HUTCHMED: significant breadth and depth

A key part of HUTCHMED’s investment case rests on the quality of its development pipeline. Its first wave of products underpins the transition from a China-based R&D-focused biopharma to a fully integrated commercial-stage global biopharmaceutical company. Three products, Elunate (fruquintinib), Orpathys (savolitinib) and Sulanda (surufatinib), are successfully commercialised in China, with FY22 revenue expectations of $160-$190m. These are also in development for global registrations through comprehensive clinical trial programmes. A second product wave, focused on haem-oncology indications, is also progressing well, with key data expected over the coming 12-18 months. The earlier stage pipeline has numerous further novel programmes, suggesting future product replenishment is addressed. For context, the in-house discovery platform has generated 13 clinical-stage assets to date. Cash resources of c $826m mean HUTCHMED has the funds to invest in its in-house pipeline, its increasingly global commercial operations, and in selected external product opportunities. We value HUTCHMED at $5.51bn/ £4.59bn/ HK$43.08bn, equivalent to $31.89/ADS or 531p/HK$49.83 per share.

HUTCHMED is transitioning from a China-focused drug discovery and development company to a fully integrated commercial-stage global operation, albeit with a strong and influential presence in Greater China. The first wave of products, Elunate (fruquintinib), Orpathys (savolitinib) and Sulanda (surufatinib), are gaining commercial traction in China with global registration trials underway.

Progress with this first product wave is being maintained. Savolitinib is partnered with AstraZeneca globally and set to play a key role in the lifecycle management of Tagrisso (osimertinib) and Imfinzi (durvalumab). It is in two registration trials, SAFFRON in combination with Tagrisso for NSCLC (non-small cell lung cancer) and SAMETA in combination with Imfinzi for PRCC (papillary renal cell carcinoma). The first global launch is now expected to be fruquintinib, subject to positive regulatory review(s), with the pivotal global Phase III FRESCO-2 mCRC (metastatic colorectal cancer) study having met all primary and secondary endpoints. Setbacks in the development of surufatinib in the US and Europe were unexpected, in our view, but such events are known risk factors in this industry.

This momentum should be sustained by the next wave of programmes that are progressing through late clinical development. These second wave assets target haematological indications, with the most advanced being PI3Kδ inhibitor amdizalisib and Syk inhibitor sovleplenib. Unlike the first wave, the trial programmes aim for a greater degree of parallel clinical development in China and globally. Management is also looking externally to bolster and expand its in-house pipeline through selective business development, with the first successful in-licencing of China rights to tazemetostat (Tazverik) from Epizyme (Ipsen).

This note focuses on the pipeline, the key clinical programmes, the important trials and their likely clinical positioning, and provides key underlying valuation assumptions. We recommend it should be read in conjunction with our September 2022 Outlook, which addresses the strategy, and commercial prospects, both in Greater China and globally, as well as providing a more comprehensive overview of valuation and financials.

Savolitinib: embarking on global registration trials

Savolitinib, a novel highly selective inhibitor of the c-Met receptor tyrosine kinase (c-Met or HGFR), is the first selective MET inhibitor approved in China. In June 2021 it was conditionally approved by the NMPA for MET Exon 14 skipping alteration non-small cell lung cancer (MET ex14m NSCLC) based on positive data from the 70-patient single arm, open-label Phase II registration study. It was launched in China as Orpathys by partner AstraZeneca in July 2021 triggering payment of a $25m milestone. 2021 in-market sales were $15.9m, with HUTCHMED consolidating $11.3m of revenue from manufacturing fees and royalties. For H122, HUTCHMED booked $13.8m of revenues on in-market sales of $23.3m. A $15m milestone was received in February 2022 on initiation of the global pivotal SAFFRON NSCLC trial.

A long-standing partnership with AstraZeneca

AstraZeneca has held worldwide rights to savolitinib since 2011. Under this deal (and subsequent amendments) HUTCHMED is eligible for up to $140m in upfront, development and regulatory milestones as well as royalties on sales. To date, milestones totalling $85m have been received. In China, HUTCHMED is responsible for R&D and regulatory aspects, benefitting from a 30% royalty rate on all sales. Ex-China, AstraZeneca is responsible for development and regulatory filings and will pay HUTCHMED tiered royalties of 9-13% until approval in PRCC (papillary renal cell carcinoma), when these will increase to c 14-18% on ex-China sales up to $5bn, then stepping down over two years to between 10.5-14.5%.

Savolitinib is an important facet of AstraZeneca’s efforts in life-cycle management and boosting the commercial potential of its EGFR TKI franchise, particularly its blockbuster Tagrisso, a third-generation anti-EGFR inhibitor. Tagrisso (osimertinib) has become standard of care in 1L NSCLC across the US and Europe following demonstration of significant improvement in PFS (18.9 months) vs Iressa or Tarceva (erlotinib) in the FLAURA trial.

MET aberration (amplification or overexpression) is a major mechanism for acquired resistance to anti-EGFR treatment in NSCLC, CRC (colorectal cancer), and PRCC. Savolitinib has been studied or is currently in several clinical trials across NSCLC (including the aggressive subtype pulmonary sarcomatoid carcinoma, PSC), PRCC, clear cell renal carcinoma (ccRCC), and gastric cancer. Savolitinib combinations have been explored with AstraZeneca drugs such as durvalumab (Imfinzi, PD-L1), osimertinib (Tagrisso, EGFR T790M), gefitinib (Iressa, EGFR), as well as docetaxel (chemotherapy). Multiple global and China Phase III clinical trials were initiated in 2021 and 2022.

NSCLC: the cornerstone of the AZN collaboration

The major global commercial opportunity for savolitinib is NSCLC, which forms the strategic cornerstone of the AstraZeneca collaboration. This is also the largest indication-based contributor to our savolitinib WW peak sales at 44%. HUTCHMED is pursuing a dual registration strategy for this asset: initially as monotherapy in China and in combination with AstraZeneca’s Tagrisso globally. Exhibit 1 details the key current and planned clinical trials in NSCLC.

Exhibit 1: Key savolitinib NSCLC clinical trials

Source: Trinity Delta, HUTCHMED, Clinicaltrials.gov  Note:  ORR = objective response rate; PFS = progression-free survival; QD = once daily; ref = refractory; SoC = standard of care; wt = wild type

The choice of targeted therapy in NSCLC is based on identification of the relevant oncogenic driver mutation(s). Targeted therapies have been shown to be more efficacious than standard chemotherapy and, as previously mentioned, Tagrisso is now the standard of care in 1L EGFRm+ NSCLC in the US and Europe given its efficacy in this patient population. Tagrisso is also commonly used in 2L EGFRm+ NSCLC where resistance has developed to other EGFR TKIs (Exhibit 2).

Exhibit 2: Addressable NSCLC patient populations for savolitinib

Source: HUTCHMED  Note: Prevalence of EGFRm NSCLC c 32% worldwide (with regional prevalence of 38% in Asia, 24% in the US, 14% in Europe).

In NSCLC, most patients with EGFR mutations who receive EGFR TKIs eventually develop treatment resistance. First-generation EGFR inhibitors target EGFR exon 19 and 21 mutations but emergence of resistance can be rapid, typically within 12-24 months, mostly through the exon 20 mutation at position 790 (T790M). Tagrisso is active against T790M but resistance also develops, again typically within 12-24 months, with MET amplification or overexpression a key resistance mechanism. The T790M mutation (T790M+) in the EGFR gene accounts for around 50% of resistance cases and MET aberration (MET+) for c 15-50% of osimertinib-resistant patients.

In China, the first approval of savolitinib as monotherapy for a specific NSCLC setting (NSCLC harbouring MET ex14m) is a niche opportunity with a high unmet need. It is a clinically unique molecular subtype of NSCLC, with a notably poor prognosis, occurring in 3-4% of NSCLCs and about 32% of pulmonary sarcomatoid carcinomas (PSC). HUTCHMED estimates incidence of MET ex14m/del NSCLC in China is c 13,000 (c 3-4% of 1L NSCLC). Orpathys, as the only approved MET ex14 therapy in China and only selective MET TKI available, has had a strong launch with >4,000 patients treated within the first 12 months, supported by inclusion in several treatment guidelines and the recommendation that MET diagnostic testing becomes the standard of care for late-stage NSCLC. Uptake is expected to be further boosted by potential inclusion on the NRDL from 2023 onwards, subject to the outcome of negotiations.

