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HUTCHMED has secured divestment proceeds to advance its innovative pipeline, including its newly disclosed proprietary next-generation antibody-targeted therapy conjugate (ATTC) platform, through monetising a 45% equity interest in a non-core JV (joint venture). This divestment sharpens the focus onto HUTCHMED’s core business and will enable investment into the early-stage ATTC platform. Cash proceeds of c $608m provide additional financial flexibility as HUTCHMED executes on its goal of sustainable profitability from FY25 onwards. Funds will be directed towards progressing the Oncology/Immunology R&D pipeline – including ATTC assets – and supporting commercialisation of new and existing products in China. Ahead of deal close in Q125 our HUTCHMED valuation remains $5.94bn/£4.95bn/HK$46.31bn, equivalent to $34.07/ADS and 568p/HK$53.14 per share.
| Year-end: December 31 | 2022 | 2023 | 2024E | 2025E |
| Revenues ($m) | 426.4 | 838.0 | 608.8 | 621.2 |
| Adj. PBT ($m) | (410.4) | 58.3 | (40.9) | (35.3) |
| Net Income ($m) | (360.8) | 100.8 | 3.0 | 10.4 |
| Earnings per ADS ($) | (2.13) | 0.59 | 0.02 | 0.06 |
| Cash ($m) | 631.0 | 886.3 | 776.1 | 773.4 |
| Adj. EBITDA ($m) | (349.3) | 73.9 | (20.3) | (3.4) |
Update
13 January 2025
| Price (US ADS) (UK share)(SEHK share) | $15.03 249p HK$23.75 |
| Market Cap | $2.69bn £2.18bn HK$20.70bn |
| Enterprise Value | $1.89bn £1.53bn HK$14.47bn |
| Shares in issue (ADS) (shares) | 174.3m 871.6m |
| 12-month range | $11.93-$21.92 190.4p-353.0p HK$19.00-35.90 |
| Free float | 61.8% |
| Primary exchange | NASDAQ AIM SEHK |
| Sector | Healthcare |
| Company Code | HCM HCM.L 00.13HK |
| Corporate client | Yes |
Company description
HUTCHMED is a Hong Kong headquartered biopharma focused on discovering, developing and commercialising innovative targeted therapeutics and immunotherapies to treat cancer and autoimmune diseases. It has a diverse pipeline of first-in-class/best-in-class selective oral TKIs in development for the China and global markets.
Analysts
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5043
Philippa Gardner
pgardner@trinitydelta.org
+44 (0) 20 3637 5042
Table of Contents
HUTCHMED continues to execute on its strategy of achieving sustainable profitability from FY25, through commercial delivery and near-term value creation from the most advanced in-house pipeline assets. Cash proceeds from divestment of non-core operations provides further financial flexibility for its innovative pipeline, including HUTCHMED’s newly disclosed next-generation antibody-targeted therapy conjugate (ATTC) platform. Commercial traction in China is building for first wave products and partner Takeda has launched the first global HUTCHMED product. Key pipeline assets are progressing, with multiple near-term clinical and regulatory catalysts for new indications, new markets, and new products. In our view, HUTCHMED is a unique biopharma opportunity with a broad pipeline of largely de-risked late-stage assets, global ambitions supported by large pharma partners, proven commercial execution in China yielding a growing top line, all balanced with shrewd investment. Our HUTCHMED valuation is $5.94bn/ £4.95bn/ HK$46.31bn, equivalent to $34.07/ADS or 568p/HK$53.14 per share.
HUTCHMED enters 2025 having recently achieved several important milestones, paving the way for several new China launches in the coming months for key assets fruquintinib (Elunate) and savolitinib (Orpathys), as well as tazemetostat (3L follicular lymphoma). However, the anticipated approval decision for sovleplenib in ≥2L ITP (idiopathic thrombocytopenia) is subject to a delay due to additional stability testing required to address a manufacturing issue. Exhibit 1 outlines the potential upcoming launches, and their timing.
Recent events for fruquintinib include its conditional approval in China in 2L EMC (endometrial cancer, in combination with PD-1 checkpoint inhibitor sintilimab, Tyvyt), plus the triggering of milestones from Takeda on Fruzaqla launches and reimbursement in Japan (undisclosed receipt) and Europe ($10m). Savolitinib has also made significant progress with: (1) acceptance of the China NDA with Priority Review for the Orpathys and Tagrisso (osimertinib) combination in 2L MET-amplified non-small cell lung cancer (NSCLC) after disease progression on EGFR inhibitor therapy and, (2) ex-China, the global registration-intent SAVANNAH study of Orpathys plus Tagrisso in 2/3L NSCLC read out positively with FDA filing by partner AstraZeneca anticipated in the near future.
