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

Good morning, everyone, and good evening to those who dialed in from the U.S. or London and other parts of the world. Happy New Year. My name is David Ng, Head of IR and Capital Strategies of HUTCHMED. Welcome, everyone, to today's HUTCHMED's Business Update Call. This is 2025 January. Today, we are very, very happy to have our Chief Executive Officer and Chief Scientific Officer, Dr. Wei-Guo Su; our Chief Financial Officer, Johnny Cheng; our Chief Medical Officer and Head of R&D, Dr. Michael Shi, to be with us to present the latest on HUTCHMED. You may have seen we have a lot of impressive achievements just over the last 2 weeks. We think it's a good time to go over some of these interesting event for you guys as well as to address some of these questions that investors and shareholders have. But before we start, I'll just go over on the presentation on Page 2. As usual, we have our safe harbor statement. I'd just like to highlight that we will make some statement that may be a little bit forward-looking during the presentation. These involve risks and uncertainties, and they are definitely not assurance of future performances. So you are cautioned that these statements may also differ materially from the actual circumstances ultimately. Now let's start. Let me hand over the call to Dr. Wei-Guo Su, our Chief Executive Officer and Chief -- CSO. Back to Su.

Thank you, David. Again, happy new year to you all, and welcome to the HUTCHMED Business Update Conference Call today. As David alluded to, we've been focused on several things and including our plan to divest SHPL, now we think it's a noncore business to HUTCHMED, as well as an update on a couple of key programs in our pipeline, including savolitinib, both in China and outside China; as well as sovleplenib for ITP. So the transaction highlights. Obviously, subject to closing, we plan to divest our holdings in SHPL, a joint venture with [ SPG ] in Shanghai. And Johnny will go through the details with you. SHPL has been a high-quality asset for HUTCHMED, has returned immensely to HUTCHMED. And it's a cash-generative business. It's got great products and a great management team in place. However, in China, it's faced -- increasingly facing pressure from the pricing, from the volume-based procurement, which we expect the company will have to go and will have to face throughout China in coming years. The pricing is -- the valuation of the transaction at 15x 2024 estimated profit is quite attractive, we think, and the result is over USD 600 million or 40% of our interest -- 45% of our interest in SHPL. Why we do this? In addition to the attractive valuation, I think we would like to shift our focus to our core business, which is innovation. And we actually have a series of highly novel antibody target therapy conjugate candidates going into clinic during 2025. It's not a one-off product, it's a platform we are building. We expect to have -- at the moment, we already have 2 clinical candidates selected now going through IND-enabling studies. We expect to select the multiple such ATTCs during 2025. And we obviously will publish or disclose more details in due course of this ATTC programs. Secondly, this transaction will add further cash to our strong cash position. We believe this will allow us flexibility in exploring or pursuing potential more strategic business development opportunities, both in China and globally. So with that, I'll hand it over to Johnny to go through the details of the transaction. Johnny, please?

Thank you, Dr. Su. So good morning, everyone. Assuming you have read the announcement, so I'll just highlight some of the key points. The interest at that we are disposing off is 45% of our shares in SHPL. So basically, there are 2 parties involved. One is Shanghai Pharm [ SPG ] and also [ Qingpu ], a fund that is basically under the Shanghai State Asset Bureau. So combining together, they would acquire 45% of SHPL. So the net proceeds, as mentioned, will be over $600 million. And the gain before taxation is over $400 million. So there are some requirements by one of the parties, which is to have a performance obligation in terms of net profit growth of 5% per annum. Finally, I think the closing conditions, this transaction is still subject to antitrust approval as well as because of the size of the transaction, we have to go through an extraordinary general meeting which, of course, the circular will be coming out soon. And then hopefully, we will have the EGM around in February. And the whole entire transaction that we hope basically within the first half and hopefully, within the Q1 that we can close the transaction and receive the proceeds. I think that's the summary. I will pass now pass to our CMO, Michael Shi.

