REG - Hutchmed China Ltd - 2022 Full Year Results and Business Updates
28/02/2023 08:30
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RNS Number : 3164R Hutchmed (China) Limited 28 February 2023
HUTCHMED Reports 2022 Full Year Results and Provides Business Updates
Landmark licensing deal with Takeda for fruquintinib outside of China,
bringing HUTCHMED up to US$1.13 billion, plus royalties, and demonstrating
execution of the new global strategy
Record Full Year 2022 oncology/immunology revenues driven by significant
increase in China in-market sales of ELUNATE(®), SULANDA(®) and ORPATHYS(®)
alongside clinical and strategic progress
Company to Host Annual Results Call & Webcast Today at 9 p.m. HKT / 1 p.m.
GMT / 8 a.m. EST
Hong Kong, Shanghai & Florham Park, NJ - Tuesday, February 28, 2023:
HUTCHMED (China) Limited ("HUTCHMED (https://www.hutch-med.com/) ", the
"Company" or "we") (Nasdaq/AIM:HCM; HKEX:13), the innovative, commercial-stage
biopharmaceutical company, today reports its financial results for the year
ended December 31, 2022 and provides updates on key clinical and commercial
developments.
All amounts are expressed in U.S. dollars unless otherwise stated.
Key Highlights
Strategic
· Announced a strategy update, including a prioritization of late-stage
assets and a new global partnership approach to bring innovative medicines to
patients outside of China
· Signed a landmark licensing agreement with Takeda(( 1 (#_edn1) )) to
license fruquintinib outside of China for a potential total of up to $1.13
billion, plus royalties on net sales, demonstrating this strategy in action
· Focus on driving near-term value creation and establishing a
profitable, sustainable business over the long term
Product and pipeline
· FRESCO-2 Phase III data for fruquintinib in refractory metastatic
CRC(( 2 (#_edn2) )), our first global multi-regional clinical trial and
presented at ESMO(( 3 (#_edn3) )), met the primary end point of overall
survival with a 34% reduction in risk of death
· Started rolling submission of NDA(( 4 (#_edn4) )) to U.S. FDA(( 5
(#_edn5) )) for fruquintinib for the treatment of refractory CRC
· Statistically significant PFS(( 6 (#_edn6) )) benefit in
fruquintinib FRUTIGA Phase III in China with supplemental NDA in preparation
· Global SAVANNAH Phase II data for savolitinib showed 52% response
rate and 9.6 months duration of response in high MET(( 7 (#_edn7) )) 2L+
NSCLC(( 8 (#_edn8) )) patients with no prior chemotherapy
· ORPATHYS(®) (savolitinib) to be included in NRDL(( 9 (#_edn9) ))
effective March 1, 2023
· Over 15 registration/registration-intent studies ongoing with six
products
Financial
· Oncology/Immunology revenues up 37% (41% CER(( 10 (#_edn10) ))) to
$163.8 million and in line with guidance
· ELUNATE(®), SULANDA(®) and ORPATHYS(®) combined in-market
sales(( 11 (#_edn11) )) up 70%
· Substantial cash balance, plus $400 million upfront payment from
Takeda at closing, will position HUTCHMED well on the path to a sustainable
business
2022 Full Year Results & Business Updates
"I am proud of the progress that we at HUTCHMED have made during 2022," said
Mr Simon To, Chairman of HUTCHMED. "This work is already bearing fruit, as
indicated not only by the increase in revenues, but also the positive clinical
and regulatory progress we have made with fruquintinib - culminating in the
successful, post-period licensing agreement with Takeda, marking a significant
delivery against the Company's strategy. This out-licensing ensures we remain
true to the overall goal of our business of safeguarding access to our
innovative medicines to patients globally. Further, our partnerships provide
significant financial momentum while we focus on revenue growth from increased
product sales in China."
"This strategy of revenue growth and strategic partnerships places us well on
the path to a sustainable business. It is this path which will allow us to
continue our expansion, as demonstrated by HUTCHMED's continued delivery in
China where our oncology commercial team has reached about 900 people to
support greater access to our medicines; our ongoing development of
savolitinib, which became our third product on the NRDL; and the continued
ability of our business to develop medicines towards global markets. It is
through this ability that we expect to see multiple New Drug Applications
being made not only in China but with key regulators around the world as we
look to extend our ability to bring potentially life changing medicines to
patients around the world."
"2022 has been a key turning point for HUTCHMED, but I believe it will enable
us to truly reach our goal of becoming a global biopharmaceutical company."
Dr Weiguo Su, Chief Executive Officer and Chief Scientific Officer of
HUTCHMED, said, "2022 was a pivotal year for HUTCHMED. Challenged by difficult
market conditions, the team worked incredibly hard to position HUTCHMED for
success today as well as for a promising future. In November, we announced a
new strategy that focuses on accelerating our path to a sustainable and
profitable business, which involves a reprioritization of pipeline assets and
a partnership approach for bringing our innovative medicines more efficiently
to patients outside of China. We believe that this new strategy has unlocked
greater value in the Company and we are already seeing a positive impact from
this approach."
