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

Hello, and Welcome to Deutsche Bank's Virtual Investor Conference, dbVIC. This is Zafar Aziz from the Deutsche Bank team. I'm pleased to welcome our next presentation by HUTCHMED from Hong Kong. Before I introduce our speaker, a few points to note. [Operator Instructions] All of the presentations were recorded and can be accessed by the Deutsche Bank website, adr.db.com. I'm very pleased to welcome HUTCHMED, over to you.

Thank you very much, Zaf. Thank you, everyone, for joining the presentation of HUTCHMED. My name is David Ng. I'm the Head of IR and Capital Strategy for HUTCHMED. Together with me, we also have Matthew Kwong, VP of Finance, joining us today. So for those who are already familiar with HUTCHMED, welcome back again to listen to our latest update. For those who are new to our story, we definitely have a lot of exciting things to share with you about. And before we formally start the usual safe harbor statement and disclaimer. Basically, the performance and results of operations contained in this presentation are historical in nature, and past performance is no guarantee of future results. So let's start. We have this summary slide that I think quite succinctly cover our past, our current and most importantly, our future direction. On the left-hand side of this slide, you have the circlesing global commercial success, and we are very happy to have our innovative drug FRUZAQLA doing very well during first half this year with sales up 25%. Again, for those who know this, we have been selling in China for a couple of years, but we got FDA approval in 2023. Our marketing partner, Takeda, has been doing a fantastic job ramping it up in the U.S., in Europe and Japan over the last a little bit more than a year, and it has been doing great. So of course, this not just validate our science, but it also provides us with a very strong financial foundation, helping us to be profitable since 2023, '24, and we expect to remain self-sufficient in our capital funding in the upcoming years, thanks to this innovative drug finally materializing in global sales. And we are expecting the second one. This is a drug called ORPATHYS for lung cancer. It has been going through both trials in China, global trials. The trial name is called SAFFRON. We anticipate completion very soon, and then the readout of the data will be first half next year. Our marketing partner, AstraZeneca, when this product potentially get approved in the U.S., we will be commercializing this one. We hope that will be sometime around 2027. So I think with these 2 products, we hopefully will have 2 commercial global products supporting both our financial as well as validating our science. I probably won't go over into too much details of the near-term catalysts. By the way, this presentation is also on our homepage. So if you miss anything, you can definitely go back to download this presentation on the HUTCHMED homepage. We do have a couple of upcoming catalysts in the next 12 months, definitely very relevant for our stock price performance. But I definitely want to spend more time today to talk about our future, which we have a new generation technology platform called ATTC, antibody-targeted therapy conjugate. I think many of you have already heard of the term called ADC, ADC, right? I think you can look at our ATTC to be the next generation of ADC and even more improved version of ADC, focusing specifically on improving the safety and the toxicity of this kind of molecules initially target oncology, but maybe down the road, it may also have potential autoimmune application. The very first drug candidate coming out from our ATTC platform, that one is called A251. We have just presented the preclinical data in the EORTC conference just a little bit 2 weeks ago in Boston. And right last Friday, we also host an R&D Day, both online and offline, explaining even in more details by our Chief Medical Officer on our first molecule. And for those who may have missed that, again, the webcast replay is also on our homepage for our ATTC platform. The reason why I say this is very important is not -- is that because this is not just one molecule. If this ATTC platform works, it will generate many, many more drug molecules. Of course, it's still at an early stage. We have got some very good preclinical evidence. And then our plan is to get it into patient Phase I trial in December this year. We had already got the IND approval in the U.S., and we are pending to receive the IND approval in China. So expect 2026 next year to be a year full of news and events coming out from this platform. Apart from the science, which we think we are global first in this so-called ATTC category, the other thing that we bring a lot of attention to this is the potential out-licensing opportunities. We have been attracting a lot of interest from global pharma into this platform, and there are possibility of BD opportunities in the -- when we disclose more clinical data down the road. So I think on this slide, we do have very solid financial foundation that make us very self-sufficient, not relying on the capital market for further funding. But at the same time, the most -- more important thing is our ATTC platform, which if start to generate good results. It will provide us with an even bigger pipeline of products that we will -- can bring to patients