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

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. My name is Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that our next presentation will be conducted by HUTCHMED from Hong Kong SAR. Before I introduce our speaker, a few points to note. [Operator Instructions] On a final note, all of today's presentations will be recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome David Ng, Head of Investor Relations and Capital Strategies of HUTCHMED, which trades on the Hong Kong Stock Exchange on the symbol 13 and on NASDAQ and AIM as HCM. Over to you, David.

Thank you, Zafar, and welcome everyone to our presentation. My name is David Ng, Head of IR and Capital Strategies of HUTCHMED. So today's presentation actually come very timely. As some of you may know and monitor our news, we did have a major news announcement, just 12 hours ago, which is our major colorectal cancer drug just got the U.S. FDA approval, which I will elaborate a little bit on that, but that's probably one of the major -- most major event that we have been anticipating, and it has just materialized. Now let me go through the presentation slides, and then we will have the Q&A towards the end of the presentation. So this is the usual safe harbor statement and disclaimer, and please read through this. Now the key things that we have been focusing on is that we want to be a global science-focused biopharma with integrated R&D and commercialization platform. And I think that word global now means much more than in the past. I think when -- 5 to 10 years ago, when you see a lot of start-up starting to surface in Mainland China, many of them do aspire to become a China R&D but global commercialized company. But as we have -- and as many of our peers have experienced over the last 10 years, it is a very challenging process to be able to bring up a quality product, go through a very robust clinical design -- clinical trial design and eventually secure the overseas regulatory authorities approval. So we've been through a lot of ups and downs. It has been a long journey for us. We're no longer a start-up these days, we were found it back in year 2000. So we are a 20-year plus company, and we are very proud to say that we have finally get to the finishing line of having our product both approved and commercialized in China [ as well as ] securing approval in the U.S., which just happened 12 hours ago. And we are going to go much further from here. We have Takeda being our partner for this particular drug, and they will bring us -- bring our product to not just to U.S. but in Europe as well as to the rest of the world. So another thing that I would say that distinguish us from a lot of the biopharmaceutical companies in China, is that, we want to set a target of breakeven basically making earnings in the year 2025, which is just 2 years from now, where 6 to 7 products potentially commercialize in China plus a few overseas. This is, again, not an easy task considering that this is a much different capital market than a few years ago. We watch our spending, our R&D as well as our selling expenses very carefully. But at the same time, balancing such that we do maintain an attractive pipeline to support our long-term growth. So here I will go through some of the key numbers that happened in first half of this year. I think one number that will draw your attention is this major so-called R&D revenue. And this is basically the upfront payment coming from our partner, Takeda, and they have been very -- signed up a $1.1 billion licensing deal with them with $400 million upfront that was collected in early this year. And a big chunk of that $400 million, $279 million that was basically booked in this year. So that's a very major windfall for our income statement, and that will very likely result as to be profitable. However, just to remind everyone, when we talk about breakeven 2 years from now, we are not talking about one-off breakeven or one-off windfall of licensing fee. For 2025 breakeven target, we are targeting sustainable growth beyond that. And I think that was helped by also our much more disciplined R&D expenses. As you can see, it has come down a bit as well as on the selling expenses. We do think that this level of expenditure should be sufficient to support our ongoing R&D program and towards their commercialization with the help of potential partners in overseas. This is our 4 key products. The first 3 are basically self-developed by ourselves. And this -- the very top 1 called ELUNATE, or the drug name is called fruquintinib, was the one I just mentioned that got U.S. FDA approval 12 hours ago. But for China, the Mainland market, it has been selling for 5 years already. It has achieved about USD 56 million in the first half, representing about a 20% growth. So this is a drug for third-line colorectal cancer, it's a VEGFR. The second product is called surufatinib. This one is for a cancer called neuroendocrine tumors and it has been approved in China and has been selling. And the third product is called savolitinib, it's a MET inhibitor. It has been also selling in China for almost 2 years now. This one, the sales is a little bit small at this stage, but we expect a lot of potential down the road. When we expand the usage of this product to