"In early 2023 we announced a significant licensing deal with Takeda for the
global development, commercialization and manufacturing of fruquintinib,
outside of China. We are pleased to have attracted such a strong partner and
to place fruquintinib in the hands of a company with the scale, expertise,
resources and commitment to maximize its success globally, as we believe we
are already doing in China. The expected proceeds from the deal notably
extends our cash runway, and the additional bandwidth allows us to continue to
pursue value-driving opportunities from our internal pipeline while supporting
our commercial growth in China. The Takeda deal perfectly exemplifies our
global partnership approach and showcases our commitment to fulfilling our
promises, swiftly and effectively."
"This approach goes hand in hand with the strategic prioritization of our
pipeline. This includes focusing our development efforts on late-stage assets
through clinical development and towards patients. Ultimately, this is how we
will accelerate our path to a sustainable business over the long term. As part
of our pipeline prioritization, we have reduced some funding to select
international clinical programs and we look to further develop of some of
these programs through partnerships. Specifically, these changes affect
amdizalisib, HMPL-306 and HMPL-760 international clinical programs. We will
continue the surufatinib clinical program in Japan where a bridging study is
fully recruited. Going forward, HUTCHMED still intends to continue to run
early phase development programs for select drug candidates in the U.S., EU
and Japan including sovleplenib where we believe our compounds are
differentiated from a global perspective. This does not impact our commitment
to patients, which, if anything, has intensified as we sharpen our focus on a
smaller set of programs that we believe have the most immediate patient
impact.
I am proud of what the team has achieved this year amidst very difficult times
for the sector, and feel very positive about our outlook."
I. COMMERCIAL OPERATIONS
· Total revenues increased 20% (24% CER) to $426.4 million in 2022
(2021: $356.1m), driven by commercial progress on our three in-house developed
oncology drugs in China;
· Oncology/Immunology consolidated revenues up 37% (41% CER) to $163.8
million (2021: $119.6m);
· ELUNATE(®) (fruquintinib) in-market sales in 2022 increased 32% to
$93.5 million (2021: $71.0m), reflecting its expanding lead in market share,
particularly in tier 2 and 3 cities;
· SULANDA(®) (surufatinib) in-market sales in 2022 increased 178% to
$32.3 million (2021: $11.6m), reflecting its first time NRDL inclusion which
started in January 2022;
· ORPATHYS(®) (savolitinib) in-market sales in 2022 increased 159% to
$41.2 million (2021: $15.9m) following its launch in the second half of 2021
through AstraZeneca's(( 12 (#_edn12) )) extensive oncology commercial
organization. Rapid initial self-pay uptake due to being the first-in-class
selective MET inhibitor in China, expect continued uptake to be supported by
NRDL inclusion starting March 1, 2023;
· TAZVERIK(®) (tazemetostat) successfully launched in Hainan province
in China in June 2022; and
· Successful management of commercial operations to expand coverage of
oncology hospitals and physicians despite challenges of pandemic-related
lockdowns in the first half of 2022.
$'millions In-market Sales* Consolidated Revenues**
2022 2021 % Change 2022 2021 % Change
ELUNATE(®) $93.5 $71.0 +32% $69.9 $53.5 +31%
SULANDA(®) $32.3 $11.6 +178% $32.3 $11.6 +178%
ORPATHYS(®) $41.2 $15.9 +159% $22.3 $11.3 +97%
TAZVERIK(®) $0.1 - - $0.1 - -
Product Sales $167.1 $98.5 +70% $124.6 $76.4 +63%
Other R&D(( 13 (#_edn13) )) services income $24.2 $18.2 +33%
Milestone payment $15.0 $25.0 -40%
Total Oncology/Immunology $163.8 $119.6 +37%
* = For ELUNATE(®) and ORPATHYS(®), represents total sales to third
parties as provided by Lilly(( 14 (#_edn14) )) and AstraZeneca, respectively;
and ELUNATE(®) sales to other third parties as invoiced by HUTCHMED.
** = For ELUNATE(®), represents manufacturing fees, commercial service
fees and royalties paid by Lilly, to HUTCHMED, and sales to other third
parties invoiced by HUTCHMED; for ORPATHYS(®) represents manufacturing fees
and royalties paid by AstraZeneca; for SULANDA(®) and TAZVERIK(®),
represents the Company's sales of the products to third parties.
II. REGULATORY UPDATES
China
· Received Breakthrough Therapy Designation in China for sovleplenib
(HMPL-523) in January 2022 for the treatment of ITP(( 15 (#_edn15) ));
· Received approval for TAZVERIK(®) in the Hainan Boao Lecheng
International Medical Tourism Pilot Zone in May 2022 for the treatment of
certain patients with epithelioid sarcoma or follicular lymphoma; and
· Received Macau approvals for ELUNATE(®) and SULANDA(®), the first
drugs approved in the territory based on China NMPA(( 16 (#_edn16) ))
approval, following regulatory updates in Macau.
