20210917-招银国际-和黄医药-00013.HK-A_home-grown,_global-facing_Biopharma_60页_4mb

CMB International Securities | Equity Research | Company Initiation Summary

Core Company Overview

HUTCHMED (HCM), founded in 2000 and listed on HKEX in June 2021, is a global biopharma company with a strong in-house R&D platform focused on oncology and immunology. It operates through two main platforms: drug innovation and drug selling and distribution. HCM has built a comprehensive drug discovery and development infrastructure, including chemistry, biology, pharmacology, toxicology, and CMC controls, and has established collaborations with global pharmaceutical giants like AstraZeneca and Eli Lilly.

Key Assets and Pipeline

HCM has a highly differentiated pipeline of 13+ assets under clinical development or IND-enabling stage, with three launched products in China:

• Savolitinib (Orpathys): First and only approved MET inhibitor in China for NSCLC with MET exon14 skipping. Expected to expand globally in EGFR inhibitor refractory NSCLC, with risk-adjusted global sales forecasted at US$1.08bn in 2030E and US$1.18bn in 2033E.
• Fruquintinib (Elunate): Approved for 3L CRC in China in 2018. Included in NRDL in 2020. Recorded US$40.1mn in 1H21, up 186% YoY. Expected to generate US$1.07bn in 2030E and US$1.09bn in 2031E.
• Surufatinib (Sulanda): First VEGFR/FGFR/CSF-1R inhibitor in China for all types of grade 1/2 NETs. Approved for npNET and pNET in 2020 and 2021 respectively. NDA and MAA accepted globally in July 2021. Expected to generate US$978mn in 2030E and US$1.00bn in 2032E.

HCM is also advancing five early-to-mid stage assets with first-in-class or best-in-class potential:

• HMPL-689 (PI3Kδ inhibitor): Targeting B-cell malignancies; in Phase II registration intent for FL/MZL.
• HMPL-523 (SYK inhibitor): Targeting ITP and NHL; in Phase Ib/II for NHL.
• HMPL-453 (pan-FGFR inhibitor): Targeting cholangiocarcinoma; in Phase II for HCC.
• HMPL-306 (IDH1/2 inhibitor): Targeting hematological and solid tumors; in Phase I.
• HMPL-295 (ERK inhibitor): Targeting solid tumors; in Phase I.

Commercial Infrastructure

• HCM has a 540-person oncology commercial team covering over 2,500 hospitals and 29,000 physicians in China as of mid-2021.
• The team is dedicated to supporting the launches of Elunate and Sulanda, and future innovations.
• Plans to expand the team to 600 by 2021E and 900 by 2023E.
• A hematology commercial team is in planning due to advancing hematology assets.
• In the US, HCM is building a commercial team for potential launches of surufatinib in 2022E and fruquintinib in 2023E.

Manufacturing Capabilities

• HCM has a GMP-certified facility in Suzhou to support commercial sales of Elunate and Sulanda.
• A 55,000 m² large-scale manufacturing plant in Shanghai is under construction to meet future product launch demands.
• The first phase focuses on small molecule production, while the second phase is for large molecule drugs.

Financial Outlook

• Forecasted revenue for FY2021E, 22E, and 23E: US$340mn, US$423mn, and US$561mn, representing YoY growth of 49%, 25%, and 33%.
• The company is expected to generate positive free cash flows starting in 2025E.
• The target price is set at HK$77.74, based on a 15-year DCF valuation (WACC: 9.07%, terminal growth rate: 4%).

Investment Thesis

• HCM is a home-grown, global-facing biopharma with a synergistic and differentiated asset portfolio.
• The company has a comprehensive in-house R&D engine and well-established commercial infrastructure.
• The innovative immunology/oncology platform is expected to drive increasing revenue contributions, mainly from the sales ramp-up of its launched products.
• Initiate at BUY with a target price of HK$77.74 and a +30.22% upside from the current price of HK$59.70.

Key Risks

• Clinical development risks: Early-stage positive results may not translate to later-stage success.
• Regulatory approval risks: Revenue depends heavily on the successful approval of pipeline assets.
• Competition risks: Potential market saturation due to competitors developing and commercializing similar drugs ahead.

Strategic Highlights

• HCM has adopted a multiprolonged approach targeting angiogenesis, epigenetics, and immuno-oncology pathways.
• The global clinical advancement of its assets is key to maximizing international market potential.
• The company has a seasoned management team and a fully integrated R&D and commercialization platform.
• HCM has out-licensed two internally developed assets: savolitinib to AstraZeneca and fruquintinib to Eli Lilly, highlighting global endorsement of its R&D capabilities.

Shareholding and Market Performance

• Shareholding structure: CK Hutchison Holdings (39.19%), The Capital Group (9.14%), JP Morgan (6.91%), Free float (44.75%).
• Market cap: HK$51.60 million.
• Share performance: 1-month return of -5.2% (absolute) and -0.1% (relative).
• 12-month price performance: Included in several Hang Seng indexes, including the Hang Seng Composite Index and Hang Seng Healthcare Index.

Conclusion

HUTCHMED is positioned as a leading global biopharma company with a strong R&D and commercial platform. Its differentiated and synergistic pipeline, established commercial infrastructure, and expanding manufacturing capabilities make it a compelling investment opportunity. With three launched products and five promising next-wave assets, the company is well on track to generate significant revenue growth and achieve positive free cash flows by 2025E. The target price of HK$77.74 reflects a positive outlook based on its strong fundamentals and strategic positioning.