Thank you, Johnny. Yes. So as Dr. Su mentioned, we really want to give the investor update about the research, discovery and the clinical progress. So I first want to talk about our antibody target therapy conjugate, which is a new concept of a new class of ADC. This is -- we have really invested quite some effort into this, really leveraging our internal effort on small molecule and particularly in the linker and payload side. So this is a new concept of ADC because using the payload as a target therapy really addressing specific common problem for traditional ADC, which is usually toxin-based, really reduce the toxin-based toxicity and also have a broad spectrum to allow us to combine with chemotherapy, unlike the other toxin-based therapy. So the key consideration for our to address this platform is really had to select the maximum strength for small molecule. And our linker technology really allow us to put this new set of small molecule for antibody drugs. And so we have a serious selection of our payloads and to really have this opportunity to combine the both end of the effort. So to summarize the key feature for this ATTC platform, it's almost working on leveraging the antibody side and also the small molecule as a combination strategy and really addressing the resistance to the traditional chemotherapy and help us in the future may allow to combine with the standard chemotherapy, either later line or earlier line. And also, we tackle some of the industry-faced challenges for a small molecule target therapy to reduce the on-target, off-tumor and off-target toxicity that shows it's a small molecule. We will be able to deliver these payloads, traditional target therapy to a higher concentration in the tumor. So we have achieved quite some of these preclinical proof of concept, and we have demonstrated the less myelosuppression like traditional ADCs and also the -- allow us to have the long-term use to inhibit tumor growth, both leveraging the antibody-based and target therapy-based therapy. And also, it bypass some of the [ oral ] availability issue for traditional small molecule and has the potential to lower the drug-drug interaction and allow deliver high concentration of small molecules to the tumor and also addressing all the other payloads such as PROTACs and also protein-protein inhibitors and other potential small molecule target therapy. Next slide. We can see this is what we -- based on the mechanism, we compare the traditional antibody-based conjugates and also HUTCHMED internally developed antibody target therapy conjugate side by side. So if you can see the tradition -- on the left-hand side, the traditional ADCs, the cytotoxins payload with deliver -- rapid delivering payloads chemotherapy to the rapid dividing cells. And for the target therapy, it will inhibit tumor growth and also have a good opportunity to synergistically combine with other antibody and small chemotherapies and also IO or other standard-of-care therapy. So they have a lot of flexibility and overcome chemo resistance and can be used long term. So this is really a new class molecule, we think, will revolutionize the ADC arena. So one particular effort and advantage is really the -- addressing some of the toxicity with the traditional ADCs. For example, we all know the antibody side is part of the toxicity, but cytotoxic payloads have other undesired side effects. You can see for the new existing approved or investigational, a lot of these chemotherapy payload based, they have a lot of hematological toxicity, liver toxicity and GI and also quite difficult to address some of the newer toxicity, ocular toxicity and also interstitial lung disease. So for the ATTC platform, we will have the advantage to addressing or bypass some of this myelosuppression, the traditional chemo-based therapy and will deliver precisely the -- reduce the systemic exposure and allow the target therapy to have a higher concentration in the tumor and avoid some of the undesired toxicity for a small molecule, for example, liver toxicity and QT prolongation issue. And also, in -- with the low systemic exposure and high concentration in the tumor cells, it will address some of these issues for a small molecule, okay? And also, I mentioned already the traditional therapy is -- the tumor -- it's just nontargeted inhibitor or the tumor dividing cells and will