Ex-China
· Fruquintinib rolling NDA submission to U.S. FDA initiated in December
2022 for the treatment of refractory CRC. The U.S. FDA granted Fast Track
Designation for the development of fruquintinib for the treatment of patients
with metastatic CRC in June 2020, enabling the company to submit sections of
the NDA on a rolling basis;
· Fruquintinib submissions to the EMA(( 17 (#_edn17) )) and the
Japanese PMDA(( 18 (#_edn18) )) to follow the completion of the US NDA
submission; all expected to be completed in 2023;
· Savolitinib granted Fast Track Designation by the FDA for the
combination treatment with TAGRISSO(®) of NSCLC patients harboring MET
overexpression and/or amplification following progression on TAGRISSO(®); and
· Surufatinib U.S. NDA and EMA MAA(( 19 (#_edn19) )) withdrawn:
o A Complete Response Letter regarding the US NDA (CRL) was issued in
April 2022 by the U.S. FDA, citing the requirement of a multi-regional
clinical trial in a more representative patient population. Following the
Letter, the U.S. NDA was withdrawn in January 2023; the MAA was withdrawn in
August 2022, following interactions with EMA reviewers which suggested that
there is a low probability of a positive opinion;
o In Japan, the bridging study is continuing and a pre-NDA PMDA
consultation is targeted for the first half of 2023; and
o Pandemic-related issues concerning inspection access contributed to
FDA and EMA actions.
III. CLINICAL DEVELOPMENT ACTIVITIES in 2022
Savolitinib (ORPATHYS(®) in China), a highly selective oral inhibitor of MET being developed broadly across MET-driven patient populations in lung, gastric and papillary renal cell carcinomas
· Presentation of SAVANNAH global Phase II study data showing improved
response rates with increasing levels of MET aberration for the TAGRISSO(®)
combination (NCT03778229) in NSCLC patients harboring EGFR(( 20 (#_edn20) ))
mutation and MET amplification or overexpression at WCLC(( 21 (#_edn21) ))
2022. Overall results demonstrated strong ORR(( 22 (#_edn22) )), DoR(( 23
(#_edn23) )) and PFS among patients with higher MET levels, particularly among
those with no prior chemotherapy;
· Aligned with FDA for the pivotal Phase II study for accelerated
approval of the TAGRISSO(®) combination for NSCLC MET patients following
progression on TAGRISSO(®), and began enrolling;
· Initiated SAFFRON, a global, pivotal Phase III study of the
TAGRISSO(®) combination (NCT05261399), which triggered a $15 million
milestone payment. Enrolled patients will have MET levels consistent with the
higher MET level patient groups in SAVANNAH and have had no prior
chemotherapy;
· Enrolling SACHI, a pivotal Phase III study of the TAGRISSO(®)
combination in China for NSCLC patients with MET amplification following
progression on EGFR inhibitor treatment (NCT05015608);
· Enrolling SANOVO, a pivotal Phase III study of the TAGRISSO(®)
combination in China in NSCLC patients harboring EGFR mutation and MET
overexpression, comparing the combination with TAGRISSO(®) monotherapy
(NCT05009836);
· Presented final Phase II OS(( 24 (#_edn24) )) in patients with MET
exon 14 skipping alteration NSCLC at ELCC(( 25 (#_edn25) )) 2022
(NCT02897479);
· Enrolling the confirmatory China Phase IIIb study in MET exon 14
skipping altered NSCLC in both first-line and second-line and above patients
(NCT04923945);
· Enrolling SAMETA, a global Phase III study in MET-driven PRCC(( 26
(#_edn26) )) of the IMFINZI(®) combination comparing to sunitinib
(NCT05043090);
· Enrolled a China Phase II study in gastric cancer patients who have
failed at least one line of systemic treatment (NCT04923932); and
· Initiated SOUND, a China Phase II study of the IMFINZI(®)
combination in EGFR wild-type NSCLC patients with MET alterations
(NCT05374603).
Potential upcoming clinical and regulatory milestones for savolitinib:
· Convert the gastric cancer Phase II study to a registration trial,
following discussion with NMPA in the first half of 2023; and
· Complete enrollment of SAVANNAH pivotal Phase II study.
Fruquintinib (ELUNATE(®) in China), a highly selective oral inhibitor of VEGFR((
27 (#_edn27)
)) 1/2/3 designed to improve kinase selectivity to minimize off-target toxicity and thereby improve tolerability; approved and launched in China
· Presented positive results of the global Phase III FRESCO-2
registration trial (NCT04322539) in 691 refractory metastatic CRC patients,
recruited from 14 countries including U.S., EU, Japan and Australia at ESMO in
September 2022. Treatment with fruquintinib resulted in a statistically
significant and clinically meaningful increase in the primary endpoint of OS
and the key secondary endpoint of PFS compared to placebo;
· Presented preliminary data from the U.S. Phase Ib monotherapy study
of fruquintinib in patients with refractory metastatic CRC (NCT03251378) at
2022 ASCO GI(( 28 (#_edn28) )); and
· Reported top-line results of the FRUTIGA China Phase III registration
study (NCT03223376) in 703 advanced gastric cancer patients. The study met one
of the primary endpoints of statistically significant improvement in PFS,
which is clinically meaningful. The other primary endpoint of OS was not
statistically significant. There were statistically significant improvements
in secondary endpoints including ORR and DCR(( 29 (#_edn29) )), and improved
DoR; and
· Initiated China Phase III study of combination with PD-1(( 30
(#_edn30) )) inhibitor sintilimab in RCC(( 31 (#_edn31) )) (NCT05522231).