There are wider prospects for savolitinib monotherapy in other MET-driven patient populations, eg MET gene amplified NSCLC (with c 15,000-30,000 incidence); however, the catalyst for significant revenue generation will come from longer-term use of the savolitinib and EGFR inhibitor combination across a broader NSCLC population in China. The strategy of targeting a savolitinib combination with osimertinib in both 1L and 2L settings in EGFRm NSCLC is being pursued with the start of two China-focused registrational studies in H221. The Phase III SANOVO study is evaluating the savolitinib + osimertinib combination in 1L EFGRm+ MET+ NSCLC, while the Phase III SACHI trial addresses 2L EGFR TKI refractory NSCLC with MET-amplification. Trial read outs are anticipated H224.

Global NSCLC development gathers pace

The savolitinib + osimertinib combination is the focus of global development in NSCLC. Data to date from AstraZeneca’s Phase Ib TATTON study (data from Cohorts B and D) and ongoing Phase II SAVANNAH study of savolitinib + osimertinib in 2L/3L EGFRm+ osimertinib-refractory NSCLC with MET aberration supported progression into Phase III and informed the design, dosing, and biomarker strategy of the global Phase III SAFFRON trial which is open for enrolment (Exhibit 3).

SAFFRON is a multi-regional open label global Phase III study evaluating the savolitinib + osimertinib combination vs standard-of-care (pemetrexed plus platinum doublet-chemotherapy) in 2L/3L patients with EGFRm+, MET-driven, locally advanced or metastatic NSCLC who have progressed following 1L or 2L treatment with osimertinib and have had no prior chemotherapy. The study will enrol 324 patients from 225 sites in 27 countries. The primary endpoint of the study is PFS (progression free survival), with OS (overall survival, in the overall population and in patients with MET overexpression), PFS in patients with MET overexpression, ORR (objective response rate), DoR (duration of response), and pharmacokinetics as secondary endpoints. Patients will be prospectively selected for higher MET levels by a central laboratory based on IHC90+ (≥90% of tumour cells staining at three-plus intensity) and/or FISH10+ status (≥ten copies of MET gene in tumour cells). This is consistent with the high MET patient groups in the SAVANNAH study where analysis indicated a particularly strong rationale for the savolitinib and osimertinib combination.

Exhibit 3: SAVANNAH biomarker data has informed SAFFRON trial design

Source: HUTCHMED

A biomarker-based preliminary efficacy analysis of the SAVANNAH data was presented at the 2022 World Congress on Lung Cancer (WCLC) in August 2022. Data showed improved response rates to savolitinib + osimertinib with increasing levels of MET aberration. Across the 193 efficacy evaluable patients (cut off: August 27, 2021), ORR was 32% [95% CI: 26-39%], median DoR was 8.3 months [95% CI: 6.9-9.7 months], and median PFS was 5.3 months [95% CI: 4.2-5.8 months]. These efficacy results are consistent with the TATTON and ORCHARD global studies, as was the safety profile of both the combination and the respective monotherapies.

When using a higher cut off for MET aberration level, a higher response rate was seen, particularly in patients not previously treated with chemotherapy. 108-patients met the higher cut-off criteria (MET IHC90+ and/or FISH10+ status) and in this group, ORR was 49% [95% CI: 39-59%], median DoR was 9.3 months [95% CI: 7.6-10.6 months], and median PFS was 7.1 months [95% CI: 5.3-8.0 months]. These data confirm that MET biomarker-based patient selection is beneficial in the 2L/3L EGFRm+ MET+ osimertinib-refractory NSCLC patient population, and supports enrichment of the patient population in the SAFFRON trial.

These new data also provide important evidence of savolitinib differentiation over other selective MET inhibitors in development. The biomarker strategy now pursued by AstraZeneca and HUTCHMED for the savolitinib + osimertinib combination means that the partners have identified an EGFRm+ Tagrisso refractory MET+ NSCLC patient group most likely to benefit from this targeted therapy. Both savolitinib and osimertinib are oral pills, which are a more practical option than monoclonal antibodies for these relatively early-stage patients, enabling at home therapy, rather than at hospital. In addition, the significant dosing evaluation carried out in both the TATTON and SAVANNAH trials (assessing savolitinib 300/600mg QD or 300mg bid in combination with osimertinib 80mg QD), is aligned with the guidelines from the FDA’s Oncology Center of Excellence Project Optimus that ensures doses and dosing schedules are adequately characterised ahead of registration studies.

AstraZeneca and HUTCHMED continue to evaluate the possibility that the SAVANNAH study could support accelerated approval in the US should the outcomes be sufficiently compelling to warrant a Breakthrough Therapy designation (BTD), given the significant unmet medical need in this late stage and heavily pre-treated NSCLC population. An expedited pathway, with a Phase III run in parallel, could enable a first US launch for this treatment combination between 12-18 months earlier than filing with a data package which includes SAFFRON data. In the latter scenario, potential filing is likely in 2025.

We reiterate that savolitinib is first-in-class in China, but is the third globally following the 2020 approvals of Merck KGaA’s tepotinib (Tepmetko) in Japan and Novartis/Incyte’s capmatinib (Tabrecta) in the US (and later Europe) for MET ex14m/del NSCLC. Both drugs were also under evaluation in combination with Tagrisso, with the Phase II INSIGHT-2 study in MET amplified Tagrisso refractory NSCLC (tepotinib) currently ongoing, although the Phase III GEOMETRY-E trial in 2L EGFRm+ MET+ TKI refractory NSCLC (capmatinib) is no longer recruiting.

A third programme of interest is Janssen/Genmab’s amivantamab (Rybrevant), a fully human bispecific antibody targeting EGFR and MET receptors, which is FDA approved for EGFR ex20m NSCLC. Janssen is pursuing development of amivantamab in combination with its proprietary oral, third-generation EGFR TKI, lazertinib. Similar to Tagrisso, lazertinib targets both the T790M mutation and activating EGFR mutations. Three studies further evaluating this combination are underway: the Phase III MARIPOSA trial, a head to head study of amivantamab and lazertinib vs Tagrisso in 1L EGFRm+ TKI naïve NSCLC; the Phase III MARIPOSA-2 study evaluating the combination plus platinum-based chemotherapy in EGFRm+ NSCLC after Tagrisso failure; and the Phase II CHRYSALIS-2 study in NSCLC patients who have progressed following treatment with Tagrisso and chemotherapy.

PRCC and gastric cancer: other MET-driven indications

Savolitinib is also under evaluation in other MET-driven cancers, most notably in renal cell carcinoma (RCC) for the global market and gastric cancer in China, reflecting the latter’s high relative incidence in Asia. A registration-potential Phase II China monotherapy trial in 2L+ MET amplified gastric cancer/gastroesophageal cancer began enrolment in 2021.

Active development in RCC has resumed with the October 2021 initiation of the global Phase III SAMETA combination study of savolitinib + durvalumab (AstraZeneca’s anti PD-L1 antibody Imfinzi) vs single agent Imfinzi or Sutent (sunitinib) in 1L MET-driven advanced papillary renal cell carcinoma (PRCC). This indication, an RCC subtype with a particularly poor prognosis, was selected based on maturing data from the Phase III SAVOIR monotherapy study (1L MET+ PRCC) and subsequent encouraging results from the investigator sponsored Phase II CALYPSO study of savolitinib + durvalumab. CALYPSO data confirmed a clear difference in activity of the combination between MET-driven vs non-MET-driven PRCC patients (ASCO 2021), as would be expected given the mechanism.

