HUTCHMED(HCM) - 2020 Q4 - Annual Report

Introduction This section introduces the annual report's scope, financial statement basis, and key definitions, including currency exchange rates Report Overview and Conventions This section outlines the annual report's scope, financial statement basis (U.S. GAAP and IFRS for JVs), and key definitions, including currency exchange rates - The report includes audited consolidated statements of operations for 2018-2020 and balance sheet data for 2019-2020, prepared under U.S. GAAP[3] - Audited financial data for non-consolidated joint ventures are prepared in accordance with IFRS[4] Currency Exchange Rates (as of December 31, 2020) | Currency | Rate to U.S. Dollar | | :------- | :------------------ | | Pound Sterling | £1.00 to $1.35 | | Renminbi (RMB) | RMB6.55 to $1.00 | | Hong Kong Dollar | HK$7.80 to $1.00 | Cautionary Statement Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially Nature and Risks of Forward-Looking Statements This section details that forward-looking statements are subject to various known and unknown risks and uncertainties that could materially alter actual outcomes - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially[11] - Statements include those regarding initiation, timing, progress, and results of pre-clinical and clinical research and development programs - Also covers ability to advance drug candidates, timing of regulatory filings, likelihood of favorable regulatory outcomes and approvals, and regulatory developments in various countries - Encompasses establishment of sales teams, pricing and reimbursement, ability to contract with third parties, intellectual property protection, and estimates of expenses and financing needs - The company operates in a highly competitive and rapidly changing environment where new risks often emerge, making it impossible to predict all factors impacting future results[13] PART I This part covers the company's business, risk factors, operational details, and financial performance Item 1. Identity of Directors, Senior Management and Advisers This item is not applicable, indicating no specific information is provided under this heading Item 2. Offer Statistics and Expected Timetable This item is not applicable, indicating no specific information is provided under this heading Item 3. Key Information This section provides crucial company information, including a summary of various risk factors impacting business, financial condition, and operational results D. Risk Factors The company faces diverse risks, including funding needs, clinical development uncertainties, operational challenges, China-specific business risks, intellectual property concerns, and ADS-related issues - Risks Relating to Our Financial Position and Need for Capital: Need for additional funding, existing and future indebtedness, liquidity risk with joint venture investments - Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates: Lengthy and uncertain clinical development, regulatory approval challenges, commercialization risks, undesirable side effects, competition, collaboration partner reliance, international expansion risks, and data transfer restrictions - Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs: Obtaining and maintaining permits/licenses in China, leveraging Other Ventures' business, competition in drug sales, brand recognition, reimbursement availability, counterfeit products, product obsolescence, raw material sourcing, and adverse publicity - Risks Relating to Our Dependence on Third Parties: Disagreements with collaboration partners, reliance on third-party suppliers and CROs, construction delays for new manufacturing facilities, and reliance on distributors - Other Risks and Risks Relating to Doing Business in China: Impact of COVID-19, compliance with privacy laws, product liability claims, anti-corruption laws, environmental/health/safety laws, PRC legal system uncertainties, currency exchange limits, and tax incentives - Risks Relating to Intellectual Property: Protection and enforcement challenges, infringement upon third-party rights, patent law developments, trade secret confidentiality, and dependence on licensed IP - Risks Relating to our ADSs: Potential delisting from Nasdaq due to PCAOB inspection issues, influence of largest shareholder, future sales causing price decline, securities litigation, limited research coverage, foreign private issuer status, renminbi fluctuations, and difficulties enforcing judgments Item 4. Information on the Company This section provides comprehensive information on the company's history, business operations, organizational structure, and property, plants, and equipment - Global commercial-stage biopharmaceutical company focused on targeted therapies and immunotherapies for cancer and immunological diseases[275][276] - Possesses a broad pipeline covering novel and validated targets (MET, Syk, CSF1R, IDH, VEGFR, PI3Kδ, FGFR, ERK) with a focus on high selectivity and superior safety profiles for combination therapies[276] - Two internally developed drugs, fruquintinib (Elunate) and surufatinib (Sulanda), commercially launched in China; savolitinib filed for marketing authorization in China[276] - Comprehensive global in-house discovery and development capabilities with approximately 600 scientists and staff, managing one of the broadest global clinical pipelines[276] - Leveraging 20 years of drug marketing and distribution experience in China, with a 420-person oncology drug sales team covering over 2,300 oncology hospitals and 20,000 physicians[276][277] - Expanding commercial capabilities to the U.S. for potential launch of surufatinib[279] - Strategy includes continuing to design differentiated molecules, realizing global potential of oncology candidates, scaling marketing globally, and capitalizing on China's regulatory reforms[280] A. History and Development of the Company Hutchmed, incorporated in 2000, launched novel drug R&D in 2002, focusing on oncology/immunology, and established drug marketing platforms in China - Company incorporated in Cayman Islands in 2000, founded by CK Hutchison subsidiary[270] - Launched novel drug R&D in 2002, focusing on oncology/immunology; 10 drug candidates in clinical trials, 2 approved for sale[271] - Developed drug marketing and distribution platforms in China since 2001. Listed on AIM in 2006 and Nasdaq in 2016. Consolidated corporate identity to 'Hutchmed' in March 2021[271][273] B. Business Overview Hutchmed is a global commercial-stage biopharmaceutical company focused on oncology and immunology, leveraging its broad pipeline, in-house R&D, and China market expertise Oncology