Potential upcoming clinical and regulatory milestones for fruquintinib:
· Submit a supplementary NDA to the NMPA for fruquintinib in
combination with paclitaxel in the treatment of advanced gastric cancer in H1
2023, supported by results of the FRUTIGA study;
· Complete recruitment of a Phase II registration enabling study for
endometrial cancer of fruquintinib in combination with PD-1 inhibitor
sintilimab around mid-2023 (NCT03903705);
· Submit FRUTIGA results for presentation at a scientific conference;
· Submit for presentation further Phase II data of fruquintinib with
PD-1 inhibitors; and
· Publication of FRESCO-2 results in a peer-reviewed scientific
journal.
Surufatinib (SULANDA(®) in China), an oral inhibitor of VEGFR, FGFR((
32 (#_edn32)
)) and CSF-1R((
33 (#_edn33)
)) designed to inhibit tumor angiogenesis and promote the body's immune response against tumor cells via tumor associated macrophage regulation; approved and launched in China
· Presented a pooled analysis of safety data from the SANET-p and
SANET-ep studies at the 2022 ASCO(( 34 (#_edn34) )) annual meetings; and
· Presented data from the Phase Ib/II global tislelizumab combination
study at NANETS(( 35 (#_edn35) )) 2022.
Potential upcoming clinical and regulatory milestones for surufatinib:
· Complete bridging study in NET patients in Japan (NCT05077384) in the
first half of 2023 and discuss results with the Japanese PMDA.
Sovleplenib (HMPL-523), an investigative and highly selective oral inhibitor of Syk((
36 (#_edn36)
)), an important component of the Fc receptor and B-cell receptor signaling pathway
· Fully enrolled ESLIM-01 China Phase III study in primary ITP
(NCT03951623) in December 2022.
Potential upcoming clinical milestones for sovleplenib:
· Report top-line results from ESLIM-01 China Phase III in the second
half of 2023; and
· Complete Phase II Proof-of-Concept study in warm AIHA(( 37 (#_edn37)
)) in China and decide on whether to proceed into Phase III.
Amdizalisib (HMPL-689), an investigative and highly selective oral inhibitor of PI3Kδ((
38 (#_edn38)
)) designed to address the gastrointestinal and hepatotoxicity associated with currently approved and clinical-stage PI3Kδ inhibitors
· Completed recruitment of patients for China registration Phase II
study for the treatment of follicular lymphoma (with Breakthrough Therapy
Designation) in February 2023 (NCT04849351); and
· Initiated China combination trial with tazemetostat in February 2023
(NCT05713110).
Potential upcoming clinical and regulatory milestones for amdizalisib:
· Report top-line results from the China registration Phase II study
for the treatment of follicular lymphoma in H2 2023.
Tazemetostat (TAZVERIK(®) in the U.S., Japan and the Hainan Pilot Zone), a first-in-class, oral inhibitor of EZH2 licensed from Ipsen((
39 (#_edn39)
)) subsidiary Epizyme((
40 (#_edn40)
)) in China
· Initiated a China bridging study in follicular lymphoma in July 2022
for conditional registration based on U.S. approvals (NCT05467943);
· Ipsen presented updated data from the Phase Ib portion of the global
SYMPHONY-1 Phase III trial at ASH (NCT04224493) of tazemetostat combined with
lenalidomide and rituximab (R²) in patients with relapsed or refractory
follicular lymphoma after at least one prior line of therapy; and
· Initiated the China portion of the global SYMPHONY-1 Phase III trial
in September 2022.
Earlier stage investigational drug candidates
In addition to the six drug candidates being developed in over 15 registration
studies above, HUTCHMED is developing six further oncology candidates in early
stage clinical trials. These are HMPL-306, a highly selective oral inhibitor
of IDH1/2(( 41 (#_edn41) )) designed to address resistance to currently
marketed IDH inhibitors; HMPL-760, a highly selective, third-generation oral
inhibitor of BTK(( 42 (#_edn42) )) with improved potency versus first
generation BTK inhibitors against both wild type & C481S mutant enzymes;
HMPL-453, a highly selective oral inhibitor of FGFR 1/2/3; HMPL-295, a highly
selective oral inhibitor of ERK(( 43 (#_edn43) )) in the MAPK pathway (( 44
(#_edn44) )) with the potential to address intrinsic or acquired resistance
from upstream mechanisms such as RAS-RAF-MEK; HMPL-653, an oral, highly
selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors
as a monotherapy or in combinations; and HMPL-A83, a differentiated, red blood
cell sparing CD47 monoclonal antibody.
Subject to data and consultation with the CDE(( 45 (#_edn45) )), several of
these earlier stage drug candidates have potential to move into registration
trials in 2023 and early 2024. We have recently agreed a registration enabling
trial design for HMPL-453 for the treatment of IHCC(( 46 (#_edn46) )) with
the CDE and preparations are underway to start the study. Results supporting
this decision will be submitted for scientific presentation in 2023.
IV. COLLABORATION UPDATES
Takeda Exclusive Worldwide License for Fruquintinib Outside China
Subject to customary closing conditions, including completion of antitrust
regulatory reviews:
· Takeda will become responsible for development, manufacturing and
commercialization in all indications and territories outside of mainland
China, Hong Kong and Macau; and
· HUTCHMED will be eligible to receive up to $1.13 billion, including
$400 million upfront on closing of the agreement and up to $730 million in
additional potential payments relating to regulatory, development and
commercial sales milestones, as well as royalties on net sales.