Several VEGFR TKI/PD-1 combinations in RCC have been approved in 1L advanced RCC since 2019, which have sought to address the emergence of acquired resistance to VEGF TKIs/mTOR inhibitor combinations. However, approved targeted therapies for MET-driven PRCC are lacking. Renal cancer is among the ten most common cancers globally, with an annual global incidence of 403k. Over 90% of kidney tumours are RCC, with 75-80% of these being clear cell RCC (ccRCC) and the balance termed non-clear cell RCC (non-ccRCC). Non-ccRCC consists principally of PRCC (10-15% of RCC), which splits broadly equally into MET+ (Type 1 PRCC) and MET- (Type 2 PRCC where other mutations are more prevalent). Given the unmet medical need, which also raises the prospect of potential accelerated approval, MET-driven PRCC is an attractive, albeit niche, commercial opportunity that represents c 8% of total RCC incidence, or c 30k new cases annually.

Savolitinib: valuation assumptions

We currently forecast c $4.3bn peak WW savolitinib sales, which includes c $1.9bn in lung cancer and c $1.0bn in kidney cancers. China represents c 16% of our WW peak sales. Our current savolitinib valuation is c $905m (equivalent to $5.2/ADS and 87p/HK$8.2 per share), based on risk-adjusted NPVs in a variety of indications and geographies. China is c 45% of our overall savolitinib valuation, despite only being c 16% of WW peak sales, given the higher 30% royalty rate on sales in China.

In NSCLC, we currently assign a 100% probability in China where it is already approved, but apply risk-adjustments to other indications and/or geographies depending on the stage of development; NSCLC ex-China is the most advanced. Savolitinib represents 23% of the value of the Oncology/Immunology portfolio and 17% of the company valuation.

Exhibit 4: Savolitinib WW peak sales by indication and geography

Source: Trinity Delta

Fruquintinib: broader indications and combinations

Fruquintinib, HUTCHMED’s first approved product, is a highly selective and potent oral inhibitor of VEGFR 1/2/3, that has been commercially available in China as Elunate as a monotherapy for 3L mCRC (metastatic colorectal cancer) since November 2018. Its approval – based on positive readout of the pivotal 416-patient Phase III FRESCO trial, which was published in the Journal of the American Medical Association (Li et al, JAMA 2018) – marked an important milestone for HUTCHMED and was the first time a domestically discovered and developed innovative oncology compound made it through to the Chinese market.

Elunate is partnered with Eli Lilly in China under a 2013 license agreement which was revised in December 2018 and again in July 2020. While Lilly retains China commercialisation rights, HUTCHMED has been responsible for development and execution of all on-the-ground medical detailing, promotion, and local and regional marketing since October 2020.

To date, HUTCHMED has received $46.5m in cumulative upfront payment and development, registration, and commercial milestones, from a potential $86.5m in such payments. Under the terms of the July 2020 amendment, HUTCHMED consolidates approximately 70-80% of Elunate in-market sales from manufacturing fees, commercial service fees, and royalties paid by Lilly. For H122, Elunate revenues of $36.0m (H121: $29.8m) were booked by HUTCHMED on in-market sales of $50.4m (H121: $40.1m). In FY21, HUTCHMED booked Elunate revenues of $53.5m (FY20: $20.m) on in-market sales of $71.0m (FY20: $33.7m).

We highlight that Elunate has been included on the NRDL since January 1, 2020, and that 3L mCRC is the first of multiple oncology indications being pursued for fruquintinib in China, which could collectively represent a potential blockbuster China sales opportunity.

Ex-China, HUTCHMED retains all commercial rights to fruquintinib. 3L/4L mCRC will likely be the first commercial indication for the global markets: the pivotal 691-patient Phase III FRESCO-2 study completed recruitment in December 2021 and reported positive top line results in August 2022 with full data to be presented at the ESMO (European Society for Medical Oncology) 2022 meeting (September 9-13, in Paris, France). FRESCO-2 was designed to meet global regulatory requirements and covers 14 countries and over 150 trial sites.

Exhibit 5: Fruquintinib clinical programme

Source: HUTCHMED   Note: Blue = China; Pink = Global

A key clinical development focus for HUTCHMED, particularly in China, is combinations with immunotherapy agents. Fruquintinib was designed to have a best-in-class profile, combining effective blockade of angiogenesis with improved tolerability through more consistent target coverage, minimising off-target toxicities. This profile, coupled with good tolerability seen in the clinical and preclinical data, suggests low potential for drug-drug interactions, which lends itself to combinations with other oncology therapies. HUTCHMED has several active PD-1 collaborations and under these is evaluating fruquintinib with tislelizumab (BeiGene) and sintilimab (Tyvyt, Innovent Biologics).

China: evidencing commercial prowess

Elunate has been making steady inroads in capturing market share since its launch in China, with its 43% share of 3L mCRC patients in Q222 having overtaken former market leader Stivarga (regorafenib, Bayer, current 33% share vs a 35% peak) during 2021. Elunate has been able to compete both in terms of its clinical safety and efficacy profile, and pricing. As the studies from their respective labels show, Elunate offers comparable or better efficacy across a range of measures such as PFS (progression free survival), OS (overall survival), and ORR (objective response rate) as well as materially lower off-target toxicities. In addition, Stivarga carries a black box warning for liver toxicity; a cause for concern as 65-75% of Chinese 3L CRC patients also have liver metastases.

The continued inclusion of Elunate on the NRDL, at a lower price to Stivarga, has also enabled greater penetration and higher volumes that offset the discount applied. We also highlight that since the HUTCHMED oncology team has been involved with marketing, there has been a significant uptick in both in-market sales and consolidated revenues.

Under the July 2020 amendment to the Lilly agreement, HUTCHMED and Lilly share gross profits linked to agreed sales target performance, with Lilly paying a total of 70-80% of Elunate sales in royalties, manufacturing costs, and service payments. In addition, HUTCHMED obtained greater control over R&D plans, notably in solid tumours beyond the three initial indications agreed (CRC, NSCLC, and gastric cancer), and will retain more of the potential commercial upside.

The second indication to be pursued was selected as 2L gastric cancer given the limited treatment options and high incidence in China, which could translate into a lucrative commercial opportunity. The c 700-patient pivotal Phase III FRUTIGA study of fruquintinib in combination with paclitaxel in 2L gastric cancer or esophagogastric junction (GEJ) adenocarcinoma is fully enrolled. Two interim analyses, the most recent in June 2020, recommended that the study continue.

We note that there have been several changes to the competitive landscape in gastric cancer in China since the start of the FRUTIGA study with approvals of PD-1 checkpoint inhibitors and other innovative therapies. We caution that this may have repercussions on the clinical and commercial success of this programme. Firstly, the introduction of a new standard of care in gastric cancer may impact the results of the study given likely prior therapy in both the placebo and fruquintinib arms, and even if data are positive and approval is granted, it may impact the market potential for fruquintinib in this indication.

Global: potential for first filings around YE2022

Fruquintinib’s lead monotherapy indication for the global market is also advanced mCRC, specifically patients who have progressed on or were intolerant to standard 1L and 2L therapies (chemotherapy, anti-VEGF, and/or anti-EGFR). Typical 3L therapy is either Lonsurf or Stivarga, or reuse of prior options. The FRESCO-2 Phase III registration trial will support global filings in this indication.

FRESCO-2 is a global (US, Europe, Japan, and Australia), randomised, double-blind, placebo-controlled, multicentre study to compare the efficacy and safety of fruquintinib in combination with best supportive care (BSC) vs placebo with BSC in refractory (3L/4L) mCRC patients who have progressed on, or were intolerant to, chemotherapy, biologics, and Lonsurf or Stivarga.

The primary endpoint is overall survival (OS) with secondary endpoints including progression free survival (PFS). The objective is to confirm the overall clinical benefit of fruquintinib, and complement data from the pivotal China FRESCO study, which resulted in a statistically significant increase in median OS vs placebo of 9.3 vs 6.6 months, and a 35% lower risk of death (hazard ratio, HR, of 0.65, p<0.001). FRESCO-2 completed enrolment in December 2021 and includes 691 patients. Top line data reported in August 2022 indicated that the primary endpoint of a statistically significant improvement in OS, as well the key secondary endpoint of PFS improvement, had been met with a safety profile consistent with prior studies.