Commercial Operations Hutchmed expanded its China oncology commercial team to over 420 staff, driving significant sales growth for Elunate and launching Sulanda, with Savolitinib's NDA under priority review - Oncology commercial team in China expanded to over 420 staff (as of March 1, 2021), covering over 2,300 oncology hospitals and 20,000 physicians[281] Elunate (Fruquintinib) Sales Performance in China | Year | Total In-Market Sales (Eli Lilly) | | :--- | :-------------------------------- | | 2019 | $17.6 million | | 2020 | $33.7 million (91.5% increase) | - Elunate included in China's NRDL in January 2020, broadening access and driving sales - Hutchmed assumed responsibility for on-the-ground medical detailing, promotion, and marketing for Elunate in China in October 2020 - Sulanda (surufatinib) approved in China for non-pancreatic NET in December 2020 and commercially launched in mid-January 2021, with a patient access program and NRDL application underway - Savolitinib NDA for MET Exon 14 skipping alteration NSCLC accepted for priority review in China in May 2020; AstraZeneca expected to market it upon approval[284] Global Clinical Drug Development Hutchmed is advancing six oncology drug candidates globally, including U.S. NDA submission for surufatinib and a global Phase III study for fruquintinib, with other candidates progressing towards registration - Six oncology drug candidates are in global clinical development, with a focus on advancing towards proof-of-concept or registration-enabling studies[285] - Surufatinib: Rolling NDA submission initiated in the U.S. for pancreatic and non-pancreatic NETs, with Fast Track and Orphan Drug designations. MAA filing to EMA planned for mid-2021. Owned globally by Hutchmed - Fruquintinib: Global Phase III FRESCO-2 study initiated in refractory metastatic CRC across 14 countries. FDA Fast Track designation received for late-stage colorectal cancer. Owned outside China by Hutchmed - Savolitinib: In global partnership with AstraZeneca, in late-stage development as monotherapy and in combination therapies (e.g., with Tagrisso for EGFRm+ NSCLC). Global Phase III planning underway for papillary renal cell carcinoma - HMPL-689 (PI3Kδ inhibitor): Phase I/Ib study in U.S. and Europe for advanced relapsed or refractory lymphoma, with registration intent studies planned for H2 2021. Owned globally - HMPL-523 (Syk inhibitor): Phase I/Ib study in U.S. and Europe for advanced relapsed or refractory lymphoma. Owned globally - HMPL-306 (IDH 1/2 inhibitor): U.S. IND applications cleared, Phase I development expected in H1 2021 for hematological malignancies, gliomas, and solid tumors China Clinical Drug Development Hutchmed holds marketing authorizations for Elunate and Sulanda in China, with savolitinib's NDA under review, and seven additional drug candidates in earlier-stage clinical development - Hutchmed holds marketing authorizations for Elunate (fruquintinib) and Sulanda (surufatinib) in China, with savolitinib's NDA under NMPA review[292] - Fruquintinib (Elunate): Commercially launched in November 2018 for advanced colorectal cancer. Included in China's NRDL in January 2020. Hutchmed assumed full marketing and promotion responsibilities in October 2020, receiving 70-80% of sales (royalties, manufacturing, services). FRUTIGA Phase III study for gastric cancer ongoing, expected to complete enrollment by end of 2021 - Surufatinib (Sulanda): Approved by NMPA in December 2020 for non-pancreatic NETs and launched in January 2021. Second NDA for pancreatic NETs accepted in September 2020. Combination studies with PD-1 antibodies (Tuoyi, Tyvyt) are underway - Savolitinib: NDA for MET Exon 14 skipping alterations NSCLC accepted by NMPA in May 2020 with priority review. Planning for potential registrational Phase II study in metastatic gastric cancer and two pivotal Phase III studies in NSCLC in 2021 - HMPL-689 (PI3Kδ inhibitor): Phase Ib expansion study ongoing in indolent non-Hodgkin's lymphoma, with registration studies planned for mid-2021 - HMPL-523 (Syk inhibitor): Exploratory studies in multiple indolent non-Hodgkin's lymphoma sub-categories and Phase I study in immune thrombocytopenia underway, with Phase III planning in China - HMPL-453 (FGFR 1/2/3 inhibitor): Phase II study ongoing in advanced intrahepatic cholangiocarcinoma with FGFR2 fusion - HMPL-306 (IDH 1/2 inhibitor): Phase I trial initiated in July 2020 for relapsed/refractory hematological malignancies - Epitinib (EGFR inhibitor): Phase I/II study in glioblastoma patients with EGFR gene amplification ongoing Discovery Research & Preclinical Development Hutchmed's discovery research focuses on differentiated oncology and immunology treatments, with three novel candidates in late-preclinical stage targeting dual U.S. and China IND submissions - Focus on creating differentiated novel oncology and immunology treatments (small molecules and monoclonal antibodies) addressing genetic drivers, cancer cell metabolism, tumor immune microenvironment, and immune cell checkpoints[297] - Designing drug candidates for innovative combinations with chemotherapy, immunotherapy, and other targeted therapies to improve treatment outcomes[297] - Three novel oncology drug candidates (HMPL-653, HMPL-A83, HMPL-760) in late-preclinical stage - Retains all worldwide rights to these assets - Targeting dual U.S. and China IND submissions during 2021 Manufacturing Hutchmed operates a GMP-certified manufacturing facility in Suzhou and is constructing a new large-scale plant in Shanghai to expand production capacity five-fold - Operates a GMP-certified production facility in Suzhou for clinical and commercial supplies of Elunate and Sulanda[299] - Commencing construction of a new large-scale manufacturing plant in Shanghai - New Shanghai facility estimated to have five times the production capacity of the Suzhou plant - First phase for small molecule production, second phase for large molecule production Other Ventures Hutchmed's Other Ventures segment operates large-scale drug marketing and distribution platforms in China through joint ventures, generating significant net income and dividends - Other Ventures is a large-scale drug marketing and distribution platform in China, covering ~315 cities with ~4,800 manufacturing and commercial personnel[300] - Shanghai Hutchison Pharmaceuticals (non-consolidated JV): Focuses on proprietary prescription drugs, particularly cardiovascular medicine (She Xiang Bao Xin pills) - Hutchison Sinopharm (consolidated JV): Markets third-party prescription drugs, infant nutrition, and provides commercial services for Hutchmed's own drugs - Hutchison Baiyunshan (non-consolidated JV): Manufactures, markets, and distributes own-brand OTC drugs (e.g., Banlangen granules, Fu Fang Dan Shen tablets) Net Income Attributable to Hutchmed from Other Ventures | Year | Net Income (US$ million) | | :--- | :----------------------- | | 2018 | $41.4 | | 2019 | $41.5 | | 2020 | $72.8 | - Aggregate dividends received from these joint ventures since inception exceed $300 million, with $86.7 million received in 2020[300] Our Clinical Pipeline Hutchmed's clinical pipeline includes diverse drug candidates for cancer and immunological diseases, with key assets in late-stage development or approved in China, and expanding global trials 1. Savolitinib MET Inhibitor Savolitinib, a potent MET inhibitor partnered with AstraZeneca, shows promising efficacy in various MET-altered solid tumors, with an NDA accepted in China and global Phase III planning underway - Savolitinib is a potent and selective MET inhibitor, designed to avoid kidney toxicity seen in earlier compounds, showing promising efficacy in NSCLC, papillary renal cell carcinoma, CRC, gastric cancer, and prostate cancer[302][304] - NSCLC (MET Exon 14 skipping alteration): Phase II registration-intent study in China completed, NDA accepted by NMPA in May 2020 with priority review. Interim data showed 49.2% ORR and 93.4% DCR in evaluable patients, with median OS of 14.0 months - NSCLC (EGFRm+; Tagrisso refractory; MET+): Savannah global Phase II study (savolitinib + Tagrisso) enrolling, with planning for global Phase III underway. TATTON Phase Ib/II studies showed encouraging anti-tumor activity (ORR 33-67%) and acceptable tolerability - Papillary Renal Cell Carcinoma (MET-driven): Phase II monotherapy study showed 18% ORR in MET-driven group. Global Phase III study of savolitinib + Imfinzi vs. sunitinib monotherapy vs. Imfinzi monotherapy expected to begin enrollment by mid-2021 based on encouraging SAVOIR and CALYPSO study results - Gastric Cancer (MET amplification): Phase Ib/II studies in China and South Korea completed, showing promising anti-tumor efficacy (ORR 43-50% in MET amplified patients). Phase II registration-intent study in China planned for mid-2021 - Colorectal Cancer (MET-driven mCRC): Phase II monotherapy study sponsored by National Cancer Institute is enrolling patients 2. Surufatinib VEGFR 1, 2 and 3, FGFR1 and CSF-1R Inhibitor Surufatinib, an oral angio-immuno kinase inhibitor, is approved in China for non-pancreatic NETs and is in late-stage global development with U.S. NDA and European MAA filings underway - Surufatinib is a novel, oral angio-immuno kinase inhibitor targeting VEGFR, FGFR, and CSF-1R, approved in China for non-pancreatic NETs (Sulanda) and owned globally by Hutchmed[356][357][288] - Neuroendocrine Tumors (NETs): Approved in China for non-pancreatic NETs (SANET-ep Phase III, median PFS 9.2 months vs 3.8 months for placebo, HR 0.334). Second NDA filed in China for pancreatic NETs (SANET-p Phase III, median PFS 10.9 months vs 3.7 months for placebo, HR 0.491) - U.S. Development: FDA granted Orphan Drug designation for pancreatic NETs (Nov 2019) and Fast Track designations for both pancreatic and non-pancreatic NETs (Apr 2020). Rolling NDA submission initiated in Dec 2020, expected to complete H1 2021. U.S. Phase Ib data showed comparable efficacy to China data in heavily pretreated patients (18.8% confirmed response in pancreatic NET, 100% DCR in non-pancreatic NET) - European Development: MAA filing to EMA planned for mid-2021 - Biliary Tract Cancer (BTC): Phase Ib/II study in chemotherapy-refractory BTC completed. Registration-intent Phase IIb/III study comparing surufatinib with capecitabine ongoing in China, with interim analysis for futility expected in 2021 - Combination Studies: Ongoing Phase II studies in China with Tuoyi (PD-1 antibody) across nine solid tumor indications. Phase I study with Tyvyt (PD-1 antibody) ongoing. Global Phase Ib/II study with tislelizumab (anti-PD-1 antibody) planned for U.S. and Europe in H1 2021 3. Fruquintinib VEGFR 1, 2 and 3 Inhibitor Fruquintinib, a selective VEGFR inhibitor, is approved in China for mCRC as Elunate, with a global Phase III study ongoing and investigations in gastric cancer and combination therapies - Fruquintinib is a highly selective and potent oral inhibitor of VEGFR 1, 2, and 3, approved in China as Elunate for advanced mCRC. It is designed for superior kinase selectivity to minimize off-target toxicities and enable combination therapies[390][391][395] - Colorectal Cancer (CRC): FRESCO Phase III study in China led to approval in Sept 2018 and commercial launch in Nov 2018. Showed significant improvements in OS (9.30 months vs 6.57 months for placebo, HR 0.65) and PFS (3.71 months vs 1.84 months for placebo, HR 0.26). Global Phase III FRESCO-2 study in refractory metastatic CRC is enrolling over 680 patients in 14 countries, with FDA Fast Track designation - Gastric Cancer: FRUTIGA Phase III study of fruquintinib + Taxol for second-line advanced gastric cancer in China is ongoing, with enrollment expected to complete by end of 2021 - Combination Studies: Phase Ib/II dose expansion studies in China with Tyvyt (PD-1 antibody) in various tumor types (HCC, endometrial, RCC, CRC). Phase Ib studies with genolimzumab (PD-1 antibody) in second-line CRC and NSCLC. Global Phase Ib/II study with tislelizumab (anti-PD-1 antibody) planned for advanced refractory triple negative breast cancer and other solid tumors in U.S., Europe, China, and Australia Elunate Revenue Contribution (2019-2020) | Year | Royalty Revenue (US$ million) | Sales to Eli Lilly (US$ million) | Promotion & Marketing Services (US$ million) | Total Elunate Revenue (US$ million) | | :--- | :---------------------------- | :------------------------------- | :------------------------------------------- | :---------------------------------- | | 2019 | $2.7 | $8.1 | — | $10.8 | | 2020 | $4.9 | $11.3 | $3.8 | $20.0 | 4. HMPL-689 PI3Kδ Inhibitor HMPL-689, a selective PI3Kδ inhibitor, shows promising single-agent activity in lymphoma, with ongoing international Phase I/Ib studies and planned registration-intent studies - HMPL-689 is a novel, highly selective PI3Kδ inhibitor with superior isoform selectivity (not inhibiting PI3K-γ), favorable pharmacokinetics, and high potency, aiming to minimize toxicity and drug-drug interactions[431][434] - China: Phase I dose escalation study completed, Phase II dose selected. Phase Ib expansion study ongoing in multiple indolent non-Hodgkin's lymphoma sub-categories. Preliminary results showed 51.9% ORR and 21.2% CR rate in efficacy evaluable patients - U.S./Europe: International Phase I/Ib study with 17 sites