On the evening of February 28, Hehuang Pharmaceutical (0013.HK) announced its 2023 results.

In 2023, revenue and net profit were US$838 million and US$101 million respectively. Revenue increased 97% year-on-year, while profit turned a loss into a profit compared to 2022.

It is worth mentioning that this is the first time in the past five years that Hutchison Pharmaceutical has reversed its loss situation. This is inseparable from the success of its first innovative drug, fruquintinib, “going overseas.”

In January 2023, Chi-Med authorized overseas rights in fruquintinib to the “Japanese pharmaceutical giant” Takeda Pharmaceuticals, and the total transaction amount reached US$1.13 billion, of which the down payment of US$400 million became the key to turning a loss into a profit in 2023.

“The partnership with Takeda, as one of the largest small molecule overseas licensing transactions in Chinese biomedical history, further strengthened our cash position, bringing in $435 million in cash.” Du Zhiqiang, executive chairman of Hewang Pharmaceuticals, said.

Currently, another core drug under Hewang Pharmaceutical is also seeking to “go overseas,” and it is expected that a marketing application will be submitted to the FDA in late 2024.

In 2024, the market is waiting to see if Hutchison Pharmaceuticals can maintain a profitable state through commercial sales of its products.

First profit in five years

After revenue growth of nearly 100%, Hutchison Pharmaceutical finally made a profit.

In 2023, Hewang Pharmaceutical's revenue reached US$838 million, an increase of 97% over the previous year. Net profit for the same period was US$101 million, a significant reversal from the net loss of US$361 million in 2022.

It is worth mentioning that 2023 was not only the first time that Hutchison Pharmaceuticals made a profit after listing on the Hong Kong Stock Exchange in 2021, but it was also the first time in five years that it reversed losses.

However, this profit is still somewhat incidental.

In 2023, Hewang Pharmaceutical's total sales revenue for oncology products was US$164 million, an increase of 32% over the previous year, which is significantly lower than the total revenue increase of 65 percentage points.

However, during the same period, Hewang Pharmaceutical's total down payment and milestone revenue reached 312 million yuan, which is 19.8 times that of last year.

Chi-Med also acknowledged that the increase in 2023 results was largely driven by milestone revenue.

“2023 was an outstanding year for Hutchison Pharmaceuticals, in large part due to receiving a $400 million down payment from Takeda, of which $280 million was recognized as revenue during 2023, and the rest will be recognized within about three years when services and performance obligations are completed.” Hwa Med pointed out.

The deal is an endorsement of furoquintinib, the first innovative drug to treat metastatic colorectal cancer launched by Hutchison Pharmaceuticals.

In January 2023, Hutchison Pharmaceutical authorized the rights of fruquintinib outside of mainland China, Hong Kong, and Macau to Takeda Pharmaceuticals. The total transaction amount reached US$1.13 billion, of which the down payment reached US$400 million. This also became an important driving force for Hewong Pharmaceutical's 2023 performance.

It has been proven that fruquintinib does suck gold overseas.

In November 2023, fruquintinib was approved by the FDA for the treatment of metastatic colorectal cancer, making it currently the only innovative targeted therapy approved to treat metastatic colorectal cancer regardless of the patient's mutation status.

US medical institutions issued the first prescription within 48 hours of fruquintinib being approved for marketing. Less than 2 months later, sales of fruquintinib in the US had reached US$15 million.

Currently, fruquintinib continues to “go overseas”, and it has already entered the marketing application process in Europe and Japan.

On February 28, Hutchison Pharmaceutical's management stated during a conference call that the goal is to get approval within the year.

“Following FDA approval, Takeda achieved market sales of $23 million in the last 7 weeks of 15 years. As a result, we are now awaiting approval from the EU and Japan, with the goal of later this year.” Hwa Med pointed out.

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Admittedly, an overseas volume is more meaningful than a domestic volume.

On the B-side of Hutchison Pharmaceutical's licensing of overseas rights to Takeda Pharmaceuticals, furoquintinib experienced weak growth domestically.