Exhibit 6: Fruquintinib global registration strategy

Source: HUTCHMED

The positive clinical data package, FRESCO-2 trial results along with those from FRESCO and the US Phase Ib bridging study (which included c 80 ≥3L CRC patients), will comprise the regulatory filing to apply for marketing authorisation in the US (under FDA Fast Track designation with potential for a rolling NDA submission), the EU, and Japan. Given the FRESCO-2 trial size and scope, including >150 trial sites in 14 countries, this should meet FDA requirements for a multi-regional clinical trial. The EMA and Japanese Pharmaceuticals and Medical Devices Agency (PMDA) have reviewed and agreed the same protocols. The first FDA filings could start around year-end, assuming a rolling submission, with EMA and PMDA filings to follow in 2023.

FRESCO-2 data is undoubtedly an important catalyst for HUTCHMED. Not only will it contribute to the NDA package, but the magnitude of effect could have important implications for fruquintinib’s commercial potential. Stivarga, the current standard of care in 3L mCRC, has modest efficacy demonstrating a 1.4 month improvement in OS vs placebo in the pivotal global CORRECT Phase III trial. Should fruquintinib demonstrate a comparable benefit in FRESCO-2, this would still be positive given its cleaner safety profile, while a larger OS improvement should ultimately enable capture of greater market share. Either scenario would bolster fruquintinib’s life cycle indication prospects where better safety could facilitate the development of more tolerable combination regimens. Detailed FRESCO-2 data will be presented as a late breaker at ESMO 2022.

Combinations: exploring label extensions

Fruquintinib’s specificity and resulting clinical and safety profile makes it highly applicable to monotherapy use, but also as part of combinations. Due to potentially synergistic mechanisms of action (ie simultaneously inhibiting tumour angiogenesis and tumour cell signalling or immune evasion) several PD-1 checkpoint inhibitor/fruquintinib combinations are currently under evaluation. HUTCHMED has signed a number of PD-1 collaboration agreements since 2018 including with Innovent Biologics for Tyvvt (sintilimab) and Beigene for tislelizumab (North America, Europe, and Japan rights licensed by Novartis), which are the cornerstones of fruquintinib combinations. Both PD-1 inhibitors being trialled as combination therapies are already approved in China.

The most clinically advanced combination is fruquintinib + sintilimab (Tyvyt, Innovent Biologics) which is currently in two China studies: a 35-patient Phase II in CRC (promising data were presented at ASCO 2021) and an exploratory 208-patient Phase Ib/II trial in seven solid tumour indications (expanded from an original four cohorts). Preliminary data from three cohorts (hepatocellular carcinoma [HCC], endometrial cancer [EMC], and renal cell carcinoma [RCC]) of the latter Phase Ib/II study were presented at CSCO 2021, with these data informing next steps for clinical development. Expansion of the advanced EMC cohort to >130 patients (vs 35 originally) following discussion with the NMPA has converted this into a single-arm Phase II registration-intent study. Discussions are ongoing with the regulator regarding the development pathway for the fruquintinib + sintilimab combination in 2L HCC and 2L RCC, with the intention of starting registration studies in 2022.

HUTCHMED is also discussing the China registration strategy in mCRC where fruquintinib has yielded encouraging data in combination with sintilimab and with geptanolimab (Genor Biopharma). Phase Ib data presented at ASCO 2021 showed a five-fold increase in ORR and a doubling of median PFS for both combinations in comparison with fruquintinib monotherapy (as demonstrated in FRESCO).

Outside of China, global exploratory PD-1 combination studies are focused on the tislelizumab + fruquintinib combination, with two studies ongoing. The first, a US open-label multi-centre Phase Ib/II trial in patients with locally advanced triple negative breast cancer (TNBC), endometrial cancer or mCRC, has a two-part dose-finding/dose expansion design with the RP2D being administered to two cohorts: prior immunotherapy-treated and immunotherapy-naïve. The second study, led by Beigene, is a Phase Ib/II study in China and Korea in advanced or metastatic, unresectable gastric cancer, CRC, or NSCLC.

Fruquintinib: valuation assumptions

We currently forecast c $3.3bn peak WW fruquintinib sales, which includes c $1.1bn in colorectal cancers. China represents c 24% of our WW peak sales. Our current fruquintinib valuation is c $1.5bn (equivalent to $8.7/ADS and 144p/ HK$13.5 per share), based on risk-adjusted NPVs in a variety of indications and geographies. China represents 22% of our overall fruquintinib valuation, similar to the geographic sales split.

In mCRC, we currently assign a 100% probability in China where it is already approved, and 90% ex-China, based on positive FRESCO and FRESCO-2 data. Fruquintinib is the most valuable asset in our valuation, representing 38% of the value of the Oncology/Immunology portfolio and 27% of the company valuation.

Exhibit 7: Fruquintinib WW peak sales by indication and geography

Source: Trinity Delta

Surufatinib: traction in China, delays to global plans

Surufatinib is a novel selective oral small molecule TKI which targets three receptor tyrosine kinases (RTKs) involved in tumour angiogenesis, VEGFR (1,2, & 3) and FGFR (fibroblast growth factor receptor), and immune evasion, CSF-1R (colony stimulating factor-1 receptor). Its unique dual angio-immuno kinase profile differentiates it from other VEGFR TKIs with a mechanism of action that involves inhibition of angiogenesis and tumour growth; activation of T-cells through VEGFR/FGFR; and prevention of tumour-associated macrophage (TAM or white blood cell) production, which play a role in tumour cell immune evasion, via CSF-1R inhibition. This profile suggests promising activity as a multi-functional monotherapy and given its clean safety and toxicity profile, potential use in combination with PD-1 checkpoint inhibitors.

Surufatinib is HUTCHMED’s most advanced wholly owned asset and its third approved product in China. It was launched as Sulanda in January 2021 following NMPA approval as a monotherapy for advanced extra-pancreatic neuroendocrine tumours (epNET) in December 2020. Approval in a second indication, pancreatic NET (pNET), came in June 2021. The surufatinib China clinical development focus is now largely on combinations with PD-1 checkpoint inhibitors, with several exploratory studies ongoing and first registration studies in combination with toripalimab (Tuoyi, Shanghai Junshi) recently starting or due to initiate in H222.

Globally NETs are the lead indication for surufatinib monotherapy. Receipt of a Complete Response Letter (CRL) from the FDA in May 2022 means that potential approval timelines in the US are currently uncertain and are contingent upon the completion of a multi-regional clinical trial (MRCT) to support registration and manufacturing site inspections. In Europe, the MAA was validated and accepted for review in July 2021 but has subsequently been withdrawn. In both regions, regulators have determined that the China SANET trials are not directly applicable to the US and European populations and an MRCT is required. In addition, pending site inspections are necessary; however, the timing of the FDA and EMA inspections is subject to access by the relevant inspectors, which is likely to be influenced by existing or new COVID lockdowns or travel restrictions. Notwithstanding inspections, US and EU approvals are now unlikely before at least 2026, in our view, in order to allow sufficient time to conduct the required MRCT, for which the size, scope and potential length remain uncertain. Discussions are ongoing with both the FDA and EMA to determine a regulatory path forward.

In Japan, the situation differs. A registration-enabling Phase I/II bridging study in 34 Japanese patients with NETs is ongoing and is on track to render results in H123. Discussions with the PMDA are expected once this study completes.

China: commercial momentum building

HUTCHMED launched Sulanda in China in January 2021 through its dedicated China Oncology commercial team, generating FY21 in-market sales of $11.6m. Following inclusion on the National Reimbursement Drug List (NRDL) from January 1, 2022, out-of-pocket costs are 15-20% of the 2021 self-pay price and volumes have increased, reflecting the wider patient access and increasing duration on therapy which has more than offset the 52% NRDL discount on the main 50mg dose form. Sulanda in-market sales in H122 were $13.6m, up 69% on $8.0m in H121; this latter figure also included stocking behind the initial launch. HUTCHMED also highlighted that there were c 280% more new patients treated in H122 vs H121.