ongoing for relapsed or refractory lymphoma. Regulatory discussions for potential registration pathways and initiation of registration studies targeted for later in 2021 5. HMPL-523 Syk Inhibitor HMPL-523, a selective Syk inhibitor, is in clinical trials for hematological cancers and immune diseases, with Phase III planning for immune thrombocytopenia in China - HMPL-523 is a highly selective Syk inhibitor with high tissue distribution, targeting hematological cancers and chronic immune diseases, designed to avoid off-target toxicities and improve drug exposure compared to prior Syk inhibitors[442][443][444][448][450][451] - Immune Thrombocytopenia Purpura (ITP): Phase I study in China ongoing, dose escalation near complete, with planning and preparation for a Phase III trial underway - Indolent Non-Hodgkin's Lymphoma & B-cell Malignancies: Phase I dose escalation and expansion studies in Australia and China have enrolled over 200 patients, identifying indications of interest. Phase I/Ib study in U.S. and Europe is enrolling patients, nearing establishment of Phase II dose 6. HMPL-453 FGFR Inhibitor HMPL-453, a selective FGFR inhibitor, shows strong anti-tumor activity in preclinical studies, with Phase I and II trials ongoing in China for solid tumors and IHCC - HMPL-453 is a highly selective and potent FGFR 1/2/3 inhibitor, targeting aberrant FGFR activation in tumors, with strong anti-tumor activity and favorable pharmacokinetic properties[462] - Solid Tumors: Phase I clinical trial in China ongoing for patients with FGFR genetic alterations, evaluating safety, tolerability, pharmacokinetics, and preliminary efficacy - Intrahepatic Cholangiocarcinoma (IHCC): Phase II study initiated in September 2020 for advanced IHCC patients with FGFR2 fusion who failed at least one line of systemic therapy 7. HMPL-306 HMPL-306, a novel IDH1/IDH2 dual-inhibitor, is in Phase I development in China and the U.S. for hematological malignancies, gliomas, and solid tumors - HMPL-306 is a novel small molecule dual-inhibitor of IDH1 and IDH2 enzymes, targeting hematological malignancies, gliomas, and solid tumors[466] - China: Phase I trial initiated in July 2020 for relapsed or refractory hematological malignancies with IDH1 and/or IDH2 mutations; Phase II dose expected in 2021 - U.S.: IND applications cleared in October 2020; Phase I development expected to initiate in H1 2021 8. HMPL-295 HMPL-295, a novel ERK inhibitor and the tenth in-house oncology candidate, targets the MAPK pathway to overcome resistance, with a Phase I study planned in China - HMPL-295 is a novel ERK inhibitor, the 10th in-house discovered small molecule oncology drug candidate, targeting the MAPK pathway to overcome resistance from upstream mechanisms[470] - Hutchmed retains all worldwide rights to HMPL-295[471] - Planning for a Phase I study in China is underway, with initiation set for mid-2021[471] 9. Epitinib EGFR Inhibitor Epitinib, a potent and selective EGFR inhibitor with optimal brain penetration, is in a Phase Ib/II study in China for glioblastoma patients with EGFR gene amplification - Epitinib is a potent and highly selective oral EGFR inhibitor designed for optimal brain penetration, targeting NSCLC patients with brain metastasis and primary brain tumors with EGFRm+[472][473] - Preclinical trials showed superior brain penetration and efficacy compared to current globally marketed EGFRm+ inhibitors[474] - Phase Ib/II proof-of-concept study in glioblastoma patients with EGFR gene amplification is enrolling in China[476] Overview of Our Collaborations Hutchmed's collaborations with partners like AstraZeneca and Eli Lilly provide crucial funding, scientific expertise, and commercialization support, expanding its pipeline and R&D efforts - Collaborations with partners like AstraZeneca and Eli Lilly provide significant funding and access to scientific, development, regulatory, and commercial capabilities[478] Upfront and Milestone Payments from Collaborations (as of Dec 31, 2020) | Partner | Upfront Payments (US$ million) | Milestone Payments (US$ million) | Total (US$ million) | | :---------- | :----------------------------- | :------------------------------- | :------------------ | | AstraZeneca | $20.0 | $24.9 | $44.9 | | Eli Lilly | $6.5 | $37.2 | $43.7 | | Total | $26.5 | $62.1 | $88.6 | - AstraZeneca Agreement: Global licensing, co-development, and commercialization for savolitinib. Hutchmed receives tiered royalties (14-18% outside China, 30% in China) and reimbursements for development costs - Eli Lilly Agreement: Exclusive license for fruquintinib in China and Hong Kong. Hutchmed receives tiered royalties (15-29%) and manufacturing/service payments (70-80% of Elunate sales) since assuming marketing responsibilities in Oct 2020 - BeiGene Collaboration: Clinical collaboration to evaluate surufatinib and fruquintinib with tislelizumab (anti-PD-1 antibody) in U.S., Europe, China, and Australia - Inmagene Partnership: Strategic partnership to develop four preclinical drug candidates for immunological diseases, with Hutchmed retaining co-commercialization rights in mainland China and eligible for development/commercial milestones and double-digit royalties Other Ventures Hutchmed's Other Ventures segment operates a robust drug marketing and distribution platform in China through joint ventures, generating significant net income and dividends - Other Ventures is a large-scale drug marketing and distribution platform in China, with ~4,800 personnel covering ~320 cities, focusing on prescription and consumer health products[493] - Shanghai Hutchison Pharmaceuticals (non-consolidated JV): Manufactures and sells prescription drugs, primarily cardiovascular medicine. Key product: She Xiang Bao Xin pills (18.3% national market share in 2020, 47.5% in Shanghai), which has 'Confidential State Secret Technology' status and an invention patent until 2029. Fully reimbursed in China and on National Essential Medicines List - Hutchison Sinopharm (consolidated JV): Provides logistics, distribution, and marketing for ~1,000 third-party prescription drugs and Zhi Ling Tong infant nutrition. Building an in-house oncology commercial sales and marketing team (over 360 staff by Dec 2020) - Hutchison Baiyunshan (non-consolidated JV): Manufactures, markets, and distributes own-brand OTC drugs. Key products: Banlangen granules (35.9% of sales in 2020) and Fu Fang Dan Shen tablets (16.5% of sales in 2020). Received $84.7 million gain from land compensation in 2020 Net Income Attributable to Hutchmed from Other Ventures | Year | Net Income (US$ million) | | :--- | :----------------------- | | 2018 | $41.4 | | 2019 | $41.5 | | 