HUTCHMED continues to focus on clinical and commercial delivery from its most advanced in-house pipeline assets. The goal is sustainable profitability from FY25 onwards, with an expectation for FY24 Oncology/Immunology consolidated revenues of $300-$400m, driven by targeted 30-50% growth in marketed product sales and royalties. First Japan approval of fruquintinib for advanced metastatic colorectal cancer (mCRC) is a key achievement, although the remainder of 2024 into early-2025 should bring further regulatory catalysts. These include a potential China approval decision for first immunology/haem-oncology asset, sovleplenib, in ≥2L ITP (immune thrombocytopenia), and the potential first global savolitinib filing with the FDA in lung cancer. Our updated HUTCHMED valuation is $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
25 September 2024
| Price (US ADS) (UK share)(SEHK share) | $17.35 260p HK$27.80 |
| Market Cap | $3.02bn £2.22bn HK$24.22bn |
| Enterprise Value | $2.30bn £1.67bn HK$18.61bn |
| Shares in issue (ADS) (shares) | 174.3m 871.5m |
| 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 is steadily executing on its strategy to achieve sustainable profitability from FY25. This is centred around commercial delivery and near-term value creation from the most advanced in-house pipeline assets as the company transitions into a fully integrated commercial enterprise addressing the significant global market opportunity with its Oncology/Immunology products. Commercial traction in China is building for first wave products and partner Takeda has launched the first HUTCHMED product in the US (with wider European and Japan launches pending). Key pipeline programmes are progressing, with multiple near-term clinical and regulatory catalysts for new indications, new markets, and new products. In our view, HUTCHMED represents 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 updated HUTCHMED valuation is $5.94bn/ £4.95bn/ HK$46.31bn, equivalent to $34.07/ADS or 568p/HK$53.14 per share.
Several of HUTCHMED’s late-stage programmes, in addition to already launched products, will contribute to HUTCHMED’s goal of achieving sustainable profitability from FY25. Our updated forecasts suggest that the company will achieve the upper end of guided FY24 Oncology/Immunology consolidated revenues of between $300m and $400m, resulting in a small profit for FY24.
Multiple pipeline catalysts are still anticipated into early 2025. For fruquintinib this includes a potential approval decision in China in 2L endometrial cancer (EMC, in combination with PD-1 checkpoint inhibitor sintilimab). Wider European launches, including in the UK, of fruquintinib (as Fruzaqla by Takeda) are pending and will follow the conclusion of ongoing national reimbursement assessments / discussions; Japan launch is also awaited following the recent approval. Subject to positive data, regulatory filings are planned for tazemetostat (China: 3L follicular lymphoma), and potentially also savolitinib (global: 2/3L non-small cell lung cancer, NSCLC) should SAVANNAH data support accelerated approval. Additionally, the China approval decision for sovleplenib in ≥2L ITP is anticipated by early-2025.
During September, new and updated clinical data have been presented at two major medical meetings: the World Conference on Lung Cancer (WCLC 2024) and the European Society for Medical Oncology (ESMO 2024) congress.
The key presentation at WCLC 2024 was from the investigator-sponsored China Phase II FLOWERS study of osimertinib +/- savolitinib in 1L EGFRm, MET-aberrant advanced NSCLC, which showed that combination therapy with these agents has the potential to be a novel treatment option for these patients. This was a first prospective, randomised, two-arm, multicentre study in 44 treatment-naïve Stage 3B/4 NSCLC patients with MET-alteration (MET amplification and/or MET overexpression) and EGFRm. The primary endpoint of objective response rate (ORR) was 60% for the osimertinib-only arm and 90.5% for the combination arm, a clinically meaningful improvement at a median follow-up of 8.2 months. Secondary endpoints, including duration of response (DoR) and progression-free survival (PFS), were not yet mature, while the combination showed a manageable safety profile in line with expectations.
Fruquintinib was the focus of data presentations at ESMO 2024, with further analysis of two Phase III trials: (1) two subgroup analyses centred on liver metastases and on age within the FRESCO-2 study in mCRC (metastatic colorectal cancer); and (2) subgroup analyses exploring the impact of prior-immunotherapy and the impact of subsequent anti-tumour therapies on patients in the FRUTIGA study in gastric or gastroesophageal junction (G/GEJ) adenocarcinoma.