China NMPA approval of Sulanda was based on impressive results from the SANET-ep and SANET-p pivotal studies, both of which were terminated early due to efficacy. The results of these two pivotal Phase III trials have subsequently been published in The Lancet Oncology, see SANET-ep (non-pancreatic) and SANET-p (pancreatic). The strength of these data support Sulanda’s positioning as an effective treatment option across all NETs irrespective of tumour origin (Exhibit 8). It may also give Sulanda a competitive edge over the two other therapies that are approved in China for advanced NETs and NRDL reimbursed: Pfizer’s Sutent (sunitinib, pNET only) and Novartis’ Afinitor (everolimus).

Exhibit 8: Evidence landscape for G1/2 advanced NET by site

Source: HUTCHMED, Yao ESMO 2019

The potential China NET opportunity could be significant reflecting both the epidemiology and the lower access to treatment options vs other regions. Frost & Sullivan estimates that NET prevalence in China is c 300k patients vs c 141k in the US and 139k in Europe. The epNET and pNET splits are c 240k and 60k patients respectively (US: 127k and 14k patients; Europe: 125k and 14k). Annual incidence in China is higher at 71.3k vs 19.0k and 18.7k for the US and Europe.

Several features of the NET market could enlarge the commercial opportunity further. Unlike most cancers, the high prevalence to incidence ratio reflects the typically slow growing nature of NETs compared with other tumour types. Thus, NETs are associated with a relatively long duration of survival, and NET patients are typically on drug therapy for longer and often require multiple treatment options. Currently, there are limited treatment options for these patients, hence we expect that an effective and almost universal treatment option, such as Sulanda, should have good uptake. Additionally, diagnostic improvements coupled with more treatment options could increase the recognition of NETs and raise diagnosis rates and therefore current incidence.

Global: ongoing regulatory dialogues

The regulatory status of surufatinib in advanced NETs ex-China is at various stages with respective agencies, with currently limited visibility on potential approval and launch timelines. The MAA filing was accepted for review by the EMA in July 2021 but has since been withdrawn by HUTCHMED. The FDA CRL received in May 2022 outlined a requirement for a pivotal multi-regional clinical trial (MRCT) as well as manufacturing site inspections. In Japan, a 34-patient registration-enabling bridging study initiated in September 2021 and is expected to read out in H123; once data become available, discussions with PMDA are planned. As mentioned previously, the lingering impact of COVID-19 on the ability of inspectors to access HUTCHMED’s China manufacturing facilities is an important sensitivity that will also influence the timing of regulatory decisions. However, in the US and Europe, the key determinant relates to the design, initiation, progress, and read out of the MRCT.

The May 2022 CRL outlined an FDA requirement for a MRCT to be run to include patients that were more representative of the US population and comparator that were more aligned to US medical practice. The EMA shares the view that the China SANET studies were not applicable to Europe. As a reminder, the NDA and MAA data packages filed for surufatinib in NETs comprised the two pivotal China trials (SANET-ep and SANET-p) and relevant safety, efficacy, and PK data from the 105 patient Phase Ib US bridging study that included 16 pNet and 16 epNET patients (this showed comparable results to the China trials).

HUTCHMED intends to work with the FDA (and EMA) to define the path to approval and design an international MRCT that complements the existing surufatinib clinical dataset and supports its potential future approvals in the US and Europe. Associated costs and timelines will be defined by the study design; we expect HUTCHMED to provide further guidance once the design has been finalised. However, given that a Phase III study is likely to be >100patients and that NETs are slow growing tumours, we do not envisage a surufatinib US/Europe approval decision before 2026.

Nevertheless, HUTCHMED has emphasised its commitment to NET patients and is confident about the clinical value of surufatinib to a diverse patient group with limited therapeutic options. This unmet need has also been acknowledged by the grant of FDA Orphan Drug Designation (November 2019) and Fast Track Designations for pNET and epNET (April 2020).

PD-1 combos: exploiting synergies

Surufatinib clinical development encompasses several difficult-to-treat cancers, in an attempt to circumvent the intrinsic and acquired resistance to VEGF inhibitors seen in many solid tumours. HUTCHMED is predominantly seeking to address these indications with surufatinib in combination with various PD-1 checkpoint inhibitors, as its ability to inhibit TAM production amplifies the PD-1 induced immune response. HUTCHMED is evaluating surufatinib combinations with two PD-1 inhibitors, toripalimab (Tuoyi, Shanghai Junshi, which incidentally is marketed by AstraZeneca in China) and tislelizumab (Baize’an, Beigene), both of which are already approved in China in several indications. The first China registration study of a surufatinib + PD-1 combination is underway, and several China and global exploratory studies are ongoing.

Exhibit 9: Surufatinib clinical programme

Source: HUTCHMED  Note: Blue = China, Pink = Global

The surufatinib and toripalimab combination is the most clinically advanced. The 200 patient China Phase III SURTORI-01 trial in ≥2L advanced neuroendocrine carcinoma initiated in September 2021, following encouraging preliminary Phase II data in NECs first presented at ASCO 2021, and subsequently updated at the Chinese Society of Clinical Oncology (CSCO) 2021 and ESMO Immuno-Oncology 2021 congresses. Latest data presentation (cut off: August 1, 2021) of all 21 efficacy evaluable patients showed median OS of 10.87 months (95% CI: 9.07-NR), median PFS of 4.14 months (95% CI: 1.45-5.45), confirmed ORR of 23.8%, and disease control rate (DCR) of 71.4%. Subgroup analysis of nine PD-L1 positive patients (defined as combined positive score ≥5) showed a confirmed ORR of 22.2% with mPFS of 5.32 months.

Multiple new Phase III trials of the surufatinib and toripalimab combination are expected in H222, also informed by the results of the 250-patient Phase II combination trial in advanced solid tumours. The first of these will be the SURTORI-02 study in oesophageal squamous cell carcinoma (ESCC) – supportive Phase II data were also presented at ASCO 2021 and ESMO I-O 2021. In addition to new trial starts, further Phase II data for this combination in other indications (including biliary tract, thyroid, NSCLC, and endometrial cancers) will be submitted for presentation at a scientific conference in 2023.

Other China and Global combination studies of surufatinib with other PD-1 inhibitors are progressing. The dose finding portion of a US/Europe Phase Ib/II study with tislelizumab in advanced or metastatic solid tumours has completed, with the multi-cohort expansion phase underway. Initial data from this trial are also expected at a future scientific conference in 2023.

Surufatinib: valuation assumptions

We currently forecast c $2.4bn peak WW surufatinib sales, which includes c $1.1bn in NETs. China represents c 28% of our WW peak sales. Our current surufatinib valuation is c $884m (equivalent to $5.1/ADS and 85p/HK$8.0 per share), based on risk-adjusted NPVs in a variety of indications and geographies. China is c 40% of our overall surufatinib valuation, despite only being c 28% of WW peak sales, given that ex-China launches are not expected until at least 2026.

In NETs, we currently assign a 100% probability in China where it is already approved, but apply risk-adjustments to other indications and/or geographies depending on the stage of development. We include a 90% probability on NETs ex-China as despite the recent regulatory setbacks in the US and Europe, we believe the clinical value remains intact. Surufatinib represents 23% of the value of the Oncology/Immunology portfolio and 16% of the company valuation.

Exhibit 10: Surufatinib WW peak sales by indication and geography

Source: Trinity Delta

Haem-oncology: sustaining R&D momentum

HUTCHMED’s next wave of internally discovered, and wholly owned, assets are progressing through proof-of-concept studies, with the lead programmes (PI3Kδ inhibitor amdizalisib and Syk inhibitor sovleplenib) recently initiating potential registration-enabling trials. Unlike the first wave, the intention is that global and China development plans will proceed in parallel, especially where the standard of care is consistent between regions.

Amdizalisib (formerly HMPL-689) and sovleplenib (HMPL-523) are focused on B-cell malignancies, which due to the heterogeneity in these diseases and the emergence of Bruton’s tyrosine kinase (BTK) refractory disease means there is a need for new therapies. These two assets, along with tazemetostat (China rights licenced from Epizyme) and three earlier-stage HUTCHMED originated assets, comprise a broad haem-oncology portfolio (Exhibit 11).