These late-stage programmes, coupled to already launched products/indications, will all contribute to HUTCHMED’s goal of achieving sustainable profitability from FY25. Our forecasts suggest HUTCHMED will generate revenues at the upper end of guided FY24 Oncology/Immunology consolidated revenues of $300m to $400m resulting in a small profit for FY24. Note that our FY24e revenue forecast does not include milestone income for fruquintinib approvals/launches in Europe or Japan. FY24 prelims are expected in March.
Takeda milestones triggered in late-2024 provided a boost to HUTCHMED’s already solid financial funding position (end-H124 cash and equivalents of $802m); however, these were dwarfed by divestment proceeds of c $608m (RMB 4.478bn) in cash from HUTCHMED’s sale of a 45% stake in its non-core joint venture Shanghai Hutchison Pharmaceuticals Ltd (SHPL).
SHPL is a 50:50 JV between HUTCHMED and Shanghai Pharma Holding set up to manufacture, sell, and distribute own-brand prescription (Rx) medicines in China. Its portfolio primarily includes traditional Chinese medicines for cardiovascular diseases. SHPL revenue is not consolidated in HUTCHMED accounts; for FY23, consolidated net income attributable to HUTCHMED was $47.4m. Since SHPL’s inception in 2001, HUTCHMED has received c $370m in cumulative dividends. Following the close of the divestment, HUTCHMED will retain 5% equity interest.
The rationale for this transaction is multifarious: it sharpens HUTCHMED’s focus onto its core business in line with its strategy outlined in November 2022 (November 2022 Lighthouse); it allows the value within SHPL to be monetised; and most importantly, the cash proceeds provide flexibility to advance the Oncology/Immunology pipeline. Notably, focused investment will now also be directed into HUTCHMED’s proprietary antibody-targeted therapy conjugate (ATTC) platform, with first ATTC candidates expected to enter the clinic in H225.
The divestment (Exhibit 2) consists of two cash transactions structured so that GP Health Service Capital (GP HSC), a China-based private equity fund management company, will acquire a 35% stake in SHPL from HUTCHMED for c $473m, with Shanghai Pharma acquiring a 10% stake for c $135m (increasing its holding in SHPL to 60% on closing). Subject to review and audit, HUTCHMED’s gain on disposal is expected to be in the region of $477m pre-tax. Shareholder approval of the transactions will be sought in an EGM scheduled for February and, assuming grant of shareholder and regulatory approvals, the deal should close by end-Q125. We intend to update our financial model following the deal close and further clarity on the associated tax liability and on the treatment of any deferred recognition/consideration in connection with the three-year transition period (during which HUTCHMED will guarantee a minimum net profit growth of SHPL of at least c 5% annually to GP HSC, subject to a $95m cap).
A specific use of divestment proceeds is to progress the antibody-targeted therapy conjugate (ATTC) programmes towards and into clinical studies. ATTCs are a novel class of therapeutic, which incorporate a dual mechanism of action by combining antibodies with targeted therapeutics (or potentially with immunotherapy- or chemotherapy-based frontline standards of care). Conceptually they are similar to traditional cytotoxin-based antibody-drug conjugates (ADCs), but with several differences that confer important benefits (Exhibit 3). These benefits include:
The ATTC platform is underpinned by HUTCHMED’s knowledge of oncogenic drivers of disease and expertise in small molecule targeted therapies, having discovered and developed an extensive pipeline of highly selective assets with limited off-target activity, and combination therapy potential, over the past two decades. ATTCs provide a further opportunity to leverage this and develop highly optimised biologics that can target specific proteins required for tumour growth (unlike ADCs) and deliver various modalities of payload.
HUTCHMED has indicated that preclinical data show that ATTCs are highly potent. Full data are likely to be shared at a future scientific conference, with further detail on the ATTC platform and pipeline to be disclosed at a 2025 R&D event. Preclinical work has shown that single administration of an ATTC results in robust anti-tumour activity and durable responses in both in vitro and in vivo models, including in ADC-resistant models. This anti-tumour activity is also synergistic, inducing a stronger effect than that from separate administration of the individual antibody or targeted therapy components.
Two ATTC candidates are currently in IND-enabling studies, with HUTCHMED aiming to start Phase I trials in H225. Management has stated that the clinical ATTC pipeline could potentially comprise five or six assets within the next 18 months. Cash from the SHPL divestment will accelerate the development of the ATTC platform and pipeline, for both China and global markets. In common with HUTCHMED’s broader strategy for addressing international markets with development and/or commercialisation partners, business development activity will be central to plans for ATTCs. ATTC business development is likely to be multi-faceted, potentially covering one or more aspects of each ATTC molecule (novel antibodies, linkers, payloads), or broader development and manufacturing. However, the key step for the ATTC platform technology will be demonstrating clinical proof of concept.
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