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

Okay. Good morning. We'll continue with the next session. I'm Paul Choi, and I cover the SMID-cap biotechnology sector here at the firm. It's my pleasure to welcome HUTCHMED and to my immediate left is Dr. Michael Shi, and far end is David Ng with IR.

What we'll do maybe is start with, Michael and David, maybe if you could just -- for investors who may be unfamiliar with HUTCHMED, maybe if you could provide an overview, particularly since you guys primarily focus on the China market and some people may not be necessarily as familiar with your company, so if you could just maybe describe your key products and key markets, that would be great.

Yes. Thank you, Paul, for inviting us. Yes. So I'm Michael Shi. I'm the R&D Head and CMO for HUTCHMED. And I think HUTCHMED, for people who are not so familiar, is headquartered in Hong Kong and also have a pretty integrated research, discovery and commercialization and marketing in China. And we have about 2,000 employees. And globally, we have a strong clinical development team. So I think for the past 2 years, they've really put us on the global stage. In China, as Paul said, we have 3 marketed products, savolitinib, fruquintinib and also the surufatinib. It's all marketed in GI oncology, in colorectal cancer and neuroendocrine tumor and MET Exon 14, non-small cell lung cancer. I think for the past 2 years, really, we have some very strong global development, right? One, particular last year, we have our first product approved in the U.S. with fruquintinib as FRUZAQLA, which is licensed in Takeda, which is approved in third-line colorectal cancer. And also, we are expecting the EU approval and Japan approval later this year. And also, the -- I think the next stage is really important and significant for a company for the milestone is our second innovative product, savolitinib, and MET inhibitor, even though it's approved in China in MET Exon 14, but through our global partner, AstraZeneca, we have expanding this later-stage clinical trial to have a completed readout, SAVANNAH trial, later this year. So hopefully, if the data is positive, we will have a second innovative product to file NDA in the U.S. So next -- I think the next one is our hematology product, particularly one of the Syk inhibitor will be presented at the upcoming EHA presentation with immune thrombocytopenia. We have a strong readout in China, Phase III. We have an oral presentation this Friday. And so that will also product in the second wave of product in the global development. So we're very excited about this, yes.

Great. People don't realize this maybe -- or maybe unaware, but last November, you got -- as you mentioned, you got FRUZAQLA approved here. And I believe that's just the third China-developed drug after Legend's CARVYKTI and BRUKINSA from BeiGene to be approved in the U.S. So it's quite still a significant milestone here. So it's a proof for later-line CRC. So maybe can you describe what's been happening with the launch to date? I know it's early days, and it's only been a couple of quarters here, but maybe you could talk about the commercial progress to date with your partner, Takeda.

Yes. And maybe just let me describe a little bit about this product. FRUZAQLA is pretty much a late generation, very specific VEGF inhibitor. Very specifically, it's VEGFR receptor 1, 2 and 3, unlike other products, so have a very strong potency and a very good safety profile because the specificity and we have 2 pivotal trials. One is in China in the third-line colorectal cancer called FRESCO. And in the international, we have a FRESCO-2, also show in the later-line colorectal cancer setting, very strong overall survival benefit. So even though it's a VEGF inhibitor, but we think it's not a new target, but the differentiation, the high specificity and safety profile is really put out us on the global stage. It was approved based on 2 pivotal trials. In the third-line colorectal cancer, we work with our Takeda partner to really commercialize the product. So Takeda is actually taking the global rights for commercialization. So David can comment about the commercial and reporting.

Sure. Yes. So we have done quite well so far. I mean, it's still early days, so we caution investors to maybe look at more quarters of data before doing an extrapolation. But like first quarter is north of USD 50 million of sales in just the U.S., very nice tick up. And I think we continue to see a lot of good acceptance by the doctors on the ground. I think it's also worth mentioning that if we just look at the first calendar Q1 sales of like the global, I guess, right now, we have like 3 major innovative drugs selling in the colorectal space. The pie has gotten bigger. If you compare like a year ago when you only have like 2 major drugs, innovative out there, the pie actually has expanded by 30%. So I think on one hand, we are definitely taking some market share from some of the competing products, but the whole pie is also expanding. The duration of treatment has expanded quite significantly too, right? Because if you look at the previous drugs, the PFS is much shorter and now it is longer. So we continue to see not just gaining healthy market share, but also seeing like more colorectal cancer. Maybe previously, they were just using recycle chemotherapy in the third-line scenario, but they are now using the more innovative drugs. So we continue to be quite positive on that one.