Inmagene candidates discovered by HUTCHMED
Two Phase I trials initiated in Australia and the U.S. on two HUTCHMED drug
candidates being developed by Inmagene: IMG-007, an investigative OX40
antagonistic monoclonal antibody designed to selectively shut down OX40+ T
cell function; and IMG-004, a reversible, non-covalent, highly selective oral
BTK inhibitor designed to target immunological diseases.
V. OTHER VENTURES
Other Ventures include our profitable prescription drug marketing and distribution platforms
· Other Ventures consolidated revenues increased by 11% (15% at CER) to
$262.6 million (2021: $236.5m);
· SHPL(( 47 (#_edn47) )) non-consolidated joint venture revenues
increased by 11% (14% at CER) to $370.6 million (2021: $332.6m);
· Consolidated net income attributable to HUTCHMED from our Other
Ventures increased by 16% (17% at CER) to $54.6 million (2021: $47.3m which
excluded $95.6m related to HBYS(( 48 (#_edn48) ))), which was primarily due
to the net income contributed from SHPL of $49.9 million (2021: $44.7m); and
· We continue to review divestment and equity capital market options
and we have started the process for a share reform of the SHPL joint venture.
VI. IMPACT OF COVID-19
COVID-19 had some impact on our research, clinical studies and our commercial
activities in 2022, particularly with respect to hospital lockdowns, travel
restrictions, and shipping difficulties. Clinical sites in Shanghai were
particularly impacted during April and May 2022. Measures were put in place to
reduce the impact of such restrictions to the extent possible, including
online patient follow-up and the retention of core research teams on-site to
maintain critical activities, with business returning to normal in June.
Restrictive measures related to the COVID-19 pandemic have gradually been
lifted in China starting from December 2022, and we expect the travel, social
and economic activities to normalize.
VII. SUSTAINABILITY
HUTCHMED has made continued progress in its commitment to the long-term
sustainability of its businesses and communities in which it conducts
business, including:
· Enhanced disclosures, including publishing our second Sustainability
Report (https://www.hutch-med.com/about-us/sustainability/) , and publishing
eight new governance and sustainability-related policies
(https://www.hutch-med.com/shareholder-information/corporate-governance/) and
statements;
· Strengthened governance, including establishing a four-tier
governance framework to facilitate oversight and implementation of
sustainability issues;
· Committed to 11 short- to long-term sustainability goals and targets,
incorporated sustainability KPIs on goals and targets into management's
performance-based remuneration;
· Comprehensive stakeholder engagement conducted with over 2,400 key
internal and external stakeholders involving quantitative and qualitative
assessments, and a materiality analysis to help identify the most material
sustainability issues to the Company;
· Enhanced sustainability awareness building in over 20
meetings/sessions during the year amongst the general staff, the
Sustainability Working Group, senior management, the Sustainability Committee
and the Board; and
· Climate risks action, including an assessment to identify
climate-related risks and opportunities for the Company, and following the
recommended disclosure framework of the Task Force on Climate-related
Financial Disclosures (TCFD).
We believe all these efforts will guide us towards a more sustainable future.
The 2022 Sustainability Report will be published alongside our 2022 Annual
Report in due course and will include further information on HUTCHMED
sustainability initiatives and their performance.
VIII. U.S. ACCOUNTING OVERSIGHT
As had been expected, in 2022 the U.S. Securities and Exchange Commission
(SEC) named over 170 China-based companies, including HUTCHMED, to its
conclusive list of public companies identified as having retained a registered
public accounting firm that the Public Company Accounting Oversight Board
("PCAOB") is unable to inspect to investigate completely. However, on December
15, 2022, the PCAOB announced that it was able to inspect and investigate
completely registered public accounting firms headquartered in mainland China
and Hong Kong and vacated its prior determination that it was unable to
inspect or investigate them completely. As a result, we do not expect to be
identified as a Commission-Identified Issuer for the fiscal year ended
December 31, 2022 after we file our annual report on Form 20-F for such fiscal
year.
This has had no impact on the business operations of the Company.
Full Year 2022 Financial Results
Cash, Cash Equivalents and Short-Term Investments were $631.0 million as of December 31, 2022 compared to $1,011.7 million as of December 31, 2021.
· Adjusted Group (non-GAAP(( 49 (#_edn49) ))) net cash flows excluding
financing activities in 2022 were -$297.9 million (2021: -$73.5m) mainly due
to increased spending on Oncology/Immunology R&D; and
· Net cash used in financing activities in 2022 totaled $82.8 million
(2021: net cash generated from financing activities of $650.0m primarily from
the offering of shares on HKEX(( 50 (#_edn50) ))) mainly due to the
repayments of bank borrowings, dividends paid to non-controlling shareholders
of subsidiaries and purchases of ADSs(( 51 (#_edn51) )) by a trustee for the
settlement of equity awards.
Revenues for the year ended December 31, 2022 were $426.4 million compared to $356.1 million in 2021.