allow the resistance as from -- the research have shown, these ADCs -- toxin-based ADCs are less effective in the oncogenic driver target tumor cells. Our ATTC will be addressing some of this resistance issue and also have a clear path to inhibit genetic driver tumors and deliver the benefit. So this is a nutshell and the highlight of ATTC platform. It has a unique advantage, really taking up advantage of a lot of the antibody targets in tumor biology and also with the careful selected multiple target therapy to be able to link it to the commonly cancer expressed tumor cells antibodies to have a broad-based opportunity to leverage the antibody and the target therapy. So we will -- as the development progress, we will initiate the clinical studies, as Dr. Su mentioned, later this year. And also, we will disclose or publish some of the latest progress in the scientific conferences in the future. So this is, I think, the transaction Johnny mentioned, will allow us to invest in this new platform. These potential first-in-class molecules in the clinical development to leverage our strength in the oncology business. Next slide. I also take this opportunity to give an update on our pipeline progress for the clinical program. We announced that we have made significant progress in another innovative molecule, savolitinib. So we have mentioned the clinical readout for this savolitinib + TAGRISSO in the Phase III registration trial, SACHI. This is a China-based study with really the combination of savolitinib and TAGRISSO addressing the patient who previously progressed on the EGFR TKI with specific mutation. This includes the first and second-generation TKI failed patients with MET amplification and also with the third-generation EGFR TKI with MET amplification. So the patient will have a central confirmed FISH positive, MET amplification with the PS score with 0 to 1. And this randomized study savolitinib + TAGRISSO versus chemo -- [ platinum ] based chemotherapy. So this is the study, we have been looking at patient who really treated until progressive disease or intolerant to toxicity. And the patients who progressed on to the chemotherapy, and once they have the central confirmed the PD, it will allow us to cross over to savolitinib plus osimertinib. So this is a study we have look at the primary endpoint of the progression-free survival by investigator and also hierarchical testing for patients for our first-generation TKI -- EGFR TKI-naive patient population and then allow to combine all the patient population with resistant EGFR TKI, including third-generation EGFR TKIs and the secondary endpoints with progression-free survival by our IRC and also the other clinical and safety endpoint. We are very happy during the preplanned interim analysis, the IDMC recommend this to -- the trial has met the superiority. And we have submitted the results to the MMPA CD review and has been accepted for the priority review status and also being designated the breakthrough therapy. So we are -- by the end of the year, we have submitted NDA for this approval, and the NDA has been accepted by the MMPA. So we are very proud to have accomplished. This is actually the first time we have demonstrated each MET amplification. This preselected patient developed resistance for the EGFR TKI, has also the combination of target therapy of savolitinib, osimertinib; have been superior for the chemo-based standard of care. So this is a quite important mechanism of action approved, this MET amplification as a driver, genetic alteration to leading the disease progression. So we will have the opportunity to submit these results for a scientific conference to present to the scientific community. Next slide. And the -- so this is -- for the savolitinib program, we are also making significant progress, both globally with our partner, AstraZeneca and also our HUTCHMED-driven internal development in China for all these registration trials with the 7 indications in development. In the global front, which is highlighted in the blue side, is lead by AstraZeneca, our partner. And AZ also announced in the October registration study for the savolitinib + TAGRISSO -- has demonstrated the high and clinically meaningful durable overall response rate. And AZ side is preparing the international FDA submission. And also, AZ has been leading the other 2 indications, which is