Exhibit 11: HUTCHMED portfolio covers much of the haem-oncology spectrum

Source: HUTCHMED

Amdizalisib (HMPL-689): PI3K-ing a winner

Amdizalisib was designed as a best-in-class oral PI3Kδ inhibitor with improved isoform selectivity, potency, and pharmacokinetic activity. PI3Kδ is one of the four isoforms of PI3K (phosphoinositide-3-kinase), an enzyme found along the B-cell receptor signalling pathway, which is associated with allergy, inflammation, and cancer. Activating mutations are commonly found in solid tumours, with the PI3K pathway also implicated in development of drug resistance. Each isoform is differentially expressed in various tissues (which in part defines their toxicity profiles). PI3Kδ is preferentially expressed on leukocytes, playing a role in Treg function and peripheral T-helper cell differentiation. Amdizalisib specifically does not inhibit PI3Kγ, in order to minimise the risk of serious infection caused by immune suppression.

In 2021, HUTCHMED initiated a multicentre single-arm open label China Phase II registration-intent study in two subtypes of NHL (Non-Hodgkin lymphoma): relapsed/refractory follicular lymphoma (r/r FL; n=100) and r/r marginal zone lymphoma (r/r MZL; n=80). Registration-intent Phase II studies are planned to start for further r/r NHL indications in H222, in addition to potential combination trials with other anti-cancer therapies, including with tazemetostat.

Data from the ongoing Phase Ib/II China trial in multiple tumours has informed the preferred target indications within NHL. Highly encouraging preliminary Phase Ib expansion data were presented at ESMO 2021 that demonstrated amdizalisib’s tolerability and activity as monotherapy (ORR, Objective Response Rate, of 77.8% [14/18] in the FL patients, with seven CR, Complete Responses). Breakthrough Therapy designation has also been granted for r/r FL in China.

The corresponding Phase I/Ib US/Europe amdizalisib monotherapy study in indolent NHL is enrolling and has successfully completed multiple dose cohorts. This trial was amended in 2021, expanding enrolment to 210 patients (from an original 50) due to clinical activity supporting an increase in cohort size for select lymphoma indications, and the addition of three additional cohorts in lymphoma indications with high unmet need (ie mantle cell lymphoma post-BTK, cutaneous B-cell lymphoma [CBCL], and peripheral T-cell lymphoma [PTCL]). Given amdizalisib’s profile, and likely low risk of drug-drug interactions, HUTCHMED is also exploring combination opportunities with approved and novel agents, with the potential to address treatment resistant tumours.

Discussions with regulatory agencies (including the FDA) are ongoing to define a data-driven path to NDA, with the intention of initiating registration studies in indolent NHL as soon as possible. Data to date suggest that amdizalisib’s efficacy profile is competitive, and data presented at ASH 2020 indicate superior tolerability vs other drugs in the class. This is an important factor for three reasons: firstly, oncology treatments are moving towards greater combination therapies; secondly, if amdizalisib’s tolerability profile is endorsed in later, larger population, trials then it could provide a key differentiator beyond efficacy to carve a sizeable place in an increasingly crowded, albeit chequered, segment; and thirdly, tolerability could be a critical factor for uptake in certain elderly and/or frail populations eg FL.

Tolerability has been an issue for the PI3K inhibitor class, with most PI3Kδ inhibitors in development showing frequent and severe adverse events and many of those approved carrying black box warnings. More recently there has also been a significant degree of uncertainty from a regulatory perspective. The first PI3Kδ inhibitor to be approved Zydelig (idelalisib, Gilead), received accelerated FDA approval in 2014, despite liver toxicity issues, and due to challenges in enrolment in the confirmatory study is being withdrawn for FL and SLL (small lymphocytic lymphoma) in the US. Incyte is also withdrawing its NDA for parsaclisib due to the investment necessary to complete a post-marketing study requested by the FDA in the required timeframe. The MAA for Bayer’s pan-PI3K inhibitor copanlisib in MZL was also withdrawn pending further data analysis to characterise its risk:benefit profile. Most recently, in April 2022, TG Therapeutics withdrew from sale its PI3Kδ/CK1ε inhibitor Ukoniq (umbralisib) which was marketed for r/r/MZL or FL as well as withdrawing the BLA and sNDA for Ukoniq in combination with ubliximab in CLL.

Copanlisib (approved for r/r FL as Aliqopa monotherapy), Copiktra (duvelisib, Secura Bio, PI3K-δ/γ dual inhibitor approved for r/r chronic lymphocytic leukaemia [CLL]/SLL), and Zydelig (approved in r/r CLL) are the only three FDA approved and currently marketed PI3K inhibitors in the US. In March 2022, the FDA discouraged filing of a potential fifth PI3Kδ inhibitor, zandelisib (ME-401, MEI Pharma), on the accelerated approval pathway based on single-arm Phase II data, requiring randomised data from the ongoing Phase III COASTAL study.

Furthermore the FDA Oncologic Drugs AdCom on April 21, 2022 voted in favour of a requirement for randomised data to support the approval of PI3K inhibitors in haematological malignancies. This followed a discussion that covered toxicities associated with the PI3K inhibitor class, including clinical trials that have shown a shorter survival in the active arm, as well as limited exploration of dosing, and the limitations of single-arm trials which supported prior accelerated approvals.

Sovleplenib: targeting the Syk in ITP and NHL

Sovleplenib (HMPL-523) is a potential best-in-class highly selective oral small-molecule Syk-inhibitor. Syk (spleen tyrosine kinase) is a non-receptor kinase that plays a key role in B-cell signalling and is found upstream to PI3Kδ and BTK within the B-cell signalling pathway. Sovleplenib was designed to have high tissue distribution but to selectively avoid the severe off-target toxicities (diarrhoea, hypertension) seen with first-generation Syk-inhibitors, and have a far better side-effect profile compared to second-generation programmes, such as entospletinib (Kronos). Although Syk is a clinically validated target in rheumatoid arthritis (RA), the near-term development focus is B-cell malignancies and orphan immunological conditions such as ITP (idiopathic thrombocytopenic purpura), which require smaller clinical programmes. The China registration strategy is initially focused on ITP, with further development to include multiple NHLs, that may have Fast Track designation potential. A China Phase II proof of concept study in warm autoimmune haemolytic anaemia (AIHA) is also in planning. Global development centres on indolent NHL, albeit with plans to complete a US IND and initiate a Phase I US ITP study during 2023.

The c 180-patient China ESLIM-01 Phase III study in adult primary ITP initiated in 2021. Sovleplenib was subsequently granted Breakthrough Therapy designation by the NMPA for this indication in January 2022. The primary endpoint of ESLIM-01 is the durable response rate, and it is expected to render data in late-2023 contingent on recruitment completing around YE2022. This trial is supported by encouraging results, presented at ASH 2021, from an earlier Phase Ib study in ITP.

The ITP data at ASH 2021 revealed an ORR of 80% and durable ORR of 40% in a heavily pre-treated patient group, with a median treatment duration of 142 days (range: 23-170). Interestingly, a similar level of efficacy was seen in patients who had previously been treated with TPO/TPO-RA (thrombopoietin/thrombopoietin receptor agonists eltrombopag or romiplostim) which are the current gold standard second-line therapy for ITP (following corticosteroids) and those patients who had not. None of the 41 patients treated with sovleplenib discontinued treatment due to treatment-emergence adverse effects, and no treatment-related serious adverse events were reported.

In haematological cancers, two Phase I/Ib proof-of-concept trials are ongoing in multiple subtypes of B-cell malignancies in Australia and China which have enrolled >200 patients and have identified indications for future development. The multi-centre US/Europe Phase I/Ib sovleplenib monotherapy study in indolent NHL is currently enrolling the dose expansion phase and, like the US/Europe amdizalisib study, was amended in 2021 expanding enrolment from 90 patients to 120 patients with a larger FL cohort (n=30 vs n=10 originally) and adding new cohorts in Hodgkin’s lymphoma and CLL (post-BTK inhibitor therapy). Sovleplenib data at ASH 2021 also included preliminary results from this latter Phase I/IIb trial, which confirmed 700mg QD as the maximum tolerated dose and RP2D for the ongoing dose expansion phase.