Okay. Great. If memory serves, you got a $400 million upfront from your partner, Takeda, which I believe, ranked in the top 10 of licensing upfronts last year for that arrangement. And so I guess the question here is you've got a very large milestone. But based on your ongoing partnership with Takeda, how do you think about the role of the partnership model for future launches in the U.S., particularly in oncology, right? What are the key considerations here versus going alone?

Yes. So I think Takeda has really set up a very good collaboration. So I think we are very collaborative. I think really utilizing MNC for the product launch and commercial license really taking advantage of their strength in the global marketing, which HUTCHMED doesn't have, right? So from the -- at least, I was at ASCO last week, we see very strong enthusiasm in the marketplace about the FRUZAQLA. And the physicians, Takeda put on a good show. Their education center are talking about fruquintinib, talking about the global data. We see a large penetration. Their MSL team, their commercial team really have a very good excitement generated even their booth, the whole screen looking at the product launch is actually quite unique and very eye-catching just from my perspective. And I think we have set up a very good example for a commercialization with a global partner and really helping us to leverage the R&D manufacturer and the China experience, right? So -- and the other example, we are also taking our second product as the MET inhibitor, savolitinib, is also have an early-stage partnership with AstraZeneca. We think these really set us up in a good foundation to really leverage their strengths to not only have a conversation about the future global development, taking on the further investment for that. As you also mentioned, thinking about, we think also is a derisk approach for commercialization, probably sometimes realizing the China-based [Audio Gap] our geopolitical risk to some [ extent ][Audio Gap] for the short term. We think this is the -- our licensing partnership will be our approach for the global commercialization.

Sure. I want to circle back towards geopolitical risks, maybe a little bit towards the end, but stick with fruquintinib for now in terms of China, where you've done really well commercially, particularly since taking -- reworking the rights that you previously had with Eli Lilly there in terms of the [ commercial ]. So can you maybe talk a little bit about where you could go beyond in terms of CRC, in terms of potential label expansion? And how do you size up key opportunities? I think, first and foremost, probably is the gastric opportunity there in China.

Yes. Thank you, Paul. Yes. So we are very excited about the gastric cancer opportunity. It's a huge patient population in the second-line setting. So the trial we have conducted is a China Phase III trial. fruquintinib plus paclitaxel versus paclitaxel. The data was actually reported earlier this year at the ASCO plenary. And last week at the ASCO plenary provider updated the data with the oral presentation and it’s also have a concurrent publication in Nature Medicine. We're very excited about the data, not only show very robust, it's a dual primary endpoint with the progression-free survival and overall survival. For PFS side, we see a significant improvement of the progression-free survival, almost doubled with the hazard ratio of 0.57. And also, we see a very robust response rate, 42% at the treatment arm versus placebo of 20%. And the overall survival, also, we have seen pretty much along all the second-line data, 9.6 months overall survival is the longest OS benefit we have seen for the second-line gastric cancer treat. We also published the post-therapy treatment imbalance. Neither the significant difference of the imbalance of the post-treatment lead to the -- OS doesn't really achieve the clinical, I mean, statistical significance, but still, we see the benefit. So we're very excited about the data. So the data is already [Audio Gap] the analysis to the CDE. We expect the decision Q3 this year. So this will be an important area with high unmet need. The other area is the combination because I mentioned specificity of the fruquintinib against VEGF receptor [Audio Gap] see it as a very good partner with other immunotherapy, chemotherapy like what we see in the FRUTIGA [Audio Gap] therapy. So the next one, we also present our pivotal Phase II data, fruquintinib plus sintilimab in second-line endometrial cancer. We observed a very robust overall response rate. So OS, overall response rate 35% in this treatment setting. And we also submit the NDA. This is -- the clinical trial design was already agreed upon with the CDE. We submitted the application. NDA was accepted in April. We expect that decision by end of this year. Along the other label expansion, so we also see a combination with -- we also see with the sintilimab combination PD-1 in the renal cancer. So this is the second line versus axitinib or everolimus. The patients were -- I mean, recruitment was completed last year. We are waiting for the event later this year. It is event-drivenevent driven. So hopefully, if the data is positive, we're going to file NDA next year. So that will really further expand the label for fruquintinib in China. And a lot of these data, also kind of we're in discussion with partner to see if there are any global opportunity for fruquintinib in a global setting to further maximize the value for fruquintinib.

Can you just remind me, in China, second-line standard of care in renal is still axitinib. Is that correct?

Yes, yes.

Okay. Even though in other markets, there's PD-1 plus cabozantinib or PD-1 plus other...