· Oncology/Immunology consolidated revenues increased 37% (41% at CER)
to $163.8 million (2021: $119.6m) resulting from:
ELUNATE(®) revenues increased 31% to $69.9 million (2021: $53.5m) in
manufacturing revenues, promotion and marketing service revenues and
royalties, as our in-house sales team increased in-market sales 32% to $93.5
million (2021: $71.0m), as provided by Lilly;
SULANDA(®) revenues increased 178% to $32.3 million (2021: $11.6m), after
inclusion on the NRDL starting in January 2022;
ORPATHYS(®) revenues increased 97% to $22.3 million (2021: $11.3m), in
manufacturing revenues and royalties following its launch in the second half
of 2021. AstraZeneca reported $41.2 million in-market sales (2021: $15.9m) of
ORPATHYS(®) in 2022;
TAZVERIK(®) revenues of $0.1 million following its successful launch in
Hainan province in June 2022;
Milestone payment of $15.0 million (2021: $25.0m milestone payment upon first
sale of ORPATHYS(®) in China), to us by AstraZeneca, related to the
initiation of SAFFRON; and
Other R&D services income of $24.2 million (2021: $18.2m), which were
primarily fees from AstraZeneca and Lilly for the management of development
activities in China.
· Other Ventures consolidated revenues increased 11% (15% at CER) to
$262.6 million (2021: $236.5m), mainly due to higher sales of prescription
drugs. This excludes the strong 11% (14% at CER) growth in non-consolidated
revenues at SHPL of $370.6 million (2021: $332.6m).
Net Expenses for the year ended December 31, 2022 were $787.2 million compared to $550.7 million in 2021.
· Costs of Revenues were $311.1 million (2021: $258.2m), the majority
of which were the cost of third-party prescription drug products marketed
through our profitable Other Ventures, as well as costs associated with
ELUNATE(®), including the provision of promotion and marketing services to
Lilly, and the costs for SULANDA(®) and ORPATHYS(®) which commenced
commercial sales in July 2021;
· R&D Expenses were $386.9 million (2021: $299.1m), which increased
mainly as a result of an expansion in the active development of our novel
oncology drug candidates. Our international clinical and regulatory operations
in the U.S. and Europe incurred expenses of $170.9 million (2021: $140.1m),
while R&D expenses in China were $216.0 million (2021: $159.0m);
· SG&A Expenses(( 52 (#_edn52) )) were $136.1 million (2021:
$127.1m), which increased primarily due to higher staff costs and selling
expenses to support the expansion of our Oncology/Immunology commercial
operations; and
· Other Items generated net income of $46.9 million (2021: $133.7m),
which decreased primarily due to a one-off gain of $82.9 million in 2021
related to the divestment of HBYS.
Net Loss attributable to HUTCHMED for the year ended December 31, 2022 was $360.8 million compared to $194.6 million in 2021.
· The net loss attributable to HUTCHMED in 2022 was $0.43 per ordinary
share / $2.13 per ADS, compared to net loss attributable to HUTCHMED of $0.25
per ordinary share / $1.23 per ADS in 2021.
Financial Summary
Condensed Consolidated Balance Sheets Data
(in $'000)
As of December 31,
2022 2021
Assets
Cash and cash equivalents and short-term investments 630,996 1,011,700
Accounts receivable 97,988 83,580
Other current assets 110,904 116,796
Property, plant and equipment 75,947 41,275
Investments in equity investees 73,777 76,479
Other non-current assets 39,833 42,831
Total assets 1,029,445 1,372,661
Liabilities and shareholders' equity
Accounts payable 71,115 41,177
Other payables, accruals and advance receipts 264,621 210,839
Bank borrowings 18,104 26,905
Other liabilities 38,735 54,226
Total liabilities 392,575 333,147
Company's shareholders' equity 610,367 986,893
Non-controlling interests 26,503 52,621
Total liabilities and shareholders' equity 1,029,445 1,372,661
Condensed Consolidated Statements of Operations Data
(in $'000, except share and per share data)
Year Ended December 31,
2022 2021
Revenues:
Oncology/Immunology - Marketed Products 124,642 76,429
Oncology/Immunology - R&D 39,202 43,181
Oncology/Immunology consolidated revenues 163,844 119,610
Other Ventures 262,565 236,518
Total revenues 426,409 356,128
Operating expenses:
Costs of revenues (311,103) (258,234)
Research and development expenses (386,893) (299,086)
Selling and general administrative expenses (136,106) (127,125)
Total operating expenses (834,102) (684,445)
(407,693) (328,317)
Gain on divestment of an equity investee - 121,310
Other expense, net (2,729) (8,733)
Loss before income taxes and equity in earnings of equity investees (410,422) (215,740)
Income tax benefit/(expense) 283 (11,918)
Equity in earnings of equity investees, net of tax 49,753 60,617
Net loss (360,386) (167,041)
Less: Net income attributable to non-controlling interests (449) (27,607)
Net loss attributable to HUTCHMED (360,835) (194,648)
Losses per share attributable to HUTCHMED - basic and diluted (US$ per share) (0.43) (0.25)
Number of shares used in per share calculation - basic and diluted 847,143,540 792,684,524
Losses per ADS attributable to HUTCHMED - basic and diluted (US$ per ADS) (2.13) (1.23)
Number of ADSs used in per share calculation - basic and diluted 169,428,708 158,536,905
FINANCIAL GUIDANCE
We provide financial guidance for 2023 below reflecting expected revenue
growth of ELUNATE(®), SULANDA(®) and ORPATHYS(®) in China and out-licensing
revenue. While we are not providing net cash flow guidance for 2023, we will
extend our cash runway through partnering and strategic shifting to focus on
the most advanced assets from our internal development pipeline.