not just the small biomarker population, but into the second-line non-small cell lung cancer population in combination with a drug called [ TAZVERIK ]. And these drugs, the first and the third one had already secured a partner. The first one has been partnered with Eli Lilly. The third one has been partnered with AstraZeneca. For our commercial capability, we have a team of 900 sales people, about 2/3 of them focus on the very first product for colorectal cancer, the drug called fruquintinib. And then we have entered 3,000 hospitals -- more than 3,000 hospitals. And in the hospital pharmacy listing over 800. And on top of that, we also have been accepted into the government insurance program. Some of you may know it's called NRDL. So for the first drug, it actually has entered for 5 years in a row. It's actually up for renewal. And the price cut actually was much milder than 4, 5 years ago. And I think that reflects also a slight change in the sentiment of the authorities for being a little bit more supportive of innovative drugs. Now again, this is the excitement. In China, it has been selling for a couple of years, and our market share went from 2% to 47%. This particular drug called Stivarga is a competitor from overseas from Bayer. It is also approved for third-line colorectal cancer, and however, we believe that both the efficacy profile and the toxicity of our products are superior to Stivarga. In terms of the efficacy, we can deliver close to 4 months of so-called PFS, progression-free survival, whereas Stivarga is around 2 months, so it's almost double. In terms of the toxicity profile, Stivarga has the so-called black box warning on the label, specifically regarding the liver toxicity, and we don't have that one. So we expect that -- now this is China data that you are looking at right now. But we do have high hope that for the overseas market in the U.S., in Europe and in Japan later on. We also expect to win a lot of market share from our competitors. This is the second product, which we own 100%. It's a smaller market called neuroendocrine tumors. And this one in the near future may not have an overseas partner because of a smaller market size. So this one, we are doing it by ourselves. We are manufacturing, selling in China. For overseas market in the near term, we don't plan to have a lot of overseas expansion at this stage. The third product, some of you may know -- may have heard about HUTCHMED for a long time. This is definitely the product that is in your mind, savolitinib. We have been developing this for lung cancer for quite a while. It has already been approved in China, but for a subset of lung cancer called Exon 14. It's just about 2% to 3% of the lung cancer population. But definitely, we're not stopping there. We are expanding the usage and through clinical trial and experiment to be in combination with a very dominant lung cancer drug called Tagrisso. So Tagrisso by AstraZeneca, right now is selling very well in the first-line therapy for lung cancer. But of course, some cancer patients will progress or get resistant to Tagrisso, and we are targeting the second-line usage. And in this case, we're actually in combination with Tagrisso, which both of us are oral pills that you don't -- only need to take once daily. So this has much better compliance and much lower side effects than the chemotherapy. Now there are definitely a lot of upcoming competitors trying to get into the same market. But again, we see that our 2 oral pill combination offer not just much better compliance, and also better quality of life for the patient because of much less side effect from some of the other alternative medications. So this one, we are hoping that by the end of next year, 2024, we will have detailed clinical trial data for the second-line lung cancer combination therapy, and target launch in the overseas market towards the end of 2025. Well, this is something that we are quite proud of. If you look at the slide, this is our new facilities in Shanghai, already completed, starting to deliver some batches of supply for clinical trials. For commercial manufacturing, it will be ready about 1 year from now after the tech transfer. So around 2025, it will be fully running and supplying all our products, not just to China, but to the overseas market. Now there -- this is a summary of all of our registration studies or potential registration study. I'll just pick on maybe 3 to highlight. The very first one already done. And this is the one that supports the U.S. FDA approval this morning for us. The second one for the same drug is for second-line gastric cancer. This one we expect approval in China around middle part of 2024. And just as a reference, second-line gastric cancer is twice the market size of third-line colorectal cancer. So this, again, provides a very strong contribution to the future potential of this drug. Now we do have 4 already commercialized products, but we think that the next catalyst for our stock price or for our company is this product called Sovleplenib. This is a noncancer drug. It's indicated for a disease or disorders called immune thrombocytopenia or ITP -- ITP just for the abbreviation. This has already completed the so-called Phase III trials in China, ready to submit to the authorities for approval, and also waiting to talk to a