over the next 2.5 years. Assuming these trials read out positively, these would need to many, many new drug application submissions over the course of 2023, 2024 and 2025. I'll talk a bit more at the top about FRESCO-2, which read out recently through FRUTIGA, which I -- we don't see yet, but read out relatively positively as well as a few others. Right. In terms of Savolitinib, we are -- and this is a slide I than before. So this is the reiteration of BIVV, 7 clinical trials here related to registrations in the fields of -- I'm not going to go through each one, but in the fields of lung cancer to rise refractory lung cancer, gastric cancer and kidney cancer, you can see the distributed betas level trials or is China trials. If you didn't see it, one of the most interesting areas is we presented some clinical data at the World Conference on Lung Cancer in August. You see here on the left, the trial SAVANNAH. This is a Phase II trial of the combination of [ cellulite ] Tagrisso -- in Tagrisso refractory patients. So for those of you that are a bit rusty, non-small cell lung cancer, about 30% of such patients are found to be EGFR mutation driven. And the best drug by far for that kind of patient is Tagrisso. And Tagrisso keeps has been coven to keep the disease at bay for maybe about 18 months if you use it from the beginning. However, resistance mutations are developed. And indeed, in -- as you can see, about 62% of these patients seem to be driven by MET and [indiscernible]inhibitor. And you can see, particularly of those 62%, 34% of those 62% are highly driven by that. The data that we just presented in August shows that --in that 34% population, they had response rates of about 52%. Median durations are responsible almost 10 months and median progression-free supplier around 7 months. All outstanding data, especially given the lack of alternatives for such patients. And so we're doing 2 things. One, we've kicked off along with AstraZeneca, a Phase III trial led SAFFRON, which is a one-to-one driven trial of that combination of Savolitinib plus Tagrisso versus chemotherapy, which is the only current alternative. At the same time, SAVANNAH is continuing to enroll more patients. So while SAFFRON is being enrolled, SAVANNAH is also enrolling to see if we can maintain these high response rates with a larger data convincing data set and look to meet to the FDA to consider if there can be accelerated approval while we are running SAFFRON. I will go into detail on the other bits of salad for time, but you can see we are doing other combinations for exactly with IMFINZI, AstraZeneca's PD-L1 inhibitor, also known as durvalumab in fields of certain biomarker types in kidney cancer and also potentially in Exon 14 non-small cell lung cancer. Okay. Moving on to fruquintinib -- colorectal cancer. Colorectal cancer is still in -- particularly in the Western Wales the #2 most common metastatic cancer to be diagnosed. You can see in the middle chart that the disease still has a pretty low 5-year relative survival rate. And while there have been new therapies launched over the past few years. You can see these newer treatments are really only focused on actionable mutations. So for example, BRAF, it's about 10% of such patients or MSI high is maybe about 15% of these patients. So there's a large population still that has a large unmet medical need. To address that unmet medical need in China, and this is what one be launched on, you can see the blue box is the blue -- FRESCO trial, which was a China trial presented a 2.7-month improvement in overall survival and 1.3-month improvement in progression-free survival. We repeated that trial but not rather than China, but in 14 other countries, except China, many U.S., European, Japan, Australia patients in a slightly different setting simply because the standard of care moved on a little bit, particularly comparing against TAS-102 and regorafenib. And you can see in those pink columns 2.6 months improvement in median oral survival and 1.9 months improvement in median progression response. -- very, very, very consistent results with the data we saw in China. And that's very exciting and what we presented at ESMO. And ESMO t the UPenn Society of Medical Oncology, I know meeting in September in Paris, this data was run it very exciting because it's just -- it's so unpack for so many an oncologist, colorectal cancer patients. You can see with these 2 capital mine curves, clear separation between them with fruquintinib, Clearly, China has a large improvement in both of those key endpoints. And again, as you move on to looking at the subgroup analysis, it's a very consistent result no matter what particular pivot you'd like to compare the drug is -- those patients on the drug better than those that were not. In terms of the competitive landscape, indeed, -- you can see