Syk is an extensively researched target, although only one small molecule drug specifically targeting Syk has been approved to date: Tavalisse (fostamatinib, Rigel) for chronic immune thrombocytopenia. The clinical attrition of this drug class is largely attributed to off-target toxicity due to lower kinase selectivity. Active development stage assets include Kronos Bio’s entospletinib for NPM1-mutated AML (Phase III) and lanraplenib (GS-9876) in r/r FLT3-mutated AML (IND filed), and Calithera’s mivavotinib in DLBCL (Phase II-ready).

Tazemetostat: potentially the first to market in China

Tazemetostat (marketed as Tazverik in the US and Japan) is a global first-in-class methyltransferase inhibitor of EZH2, which was FDA approved in 2020 under accelerated approval for metastatic or locally advanced epithelioid sarcoma (ES) and r/r follicular lymphoma (FL) with the relevant EZH2 mutation or wild type patients without alternative options. HUTCHMED licenced Greater China rights to tazemetostat from Epizyme in August 2021 and is targeting accelerated China approval and evaluating the drug in combination with various in-house assets. Ex-China, Epizyme is developing Tazverik across four areas including lymphomas and B-cell malignancies, mutationally defined tumours, treatment-resistant tumours, and in augmenting response to immunotherapy.

Exhibit 12: Combination potential of tazemetostat with HUTCHMED assets

Source: HUTCHMED, Epizyme

EZH2 is a key regulator of cancer initiation and proliferation, including drug resistance and immune evasion. This mechanism of action has potential broad applicability which, coupled with tazemetostat’s clean safety profile, lends it to exploratory combination studies with several HUTCHMED pipeline assets in multiple solid/haematological tumours (Exhibit 12).

HUTCHMED is running the necessary clinical trials to file for tazemetostat approval for ES, FL, and diffuse large B-cell lymphoma (DLBCL) in Greater China. This includes conducting the China element of Epizyme’s global SYMPHONY-1 (EZH-302) Phase Ib/III study of tazemetostat in combination with R² (Revlimid and rituximab) in second-line FL. The Phase Ib part has completed and determined the RP3D for the 500-patient double-blind, randomised, active control, Phase III portion of the study. The first patient should be enrolled in the China Phase III in H222, with SYMPHONY-1 completion expected around end-2024 and, as per Epizyme, read out of initial data from the randomised portion is planned in 2026.

HUTCHMED will conduct other global studies jointly with Epizyme and will fund the China portion of these. Separately, it is embarking on a monotherapy Phase II bridging study in r/r FL to support China conditional registration based on the FDA approval; the first patient was enrolled in July 2022. Subject to approval in this indication, tazemetostat could become the first EZH2 inhibitor marketed widely across China. We note that in June 2022 it was approved for use in the Hainan Pilot Zone for international medical tourism under the Clinically Urgently Needed Imported Drugs scheme, providing early access to some ES and FL patients as per the FDA-approved label.

HUTCHMED is also engaging with the NMPA on the potential regulatory path for epithelioid sarcoma (ES), an orphan indication in which tazemetostat monotherapy is FDA approved, and is pursuing China INDs to clinically evaluate combinations with in-house assets. These initial Phase II studies will focus on select haematological cancers in combination with amdizalisib (T-cell lymphoma [TCL] and diffuse large B cell lymphoma [DLBCL]), and solid tumours in combination with fruquintinib (lung and ovarian) or surufatinib (sarcoma and tumours with neuroendocrine differentiation).

HMPL-306: potentially a best-in-class IDH1/2 inhibitor

HMPL-306 is a highly selective small molecule inhibitor of IDH1/2 (isocitrate dehydrogenase, an important metabolic enzyme) designed to address resistance to the currently marketed IDH inhibitors. Cytoplasmic IDH1 or mitochondrial IDH2 mutations are common in various poorly treated cancers such as AML (acute myeloid leukaemia), MDS/MPNs (myelodysplastic syndrome/myeloproliferative neoplasms), gliomas and cholangiocarcinoma, with mutant IDH isoform switching identified as a mechanism of acquired resistance to IDH inhibitors. Currently two IDH inhibitors are FDA approved, each targeting one of the isoforms: Tibsovo (ivosidenib, Servier) an IDH1 inhibitor approved for IDH-mutant AML and cholangiocarcinoma, and IDH2 inhibitor Idhifa (enasidenib, Bristol Myers Squibb/Servier) for IDH-mutant AML. At present no dual inhibitor targeting both IDH isoforms has been approved.

HMPL-306’s ability to target both IDH1 and IDH2 mutations means that it could be applicable to patients with either form of IDH mutation and also potentially address acquired resistance. A China Phase I monotherapy dose escalation study is ongoing in r/r haematological malignancies with an IDH1 and/or IDH2 mutation and is close to establishing the RP2D. On completion of this stage, dose escalation data is likely to be submitted for presentation at a scientific conference. The dose expansion phase is expected to begin in early 2023. An equivalent US/Europe Phase I study dosed the first patient in May 2021, and a US/Europe Phase I study in solid tumours with an IDH1 and/or IDH2 mutation is also underway, with dose expansion on track to start in mid-2023.

The most advanced IDH1/2 inhibitor in development is vorasidenib (Servier) which is in Phase III (INDIGO study) for residual or recurrent glioma. HMP-306 is well-positioned with respect to haematological malignancies and solid tumours, where LY3410738 (Eli Lilly) is also in Phase I and appears to be the only other IDH1/2 inhibitor currently in the clinic.

HMPL-760: a third generation BTK inhibitor

HMPL-760 is a highly selective, non-covalent, reversible, third generation BTK (Bruton’s tyrosine kinase) inhibitor (BTKi), with improved potency vs first generation BTKi’s and long target engagement against both wild type and C481S mutant BTK. Development of acquired resistance to BTKi is most commonly due to loss of function mutations in the BTKi binding site cysteine 481, and less frequent occurrence of gain of function mutations in downstream signalling.

HMPL-760’s mechanism of action, as a non-covalent BTKi which does not bind to the C481 site on BTK, means it has the potential to address the former. In January 2022, HMPL-760 entered the clinic with the initiation of two Phase I trials in China and the US in patients with advanced haematological malignancies previously treated with a BTKi.

Several BTKi are currently approved in the US and Europe: including covalent first generation BTKi Imbruvica (ibrutinib, Abbvie/Janssen) and second generation drugs Calquence (acalabrutinib, AstraZeneca) and Brukinsa (zanubrutinib, Beigene). In Japan Velexbru (tirabrutinib, Ono Pharma/Gilead) is also approved. However, of the more than 20 BTKi currently in clinical development, only four are non-covalent. Two are in active development for haematological cancers: pirtobrutinib (LOXO-305, Eli Lilly, Phase III with rolling NDA underway for mantle cell lymphoma [MCL]) and nemtabrutinib (MK-1026, formerly ARQ-531, Merck & Co, Phase II). Both vecabrutinib (Viracta Therapeutics) and fenebrutinib (RG7845, Genentech/Roche) are no longer pursuing development in B-cell malignancies, although the former is under preclinical evaluation in combination with CAR-T therapy and the latter is in Phase III development multiple sclerosis.

Haem-oncology: valuation assumptions

We value the three most advanced assets in the haem-oncology portfolio: amdizalisib, sovleplenib, and tazemetostat, which together are worth c $617m (equivalent to $3.6/ADS and 59p/HK$5.6 per share) in our HUTCHMED valuation. For each we include peak sales, which are currently largely illustrative and will be refined as clinical development progresses, which we probability adjust to reflect the stage of development. The key underlying current assumptions for these three assets are as follows, in order of valuation contribution:

• Amdizalisib: rNPV of $309m (equivalent to $1.8/ADS and 30p/HK$2.8 per share based on WW peak sales of $1.1bn, largely driven by expected development in NHL; we assign a higher 45% probability in China and 25% ex-China, with the latter reflecting higher regulatory risks plus as yet unproven commercial capabilities.
• Tazemetostat: rNPV of $180m (equivalent to $1.0/ADS and 17p/HK$1.6 per share based on China peak sales of $835m, with the bulk from B-cell lymphomas; FL is the most advanced indication, to which we assign a 90% probability; the tazemetostat valuation also includes milestones and royalties owed to Epizyme, which lowers the rNPV,
• Sovleplenib: rNPV of $128m (equivalent to $0.7/ADS and 12p/HK$1.2 per share based on WW peak sales of $635m, for now only largely including ITP; as for amdizalisib we assign a higher 45% probability in China and 25% ex-China.

