Earnings Call Transcript - HCM Q4 2020

Christian Hogg, CEO

Okay. Thank you. This is Christian Hogg, CEO of HUTCHMED. And today we welcome everybody to this Fiscal Year 2020 Results and Business Update Presentation. On the line I also have Dr. Wei-guo Su, our Chief Scientific Officer and Head of Research & Development; I have Johnny Cheng, our Chief Financial Officer; and I have Dr. Marek Kania, our Chief Medical Officer in the U.S. and Head of our International Operations. What I'm planning to do today is, given this is an hour-long session, is to spend about 30 minutes, 25 to 30 minutes on the presentation. I'll go through it relatively quickly, as it's all fairly well laid out in our announcement that's just been out for an hour or so, and then I'll leave the second half of the hour for Q&A. And that's an opportunity for the broader team that we have here to answer any questions that you might have.

Operator, Operator

Thank you, management. We'll now begin our question-and-answer session. Our first question is Louise Chen from Cantor.

Louise Chen, Analyst

Hi, congratulations on all the progress this year. And thanks for taking my questions. I've got a few questions here. First question is, could you give more color on how you get to the $110 million to the $130 million? That's obviously a big step-up from 2020. How much do you have in there for potential savolitinib milestones and then maybe more color around ELUNATE and SULANDA? Second question is on the HMPL-689, obviously, making some good progress here. Can you talk about where you think your competitive advantage is here? And where you would fit into the treatment paradigm if this makes it to the market? And the last question I had is how do you plan to build a globally competitive franchise here in the U.S.? Where do you plan to distinguish yourself? Thank you.

Christian Hogg, CEO

Okay, thanks, Louise. So the $110 million to $130 million, you just have to look at what we're doing on fruquintinib at the moment in the first couple of months of the year, like I said, probably over $20 million in the first quarter. That should bring fruquintinib up to sort of $75 million, $80 million as a relatively straightforward target. Now we're booking consolidated revenues between 70% and 80% of all sales based on the structure of the contract we have with Lilly. So if you're doing 75%, 80% on fruquintinib, you're probably booking close to $60 million in consolidated revenues. On SULANDA it's very early, but we expect somewhere in the sort of $35 million range, give or take. Our commercial team is confident of that. Then you get to savolitinib, well savolitinib on approval, you're going to receive a $25 million first sale milestone. In terms of the royalties that we'll receive, we receive a 30% royalty on all savolitinib sales in China. I would expect that would be material, I won't put a number on it at this stage of the game, but it would be material for the year. In addition to all of that, we have a couple of other sources of revenue in oncology. One is the service fees that we earned from AstraZeneca and Lilly for running various operations and research and development, as well as manufacturing on savolitinib. So, you add that all up, I think, fairly conservatively we will be in this $110 million to $130 million range. Then moving on to 689, I'll leave that to Wei-guo to talk about competitive advantage relative to the current treatment paradigm. Wei-guo, if you'd like to answer that?

Wei-guo Su, CSO

Sure. Thanks, Christian. I think between dose escalation and dose expansion in China, we've now dosed over 120 patients. Outside China, Marek’s team is also enrolling patients as well. So altogether, we probably have around 140 to 150 patients now for 689. We are very encouraged by the emerging efficacy and safety data with this compound. We're seeing really good efficacy in several subtypes of non-Hodgkins Lymphoma. We plan to move into registration intensive studies in China first, but perhaps that will be followed by international or global development as well. We’re wrapping up the China dose expansion cohorts this year and looking to publish some of the data from there. Importantly, we want to focus on the registration intensive studies and hope to bring 689 to registration in the near future. We're looking at quite a few subtypes and we're seeing very exciting data there. Some of it has already been published and if you look at dose escalation, right across all doses and subtypes, we've seen about a 50% response rate with a very interesting safety profile compared to some of the competitive compounds.

Christian Hogg, CEO

Great, thank you, Wei-guo. Maybe Marek you could take a crack at the third part of Louise's question, how do we establish a global competitive franchise basically?