regorafenib and TAS-102, the data that they were approved on, for example, in progression-free survival, I talked about the 1.9 months improvement in progression-free survival. You can see in that middle pink row column for fruquintinib. You can see is regorafenib approved on a -- with data that showed a 0.2 month median PFS and TAS-102 likewise with a 0.3-month median PFS improvement, likewise on the left, 1.4 to 1.8 month improvement in overall survival and a 2.6 month improvement in overall survival with fruquintinib. And of course, I think I've said this many times. I've had a very good safety profile given how selective fruquintinib, on the bottom of that page. So -- and then -- so that's colorectal cancer, and then we'll be -- we're excited to be filing that with the FDA, the EMA and Jack PMDA over the course of 2023. In terms of gastric cancer, we recently had -- now gastric cancer is a very Asian-focused disease. You can see China, Japan and Korea account for 60% of newly diagnosed cases in the world in gastric cancer. And so we just did this read out a trial. We met it's called Frutiger. -- again, fruquintinib versus placebo plus paclitaxel in both cases as that was the standard of care when started this trial. We meant all secondary endpoints of [indiscernible] -- in terms of primary points there were 2 primary end points, we did meet the progression-free survival endpoint, but we did not meet the overall survival endpoint. There's a lot more analysis that needs to be done. There are agents that have been approved on similar profiles of meeting progression-free survival and overall survival. But what we do --need to do is further analysis that really has just a few days ago read-out. A lot more analysis needs to be done after which we will go talk to the regulator and see how we can proceed potentially to potentially file this drug --for that disease. And then just in terms of time, there's 2 hematological or hematological latency related assets that we are in main-stage clinical trials Amdizalisib in China is in registrational intent trials enrolling right now should read out next year in follicular lymphoma [indiscernible]. Follicular Lymphoma [indiscernible] therapy designation and the data is very, very good, as you can see from earlier trials -- a real response rate of 82%, clinical benefit rate of 91% and modules on 50% ORR and 100% CBR, respectively. So that meanwhile, Savolitinib is in the Phase III in a disease called ITP, immune thrombocytopenia, also breakthrough therapy designation -- response rates in the previous clinical trial showed almost double the response rates of the other drug in this class for this disease. So we're pretty excited about getting that through a [indiscernible]. So just to wrap up, we finished the half with $826 million in cash. We -- in 2021 and 2022, we were gross burn in R&D was -- and the run rate was well in excess of $300 million, $ 400 million. But as I mentioned, we've now completed 2 Phase IIIs that were ongoing over the course of the last 2 years. We are also very much more focused on those -- that page of registration trials that I mentioned earlier. And so we expect the net burn rate to go down significantly over the course of 2023 and 2024. With the idea being that there's no interest in any near-term financing events and potentially beyond that. Meanwhile, our other ventures continue to deliver value, I guess I could have said on the previous page, but there's just in the first half of last -- of this year, the -- that continue to deliver $35 million in net income on offsetting the larger burn net loss in the P&L. So we'll continue to focus on partnering. We have a long track of strategic partnerships, synergy partnerships, bandwidth partnerships such as working with in margin to develop our immunology compounds. And so our partnership focus over the next year or so is focused on commercializing -- finding the right partner to commercialize fruquintinib in the rest of the world outside of China, road development of our other compounds outside of China and, of course, leverage China commercial success. It's a fantastic team and more products we compete at the best. So just to wrap up over the next 2.5 years, the global vision remains unchanged, continue to research and develop innovative medicines that could benefit patients worldwide. We have a very a dozen submissions planned, of course, assuming clinical success, both in China and globally and continue that strong China commercial momentum, where we're staying agile in this difficult stock market. So we are prioritizing those assets. And as I said before, we're prioritizing cash conservation, partly through partnering, partly through R&D focus with a view of bringing near-term value, building a long-term, sustainable business. So I'll stop there and then open it up for questions.