2020 | $72.8 | Competition Hutchmed operates in highly competitive pharmaceutical industries, facing well-resourced competitors, requiring differentiation, regulatory approvals, and effective marketing for success - The biotechnology and pharmaceutical industries are highly competitive, with major pharmaceutical and biotechnology companies often having greater resources and experience[508][510] - Oncology/Immunology Competition: Competes in kinase inhibition and monoclonal antibodies for cancer/immunological diseases. Specific competitors for savolitinib include Tepmetko, Tabrect, Xalkori, Cabometyx; for surufatinib include Sutent, Afinitor, Somatuline Depot, Sandostatin; for fruquintinib include Avastin, Cyramza, Stivarga, Zaltrap, Aitan, Focus-V; for HMPL-523/HMPL-689 include Tavalisse, Zydelig, Copiktra, Ukoniq, Aliqopa, JAK inhibitors; for HMPL-453 include Balversa, Pemazyre, futibatinib; for HMPL-306 include Tilbsovo, Idhifa, vorasidenib; for epitinib include Tagrisso, Gilotrif, Iressa, Tarceva - Other Ventures Competition: Faces substantial competition in China's pharmaceutical industry, particularly for cardiovascular drugs and OTC products. Key competitors for She Xiang Bao Xin pills include Tasly Holding and Shijiazhuang Yiling Pharmaceutical. Key competitors for Fu Fang Dan Shen tablets and Banlangen include Shanghai LeiYunShang Pharmaceutical, Yunnan Baiyao, and Beijing Tongrentang - Key competitive factors include efficacy, safety, convenience, price, generic competition, reimbursement, brand recognition, sales network, and product quality[511][525][526] Patents and Other Intellectual Property Hutchmed protects its drugs and products through patents, trade secrets, and innovation, holding 235 issued patents and 155 pending applications as of December 31, 2020 - Intellectual property protection relies on patents, trade secrets, know-how, and technological innovation across various jurisdictions (U.S., Europe, Japan, China, etc.)[527][528] Oncology/Immunology IP Portfolio (as of Dec 31, 2020) | Category | Issued Patents | Pending Applications | | :----------------- | :------------- | :------------------- | | Total | 235 | 155 | | Chinese Patents | 19 | N/A | | U.S. Patents | 22 | N/A | | European Patents | 13 | N/A | - Savolitinib: Two patent families covering compounds and preparation methods, expiring in 2030 and 2039. AstraZeneca is responsible for maintenance and enforcement - Surufatinib: Five patent families covering compounds, crystalline forms, formulations, clinical indications, and a confidential family, with expirations ranging from 2027 to 2040 - Fruquintinib: Five patent families covering compounds, crystalline forms, intermediate preparation, pharmaceutical composition, and a confidential family, with expirations ranging from 2028 to 2040 - Other Drug Candidates (HMPL-523, HMPL-689, Epitinib, Theliatinib, HMPL-453, HMPL-306): Each has one or more patent families covering compounds, salts, crystalline forms, and/or methods of use, with expirations generally in the 2030s - Other Ventures: Shanghai Hutchison Pharmaceuticals holds 58 issued patents (e.g., She Xiang Bao Xin Pills, Danning Tablets) and 22 pending applications in China. Hutchison Baiyunshan holds 80 issued patents and 26 pending patents in China, plus PCT and Australian patents - Relies on unpatented trade secrets and know-how, protected by confidentiality and invention assignment agreements. Risks include unauthorized disclosure and independent discovery by competitors[548][549] - Dependent on licensed trademarks (e.g., 'Hutchison' brands from CK Hutchison, 'Elunate' from Eli Lilly, 'Baiyunshan' from Guangzhou Baiyunshan), with termination risks if certain conditions are not met[549][550] Raw Materials and Supplies Hutchmed procures raw materials from own operations and third-party suppliers, with single-source APIs for key drugs, but has not experienced material supply disruptions - Raw materials and supplies are sourced from own cultivation operations and various third-party suppliers, typically on short-term contracts or purchase orders[551] - Oncology/Immunology: APIs for fruquintinib and surufatinib are supplied by single third-party vendors. A second supplier for fruquintinib is being engaged and validated - Risk Management: Inventory levels are managed to mitigate price fluctuations. No material disruptions in API or raw material supply have been experienced, despite price volatility (e.g., Banlangen in 2020) Quality Control and Assurance Hutchmed maintains a strict, independent quality control system adhering to NMPA regulations, covering the entire production process from raw materials to sales tactics - Maintains an independent and strict quality control system in accordance with NMPA regulations and Chinese manufacturing guidelines[553] - Quality control covers the entire production process, from raw and auxiliary materials, manufacturing, delivery of finished products, clinical testing, to ethical sales tactics[553] - Quality assurance team ensures compliance with regulations, standards, and internal policies, with senior management actively involved in setting quality policies[553] Certificates and Permits Hutchmed and its joint ventures hold essential permits and certificates for pharmaceutical manufacturing, trading, and good practices in China - Hutchison MediPharma (Suzhou) Limited: Holds Pharmaceutical Manufacturing Permit (expires Sep 13, 2025) and GMP certificate (expires Sep 16, 2023) - Hutchison Sinopharm: Holds Pharmaceutical Trading License (expires Jul 30, 2024) and GSP certificate (expires Jul 30, 2024) - Shanghai Hutchison Pharmaceuticals: Holds Pharmaceutical Manufacturing Permit (expires Dec 31, 2025) and three GMP certificates (expiring Aug 2021, Nov 2021, Dec 2022). Its subsidiary, Shanghai Shangyao Hutchison Whampoa GSP Company Limited, holds a Pharmaceutical Trading License (expires Nov 17, 2024) and GSP certificate (expired Apr 21, 2020) - Hutchison Baiyunshan: Holds Pharmaceutical Manufacturing Permit (expires Nov 26, 2025) and GMP certificate (expires Dec 11, 2023). Its subsidiaries also hold GSP certificates and manufacturing licenses Regulation Hutchmed's operations are subject to extensive and evolving government regulations in China (NMPA) and the U.S. (FDA), covering drug development, approval, manufacturing, and marketing - The pharmaceutical industry in China is subject to extensive government regulation and supervision by the NMPA and MOH (now NHC), covering approval, production, distribution, advertising, licensing, and environmental protection[559][560][561][562] - PRC Regulation: Drug Administration Law (amended 2019) clarifies