in needs down the road. Now we do have a very big slide deck here. So apologies for not going through every single slide. But I will just jump to this one right here, which is our first half sales of some of our key products. Again, like FRUZAQLA has been doing quite well, up 25% first half this year. For those who have been following us even more closely, you may have looked at some of our marketing partner third quarter sales. And then we roughly have about quarter-over-quarter growth of around 10% for both the FRUZAQLA, which is overseas fruquintinib. And then also for domestic fruquintinib, we also start to see some quarterly improvement. Now -- but again, like this is the present. Let me jump a little bit to the slide where we talk about our upcoming future potential. So first of all, our late-stage pipeline is very solid. For our fruquintinib, we had already been selling it for colorectal cancer. But since early this year in China, we also got approval for a second indication called EMC, endometrial cancer. This is a combination therapy with another PD-1 drug that we can address the market. And I think we also have the third indication called renal cell carcinoma, RCC, which we have already presented very impressive data in ESMO, the ESMO conference just last month or early this month. And we have also submitted or filed the -- to the China NDA, which if everything goes smoothly, the approval probably would land around middle next year potentially. So with that, we will actually have 2 more indications for fruquintinib to support its further sales growth in China. For the other product, savolitinib, we had got a second indication approved on June 30 this year. This is the second-line lung cancer focusing on the MET amplifier. MET, of course, is a biomarker, roughly in 1/3 of the patient population in the second-line EGFR setting. So it's definitely a very sizable patient population. And we are the only one around the world with such late-stage data focusing on the MET-specific patients. For the overseas trial, similar to this SACHI trial that you saw there, the overseas counterpart is called SAFFRON. I mentioned briefly just a moment ago that our marketing partner, AstraZeneca is close to completing the recruitment and the data readout will be first half next year according to AstraZeneca guidance. And if, again, everything goes smoothly, potential U.S. approval in 2027, which may bring our second innovative drug to be globally commercialized. Back in China, we are also working on another even more impressive trial in the first-line setting. This is a trial called SANOVO, fully recruited. Again, this is also a very highly contested market in the first-line lung cancer space for the MET overexpression, it's a very decent market size as well, ranging from 30% to 50% of the first-line lung cancer patients have overexpressed MET proteins. So if the results are satisfactory, this will also address a very sizable market. The third drug called surufatinib, the thing to look out for is December, we will present the pancreatic Phase II data at a conference. So watch out for that one, and we are planning to -- if the data is satisfactory to roll into Phase III trial. Again, pancreatic cancer is what a lot of people call cold tumors, very tough-to-treat cancers. And we are using our surufatinib in combination with another PD-1 and chemotherapy to target this tough-to-treat cancer. I'll skip the next one and go straight to the blue one called sovleplenib. This one, if you remember, we presented very impressive data, durable response rate of around 51% and this is compared to most of the new modality just hovering around the 20% to 30% durable response rate. Unfortunately, we had some CMC issues earlier this year, and we have to change to a new formulation. We don't have to redo the Phase III trial, but we do have to resubmit the data. The time line we now anticipate to resubmit the data for the China authorities will be first half next year. This is for the indication of ITP, which is basically blood platelets being too low in the body and you kind of bleed very easily. It's a chronic disease. It's an autoimmune disease. It's definitely a new area that we are very excited about, and we plan to commercialize it in China when it potentially get approved hopefully in 2027. It is also working on another indication, a little bit rare disease called warm AIHA, second-line setting. The data will be probably around early next year to present the data. So if that is also successful, sovleplenib will have 2 potential indications addressing a very sizable market population. Now so this is -- this slide and many of the slides that I just went through for those who are familiar with HUTCHMED, you probably have seen it a couple of times before. What I'm going to show you next, I think, is pretty new. So the next slide, we're going to talk about the early-stage pipeline. Focus on the bottom 3 coming out from our ATTC platform. The first one is called A251. And we disclosed just 2 weeks ago basically the composition of this. Now let me also jump to the next slide here, where we talk about the structure of this ATTC. It's made up of a large molecule and antibodies, right? And we disclosed that this antibody is a trastuzumab biosimilar, a HER2 targeting antibody. And it's going to have a linker, a cleavable linker. So far, it is still quite similar to the