It has -- no immunotherapy combination has been approved in China. And that's why we agreed upon with this clinical trial design with the CDE, yes.

Okay. Very good. I want to maybe pivot to savolitinib in lung where your partner, AstraZeneca, obviously, has a very large blockbuster EGF franchise with their TAGRISSO drug. And you and your partner have indicated that you're planning to potentially file an NDA by year-end based on the SAVANNAH data in a second-line study, which is global, not just China-based, and that can come by year-end. Can you maybe remind us, first of all, how much of the MET-positive population in second-line lung this could potentially address? And we can start with that.

Yes. So just on top of that, I think savolitinib was actually approved in China in a very specific indication is the MET Exon 14 mutated patients. So in the approved indication in the U.S., we know the capmatinib, tepotinib also approved in MET Exon 14, but it actually is representing a smaller patient population because MET Exon 14 is the key driver mutation in non-small cell lung cancer, but it's only account about 1% to 2% of patient population. So it's a relatively small kind of a market. And for the global development plan, AZ and HUTCHMED has taken -- is addressing the MET aberration, right, overexpression, the amplification, not really account for a strong resistance to VEGF TKI. So in the global setting, in the western patient population, MET EGF -- MET mutation, EGFR mutation is actually quite large, account for 10% to 15% of the patient population. In the Asian patient, it's just much higher. It's about 40%, Asian patients have EGFR-driven mutation. So that lead to non-small cell lung cancer. So sooner or later, even though you have first-generation, second-generation, third-generation EGFR TKI, but regardless, the patient eventually progress from those EGFR TKI. So one of the major mechanism for EGFR is the MET amplification or overexpression. That from the previous SAVANNAH trial, we published, account for over 30% of the patient population. So that's actually addressing an even larger patient population. So the SAVANNAH trial is really taking this approach in the second-line EGFR-mutated resistant patient population. The combo with savolitinib and TAGRISSO, really significant extend the PFS and had a higher response rate. So the overall response rate from the previous, the explorative stage of the SAVANNAH trial, we published it at about 50%. So 52% overall response rate. And that really lead to the development for this SAVANNAH trial to really addressing this patient population. So if the data holds, right, the primary endpoint is overall response rate. If reproduced the previous result, AstraZeneca is going to lead the NDA submission later this year. That's our partner's time line. And we really hope that will also -- after the FRUZAQLA, it put our HUTCHMED innovation to the global stage, the second time. So we're very excited about this opportunity, yes.

Okay. Great. You mentioned this earlier that sales of like Pemazyre and other MET drugs address only a small part of the market and sales of the approved inhibitors, while small haven't quite hit blockbuster status yet. So how do you think you and AstraZeneca maybe can grow the market here. Is this sort of a lack of information among clinicians? Is it just poor treatment options, poor patient behavior? What sort of factors can grow the market here in the MET space?

Yes, right. So actually, I think that's really under the MET amplification EGF resistance is really the kind of not yet present in setting data before. But even though it was through AstraZeneca development and our development, we -- I think people are realizing the MET amplification is an important resistant mechanism, but there's just really -- AZ and HUTCHMED is really in the early pack of lead in this indication. So certainly, the physician education, certainly, the additional data, I think, hopefully, the publication coming out from this study, SAVANNAH pivotal trial, will really further aware us, set us apart from other competition in this field. And even for the MET Exon 14-mutated patients, we also -- at HUTCHMED, we have this China registration trial before. We also have a line expansion indication. So we already completed not only the second, third line, but this is already approved indication in MET Exon 14 in China. We also have our first-line readout published earlier this year then the ELCC, which has also set us apart from the other competitor in the first-line setting. We have observed very long -- high response rate, over 60% ORR in the first-line MET Exon 14 mutated patients. And also the overall survival has not been reached, the PFS above 13 months. So it's really significant in MET-driven disease area. So we already submit the first-line label expansion in China. Hopefully, we'll also come approval next year, early next year. And because of that data, we also have a full approval in the second -- third-line setting and the first-line setting. So that will certainly grow the market, not only for the MET Exon 14 mutation, but also the EGFR-resistance non-small cell lung cancer setting.

Great. I want to switch gears and maybe talk about what I think is your most exciting but maybe least known asset, which is sovleplenib in ITP. You've recently presented some data on it, and you have more data coming up here at EHA. But I think the data are really impressive. When you think about standard of care here is largely steroid treatment and things like that. And your duration of response looks to be pretty long as well, too. So can you maybe help us contextualize the data what this means in the disease area of ITP and what next steps for the program are?