the global registration trial in the SAFFRON study, is the TAGRISSO + savolitinib in the second and third line refractory non-small cell lung cancer with MET aberration. And also, there's a MET-driven papillary renal carcinoma study, the SAMETA study, investigating savolitinib + IMFINZI versus standard-of-care SUTENT and also versus IMFINZI in the Phase III registration study. Both trials are progressing nicely by our partner. And for HUTCHMED side, we already got China approval for the MET Exon 14 skipping mutation, non-small cell lung cancer and through a single-arm registration study. And then we have submitted the confirmatory Phase III study in the second line for the full approval, we -- and also will allow us to expand the first-line indication. So this is additional not only the confirmatory study for MET Exon 14 mutation, but also allow us to expand the first-line indication. And this -- I think we will announce shortly about the outcome. And in the China study also with -- we mentioned that the SACHI study reached the primary endpoint. We have the breakthrough destination, NDA acceptance and the priority review. Also, we are making progress in the first-line EGFR mutated -- EGFR aberration non-small cell lung cancer with MET overexpression. The SANOVO study is progressing. And also there's a new registration trial for the gastric cancer with MET amplcation. We have a single-arm study pre-agreed with CDE for the potential registration, and the study had a breakthrough designation and also the recruitment progressing quite well. The earlier phase study was previously published in the ACR 2023, allow us to initiate this registration study. So we are very excited about the progress for savolitinib program, which have opportunity to have multiple registration, indication expansion, which will be the driver for our next phase development. Next slide. And also, I want to take an opportunity to have a quick update about the sovleplenib development. And we updated our long-term follow-up study for the ESLIM-01 Phase III study, which was conducted in China. The top line Phase III results were published in the 2024 European Hematology Association meeting. We demonstrated the overall response rate of 70%, with the durable overall response rate 48% met the primary endpoint. And in the long-term study, we have also demonstrated the 81% overall response rate. And the durable response rate reached 51% as a long-term sustained platelet elevation, which just continue to show the efficacy for this program. And as the investors know, this -- the ESLIM-01 has been submitted to the MMPA under the review. And we want to give an update about the current status. During the review process, we are -- with the data, we have addressing the one review issue with the impurity of the current formulation. And so we have conducted additional stability tests to address the CD comment. So we are continuing to work with the health authority to address this manufacturer issue, but we are continuing to work -- anticipate this additional data to address the review. So the approval has been delayed, but we are confident we are working -- addressing with the issues, and additional data will support the future approval for this compound. Okay, next slide. So as what we have demonstrated for -- the company has made tremendous progress along our path to our globally -- company to deliver, discover, develop medicines for global patients. With the fruquintinib already approved globally, our partner, Takeda, has really working very hard to get approval in multiple countries. We are very hopeful for the new molecule savolitinib with -- our partner will have multiple indication in the final stage of the development. We anticipate to really have the future approval for our next innovative molecule globally. And in addition, our new class of molecule will gradually enter the late-stage registration for full approval. By year 2029, we will have 6 or 7 molecules to be approved globally, with the majority of it in China but also with innovative molecules for global approval. So very confident, but we're going to enter the accelerated growth area. In addition, we also will initiate the development for our new class of first-in-class molecule generally by our ATTC platform and propel the growth for this company for the future. I will turn back to Dr. Su, yes.