Okay. So I'm running down these -- first question is, any update regarding this year's negotiation for ORPATHYS potential national reimbursed drug list inclusion. So the -- in November here is the expected time for this negotiation. ORPATHYS, as you know, we're a partner with AstraZeneca, and they are in the process. What we are currently launched with ORPATHYS is for non-small cell lung cancer with Exon 14 alterations, Exon 14 skipping those ratios. That's a very specific indication. It's not the largest and the main potential for paths in indications that come. So AstraZeneca, of course, are going to balance growing sales in the short term against holding cost on large discounts that mainly to come when larger indications come. So at the moment, there's nothing to update on that. Well, we will update if it does get on to the [indiscernible]. Does Hong Kong-China social distancing restrictions impact your clinical trials? They have and they have not in the past, what, 3 years, really. We have -- we've pivoted in March 2020, and we continue to pivot depending on what it is, what the particular restriction is. We do benefit from the fact that our focus is on all of those drugs I've mentioned. -- are small molecule drugs, which basically means they’re pills. They can be delivered in a blister pack or a bottle. And hence, even if someone is unable to make it to the physician's office, we can mail it out to them. The physician -- obviously, we can't do x-rays, but a lot of the stuff. So it's -- I guess, I should say if the trial has been ongoing already and the patients have been recruited keeping them in the trial and working with them has been very well managed. If it's a new trial where we're still opening up new sites and perhaps there's a hospital in that particular province that is under some COVID restrictions, and then maybe that may take a bit more. But it's at most a matter of months, not a matter of years. Curious utilizing machine learning, AI and drug development? That's not our focus at the moment, particularly in drug development and clinical trials really comes down to clinical data. Will the Phase III fruquintinib and sintilimab renal cell carcinoma trial runs solely in China, will that be expanded to the U.S., EU and other global clinical trials? So for the moment, that's in China. The concept of combining Fruquintinib with a PD-1 inhibitor is very well understood as being a potential area to do that. As I said, we are -- we've just had a fantastic result as a monotherapy, and we're working. So we're focusing on that. We're looking to find the right commercial partner for this drug. And once that's established as part of the process, we're staffing the right commercial partner. The additional indications we want to take to the rest of the world, obviously, it's a very high -- there's a lot more to be focused on in terms of future development beyond what we just had a successful trial on. So that needs to be something that we need to agree with whoever is the department that we choose in the end. How will the initial results from FURTIGA Advance --I think -- advance your China research in gastric cancer? Well, it looks pretty positive in terms of the fact that the trial did seem to provide a progression-free survival benefit. There's the large caveat that it didn't mean overall survival. I would caveat the caveat to say that given that it's a second line and not a late line trial running overall -- so [indiscernible] survival data in this day and age in China is actually more difficult given that there are so many new agents that are being taken off label by many patients. So it's quite -- so we'll have to see what -- how the regulator deals with that. What other -- what is the reason for accelerating net loss for 6 months into -- okay, why did the net -- I think the question is why did the net loss in the first half of this year increase relative to the second half? -- relative to the first half of previous. We started a lot of clinical trials. I think if we can go back to that quickly. If we just go back to this page, you can see many, many, many trials here, let's say, FPI and then a month in 2021. That means all of these registration trials in the middle started in 2021. So the clinical trial cost increased a lot sometime in 2021, and we have, of course, carried on throughout 2020, '22. And hence, why that's why the clinical trial costs went up. Expectations for the second half? So the second half, it should be a bit less similar, but a bit less. As I said, though, these 2 clinical trials at top-top have now had the data read out. So they should be -- we're not continuing to enroll patients in those trials. Also, as part of our prioritization process this year, we've decided to wind down a few of the earlier-stage studies that just to manage the burn rate and put us on a very good and solid footing to -- with that large cash balance, a lower burn rate over the next couple of years to extend for several years and potentially beyond without needing to raise more cash. Okay. So I think that's all the questions we have, and I think that's also just about time. So thank you very much for listening, and please feel free to shoot any questions to me later, if you have any.