Marek Kania, CMO

Yes, thank you, Louise. This is Marek. Good question. Obviously, broad question. Our success will be led by continuing to build on our foundation of a deep and large portfolio and the success we build from our discovery and development efforts in China. Our priority first is to address some of the most high unmet medical needs through our late-stage assets. Our single-agent registration strategies are building our foundational portfolio. As Christian described, our strategy is to build our combination efforts and drive innovation across multiple assets. We currently have five and soon to be seven active programs in clinical development. That's how we're doing this. We are also building a highly capable and talented team of seasoned individuals across BRAC and drug developers, as well as a strong commercial team led by Tom Held. This will be an ongoing journey. But if you're looking for a common theme, how we're doing this, we're really targeting high unmet medical needs and looking for meaningful differences for patients. The kind of collaborations we have with investigators and academic centers in the U.S., Europe, and Japan reflect this. It's very encouraging. We're at the beginning of our journey for International Development, and we have made tremendous progress in the next 12 to 24 months.

Operator, Operator

Our next question is from Ethan Ding from Morgan Stanley.

Ethan Ding, Analyst

Hi. Can you hear me?

Christian Hogg, CEO

Hi, yes, go ahead Ethan.

Ethan Ding, Analyst

Hi, thank you Christian for taking our question and congratulations on such a solid year. I would like to ask two questions. First, could you just provide some color on the pricing for surufatinib and the upcoming savolitinib in China? Maybe compare it with competing products if there's any. Also, I think both surufatinib and savolitinib will be eligible for reimbursement negotiation this year. ELUNATE will be up for renegotiation. Could you remind us about your strategies for these drugs? What kind of price cuts can we expect? That's the first question. And second, could you provide some rough guidance about your R&D expenses and cash burn, total cash burn in 2021? Thank you.

Christian Hogg, CEO

Okay, great. Thanks, Ethan. On pricing strategies, obviously, very sensitive. But we've launched surufatinib pricing at a level that is similar to that of fruquintinib. It's up in the high $3,000s, say $3,800 a month. We're implementing an important means-tested patient access program that enables patients who are paying out of pocket to get access to surufatinib. Over the balance of this year, we'll be engaging on surufatinib with the regulatory authorities to work to get surufatinib on the NRDL early next year. I can't give you more detail than that other than to say, similar levels of pricing to fruquintinib give or take. Regarding savolitinib, it has been interesting because we're very keen to try to get savolitinib approved in the first half of this year in order that we can then engage in the NRDL discussions over the second half to get savolitinib on the NRDL at the beginning of 2022. The regulatory authorities have moved aggressively, so if you get approved in the middle of the year, there's a chance to get on in six months. So we're working on savolitinib. I think the pricing benchmark for savolitinib that you should use is probably TAGRISSO. Regarding ELUNATE, we will work with the regulatory authorities on renegotiation. Generally, larger discounts are given for drugs that have built large franchises quickly. Since Lilly has a small commercial team working on fruquintinib, I believe we'll be in a good position to discuss and renegotiate the ELUNATE pricing. I hope that the discount won't be too significant. As for R&D spending, Johnny, would you like to provide a guide on the amount of R&D spending this year?

Johnny Cheng, CFO

Yes, okay. So appropriately, we haven't given out clear guidance on R&D spending, but based on our spending in 2020, I think we'll ramp up the R&D spending likely to be close to double that of 2020.

Christian Hogg, CEO

Yes, that's a fair assessment. I think what you're going to see is, China stepping up materially from the $111 million level that we saw in 2020, just because Wei-guo and the team are working so hard to initiate multiple registration studies over the back of this year in China. And then Marek and the International Organization burned around $63 million last year. The expansion of the organization and development of multiple assets could easily double this year, potentially more. So yes, those are the kind of numbers we're looking at.

Operator, Operator

Our next question is Alec Stranahan from Bank of America.

Alec Stranahan, Analyst

Hey, guys, thanks for taking my questions and wanted to also offer my congratulations on all the progress in 2020. First on ELUNATE, what would you say has made the biggest difference in the increased uptick following the transition from ELUNATE? How much of this year-over-year benefit is coming from NRDL inclusion versus greater efficiencies in the launch? And I would be curious to hear your views on the expanding presence of PD-1s from BeiGene, Innovent, and others outside of China whether you see any clear leaders among the Chinese PD-1s and how you think this may ultimately play in your go-to-market strategy for ELUNATE, Suru, and Savo given various combo studies ongoing?