Yes. Yes, thank you, Paul. This is the most exciting data. We're actually presenting the data on Friday at EHA in Madrid. So the abstract was to have an early release. But the funny thing is, Paul, the EHA still inform us that data is kind of at the embargo stage, but the abstract is all -- that's what we all can talk about, is absolutely fascinating as what to point out because the duration of response for this -- in this heavily pretreated ITP patient population. Because the traditional, I mean the trial was conducted in the patient. It's 188 patients, 2:1 randomization, ESLIM-01 Phase III trial in China. And we have observed overall response rate of 48%. So our initial Phase I proof-of-concept study was about 40% ORR. But this -- the Phase III data has even far exceeded our expectation with the durable overall response rate, which is the primary endpoint and the placebo is at 0. So that really spell out how clean, how robust the data will be. Just to give you a context, the Syk inhibitor, which is in the U.S. and EU, there's approved medication is fostamatinib in a similar flat-line setting with a less TPO-RA pretreated patients. So in this setting, the TPO/TPO-RA is the primary second line, after steroids TPO/TPO-RA are our primary best second-line setting. So for the fostamatinib data, even if it's approved, the overall response rate is 18%, okay? So same class. What we believe our -- not only we have a very specific Syk inhibition, but also similar like a fruquintinib because the unique and the specific inhibition, you will not only increase the efficacy, but also decrease the undesired off-target toxicities. So what we fascinated about this data, in this patient population, heavily pretreated placebo response is 0, right? You see the average prior line of therapy is 4 lines of therapy. And 75% of the patients have been previously treated with TPO or TPO-RA. Some of them have multiple TPO/TPO-RA treatment. And so we're going to also present the subgroup analysis in EHA with 2 posters. So the data really shows this compound is clearly highly potent, and it also does not have the prior therapy, which is the other mechanisms, TPO-RA primary mechanism that will stimulate the platelet production to bone marrow. The Syk inhibition is -- primarily, it has the dual mechanism. One is the inhibitor macrophage destroy the platelet, which is due to the overall antibody production. And also, they inhibit the B-cells, production of antibody production. So these 2 mechanisms addressing the fundamental of the immune thrombocytopenia. It also, does not have -- the TPO/TPO-RA has the more severe toxicity, which is the platelet overshoot and lead to high thromboembolic events. So we see 0 thromboembolic event in the Phase III and also, the -- we're going to present patient-reported outcome, the improvement of physical health, some of these data also at EHA later this week.

Okay. Great. I want to turn maybe just to regulatory next steps for the program, maybe starting with China, where you did complete the Phase III. Maybe just sort of what's happening there potentially with a priority review or accelerated review there? And then in terms of the global opportunity for ITP, can you maybe just comment on where you are with regards to alignment with the FDA and other regulatory agencies outside of China on a potential pivotal trial here?

Yes. So we communicate and discuss with the FDA about the global development plan. So we are already starting international Phase I trial to really looking at the dose escalation, dose optimization for this trial. So the design has been agreed and -- with FDA, we're already starting this trial. We opened a few centers already in the United States with the first patient coming pretty shortly. And internationally, we think this is really still because of the compelling data, we have a lot of enthusiasm for all the investigators in the United States, in EU, Australia. And so the global development will kick in pretty shortly. And also future, there are huge opportunity, I think, for the global development, not only in the previously pretreated setting because the safety profile, the uniqueness, the specificity of the Syk inhibitor, you also have a potential to move earlier line even in the combination setting. So that's what we believe this molecule has a lot of potential because truly has this best-in-class potential for global development.

Okay. Great. I want to maybe change tracks one more time and maybe turn to a bit of a sensitive subject. But maybe, David, you could speak to what has been seemingly like a more hostile stance of the U.S. government towards China biotechs and potential exposure to sensitive technologies. So can you maybe talk about what strategies, if any, HUTCHMED is taking to navigate this environment, the current environment? And maybe what do you see as either potential headwinds or tailwinds for China biotech, such as HUTCHMED?