To recap, the global FRESCO-2 multi-regional Phase III trial supported regulatory filings in the US, Europe, and Japan for fruquintinib monotherapy in advanced mCRC; approvals have subsequently been granted in these regions, including most recently in the UK and Japan. The China FRUTIGA Phase III study of fruquintinib in combination with paclitaxel in 2L G/GEJ cancer supported a supplemental NDA filed with the China NMPA; however, this has been voluntarily withdrawn by HUTCHMED following discussions with the regulator that indicated additional data would be required to support approval. The FRUTIGA study met one of its dual endpoints (PFS) but, despite a numerical improvement, missed the bar of statistical significance with the second (OS). Pre-specified subgroup analyses have indicated that this was likely due to an imbalance of patients receiving subsequent anti-tumour therapies across both arms. HUTCHMED is currently evaluating the path forward.
Other presentations at ESMO 2024 included a cf-DNA (cell-free DNA) MET biomarker study of savolitinib in gastric cancer, plus several investigator-initiated combination studies in several cancers with fruquintinib (plus chemotherapy or various PD-1 checkpoint inhibitors, including toripalimab, tislelizumab, sintilimab) and surufatinib (plus chemotherapy, or anti-PD-1/PD-L1 agents). Investigator-initiated studies of surufatinib in combination with chemotherapies were also presented at WCLC. We highlight that combinations are a central element of HUTCHMED’s life cycle plans for its marketed drugs and pipeline programmes, as these are highly selective oral small molecules tyrosine kinase inhibitors (TKIs), with administration advantages, and either best-in-class or first-in-class efficacy and safety/tolerability profiles.
We continue to value HUTCHMED using a sum-of-the-parts (SOTP) valuation methodology, with a risk-adjusted net present value (rNPV) model for the Oncology/Immunology portfolio, an earnings-based multiple for the established Other Ventures commercial platforms, and net cash. Our valuation has been updated to reflect interim H124 financial results. In addition, we have now completely removed amdizalisib (pending further updates on the regulatory strategy in China), and gastric cancer sales for fruquintinib in China (following withdrawal of the regulatory filing and as the potential path forward is evaluated). Following these changes, our updated HUTCHMED valuation is $5.94bn (equivalent to $34.07 per ADS), £4.95bn (568p per share), or HK$46.31bn (HK$53.14 per share). A summary of our valuation is shown in Exhibit 2 and the contributions of the various Oncology/Immunology assets are shown in Exhibit 3. More details on our valuation methodology are in our April 2024 Outlook.
We note that clinical, regulatory, and commercial progress, better than expected commercial sales/greater patient uptake, launch of new indications, or the addition of new later-stage programmes could result in uplifts to our valuation. In addition, we expect visibility to increase particularly on sovleplenib, both in terms of clinical data (allowing a better understanding of the commercial potential), and on the development strategy (lead indications, clinical trial timelines), which together could lead to refined peak sales forecasts. Note that we presently do not ascribe a valuation for the emerging discovery assets, the preclinical Inmagene immunology partnership, nor the discovery platform, which remain as upside to our valuation.
Following H124 interim results (August 2024 Lighthouse) we have made a number of changes to our forecasts. Our total group revenues for FY24e are largely unchanged at $609m (from $612m) albeit the mix has changed, as we have increased Oncology/Immunology to $368m (from $349m), largely owing to better-than-expected H124 fruquintinib in-market sales, particularly by partner Takeda. Our $368m forecast is now towards the upper end of maintained guidance of $300-400m; however, note that we do not include any new or uncertain milestones eg any potential milestone income for fruquintinib approvals/launches in Europe or Japan, hence these remain as upside to our forecasts. Meanwhile, we have decreased Other Venture sales to $241m (from $263m), in-line with H124 trends. Exhibit 4 provides a breakdown of our updated FY24e revenue forecasts. For FY25e, we now expect group revenues to be at a similar level to FY24e, as we have removed fruquintinib gastric cancer sales in China, and conservatively assume a continued decline in Other Ventures.
Following lower than expected R&D spend in H124, we have substantially lowered FY24e R&D to $200m (from $280m), and to $192m in FY25e (from $251m); the former assumes an uptick in H224 R&D spend, in-line with management comments. We have also lowered G&A in FY24e and beyond to reflect H124 trends. Changes to our key estimates are shown in Exhibit 5. With these changes, we now forecast a small profit in FY24e of $3m (from a loss of $121m) and a small uplift to profitability in FY25e to $10.4m (from $8.8m). Hence, we believe HUTCHMED will reach its target of sustainable profitability from 2025 ahead of schedule. A summary of the main changes to our forecasts is shown in Exhibit 5, and our updated forecasts are shown in Exhibit 6.
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