Hutchmed is an innovative biopharmaceutical company in the commercialisation stage, specialising in discovering, developing, and commercialising innovative drugs for the treatment of oncology and immune-related diseases. At present, the company has three small molecule innovative drugs launched in China, including fruquintinib (Elunate), surufatinib (Sulanda) and savolitinib (Orpathys).
　　Meanwhile, its fruquintinib successfully received US FDA’s approval in November 2023. In addition, the company’s pipeline currently includes 13 oncology drugs in the clinical stage.
　　Successful launch of fruquintinib in the US with fast sales ramp-up. Fruquintinib is an innovative small-molecule VEGFR 1, 2, and 3 oral inhibitor, which received NMPA’s approval in September 2018 for the treatment of patients with 3L metastatic colorectal cancer (mCRC). In terms of the overseas market, fruquintinib (Fruzaqla) received FDA’s approval in November 2023, becoming the first and only highly selective inhibitor targeting all three VEGF receptor kinases approved in the US for the treatment of previously treated mCRC. Additionally, fruquintinib was approved in the European Union in June 2024. In January 2023, the company announced a collaboration agreement with Takeda, under which Takeda will be responsible for the development, commercialisation and production of fruquintinib globally, excluding mainland China, Hong Kong and Macau. Hutchmed received an upfront payment of US$400m, with potential future milestone payments up to US$730m and royalties based on net sales. The overseas sales of fruquintinib reached c.US$15m in 2023, which grew rapidly to US$131m in 1H24. We expect its sales to further ramp up with its overseas approvals.
　　Savolitinib expected the potential NDA filing to the FDA. In 2021, savolitinib received conditional approval from the NMPA for the treatment of patients with locally advanced or metastatic METex14 non-small cell lung cancer (NSCLC), marking it the first approved MET inhibitor in China. Currently, AstraZeneca, the collaboration partner, is responsible for the marketing of savolitinib in China. Based on the phase IIIb confirmatory study, the NDA of savolitinib for the first- and second-line treatment for METex14 NSCLC was accepted by the NMPA in March 2024, which will expand the indication to the previously untreated patients in China if successfully approved. In addition, the company has completed patient enrollment of SAVANNAH’s global phase II study for the treatment of second/third-line osimertinib refractory EGFRm/MET+ NSCLC patients in February 2024. If the progress is smooth, it is expected that the partner AstraZeneca will file the NDA to the FDA by the end of 2024. If approved successfully, savolitinib is expected to become its second product launched in the overseas market. Furthermore, the company is conducting seven registration studies for savolitinib, including three global studies and four studies in China, mainly focusing on NSCLC, gastric cancer, and renal cell carcinoma.
　　Actively expanding innovative pipeline. Sovleplenib is a novel oral spleen tyrosine kinase (Syk) inhibitor independently developed by the company. In January of 2024, sovleplenib’s second-line treatment for immune thrombocytopenia (ITP) was accepted by the NMPA. Furthermore, the company licensed in the rights of tazemetostat (EZH2 inhibitor) in Greater China in 2021, and the NDA for 3L follicular lymphoma was accepted by the NMPA in July 2024. Additionally, the company initiated the RAPHAEL phase III study of HMPL-306 (IDH1/2) in May 2024 for the treatment of patients with relapsed/refractory acute myeloid leukemia (AML) with IDH1 and/or IDH2 mutations.
　　We believe that as other pipelines advance to later stages, the company’s product portfolio will further diversify.
　　Initiate with BUY. We forecast the company’s revenue to reach US$650m in 2024E, US$810m in 2025E and US$950m in 2026E. Among them, we forecast the revenue from oncology and immunology business to reach US$370m in 2024E, US$530m in 2025E and US$650m in 2026E, while other business revenue is expected to be US$280m in 2024E, US$290m in 2025E and US$300m in 2026E. Considering the sales ramp-up of key products, we expect the company to break even in 2025E and we forecast net profit of -US$13m in 2024E, US$39m in 2025E and US$120m in 2026E.
　　Based on the DCF model, we arrive at a target price of HK$35.4. With 33% upside, we initiate coverage with a BUY recommendation.
　　Risks. Lower-than-expected overseas commercialisation of key products. Intensified industry competition leading to lower-than-expected price of commercialised products. Delayed R&D progress of core pipeline products.