HUTCHMED (China) Limited Q2 FY2020 earnings call

• Strategy: Build a global science-focused biopharmaceutical company from China, focusing on realizing global potential of novel oncology assets and building integrated oncology business in China.
• Pipeline highlights: Savolitinib NDA submitted in China for MET Exon 14 skipping non-small cell lung cancer, received priority review; surufatinib targeting US NDA submission late 2020, China NDA for non-pancreatic NET expected by end of year; fruquintinib taking over medical detailing in China from October 1, global Phase III study in colorectal cancer started; PD-1 combos with Junshi, Innovent, BeiGene in progress.
• Commercial team: Oncology team in China built to over 320 people, preparing for Elunate commercialization and surufatinib launch; aiming to triple medical sales reps for Elunate.
• Manufacturing: Planning to break ground on a large oncology manufacturing facility in Shanghai in the second half of 2020.

The Commercial Platform had a net profit that was up 19% in the first half at constant exchange rates despite COVID-19. The Innovation Platform continued to invest in the pipeline. Overall, the net loss for the first half was around $50 million, with cash from partners and profits from the commercial business contributing to keeping the loss relatively low. Cash position: at the end of June, $281 million in cash, with a $100 million pipe deal with General Atlantic completed in early July, and JV cash to be paid out as dividends in the second half.

• R&D spend: Expect to hit guidance of $180 million to $200 million of Innovation operating loss in the second half.
• Cash flows: First half cash burn was $32.5 million, expecting total net cash burn of around $140 million to $160 million over the balance of the year due to expanding clinical activities and commercial investment.

Q: Louise Chen from Cantor asked about Elunate penetration rate, surufatinib go-to-market, and collaborations.

A: Christian Hogg said Elunate penetration aimed to increase from 14% to 40% over 2-3 years with expanded commercial team; surufatinib has synergies with commercial team, different mechanism of action in neuroendocrine tumors; collaborations on large molecule side via partnerships, non-core assets may be spun off or sold.

Q: Alec Stranahan from Bank of America asked about Elunate marketing in-house rationale and surufatinib US launch.

A: Christian Hogg said Elunate in-house marketing for focus and resource allocation; surufatinib has differentiated mechanism, straightforward commercial approach in US.

Q: Paul Choi from Goldman Sachs asked about 306 IDH inhibitor, surufatinib PD-1 combos, and CapEx.

A: Wei-guo Su discussed 306 IDH inhibitor targeting dual inhibition for improved efficacy, US IND filing soon; surufatinib PD-1 combos global collaborations; Johnny Cheng said CapEx for Shanghai project around $20 million in second half, planning smart financing.

Q: Tony Ren from CLSA asked about Elunate deepening and pricing.

A: Christian Hogg said Elunate covering top 1,300 oncology centers in China; no immediate pricing pressure, renewal of NRDL position next year with modest reductions.

Q: Sean Wu from Morgan Stanley asked about Elunate license agreement, penetration, patient treatment, and neuroendocrine tumors.

A: Christian Hogg and Wei-guo Su discussed Elunate license amendment as win-win, penetration growth potential, patient treatment with regorafenib, chemos, clinical trials; surufatinib in neuroendocrine tumors has long OS and PFS.

Q: John Newman from Canaccord asked about surufatinib in US market and Lilly partnership with local companies.

A: Christian Hogg said surufatinib has different mechanism in US neuroendocrine tumors; Lilly partnership change due to local company's commercial capability seen in Innovent's success with sintilimab.