potential partner in the overseas market. Now the catalyst event in my view is the readout or the disclosure of the detail of this Phase III trial, which we hope to happen towards the end of this year or early next year. And then that will be followed by subsequent talks with potential partner. So we want to repeat the success we have with fruquintinib in colorectal cancer and into this product cost Sovleplenib in ITP indication. So again, like for some of the audience who may have heard about this in the past, we have a code name called 523. Now we actually have a real name called Sovleplenib. The class of drug that this Sovleplenib belongs to is called SYK inhibitor, Syk inhibitor. So this is a family of medication that is quite new. I mean the mechanism may be out there for many, many years, but in terms of actually approved drug, there's only one around the world and none in China. So if we get the approval, we will be the very first in China for this class of drugs and targeting the ITP indication. Another trial that I would like to point out to is this one. This again is the Savolitinib drug that some of you guys may have heard many, many years ago. The trial that we are waiting for the result is called SAVANNAH. This is, again, like a second-line usage for lung cancer. And we expect the data in the second half of next year, and that hopefully will be followed by filing to the U.S. FDA and launch another 12 months later. Now for this drug, we are also having multiple trials. If you see this particular -- in purple color, we have Savolitinib, the same drug running trials in China, also in the second-line setting, running trials in the first-line setting also in China, running trials also in the gastric cancer MET notation population. So we do have a lot of activities happening for this drug. Now maybe just echo back our previous statement saying that our R&D expenses are still very much under control. And despite all these trials ongoing, the overseas trial are being paid by AstraZeneca, our partner. And for the domestic Chinese trials, around 70% of the R&D expenses are being reimbursed by AstraZeneca. So this is a project that had been not going for quite a number of years. And again, we may see some good results towards the end -- towards second part of next year. Now I won't go into the details of some of these trials, but feel free to ask about this if you are interested during the Q&A session. Again, like I mentioned about our continued major partnership with Takeda, going on very well. We have already received upfront payment. They are going to launch this product as quickly as possible. The supply, the 2 batches of this drug has already -- have already been shipped to Takeda, so they can launch as soon as possible. And for fruquintinib, there are 2 more indications that we are working on, apart from the colorectal cancer and the gastric cancer. We are working on endometrial cancer. This one already in the last Phase III clinical trial. And then another indication is for the kidney cancer, which I did not put down here. So there's actually 2 more indications that we are working on for fruquintinib. Again, this is one of the major products that will drive our sales growth as well as supporting our breakeven in 2025. Now I'll just -- touched on this may be very slightly before I stop for Q&A. So this is the fourth drug that I mentioned. The name of the drug is called Sovleplenib or 523 as recorded in the past. Two key things to note about this is the durability of response is quite impressive at about 40%. If we look at another SYK inhibitor, which has been approved overseas, that is just half of this. And we also have a very low usage of so-called rescue medication at around 5%. And again, this is much lower maybe 1/3 of that of our counterpart in overseas market. So the Phase II trial -- Phase I/II trial completed data release, the one that I'm thinking of being our next catalyst is this Phase III trial called ESLIM. This one we already announced that it has been completed and met the endpoint. But we have -- but we are waiting for a formal scientific conference to present the data. And we hope that will be towards the end of this year or maybe early next year. And just in the sake of time, maybe I'll just move to this particular slide. So it's a very good summary of our product portfolio. The first 3 products commercialized in China already ongoing sales, ongoing growth. The very first one, just approved this morning in the U.S., we will collect royalty from Takeda for all the overseas sales. The second group of three, either going to file very soon and to be launched maybe 12 to 18 months from now. So this is our second wave of product, and they will very likely also contribute to our 2025 breakeven target. The third wave, we have 4 products here. The top 1 here, which is an FGFR inhibitor. This one already entered the registration trial, and then 3 others in the third wave, they will be entering the registration trial in the next 12 to 24 months. So you do see, in brackets there, so-called biomarker or targets is quite vary. But a lot of these target hematological indication. And we do have even earlier-stage products that target multiple different targets. So maybe I will just stop here and answer some of the questions that is already in the chat box.