Christian Hogg, CEO

Thanks, Alec. Yes, so maybe I'll answer the first one and on the PD-1 side, maybe I'll ask Wei-guo to answer that. The NRDL kicked in for ELUNATE on January 1, 2020. Eli Lilly had three quarters with reimbursement on ELUNATE. The sales increase for those three quarters last year was 37%, which I would classify as fairly tepid. Our team took over in Q4, and we saw terrific growth. The biggest difference was coverage. We increased the commercial teams in China from about 140 to 420 plus and growing. By the end of this year, we'll have 600 people on the ground in China. The larger team resulted in a greater focus on getting listed in hospital pharmacies. The key benefit of getting on the NRDL is that you can access hospital pharmacies. If you're not on the NRDL, it's hard to get listed there. So in the last quarter of last year, we increased hospital listings by over 40%. I believe it was about 290 hospital listings at the end of last year, and we hope that will double this year. Having a bigger team, better coverage, and aggressive hospital listing activities have made a significant difference.

Wei-guo Su, CSO

So I'm not sure if the question was about clear leader PD-1 compound in the China market. We've been working with TUOYI, TYVYT, and Genor's PD-1. We've not done head-to-head comparisons to compare the different PD-1s but we don't have a lot of data to make conclusions. Obviously, we're seeing similar data whether it's driven by PD-1 or driven by fruquintinib, it's hard to tell at this point. The top-line data in terms of efficacy appears to be similar, and that data will be available at ASCO. We're building a large database through our basket-style Phase II study with surufatinib in combination with TUOYI and fruquintinib in combination with TYVYT.

Marek Kania, CMO

Wei-guo's point from the international development perspective is strengthened by our active collaboration with BeiGene and tislelizumab. We're starting combination trials across fruquintinib and surufatinib across multiple cohorts, which will build signals across our partnerships and lead to potential results.

Operator, Operator

Next question is for Paul Choi from Goldman Sachs.

Paul Choi, Analyst

Thank you very much, Christian. Let me also offer my congratulations on all the progress in 2020. A couple of clinical questions from us and then maybe just one strategy question. Just from the combination of surufatinib plus BeiGene and tislelizumab, can you remind us if there is any reason that the recommended Phase II dose wouldn't be 250 milligrams given your prior experience with the Junshi PD-1?

Christian Hogg, CEO

Maybe I'll leave that to Wei-guo and Marek to comment. I don't think that should be any difference unless I'm missing something.

Wei-guo Su, CSO

Yes, I can make a comment. I don’t see a significant difference in terms of efficacy, but safety profiles can be quite different. Whether surufatinib in combination with tislelizumab will be 250, I don't know; it may be 300, who knows? It’s quite difficult to tell at this point. For instance, you’ve probably seen, I’m not sure if we published that, but it should be available fairly soon at ASCO that the recommended dose regimen for fruquintinib is different between the TYVYT combo and also Genor's PD-1 combo.

Marek Kania, CMO

We'll answer this quickly as part of the standard design; there's an escalation phase, which answers this question in our ongoing studies.

Paul Choi, Analyst

Great, okay. Very helpful, thank you. And then on the 689 registrational trial, can you maybe provide any preliminary feedback or guidance that you received from the USFDA with regard to the trial population? Do you think the 13 mg dose that you identified at ASH last year would be the dose used for that study?

Christian Hogg, CEO

Maybe I'll let Marek answer that question.

Marek Kania, CMO

Thank you, Paul. To clarify, we’re preparing discussions with the USFDA. We're still in the final stages of escalation. We see very encouraging profiles, including a very encouraging activity in the escalation phase of the U.S. study. We'll use that data from China and U.S. to guide our discussions with USFDA. We expect that the dose will be in a similar range, based on completion of escalation, which is still a couple of months away.

Christian Hogg, CEO

Thanks, Marek.

Paul Choi, Analyst

Okay. Thank you. And then one strategy question regarding capital allocation, Christian, how are you thinking about balancing that across your clinical programs and building out your commercial footprints? When in your mind does the oncology business become self-sustaining? Thank you.

Christian Hogg, CEO

Thanks, Paul. We’re in a mode right now where we're moving aggressively to maximize or realize the value of our assets both inside and outside of China. We're being selective on the indications for our registration studies. We're not moving everything, but the proof of concept data for PD-1 combinations is compelling. R&D burn is expected to double this year, relative to last year, but it’s manageable for the company at this stage. In commercial, our team is executing terrifically. We’re not near a point of diminishing returns. Building our team from 420 to 600 by the end of this year will only deliver incremental value.

Operator, Operator

Next question is John Newman, Canaccord Genuity.