Okay. Thanks, Johnny and Mike, for the high-level presentation. I think this concludes the update today, and we'll be open for Q&A. David?

Yes. Thank you, everyone. So for the Q&A session, as you guys are familiar with, at the bottom of your screen on Zoom application, you can either raise your hand, and we will call out your questions and we will unmute line so you can ask the question directly or you can type the question under the Q&A button, and I can read out your questions. So let's start with my first question. It will be Paul Choi from Goldman Sachs. Paul, your line is now unmuted.

And happy New Year to everyone. I have three questions, please. My first is with regard to the OpEx involved with the [ SHPL ] JV. Can you comment on how much that is roughly on an annual basis? And with the divestment, would it result in a net increase or net decrease for your '25 OpEx? Any quantification there would be helpful. . My second question is with regard to the SACHI data presentation at a medical meeting, would something like AACR or ASCO make the most sense there? If you could maybe just provide any color there, that would be great. And third, I was wondering if you could please provide more details on the sovleplenib manufacturing impurity issue that you mentioned. Is it a nitrosamine and/or something related to that? Have you provided updated samples there? And just sort of what is the impact to the review timeline?

Okay. Thank you, Paul, for the questions. For SHPL, I'll just ask Johnny to give you some comment on that.

Yes. Okay. Thank you, Dr. Su. So Paul, thank you for your question. So first of all, I think it is a joint venture. We only equity account for the net profit from the joint venture that we have done in the past. So there's no OpEx in terms of in our consolidated financial statement. But previously, we have been booking, recently, I would say, $47 million in 2023 for the -- our share of the profit of the joint venture. So you rightly pointed out. I think once we divested this, so we will be not having this income on a regular basis, but we will capture the gain in 2025. Obviously, as we mentioned, that there will be a portion of elements of this proceed that we have to defer as income due to the guaranteed profitability requirements by one of the party. So that we can defer into some future years. That would offset part of this loss of regular income from the joint venture. I hope this answered your question, Paul.

Okay. Thank you, Johnny. Yes, Paul, regarding SACHI publication plan, certainly, we will select a major scientific conference sometime during 2025, obviously, hopefully sooner rather than later. And the full results will be published in [ journal ] as well. ASCO, obviously, could be could be considered. With regard to sovleplenib impurity, it's really unfortunate because during pre-NDA with [ NMPA ], nothing was raised. However, during 2024, authorities -- health care authorities globally started to pay more attention to this class of impurities. As such, the -- there's a trend to lower the limit and also to -- so also critical is that these impurities are derived in -- or contaminated in excipients. So over time, the limit of these impurities can increase. So what we found was actually very simple. We just start off with highly pure excipients, and you don't have the issue. So -- but the problem is that all the new [ match ] -- all the new batches we manufactured, meet the standards, but we need to accumulate further stability data to support shelf life. So this is what's going on, and we are fully engaged with China CDE and working through these issues. So I think that this is not specific for sovleplenib or specific for HUTCHMED. I am sure many, many companies or products will be impacted.

Thank you for your question. Thank you, Paul. The next question from Merrill Lynch, Alec Stranahan. Alec, your line is now unmuted.

Okay. Great. I appreciate the update to take off the year. Just a couple of questions from us. Maybe I'll start with the first one and then follow up. So with the increased cash position following the divestiture, wondering how much external BD activity will play a part in your pipeline expansion versus your own R&D initiatives? And it is the plan to in-license the small molecule component of your ATTC therapies? Or will these also be developed in-house? And then I've got a follow-up on the ATTC.

Yes. Thanks, Alec, for the question. I think the cash -- or the additional -- we already have a very strong cash position, I will add -- we probably ended the year. We don't have the results finally yet, but it should be north of $800 million. And this transaction will add to that. And I think this just allows us flexibility. The ATTC platform that we been investing in the last 3, 4 years, finally, we are seeing candidates going into clinic soon, hopefully. And so obviously, we see great promise of these new molecules and would like to accelerate clinical development, both in China and outside China. So obviously, willl take up more resources. Now once you brought up the question that when we will explore BD opportunities to either bring in small molecule or the interest or on the antibody side, whether we could set up collaborations to bringing novel antibodies to help deliver these highly promising target therapies to certain tumor types, I think this all will be within our considerations. More importantly, as we progress further, these ATTC candidates in the clinic, we need to start building up our manufacturing strategy, whether we build in-house, so we collaborate. And all these needs to be sorted out. So clearly, the added cash will allow us more flexibility.

Okay. That makes sense. And maybe just a quick follow-up. I imagine we'll probably get more of this as new ATTC assets are nominated. But should we be thinking about the novelty of these therapies coming from the binding motif of the antibody? Or is it really in the payload with the small molecule? And if it's the latter, is it sort of repurposing approved small molecules? Or would these maybe be novel therapies that you would look to conjugate with the antibodies?

Yes, I think it's almost everywhere. We -- obviously, we've been working with mature antibodies but also with novel antibodies, so both monoclonal and bispecific. I will say what we are doing, even though we are talking about potentially 5, 6 different ATTC molecules into the clinic in the next maybe 12 to 18 months, this really is just the beginning. This technology is what's important, the concept is what was important. I think this is just the tip of the iceberg what we're going to see this year. We plan to -- by the way, we probably will -- we plan to disclose more details perhaps at this year's R&D day, which last year, we had it in July. And we plan to do the same, and we can provide more details there.