We do not currently explicitly value earlier-stage assets, which remain as upside potential until clinical data are available and there is greater visibility on development plans.

Exhibit 13: Haem-oncology valuation contribution to Oncology/Immunology

Source: Trinity Delta

A healthy discovery pipeline

HUTCHMED’s discovery engine continues to be highly productive, with six new in-house discovered drug candidates entering the clinic during 2021/early 2022. Two of these programmes, HMPL-306 and HMPL-760, are profiled above; two other assets that have recently embarked on Phase I trials are:

• HMPL-295: a highly selective oral ERK 1/2 (extracellular signal-regulated kinase) inhibitor is in a China monotherapy Phase I trial in solid tumours. ERK is involved in cell survival, but under certain conditions can also induce apoptosis. Inhibiting ERK has the potential to address intrinsic or acquired resistance from upstream mechanisms in the MAPK pathway such as RAS-RAF-MEK. HMPL-295 is the first of multiple discovery candidates targeting the MAPK (RAS-RAS-MEK-ERK) pathway. To date, no ERK inhibitor has been approved.
• HMPL-653: a highly selective potent CSF-1R (colony-stimulating factor 1 receptor) inhibitor designed to target CSF-1/CSF-1R driven tumours, eg TGCT or tenosynovial giant cell tumours. CSF-1 is a growth factor that stimulates the immunosuppressive and tumour-promoting M2 TAM (tumour-associated macrophage) phenotype. HMPL-653 will be evaluated as monotherapy or in combination with other agents: a China Phase I study in advanced malignant solid tumours and TGCT is ongoing. No CSF-1R inhibitors are approved in China, and Turalio (pexidartinib, Daiichi Sankyo), the only FDA approved CSF-1R inhibitor, received a negative option from the CHMP in Europe due to liver toxicity concerns.

HUTCHMED’s in-house clinical pipeline is currently concentrated on TKIs in oncology indications; however, the company is broadening its horizons. A China Phase I study of HMPL-A83, an anti-CD47 monoclonal antibody, in advanced malignant neoplasms initiated in July 2022. HMPL-A83 is applicable to both solid tumours and haematological malignancies and is HUTCHMED’s first non-small molecule drug candidate.

Outside oncology, TKIs also have utility in multiple immunological diseases. Four novel preclinical drug candidates have been identified through HUTCHMED’s discovery work which form the foundation of its strategic collaboration with Inmagene Biopharmaceuticals in immunology. This is a distinct market from oncology for several reasons, including the fact that chronic therapy is the norm, and given this long-term approach, it is imperative to establish a clean safety and tolerability profile in large clinical studies (often with many hundreds if not thousands of patients). The first programme, IMG-007, recently dosed the first patient in a 44-pt global Phase I study. IMG-007 is an OX40 antagonistic monoclonal antibody discovered by HUTCHMED and is initially directed towards treating atopic dermatitis. A US IND has been cleared for a second immunological disease programme, IMG-004, a reversible, non-covalent, highly selective oral BTKi, which is shortly due to begin a Phase I study in healthy volunteers.

Given the early stage of all these programmes, and the limited data to date on their profiles, they currently represent upside potential to our modelling.

Valuation and Financials

Our HUTCHMED valuation uses a sum-of-the-parts methodology, with an rNPV based DCF model for the development portfolio and early-stage marketed products and an earnings-based multiple for the established, albeit increasingly non-core, Other Ventures commercial businesses. We value the company at $5.51bn (equivalent to $31.89 per ADS), £4.59bn (531p per share), or HK$43.08bn (HK$49.83 per share).

A breakdown by segment is shown in Exhibit 14, with the contributions of the various Oncology/Immunology assets presented in Exhibits 15 and 16. More detail on our approach and valuation model is presented in our September 2022 Outlook; however, it is evident that the later stage Oncology/Immunology programmes are becoming increasingly important contributors to valuation. Reflecting the progress achieved and the near- and medium-term prospects the Oncology/Immunology platform accounts for 71% of our company valuation, Other Ventures (the remaining JV operations in China) for 14%, with H122 net cash representing the 15% balance.

Exhibit 14: HUTCHMED valuation summary

Source: Trinity Delta   Note: 12.5% discount rate for development stage products and 10% for commercial products; taxation at 20%; FX rates of 1.2 USD:GBP and 7.8 USD:HKD

HUTCHMED’s most valuable asset is fruquintinib which comprises 38% of the value of the Oncology/Immunology portfolio and 27% of the company valuation. The next most valuable assets are savolitinib (23% and 17%, respectively) and surufatinib (23% and 16%, respectively). The earlier-stage clinical assets carry lower success probabilities and collectively represent 16% and 11% respectively, but we expect these to unlock significant additional value as they progress through clinical development (subject to positive trial results).

Exhibit 15: HUTCHMED Oncology/Immunology portfolio valuation summary

Source: Trinity Delta   Note: 12.5% discount rate for development stage products and 10% for commercial products; taxation at 20%; FX rates of 1.2 USD:GBP and 7.8 USD:HKD

Exhibit 16: Relative contributions of HUTCHMED programmes to valuation

Source: Trinity Delta

We note that any number of incremental improvements on our base case scenarios could result in sizeable uplifts in our valuation. We are also conservative regarding a couple of areas where we expect visibility to increase, for example with respect to development strategy clarification (lead indications, clinical trial timelines) for the second wave assets. Similarly, we presently do not ascribe a valuation for the emerging discovery assets, the Inmagene immunology partnership, nor the discovery platform, which remain as upside to our valuation.

Equally importantly, the visibility for the outlook of late-stage clinical programmes is increasing, with a rich news flow over the coming years. This suggests that there is significant upside potential, with multiple catalysts expected in the next 12 to 24 months. We intend to review our model regularly to reflect clinical, regulatory, and commercial progress.

Exhibit 17: Potential near-term NDA filings for six drug candidates in 13 registration trials

Source: HUTCHMED  Note: ᴧ = in collaboration with Epizyme; * = in collaboration with AstraZeneca

Our financial forecasts were also comprehensively covered in our September 2022 Outlook. Management guidance for FY22 focuses on consolidated Oncology/Immunology revenues: the expectation is that China revenues from the three marketed products will grow to between $160m to $190m. This increase will be driven by continued acceleration in Elunate growth, a similarly growing Sulanda (with increased volumes more than offsetting the NRDL discount), and the first full year of revenues for Orpathys coupled with the $15m milestone payment from AstraZeneca received in March on the initiation of the global NSCLC Phase III programme.

We forecast FY22 Oncology/Immunology revenues of $176.5m, within $160m-$190m guidance, with Other Ventures contributing $236.5m for group total revenues of $413.0m. We expect growth in R&D spend to $367.1m for FY22, further expanding to $397.6m for FY23 as an increasing number of later-stage trials – including global registration trials – initiate and run over the period. The continued build out of China and US commercial infrastructure will increase FY22 S&M costs to $45.3m and G&A to $98.2m on our forecasts.

At end-June 2022, HUTCHMED had cash resources of $826m, consisting of cash, cash equivalents, and short-term investments. The company also has $178m in unutilised banking facilities and a 50% stake in the $58m in additional cash held at the SHPL JV. Current resources should be sufficient to both maintain pipeline development momentum and support the planned expansion of the commercial infrastructure. HUTCHMED are managing these resources prudently, with an aim of having three years run rate.

Exhibit 18: Summary of financials

Source: Company, Trinity Delta  Note: Adjusted PBT excludes exceptionals, Cash includes short-term investments