John Newman, Analyst

Hi team. Thanks for taking my question and congrats on the progress in 2020. I have two questions. Firstly, I'm excited about what you're doing with surufatinib in the U.S. with the NDA submission to the FDA. Could you give us an update on that submission and if you would expect that to be an accelerated approval? The second question I had is just on the SAVANNAH study with AstraZeneca. Christian, it sounded like you were reasonably confident that the optimal Phase III dose might emerge in 2021. I wanted to ask about that.

Christian Hogg, CEO

Thanks, John. I'll address the SAVANNAH first and then I'll hand it to Marek for the NDA update. The SAVANNAH study is great; it's enrolled a lot of patients. We've completed the enrollment of the 300 mg QD dose in combination with 80 mg TAGRISSO QD. Now we're enrolling the 300 mg BID as well as the 600 mg QD data. I’m confident that by mid-year or early Q3 we’ll have a clear view on the biomarker strategy and the dosing strategy as well. It’s taking time, but it’s playing out well ahead of the competition. Marek, could you update on the NDA status?

Marek Kania, CMO

Sure, thank you. The submission is in a high-intensity mode. We're under Fast Track designation. The first wave was submitted in December, and we should complete our NDA submission by the end of likely April. Just to clarify, our strategy is not for accelerated approval, which would require a surrogate endpoint. We are pursuing a full approval strategy. The FDA will assign the type of review after validation, which takes 60 days. We're excited and feel good about how it's progressing.

Operator, Operator

Next question is Tony Ren, CLSA.

Tony Ren, Analyst

Hey, thank you for taking my question and congratulations on the solid progress. Just two quick ones from me. The first is clarification; Christian, about your R&D expenditure in 2021. I think you mentioned that the international portion, at $63 million, is going to double. Is the China portion, at $112 million, going to double as well in 2021? That's the first question. The second question is about your savolitinib. You guys had a good readout from the SAVANNAH study. But we also had the SWAG 1500 study in PRCC, which didn't perform well. How do you make sense of the results from these two studies?

Christian Hogg, CEO

On R&D spend, yes, I think the U.S. could double, if not more than double. I don't believe China will double, but a 50% increase seems more likely. Regarding the study you mentioned from ASCO GU, that was the Pap MET study. It’s important to note that was not a biomarker-selected study. In papillary renal cell carcinoma, roughly 40% of patients are MET-driven. The majority (60%) were never going to respond to a MET inhibitor. Therefore, I would imagine that if you do a retrospective biomarker analysis on that study, savolitinib would likely be superior for the MET positive patients.

Operator, Operator

And our last question is Rajan Sharma from Deutsche Bank.

Rajan Sharma, Analyst

Hi, thanks, thanks for the question. I was hoping you could give us your perspective on recent developments in the EGFR non-small cell lung cancer space, particularly the three asset and J&J’s Bispecific. How does savolitinib fit within that and how does it compare within that context? Additionally, do you foresee any negative impact on your ability to recruit into future Savo trials in that non-small cell lung cancer space, given the competitive dynamics now?

Christian Hogg, CEO

Maybe I'll ask Wei-guo to answer that question.

Wei-guo Su, CSO

Yes. J&J’s bispecific is now in first-line non-small cell lung cancer. We'll not compete directly with them since they're not selecting for the MET status. Our approach is biomarker-driven with a clear patient selection strategy. In terms of clinical trial enrollment, we’re not targeting the same population. For market competition, we think our products offer advantages in convenience as they are oral, compared to J&J's IV-based products.

Christian Hogg, CEO

Does that answer your question?

Rajan Sharma, Analyst

Yes, yes, it's helpful, thanks.

Christian Hogg, CEO

Great. Thanks, Rajan.

Operator, Operator

This is the end of the Q&A session. Apologies for those still in the queue. I'll now pass the time to Christian and the management for the wrap-up. Thank you.

Christian Hogg, CEO

Okay. Well, thanks very much, everybody, for taking the time to join the call today. Yes, just to finish it off on a positive note. I think 2021 will continue to be a really important year for the company. We're making great progress, as you can hear from Wei-guo and Marek and the presentation. Thank you very much for your support, and we look forward to continued dialogue as the year goes by. I think it'll be a year with a lot to talk about. So thanks, everyone, and take care.

Operator, Operator

This is the end of the conference. You may disconnect now. Goodbye.