ADC that you've seen out there. But what differentiates us from all our peers is for the payload, instead of using a nonspecific chemotoxin, we are using a specific small molecule drug, right? So instead of like a payload, we use a small molecule drug. As the payload, which means that it will be even more selectively targeting certain mutation or certain mutated pathway, which is manifested more strongly in certain oncology indication. And this concept, I think, is quite easy to understand, but we actually don't have anyone trying this so far as far as we know in the clinical space. So we probably is still the first company pushing this ATTC composition into clinical trial globally first in the upcoming months. The other thing that is also quite new is this particular small molecule drug, we call PI3K/PIKK. It's basically focused on a pathway called PAM, PAM pathway. there are no commercial drug on the PAM pathway yet. And the reason is that it's a very toxic molecule. So I think the scientific community is already quite well aware and has a good consensus that this particular molecule targeting this pathway is very effective in eliminating tumors. Unfortunately, it's just too toxic. So I think this is a very important point, right? For our ATTC, we are not just limiting to this HER2 with PI3K combination. We're going to have different combination, and a lot of investors ask us what other are we thinking about? Think along the line of small molecule drug, which may be known to the scientific community, but was just too toxic. So it was not able to be easily commercialized as a drug or approved as a drug. But when this small molecule is loaded onto this ATTC platform, it becomes very selective. It becomes very destined for the tumor tissues. And then this toxic small molecule or this very potent small molecule will be deliberately delivered just to the tumor tissues and take its effect on eliminating the tumor tissues. So this is basically the concept, right? And as I said, we do have a couple of other combinations that we're working for. We have not disclosed that yet. We kind of disclosed the code name -- the second molecule is called A580. We anticipate entering clinical trial around middle part of next year. And then the third one is A830. We targeted towards the end of next year to end the clinical trial. And as we disclose more data coming out from this #2 and #3, we will also disclose the actual composition, right? But again, think along the line, small molecule drugs that are very effective, but were just too toxic in the past to be turned into a drug for cancer patients. Now with this platform, we can load it on our ATTC, and it become like really targeted to the tumor tissue. Now of course, just a caveat here, we have done a lot of very good work in the preclinical stage, in animal stage. We haven't tried on human yet, right? So -- and then that's why as the human trial kicks off in December and when the data start to roll in 2026, it will be very exciting for us as well as our potential licensing partners down the road to look at really how safe this ATTC platform can be, right? Now just to dig a little bit deeper into this market that we are looking at. In fact, this particular slide that we created just last week even surprised me. I think many of you are much more familiar with some target like EGFR, like HER2, right, or maybe even RAS. Very few people talk about this PAM pathway. And it turns out that it is present in 50% of the solid tumors globally, right? So this is not a small number. And why do we know about this or why we're not more familiar with this is because this pathway or molecules targeting this pathway is just too toxic. It works very well, but it's just too toxic, right? So -- and then for some of the major cancers, which have this PAM pathway alter, we kind of outlined it here. And again, because we use HER2 as our large molecule, we also present some of the prevalence of different HER2 expression in the breast cancer space. And the clinical trials that we plan to kick off at this stage, this is our plan. And you may notice this is also slightly different from our tradition -- the tradition of HUTCHMED by doing things one at a time, right? We want to go a little bit more aggressive this time. We are working on different tumor in different cohorts at the same time. And you may notice that we are also working on the later line, like the second line, third line indication as well as the first-line indication at the same time. Why? As you may know, the competitive landscape has dramatically changed in China last 2, 3 years with a lot of these licensing deals providing a lot of funding and a lot of bullet for our competitors to work faster and go into innovative modality earlier and sooner. So we need to also pick up our speed. We now have a much stronger balance sheet of about $1.4 billion cash, and we want to put this cash into the right use by working on multiple trials. And we also -- actually, if you look at this, we also have a cohort looking at HER2 low, which is also a very sizable market out there. We haven't disclosed the tumor. I'm pretty sure we will disclose it in the near future. But these are all very large addressable market that we are working on. So that's kind of our current plan for ATTC. And then this is another slide just to give you an idea of the precedence of this PAM alter pathway