marketing authorization holder system and supports drug innovation. New medicine approval process involves clinical trial applications (Phase I-IV), regulatory review, and drug registration certificates. Priority review and fast track processes are available for drugs with distinctive clinical value - U.S. Regulation: FDA regulates drugs under FDCA and PHSA. Approval process involves extensive pre-clinical studies (GLP), IND application, IRB approval, human clinical trials (GCPs), NDA submission, FDA review (including advisory committees and cGMP inspections), and post-approval requirements (REMS, Phase 4 studies). Special expedited review programs (Fast Track, Accelerated Approval, Priority Review, Breakthrough Therapy) exist for serious conditions - Coverage and Reimbursement: In China, inclusion in the National Reimbursement Drug List (NRDL) and National Essential Medicines List (NEML) significantly impacts sales but subjects drugs to price controls. In the U.S., sales depend on coverage by third-party payors, with ongoing legislative efforts (Affordable Care Act, MMA) to contain healthcare costs potentially affecting reimbursement rates - Other Healthcare Laws: Both countries have anti-corruption laws (FCPA, U.K. Bribery Act, Chinese anti-corruption laws), data privacy and security regulations (HIPAA, GDPR, PRC Cyber Security Law, HGR regulations), and product liability laws that impose significant compliance burdens and potential liabilities C. Organizational Structure Hutchmed's organizational structure as of March 1, 2021, includes the parent company, key Oncology/Immunology subsidiaries, and various consolidated and non-consolidated joint ventures - Organizational structure as of March 1, 2021, includes Hutchison China MediTech Limited as the parent company[705] - Oncology/Immunology: Hutchison MediPharma Limited (99.75% owned) and Hutchison MediPharma International Inc. (99.75% owned) - Other Ventures (Consolidated JVs): Hutchison Whampoa Sinopharm Pharmaceuticals (50.87% owned) and Hutchison Hain Organic Holdings Limited (50% owned) - Other Ventures (Non-Consolidated JVs): Shanghai Hutchison Pharmaceuticals Limited (50% owned) and Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (40% effective interest) D. Property, Plants and Equipment Hutchmed's properties include offices, R&D facilities, and a GMP-certified manufacturing plant in Suzhou, with joint ventures operating large facilities and a new Shanghai plant under construction - Headquarters in Hong Kong (administrative offices) - R&D operations in a 5,024 sq meter facility in Shanghai, with 7,036 sq meters of leased office space - GMP-certified manufacturing facility (2,107 sq meters) in Suzhou for fruquintinib and surufatinib - Joint Ventures' Facilities: Shanghai Hutchison Pharmaceuticals has a 78,000 sq meter facility in Shanghai. Hutchison Baiyunshan has facilities in Guangzhou (59,000 sq meters) and Bozhou (230,000 sq meters), including cultivation sites - New Shanghai Manufacturing Facility: Construction commenced on a new ~55,000 sq meter large-scale manufacturing facility on a 28,771 sq meter site in Shanghai - U.S. Operations: Leases a 26,989 sq foot facility in Florham Park, New Jersey, for clinical, regulatory, and commercial management Item 4A. Unresolved Staff Comments This item indicates no unresolved staff comments Item 5. Operating and Financial Review and Prospects This section provides a detailed analysis of Hutchmed's financial condition and operating results, segmented by Oncology/Immunology and Other Ventures, covering performance, liquidity, and obligations A. Operating Results Hutchmed's operating results show revenue growth in 2020, driven by Other Ventures and Elunate sales, offset by increased R&D and administrative expenses, leading to a higher net loss - Oncology/Immunology operations incurred net losses of $175.5 million in 2020, reflecting significant R&D investments in its pipeline of ten drug candidates[715] Net Income Attributable to Hutchmed from Other Ventures | Year | Net Income (US$ million) | | :--- | :----------------------- | | 2018 | $41.4 | | 2019 | $41.5 | | 2020 | $72.8 | Consolidated Financial Highlights (2018-2020) | Metric | 2018 (US$ million) | 2019 (US$ million) | 2020 (US$ million) | | :----------------------------------- | :----------------- | :----------------- | :----------------- | | Total Consolidated Revenue | $214.1 | $204.9 | $228.0 | | Net Loss Attributable to Company | ($74.8) | ($106.0) | ($125.7) | - Revenue Growth (2019-2020): Total revenue increased by 11.3% to $228.0 million. Oncology/Immunology revenue increased by 12.8% to $30.2 million, driven by Elunate sales (up 85.2% to $20.0 million). Other Ventures revenue increased by 11.0% to $197.8 million, mainly from prescription drug sales - Expense Increases (2019-2020): Cost of revenues increased by 17.7% to $188.5 million. R&D expenses increased by 26.5% to $174.8 million due to expanded clinical activities. Administrative expenses increased by 27.6% to $50.0 million due to staff and organizational growth - Equity in Earnings (2019-2020): Increased by 94.2% to $79.0 million, primarily due to a one-time $36.0 million gain from land compensation at Hutchison Baiyunshan B. Liquidity and Capital Resources Hutchmed utilizes a multi-source funding strategy, holding $435.2 million in cash and short-term investments as of December 31, 2020, with PRC regulations impacting dividend distributions - Multi-source funding approach includes cash flows from Other Ventures, collaboration payments, equity offerings, and bank borrowings[817] Liquidity Position (as of Dec 31, 2020) | Metric | Amount (US$ million) | | :------------------------- | :------------------- | | Cash and Cash Equivalents | $235.6 | | Short-term Investments | $199.5 | | Unutilized Bank Facilities | $69.4 | | Total Bank Loans | $26.9 | - Cash Flow from Operations (2019-2020): Net cash used in operating activities decreased from $80.9 million (2019) to $62.1 million (2020), driven by increased dividends from joint ventures ($86.7 million in 2020) partially offset by higher net losses and R&D expenses - Cash Flow from Investing Activities (2019-2020): Shifted from net cash generated ($119.0 million in 2019) to net cash used ($125.4 million in 2020), primarily due to a net deposit in short-term investments and purchase of leasehold land - Cash Flow from Financing Activities (2019-2020): Shifted from net cash used ($1.5 million in 2019) to net cash generated ($296.4 million in 2020), mainly from $310.0 million in net proceeds from equity offerings - PRC regulations restrict dividend distributions from subsidiaries' reserves, with $0.2 