2022 2023
Actual
Guidance
Oncology/Immunology consolidated revenues $163.8 million $450 - $550 million
Shareholders and investors should note that:
· we do not provide any guarantee that the statements contained in the
financial guidance will materialize or that the financial results contained
therein will be achieved or are likely to be achieved; and
· we have in the past revised our financial guidance and reference
should be made to any announcements published by us regarding any updates to
the financial guidance after the date of publication of this announcement.
Use of Non-GAAP Financial Measures and Reconciliation - References in this
announcement to adjusted Group net cash flows excluding financing activities
and financial measures reported at CER are based on non-GAAP financial
measures. Please see the "Use of Non-GAAP Financial Measures and
Reconciliation" below for further information relevant to the interpretation
of these financial measures and reconciliations of these financial measures to
the most comparable GAAP measures, respectively.
Conference call and audio webcast presentation scheduled today at 9 p.m. HKT /
1 p.m. GMT / 8 a.m. EST - After registering, investors may access a live audio
webcast of the call via HUTCHMED's website at www.hutch-med.com/event/
(https://www.hutch-med.com/investors/event-information/) .
Participants who wish to join the call and ask a question must register here
(https://register.vevent.com/register/BI49d6c7736b1a42ab9ebffeead8c027e8) .
Upon registration, each participant will be provided with dial-in numbers and
a unique PIN.
FINANCIAL STATEMENTS
HUTCHMED will today file with the U.S. Securities and Exchange Commission its
Annual Report on Form 20-F.
About HUTCHMED
HUTCHMED (Nasdaq/AIM:HCM; HKEX:13) is an innovative, commercial-stage,
biopharmaceutical company. It is committed to the discovery, global
development and commercialization of targeted therapies and immunotherapies
for the treatment of cancer and immunological diseases. It has more than 5,000
personnel across all its companies, at the center of which is a team of about
1,800 in oncology/immunology. Since inception, HUTCHMED has focused on
bringing cancer drug candidates from in-house discovery to patients around the
world, with its first three oncology drugs now approved and marketed in China.
For more information, please visit: www.hutch‑med.com
(https://www.hutch-med.com/) or follow us on LinkedIn
(https://www.linkedin.com/company/hutchmed/) .
Contacts
Investor Enquiries
Mark Lee, Senior Vice President +852 2121 8200
Annie Cheng, Vice President +1 (973) 306 4490
Media Enquiries
Americas - Brad Miles, Solebury Trout +1 (917) 570 7340 (Mobile)
bmiles@soleburystrat.com
Europe - Ben Atwell / Alex Shaw, FTI Consulting +44 20 3727 1030 / +44 7771 913 902 (Mobile) /
+44 7779 545 055 (Mobile)
HUTCHMED@fticonsulting.com
Asia - Zhou Yi, Brunswick +852 9783 6894 (Mobile)
HUTCHMED@brunswickgroup.com
Nominated Advisor
Atholl Tweedie / Freddy Crossley, +44 (20) 7886 2500
Panmure Gordon (UK) Limited
References
Unless the context requires otherwise, references in this announcement to the
"Group," the "Company," "HUTCHMED," "HUTCHMED Group," "we," "us," and "our,"
mean HUTCHMED (China) Limited and its consolidated subsidiaries and joint
ventures unless otherwise stated or indicated by context.
Past Performance and Forward-Looking Statements
The performance and results of operations of the Group contained within this
announcement are historical in nature, and past performance is no guarantee of
future results of the Group. This announcement contains forward-looking
statements within the meaning of the "safe harbor" provisions of the U.S.