in different type of cancers. And then, of course, we have the HER2 antibody or target preference in different type of tumors. But definitely watch out for one thing that we are trying to see whether it works for HER2 low. So not just HER2 positive, but also HER2 low, which again is another big market out there. Now again, like we haven't disclosed what other antibody that we are working on. Someone may say like why HER2, why not something more -- even more crazy or even more innovative than that. I think at this stage, this PAM or this PI3K small molecule is new. It's not new to us, but it's new to the clinical space. We haven't put it into clinical trial yet. So we want to kind of conserve the riskiness to that part, whereas for the large molecule part, the antibody part, we are picking HER2 deliberately, which is a very good, well established, very well-known profile antibody. And also for the linker, we kind of have not elaborated too much on, but this is also a very well-established linker that we are using. And the most innovative part or the part that the clinical space haven't seen too much data is actually the small molecule part, the small molecule payload. So the upcoming few months, we are going to see 2 things. Number one, whether this small molecule drug does work well for cancer. Number two, whether putting this large molecule linker and a small molecule together, whether this construct conceptually is stable enough when injected into human body and whether this will have good efficacy and more importantly, safety. One last point I want to emphasize about ATTC is that we call it a chemo-free conjugate. Again, like this is in contrast to the ADC out in the market or under development, which still rely on the chemotoxin, which is kind of like a nonspecific toxin attacking all the tissues. With our chemo-free ATTC molecule, many people are asking us, are we going to replace chemotherapy or are we going to replace ADC. I think the path -- at least at this juncture, the path that we want to take is not necessary to replace, but to be potentially used in combination, in combination with chemotherapy, of course, preferably in the earlier line setting and also in combination with ADC out there. We've got very good animal data showing that it does work very well, now is to put the test into human trial. I noticed that I have roughly 5 minutes left. So I'll just pick one slide, and I will just go into some of the questions that is already on the line. So this is kind of our road map, still mostly focusing on our existing pipeline, not too many ATTC molecules out there, right? But it's still a very busy, very eventful next 2 years even from our own pipeline. But I would have to say that if this ATTC platform starts to deliver, the value or the impact from this ATTC platform may be even bigger than what you see on this particular slide coming out from our established late-stage pipeline. So I will wrap up here, and I will go into a couple of questions here.

So first question, let's see, can you elaborate on China growth driver versus U.S., EU market? I think China continued to present one of the largest patient population, but then the pricing is a little bit compress, right, whereas the U.S. and EU market definitely have a better pricing for our drug. So we will continue to do both, right? China is our home base. We developed many innovative drugs from our excellent scientists from China, but we will definitely try to bring this drug to all around the world, definitely include U.S. and EU market. The next question is, can you discuss the clinical time line and upcoming milestone for ATTC program? Yes. So the 3 that we have disclosed, we expect to kick start the first one December into human trial and then the second one around middle part of next year and then the third one towards the end of next year. So hopefully, by the end of next year, we will have 3 ATTC molecules in clinical trial. And next question is, how is HUTCHMED leveraging strategic partnership to accelerate? Very good question. I think we do have a very strong balance sheet, right? But we think that with our many molecules coming out from the ATTC platform, we are definitely very open to out-license some of that even in the early-stage development, right? Because it not just validate -- and we're definitely looking for multinational pharma to be a potential partner, right, because it's not just going to help validate the science, but it's also going to bring in potential upfront payment, which will again help us to be very self-sufficient to support even a bigger pipeline coming out from the ATTC program down the road. And the next and last question, a little bit similar, how do -- how will we allocate the capital and commercialization of our oncology drugs? For overseas market, we will look for multinational partners. We've enjoyed a very good partnership with AstraZeneca with Takeda. For China, we plan to use our own sales team to do the commercialization. We have about 700 people. They are very well trained. They are definitely ready for more products to commercialize in China and to support our home base. With that, I think I have about 30 seconds left, and I want to thank everyone who has been listening to our presentation and everyone who has been supportive on HUTCHMED and definitely looking forward to an even more exciting 2026. So thank you, everyone.