million restricted as of December 31, 2020. Joint venture dividend payments are subject to partner agreements and are not guaranteed at past rates[819] - Capital expenditures for 2020 were $19.6 million, primarily for R&D facilities and a new manufacturing plant in Shanghai. Commitments for capital expenditures as of December 31, 2020, were $5.1 million[833] C. Research and Development, Patents and Licenses, etc. This section refers to detailed information on R&D activities, patents, and licenses found in other specified sections of the annual report - Full details of research and development activities and expenditures are provided in the 'Business' and 'Operating and Financial Review and Prospects' sections[835] D. Trend Information The company reports no new material adverse trends, uncertainties, or events beyond those already disclosed that would impact its financial condition or operating results - No new material adverse trends, uncertainties, demands, commitments, or events identified beyond those already disclosed in the report[836] E. Off-balance Sheet Arrangements The company reports no material off-balance sheet arrangements as defined under SEC rules for the periods presented F. Tabular Disclosure of Contractual Obligations Hutchmed's contractual obligations as of December 31, 2020, include bank borrowings, purchase, and lease obligations, with most due within 1-3 years Contractual Obligations (as of Dec 31, 2020) | Obligation Category | Total (US$'000) | Less Than 1 Year (US$'000) | 1-3 Years (US$'000) | 3-5 Years (US$'000) | More Than 5 Years (US$'000) | | :------------------------ | :-------------- | :------------------------- | :------------------ | :------------------ | :-------------------------- | | Bank Borrowings | 26,923 | — | 26,923 | — | — | | Interest on Bank Borrowings | 393 | 277 | 116 | — | — | | Purchase Obligations | 5,053 | 5,053 | — | — | — | | Lease Obligations | 12,420 | 3,349 | 5,481 | 2,128 | 1,462 | | Total | 44,789 | 8,679 | 32,520 | 2,128 | 1,462 | Shanghai Hutchison Pharmaceuticals Contractual Obligations (as of Dec 31, 2020) | Obligation Category | Total (US$'000) | Less Than 1 Year (US$'000) | 1-3 Years (US$'000) | | :------------------ | :-------------- | :------------------------- | :------------------ | | Purchase Obligations| 902 | 902 | — | | Lease Obligations | 154 | 135 | 19 | | Total | 1,056 | 1,037 | 19 | Hutchison Baiyunshan Contractual Obligations (as of Dec 31, 2020) | Obligation Category | Total (US$'000) | Less Than 1 Year (US$'000) | 1-3 Years (US$'000) | | :------------------ | :-------------- | :------------------------- | :------------------ | | Purchase Obligations| 1,633 | 1,633 | — | | Lease Obligations | 905 | 598 | 307 | | Total | 2,538 | 2,231 | 307 | Item 6. Directors, Senior Management and Employees This section details Hutchmed's board of directors, senior management, compensation, board practices, and employee information, including equity awards and governance A. Directors and Senior Management Hutchmed's board consists of ten directors, including executive and independent non-executive members, with key officers possessing extensive industry experience - Board of directors consists of ten members: four executive, two non-executive, and four independent non-executive directors[904] Key Directors and Senior Management (as of March 1, 2021) | Name | Age | Position | | :------------- | :-- | :------------------------------------------------ | | Simon To | 69 | Executive Director and Chairman | | Christian Hogg | 55 | Executive Director and Chief Executive Officer | | Johnny Cheng | 54 | Executive Director and Chief Financial Officer | | Weiguo Su | 63 | Executive Director and Chief Scientific Officer | | Dan Eldar | 67 | Non-executive Director | | Edith Shih | 69 | Non-executive Director and Company Secretary | | Paul Carter | 60 | Senior Independent Non-executive Director | | Karen Ferrante | 63 | Independent Non-executive Director | | Graeme Jack | 70 | Independent Non-executive Director | | Tony Mok | 60 | Independent Non-executive Director | | May Wang | 57 | Senior Vice President, Business Development & Strategic Alliances | | Zhenping Wu | 61 | Senior Vice President, Pharmaceutical Sciences | - Directors are subject to a three-year term and can be re-elected or removed by shareholders[905] B. Compensation Executive officers and directors receive compensation comprising salaries, bonuses, pension contributions, and equity awards, with significant LTIP grants in 2020 Executive Officer Compensation (FY2020) | Name | Salary and Fees ($) | Bonus ($) | Pension Contributions ($) | Total ($) | | :------------- | :------------------ | :---------- | :------------------------ | :---------- | | Christian Hogg | 458,076 | 897,435 | 29,369 | 1,412,636 | | Johnny Cheng | 380,141 | 371,794 | 27,091 | 788,962 | | Weiguo Su | 420,894 | 735,930 | 32,229 | 1,205,524 | | Other Exec. Officers (Aggregate) | 647,049 | 963,480 | 37,847 | 1,682,095 | Director Compensation (FY2020) | Name | Fees Earned or Paid in Cash ($) | Maximum Aggregate Value of LTIP Awards ($) | | :------------- | :------------------------------ | :----------------------------------------- | | Simon To | 80,000 | 200,000 | | Dan Eldar | 70,000 | 200,000 | | Edith Shih | 70,000 | 200,000 | | Paul Carter | 117,000 | 200,000 | | Karen Ferrante | 102,500 | 200,000 | | Graeme Jack | 104,000 | 200,000 | | Tony Mok | 84,000 | 200,000 | - Share Option Schemes: Two schemes (2005, 2015) and two Hutchison MediPharma Option Schemes (2008, 2014). Options generally vest over four years and expire within 6-10 years. As of Dec 31, 2020, 29,160,990 ordinary shares were outstanding under the 2015 Option Scheme - Long-Term Incentive Plan (LTIP): Awards granted as contingent rights to receive shares or cash, conditional on annual performance targets. In 2020, $39.4 million in maximum cash amount awards were granted to senior managers, executives, and directors. As of Dec 31, 2020, LTIP awards representing a maximum cash amount of $34.5 million were outstanding C. Board Practices Hutchmed's board operates with Audit, Remuneration, Technical, and Nomination committees, adhering to ethical codes and U.K. Corporate Governance principles - Board of directors consists of ten directors, including four independent non-executive directors, and operates under a Relationship Agreement with CK Hutchison[904] - Audit Committee: Composed of Graeme Jack (Chairman, financial expert), Paul Carter, and Karen Ferrante, all independent. Oversees financial statements, internal controls, risk management, and external auditor appointment/performance - Remuneration Committee: Chaired by Paul