So the first question said, half year looks to be well financed at the cash position already surpassed year-end of last year. Can you elaborate what factors? So that contributed to strong cash position in half year. So definitely, the upfront payment from Takeda to the amount of USD 400 million helped a lot. At the end of June, we have a cash balance of around USD 850 million. And as you can see, our R&D expenses have been much more well controlled. So the -- both the -- our cash balance and our cash flows should be in very comfortable position heading into the next 2 years. And just maybe to elaborate on that, we have already collected USD 400 million from that deal. Another $730 million of milestone payment will be contingent on the sales performance of fruquintinib in different markets as well as some potential new indications development, which is kind of the next question. Can I speak to our plans for fruquintinib clinical trials in the EU and the U.S? Now in China, we have already approved colorectal cancer third-line and pending approval for second-line gastric cancer. And 2 indications in Phase III registration trial, namely endometrial cancer second-line, as well as renal cell carcinoma. For the overseas clinical development, it will be very much up to our partner, Takeda, to decide. Because demographics of course, may be different, right? The size of market of different indications may vary from what we see in China. So far, they have not provided details on that one. But I'm pretty sure that, that should be somewhere in the plan. Again, like considering the very sizable total deal that they have with us for $1.1 billion. I think they are not just stopping at colorectal cancer. The next question is, can you share any 2024 sales goal now that we have reached -- received the FDA approval. So this is one of the most asked question. And unfortunately, Takeda has not given any particular guidance at this stage. We know definitely, they will launch as quickly as possible. And we know that they should be quite incentivized to sell this because it's one of the very few major products on their commercial portfolio now. And they do have a very strong franchise in gastrointestinal diseases. So it's a very nice match with the capability. However, they haven't given out any specific target and neither can we do that at this stage. Again, I just reference back to the fact that we have already collected $400 million upfront payment. So maybe that will be an indication on what Takeda expects the sales or the peak sales of this product potentially can be. The next question is, what are the drivers of our sales growth in '23 and any guidance for '24? So our revenue -- so we only provide total revenue guidance, which is USD 450 million to USD 550 million for the year 2023. However, we did not elaborate on individual product sales guidance. So -- and again, that $450 million to $550 million revenue guidance already included -- it will be around $280 million of upfront payment booking. So if you deduct $280 million from this, that will be basically our product sales as well as we do have some joint ventures with a local company to distribute products. So this target remains unchanged despite the up and down this year with COVID, anticorruption and all this, we're still quite happy with maintaining this target. And for 2024, I think pretty much we will do something similar in providing revenue guidance, but we would do it properly at our year-end results. The milestone -- the next question is, what are the milestones for 2024? So let me try to click to that page. So there we go. So this is the clinical deliverable in 2023 and '24. So by the end of this year, we are planning to file to China FDA 2 products. One is amdizalisib. This is a P13K delta and the other one is Sovleplenib. So this we do expect to file. Now for 2024, it will be a year of a couple of clinical trial initiation as well as submission to the regulatory authorities. But we do have fruquintinib for gastric cancer that we expect to secure approval in the middle part of next year. And then in the second half of next year, we will have some clinical data available for savolitinib. This is for the second-line lung cancer overseas market, as well as a similar trial in the China setting. So both supposed to reduce data and then we'll be ready for filing to the respective authorities by the end of next year. So the next question is, can I comment on the consideration around this year of Board of Directors and Tech Committee changes. This is not a very common question. And -- so we continue to strengthen our management. So maybe I'll just answer this in a much more broader sense. Over the last few years, we do have some management changes. Some of you may know Christian. He has retired and is now in London. And we hired some -- also quite high-profile person. So we hired a new Chief Operating Officer, Karen Atkin. Now she has been with AstraZeneca for more than 20 years in multiple countries in multiple roles. So we think that as we head into a more fully integrated biopharmaceutical commercial company, her expertise will help us a lot. Our original Chief Scientific Officer, Dr. Su, who actually discovered almost all the products, including fruquintinib in our portfolio, he has now become our Chief Executive Officer. And then we have hired an external person to join our company to be the CMO. So I think we -- I'm towards the last few seconds. So thank you, everyone, for listening to our presentation. And if you have any other questions, please feel free to contact Deutsche Bank or HUTCHMED. Thank you very much.