2024 Earnings Report | Domestic performance lags behind international, Takeda's down payment supports HUTCHMED in turning losses around.

On the evening of February 28th, HUTCHMED (0013.HK) announced its performance for the year 2023.

In 2023, the revenue and net profit were $838 million and $101 million respectively, with a 97% YoY increase in revenue and a turnaround from loss to profit compared to 2022.

It is worth mentioning that this is the first time in nearly five years that HUTCHMED has turned losses into profits, thanks to the successful "going global" of its first innovative drug, Fruquintinib.

In January 2023, HUTCHMED licensed the overseas rights of Fruquintinib to the "Japanese pharmaceutical giant" Takeda Pharmaceutical, with a total transaction amount of $1.13 billion, of which the $400 million upfront payment became a key factor in HUTCHMED's turnaround in 2023.

"As one of the largest small molecule overseas licensing transactions in the history of Chinese biopharmaceuticals, our cooperation with Takeda further strengthened our cash position, bringing in $435 million in cash," said HUTCHMED's Chairman, Christian Hogg.

Currently, HUTCHMED's other core drug, Savolitinib, is also seeking to "go global," with plans to submit a listing application to the FDA by the end of 2024.

In 2024, whether HUTCHMED can maintain profitability through the commercial sales of its products remains to be seen by the market.

First Profit in Five Years

After nearly 100% revenue growth, HUTCHMED finally achieved profitability.

In 2023, HUTCHMED's revenue reached $838 million, a 97% YoY increase. During the same period, the net profit was $101 million, a significant turnaround from a net loss of $361 million in 2022.

It is worth noting that 2023 not only marked the first profitable year for HUTCHMED since its listing on the Hong Kong Stock Exchange in 2021 but also the first time it turned losses into profits in five years.

However, this profit still has a certain degree of contingency.

In 2023, the total sales revenue of HUTCHMED's oncology products was $164 million, a 32% YoY increase, significantly lower than the overall revenue growth rate of 65 percentage points.

But during the same period, HUTCHMED's upfront and milestone revenue totaled $312 million, a 19.8-fold increase from the previous year.

HUTCHMED also acknowledged that the growth in performance in 2023 was largely driven by milestone revenue.

"2023 was an outstanding year for HUTCHMED, largely due to receiving a $400 million upfront payment from Takeda, of which $280 million was recognized as revenue in 2023, with the remaining portion to be recognized over approximately three years upon completion of services and performance obligations," HUTCHMED pointed out.

This transaction was a recognition of Fruquintinib, the first innovative drug launched by HUTCHMED for the treatment of metastatic colorectal cancer.

In January 2023, HUTCHMED licensed the rights of Fruquintinib outside mainland China, Hong Kong, and Macau to Takeda Pharmaceutical, with a total transaction amount of $1.13 billion, of which the upfront payment reached $400 million, becoming a significant driving force behind HUTCHMED's substantial growth in 2023. Facts have proven that Fruquintinib is indeed a cash cow overseas.

In November 2023, Fruquintinib was approved by the FDA for the treatment of metastatic colorectal cancer, making it the only innovative targeted therapy approved for this indication regardless of the patient's mutation status.

Within 48 hours of its approval, the first prescription for Fruquintinib was issued by a U.S. medical institution. In less than 2 months, sales of Fruquintinib in the U.S. had already reached $15 million.

Currently, Fruquintinib's "going global" trend is still ongoing, with applications for market approval in Europe and Japan.

On February 28, during a conference call, HUTCHMED management stated that their goal is to obtain approval within the year.

"After FDA approval, Takeda achieved $15 million in market sales in the last 7 weeks of 2023. Therefore, we are now awaiting approval in the EU and Japan, aiming for later this year," HUTCHMED pointed out.

Focus on "Going Global"

It must be acknowledged that expanding overseas is more meaningful than focusing solely on the domestic market.

As HUTCHMED transferred overseas rights to Takeda Pharmaceutical, Fruquintinib faced a situation of sluggish growth in the domestic market.