Carter, responsible for executive remuneration policy and equity incentives - Technical Committee: Chaired by Karen Ferrante, focuses on technical aspects of Oncology/Immunology R&D - Nomination Committee: Chaired by Tony Mok, reviews board structure, diversity, and succession planning - Voluntarily complies with many principles of the U.K. Corporate Governance Code. Has adopted codes of ethics for directors, officers, employees, and business partners, as well as information security and complaints procedures[917][918][919][920][921][922][923] D. Employees Hutchmed's full-time employees increased to 1,280 in 2020, driven by Oncology/Immunology R&D growth, while joint ventures have unionized staff Full-time Employees by Function (2018-2020) | Function | 2018 | 2019 | 2020 | | :-------------------- | :--- | :--- | :--- | | Oncology/Immunology | 418 | 500 | 643 | | Other Ventures | 267 | 315 | 594 | | Corporate Head Office | 29 | 38 | 43 | | Total | 714| 853| 1,280| - 347 employees in Oncology/Immunology R&D team hold M.D. or Ph.D. degrees as of December 31, 2020[925] - Company employees are not represented by labor unions; however, joint ventures (Shanghai Hutchison Pharmaceuticals, Hutchison Baiyunshan) have unionized employees and collective bargaining agreements[925] E. Share Ownership This section refers to share ownership details found in the 'Compensation' and 'Major Shareholders and Related Party Transactions' sections - Information on share ownership is detailed in Item 6.B. 'Compensation' and Item 7 'Major Shareholders and Related Party Transactions'[926] Item 7. Major Shareholders and Related Party Transactions This section outlines Hutchmed's major shareholders and details related party transactions, especially with the CK Hutchison group A. Major Shareholders As of March 1, 2021, Hutchmed had 727,722,215 ordinary shares outstanding, with Hutchison Healthcare Holdings Limited as the largest shareholder - 727,722,215 ordinary shares outstanding as of March 1, 2021[927] Major Shareholders (as of March 1, 2021) | Name of Beneficial Owner | Number of Ordinary Shares Held | Number of American Depositary Shares Held | Percentage of Issued Share Capital | | :---------------------------------------- | :----------------------------- | :---------------------------------------- | :--------------------------------- | | Hutchison Healthcare Holdings Limited | 332,478,770 | — | 45.69% | | Capital International Investors | 2,306,477 | 10,130,453 | 7.27% | | General Atlantic Singapore HCM Pte. Ltd. | 36,666,670 | — | 5.04% | | All Executive Officers and Directors as a Group | 23,766,250 | 596,116 | 3.68% | - Major shareholders do not have voting rights different from other shareholders[931] B. Related Party Transactions Hutchmed has significant related party transactions with the CK Hutchison group, covering loan facilities, product sales, IP licenses, and shared services - Relationship with CK Hutchison: CK Hutchison provides letters of awareness for Hutchmed's loan facilities and maintains a Relationship Agreement to ensure Hutchmed's independent business operations - Product Sales: Sales of consumer health products to CK Hutchison group companies (e.g., PARKnSHOP, Watsons) amounted to $5.5 million in 2020 - Intellectual Property: Licenses 'Hutchison', 'Chi-Med', 'Hutchison China-MediTech', 'Hutchmed' trademarks and domain names royalty-free from Hutchison Whampoa Enterprises Limited (a CK Hutchison affiliate). This license can be terminated if CK Hutchison's shareholding falls below certain thresholds - Shares certain services (legal, regulatory, tax, audit, IT, HR) with the CK Hutchison group under a Services Agreement, paying a management fee (approximately $1.0 million in 2020)[940][941] - Has employment agreements and indemnification agreements with its directors and executive officers, and equity compensation schemes (share options, LTIP awards)[942][943][944][945] C. Interests of Experts and Counsel This item is not applicable, indicating no specific information is provided under this heading Item 8. Financial Information This section refers to the company's consolidated financial statements and other financial information, including legal proceedings and dividend policy A. Consolidated Financial Statements and Other Financial Information This item directs readers to Item 18 for the company's consolidated financial statements - Refers to Item 18 for consolidated financial statements[946] A.7 Legal Proceedings Hutchmed reports no material legal proceedings pending or threatened, with ordinary course litigation not expected to have a material adverse effect - No material legal proceedings pending or threatened against the company[947] - Ordinary course litigation, including intellectual property claims, is not expected to have a material adverse effect[947] A.8 Dividend Policy Hutchmed has never paid dividends and plans to retain all future earnings for growth, with future declarations at the board's discretion - Company has never declared or paid dividends on ordinary shares[948] - Current intention is to retain all future earnings for business growth[948] - Future dividend declarations will be at the board's discretion, considering earnings, capital requirements, financial condition, and contractual restrictions[948] B. Significant Changes No significant changes have occurred since the date of the audited consolidated financial statements included in this annual report - No significant changes have occurred since the date of the audited consolidated financial statements[949] Item 9. The Offer and Listing Hutchmed's ADSs are listed on Nasdaq Global Select Market, and its ordinary shares trade on AIM, both under the symbol 'HCM' - ADSs are listed on the Nasdaq Global Select Market[950] - Ordinary shares are admitted to trading on the AIM market of the London Stock Exchange[950] - Both trade under the symbol 'HCM', which will remain unchanged after the corporate name change[950] Item 10. Additional Information This section provides supplementary information on share capital, corporate documents, material contracts, exchange controls, and taxation, including U.S. tax considerations A. Share Capital This item is not applicable, indicating no specific information is provided under this heading B. Memorandum and Articles of Association This item incorporates by reference information from Exhibit 2.4 of the company's annual report on Form 20-F/A - Information is incorporated by reference to Exhibit 2.4 of the annual report on Form 20-F/A filed on April 29, 2020[951] C. Material Contracts The company reports no material contracts outside the ordinary course of business i