Currently, fruquintinib is mainly approved for third-line treatment of metastatic colorectal cancer in the domestic market. Affected by factors such as medical insurance price cuts, fruquintinib's market sales in China in 2023 were US$108 million, an increase of 15% over the previous year, and a decrease of 17 percentage points from the previous year.

In the same period, Hutchison Pharmaceutical received revenue of US$83 million from this sales, an increase of only 19% year-on-year, and a decrease of 12 percentage points from 2022.

In fact, the domestic market share of fruquintinib is not low.

The IQVIA follow-up study shows that the domestic share of fruquintinib among third-line treatment patients has reached 47%.

Currently, one way to deal with Hutchison is to expand the indications for fruquintinib.

The marketing application for fruquintinib for second-line treatment of gastric cancer has been accepted by the FDA.

Meanwhile, the Chinese registration study of fruquintinib and cindilimab combination therapy for second-line endometrial cancer and second-line renal cell cancer completed patient recruitment in 2023, and Huhuang Pharmaceutical plans to submit a marketing application for endometrial cancer to the Drug Administration in early 2024.

As more indications are approved, the performance space for fruquintinib may be expected to open up further.

In addition to fruquintinib, Hewang Pharmaceutical's oncology drug business currently also has three innovative drugs: sevotinib, surufatinib, and tazestat.

Specifically, sales of sevotinib are currently only relatively limited for adult patients with locally advanced or metastatic non-small cell lung cancer (NSCLC) with interstitial to epithelial conversion factor (MET) exon 14 transitions, who have progressed or are intolerant to standard platinum-containing chemotherapy.

In 2023, sevolitinib brought Hewang Pharmaceutical's revenue of US$29 million, an increase of about 30% over the previous year.

The market is watching the potential for subsequent sales of sevolitinib.

In terms of research and pipeline, as a partner of Hewang Pharmaceuticals, AstraZeneca is promoting the use of a combination of sevotinib and osimitinib to treat patients with locally advanced or metastatic NSCLC with MET overexpression and/or amplification during or after previous treatment with osimitinib (hereinafter referred to as the “SAVANNAH Study”).

The SAVANNAH study showed that among 87 patients in the subgroup with no history of chemotherapy, the objective remission rate was 52%, and the median treatment time was 9.6 months.

“Compared to other treatments, this combination therapy requires no chemotherapy, is biomarker specific, and is administered orally. The goal is to provide lung cancer patients with a treatment option that balances efficacy, safety, and quality of life.” Savolitinib pointed out.

Chi-Med expects that at the end of 2024, AstraZeneca will be able to submit a marketing application for sevotinib to the FDA.

This means that savotinib is expected to become the second overseas drug under Hutchison Pharmaceuticals after fruquintinib, and will start contributing revenue in 2025.

Domestically, Hehuang Pharmaceutical is expected to submit a marketing application for sevotinib for first-line treatment of NSCLC indications for MET exon 14 within the year.

However, sevolitinib targets a small group of lung cancer patients.

According to public data, the proportion of NSCLC in the lung cancer group is over 90%. However, MET-driven NSCLC accounted for only 1.3% and 3% of patients in domestic and Western countries, respectively.

This may have limited the revenue scale of sevolitinib to a certain extent, and it remains to be seen how much revenue it can generate for Hutchison Pharmaceuticals.

In terms of research and pipeline, Hutchison Pharmaceuticals' solepinib is also about to reach an important moment of marketing.

In January 2024, Hehuang Pharmaceutical submitted a marketing application for solepinib to the Drug Administration for the treatment of primary immune thrombocytopenia (ITP) in adults. It is expected to become the second Syk inhibitor approved in the world.

Looking at it this way, Hewang Pharmaceutical's innovative oncology drug portfolio is becoming more diversified, and whether it is expected to rely on the commercialization of the product itself to achieve real profits in 2025 has attracted much attention.

It is worth mentioning that with the down payment from Takeda Pharmaceuticals, Chi-Med currently still has plenty of cash on its account.

As of the end of December 2023, the amount of cash, cash equivalents and short-term investments reached US$886 million, an increase of 40.45% year over year.