Currently, Fruquintinib is mainly approved for third-line treatment of metastatic colorectal cancer in the Chinese market. Due to factors such as medical insurance price reductions, Fruquintinib's market sales in China in 2023 amounted to $108 million, a 15% increase year-on-year, but a slowdown of 17 percentage points compared to the previous year.

During the same period, HUTCHMED generated revenue of $83 million from this sales figure, with a modest 19% year-on-year growth, a decrease of 12 percentage points from 2022.

In fact, Fruquintinib holds a considerable market share domestically.

Research by IQVIA shows that Fruquintinib already has a 47% market share among third-line treated patients in China.

One of HUTCHMED's strategies is to expand the indications for Fruquintinib.

The application for Fruquintinib for second-line treatment of gastric cancer has been accepted by the China National Medical Products Administration.

Simultaneously, the Chinese registration studies for the combination therapy of Fruquintinib and sintilimab for second-line treatment of endometrial cancer and renal cell carcinoma were completed in 2023. HUTCHMED plans to submit the application for endometrial cancer in early 2024.

With more indications approved, the performance potential of Fruquintinib may further expand.

In addition to Fruquintinib, HUTCHMED's oncology business currently includes three innovative drugs: Savolitinib, Surufatinib, and Tesevatinib.

Specifically, sales of Savolitinib, which is currently only approved for adult patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) with mesenchymal-epithelial transition factor (MET) exon 14 skipping who have progressed after platinum-containing chemotherapy or are intolerant to standard platinum-containing chemotherapy, remain relatively limited.

In 2023, Savolitinib brought in $29 million in revenue for HUTCHMED, representing an increase of about 30% year-on-year. The sales potential of Savolitinib is currently drawing attention in the market.

In terms of the pipeline, as a partner of HUTCHMED, AstraZeneca is promoting the combination of Savolitinib and osimertinib to treat locally advanced or metastatic NSCLC patients with MET overexpression and/or amplification who have experienced disease progression during or after previous treatment with osimertinib (referred to as the "SAVANNAH study").

The SAVANNAH study showed that among 87 patients in the non-chemotherapy subgroup, the objective response rate could reach 52%, with a median treatment duration of 9.6 months.

"Compared with other therapies, this combination therapy does not require chemotherapy, has biomarker specificity, and is administered orally, aiming to provide lung cancer patients with a treatment option that balances efficacy, safety, and quality of life," Savolitinib pointed out.

HUTCHMED expects that by the end of 2024, AstraZeneca will submit the marketing application for Savolitinib to the FDA.

This means that Savolitinib is expected to become HUTCHMED's second overseas drug after fruquintinib, contributing revenue starting in 2025.

Domestically, HUTCHMED is expected to submit the marketing application for Savolitinib for the first-line treatment of MET exon 14 NSCLC indications by the end of the year.

However, Savolitinib targets a niche group of lung cancer patients.

Public data shows that in the lung cancer population, NSCLC accounts for over 90%. However, MET-driven NSCLC accounts for only 1.3% and 3% of patients in China and Western countries, respectively.

This may to some extent limit the revenue scale of Savolitinib, and how much revenue it can generate for HUTCHMED remains to be seen.

In terms of the pipeline, HUTCHMED's surufatinib is also approaching a crucial moment for market approval.

In January 2024, HUTCHMED submitted the marketing application for surufatinib for the treatment of adult primary immune thrombocytopenia (ITP) to the regulatory authority, making it potentially the second approved Syk inhibitor globally.

In this light, the diversification of HUTCHMED's oncology innovative drug portfolio is becoming evident, and whether it can achieve true profitability through the commercialization of its products in 2025 is highly anticipated.

It is worth mentioning that with the upfront payment from Takeda Pharmaceutical, HUTCHMED's cash position remains relatively strong.

As of the end of December 2023, the amount of cash, cash equivalents, and short-term investments reached $886 million, representing a 40.45% increase year-on-year.