Sure. I think it's a very topical issue last few months and on a lot of investors. I think -- so for HUTCHMED, as you know, we focus on innovative drugs, right? We focus on the science. And I think since day 1, we have been aspiring to not just be a China biotech, but one that can have global commercialization. And we have to deliver that, right, not just through partnership in R&D stage, but also at the commercialization stage. I think like when we did the deal with Takeda 2 years ago, right, almost 2 years ago, part of it, of course, is for the commercial reason, right? We get huge financial upfront. We've got royalty without a lot of risk. So that's kind of the derisking part that Mike mentioned. But now, at this stage, there may be another derisking part that we do have an MNC on the label of the bottle, it's Takeda. If you look at the approval labeling, it's Takeda. So that actually may derisk a little bit versus we're doing it all by ourselves. But the other thing, of course, is I think at the end of the day, it's still a product which has much more compelling data than some of our competitors. I think that truly is what we can control. I mean like a lot of the other things like the geopolitical risk or any other legislation that may come, it's not controlled by us, right? We can just go with the flow. But the thing we can continue to focus on is we have good drug candidates. I think as you may have noticed that recent days, you have seen some high-profile news about some company not having very good manufacturing standard, right? We -- again, we are very proud that we passed all the manufacturing inspection, all the clinicals are inspection with relatively almost no issues at all. And I think that is not something easy to say for a lot of our peers. So those are the things that we continue to focus. Like I think I always remind people that we are a more than 20-year-old company. We went through a lot of ups and down. We went through a lot of the things that takes time to learn the know-how, right, not just in terms of clinical but also manufacturing. So we think that this should equip us further down the road, not just for the China market, but also for the global market. There still continues to be these kind of uncertainty, but we focus on what we can do best, right? So for our next product, next potential U.S. product, savolitinib, we already have our partner in place. For our next Syk inhibitor, we definitely will continue to seek out capable partners, multinational, big biotech to be our commercial collaborators. So I think that's kind of the answer.Ianswer. I think the other thing, of course, is science is still science, right? If you have a drug that can extend the PFS by 50% or 100%, I think that is still much more important than any other geopolitical risks.

Okay. Great. You're also like talking about pivoting to breakeven and profitability in 2025. I guess, as you think about your product cadence and your OpEx trajectory over the next few years, maybe can you just comment briefly on how you think you're progressing against that goal to be breakeven or profitable? And then just how other factors are coming into that?

Sure. So at the end of last year, we have very -- relatively quite safe balance sheet, over USD 800 million cash. And of course, last year was a profitable year because we have the up-front payment from Takeda. This year, we will continue to do our R&D and everything that -- but then 2025, we target to be breakeven. It's not one-off breakeven. We want to be sustainably growing afterwards. So the burn can be mitigated quite nicely. I think for not just our major shareholder but also for future investor shareholder, I think that is something quite important to see not just good product coming out from our company, but a sustainable operation that can do many other things. I think it's not just the current pipeline that you should be looking at, but the -- with our skill set, with our balance sheet, we can do many more other things in the medium term future. And I think that is quite key in the uncertain capital market, as we all know, these days, yes.Soyes. So -- and we do also have a new manufacturing plant recently opened in Shanghai. It's not in full-scale commercial stage yet. For clinical batch, we can do that. But then in the next few years, we will enter into the commercial readiness of this -- of these manufacturing facilities, which will hopefully also continuously increase our cost synergies. Our production margin should gradually increase with this. So that's another part of our thinking that it's not just at the clinical front or approvals or regulatory front that we want to be a commercially sustainable and continuously growing company for our shareholders.

Great. Maybe to close, if you could just remind us, Michael, maybe top 2 or 3 catalysts we should watch for over the near term from HUTCHMED?

Yes. So yes, Paul, this is just kind of a mindset mentioned, I think the major catalyst will come from the R&D side is really the near term approval, NDAs, right? So first is the indication expansion, FRUZAQLA, fruquintinib. We continue to have the GC, the endometrial, the RCC, either at the NDA stage or approval or the NDA submission stage. And also the savolitinib, we're going to have a full approval for MET Exon 14, and our exciting partnership with AZ will lead to a new indication globally, right, for savolitinib for the non-small cell lung cancer with the MET EGFR-resistance patient population. That's really the indication expansion for all the existing products.Theproducts. The next is new products which are coming. We mentioned about the Syk inhibitor, not only in the ITP, but also, we have development in the lymphoma. We also have other autoimmune disease potential to be developed. The approval for ITP is coming. And also in the EHA, we're going to show our POP trial for the warm autoimmune hemolytic anemia. That's also very robust data. We are very excited about the Syk inhibitor. In China, we also have our in-licensed product, tazemetostat, EZH2 inhibitor. We're completing this NDA filing later this year. So new products and new indication, it will be the key driver and catalyst for ours to contribute to our 2025 commercial breaking even and sustain the growth stage. So it's going to be exciting for the company here.

Great. Okay. We'll have to end it on that note because we're out of time. Thank you very much.

Thank you, Paul.

Thank you, Paul.

Our pleasure. Yes. Thank you.