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by words like "will," "expects," "anticipates,"
"future," "intends," "plans," "believes," "estimates," "pipeline," "could,"
"potential," "first-in-class," "best-in-class," "designed to," "objective,"
"guidance," "pursue," or similar terms, or by express or implied discussions
regarding potential drug candidates, potential indications for drug candidates
or by discussions of strategy, plans, expectations or intentions. You should
not place undue reliance on these statements. Such forward-looking statements
are based on the current beliefs and expectations of management regarding
future events, and are subject to significant known and unknown risks and
uncertainties. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those set forth in the forward-looking statements. There can
be no guarantee that any of our drug candidates will be approved for sale in
any market, that any approvals which are obtained will be obtained at any
particular time, or that the sales of products marketed or otherwise
commercialized by HUTCHMED and/or its collaboration partners (collectively,
"HUTCHMED's Products") will achieve any particular revenue or net income
levels. In particular, management's expectations could be affected by, among
other things: unexpected regulatory actions or delays or government regulation
generally, including, among others, the risk that HUTCHMED's ADSs could be
barred from trading in the United States as a result of the Holding Foreign
Companies Accountable Act and the rules promulgated thereunder; the
uncertainties inherent in research and development, including the inability to
meet our key study assumptions regarding enrollment rates, timing and
availability of subjects meeting a study's inclusion and exclusion criteria
and funding requirements, changes to clinical protocols, unexpected adverse
events or safety, quality or manufacturing issues; the inability of a drug
candidate to meet the primary or secondary endpoint of a study; the inability
of a drug candidate to obtain regulatory approval in different jurisdictions
or the utilization, market acceptance and commercial success of HUTCHMED's
Products after obtaining regulatory approval; competing products and drug
candidates that may be superior to, or more cost effective than, HUTCHMED's
Products and drug candidates; the impact of studies (whether conducted by
HUTCHMED or others and whether mandated or voluntary) or recommendations and
guidelines from governmental authorities and other third parties on the
commercial success of HUTCHMED's Products and drug candidates in development;
the ability of HUTCHMED to manufacture and manage supply chains for multiple
products and drug candidates; the availability and extent of reimbursement of
HUTCHMED's Products from third-party payers, including private payer
healthcare and insurance programs and government insurance programs; the costs
of developing, producing and selling HUTCHMED's Products; the ability of
HUTCHMED to meet any of its financial projections or guidance and changes to
the assumptions underlying those projections or guidance; global trends toward
health care cost containment, including ongoing pricing pressures;
uncertainties regarding actual or potential legal proceedings, including,
among others, actual or potential product liability litigation, litigation and
investigations regarding sales and marketing practices, intellectual property
disputes, and government investigations generally; and general economic and
industry conditions, including uncertainties regarding the effects of the
persistently weak economic and financial environment in many countries,
uncertainties regarding future global exchange rates and uncertainties
regarding the impact of the COVID-19 pandemic. For further discussion of these
and other risks, see HUTCHMED's filings with the U.S. Securities and Exchange
Commission, on AIM and on HKEX. HUTCHMED is providing the information in this
announcement as of this date and does not undertake any obligation to update
any forward-looking statements as a result of new information, future events
or otherwise.
In addition, this announcement contains statistical data and estimates that
HUTCHMED obtained from industry publications and reports generated by
third-party market research firms. Although HUTCHMED believes that the
publications, reports and surveys are reliable, HUTCHMED has not independently
verified the data and cannot guarantee the accuracy or completeness of such
data. You are cautioned not to give undue weight to this data. Such data
involves risks and uncertainties and are subject to change based on various
factors, including those discussed above.
Inside Information
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 (as it forms part of retained EU law as defined in
the European Union (Withdrawal) Act 2018).
Ends
OPERATIONS REVIEW
Oncology/Immunology
We discover, develop, manufacture and market targeted therapies and
immunotherapies for the treatment of cancer and immunological diseases through
a fully integrated team of approximately 960 scientists and staff (December
31, 2021: ~820), and an in-house oncology commercial organization of over 870
staff (December 31, 2021: ~630).
We have advanced 13 oncology drug candidates into clinical trials in China,
with four also in active clinical development in the U.S. and Europe. Our
first three drug candidates, fruquintinib, surufatinib and savolitinib, have
all been approved and launched in China and the fourth, tazemetostat, has been
approved and launched in Hainan Pilot Zone and submitted for registration in
Hong Kong.
MARKETED PRODUCT SALES
Fruquintinib (ELUNATE(®) in China)
ELUNATE(®) is approved for the treatment of third-line metastatic CRC for
which there is an approximate incidence of 83,000 new patients per year in
China. We estimate that in 2022, approximately 32,000 (2021: approximately
22,000) new patients were treated with ELUNATE(®) in China resulting in
in-market sales of $93.5 million, up 32% versus 2021 ($71.0 million).
ELUNATE(®) surpassed regorafenib in prescription numbers for late stage CRC
at the end of 2021 and that lead has continued to grow in 2022.
Under the terms of our agreement with Lilly, HUTCHMED manages all
on-the-ground medical detailing, promotion and local and regional marketing
activities for ELUNATE(®) in China. We consolidate as revenues approximately
70-80% of ELUNATE(®) in-market sales from manufacturing fees, service fees
and royalties paid to us by Lilly. In 2022, we consolidated $69.9 million in
revenue for ELUNATE(®), equal to 74.8% of in-market sales.
Following negotiations with the China NHSA(( 53 (#_edn53) )), ELUNATE(®)
continues to be included in the NRDL for a new two-year term starting in
January 2022. For this renewal, we agreed to a discount of 5% relative to the
2021 NRDL price.
In January 2022, ELUNATE(®) was approved in the Macau Special Administrative
Region, our first drug to be approved in the territory and the first based on
NMPA approval, following the latest update to the Macau provisions on new drug
importation which allow drugs approved in one or more specified jurisdictions
to be authorized for use in Macau.
Surufatinib (SULANDA(®) in China)
SULANDA(®) was launched in China in 2021 for the treatment of all advanced
NETs(( 54 (#_edn54) )) for which there is an approximate incidence of 34,000
new patients per year in China.
In 2021, SULANDA(®) was sold as a self-pay drug. We used means-tested early
access and patient access programs to help patients afford SULANDA(®).
Despite these access programs, duration of treatment was often affected by the
economic constraints of patients. Following negotiations with the China NHSA,
SULANDA(®) was included in the NRDL starting in January 2022 at a 52%
discount on our main 50mg dosage form, relative to the 2021 self-pay price.
Under the NRDL, actual out-of-pocket costs for patients in 2022 represented
approximately 15-20% of the 2021 self-pay price.
As a result of inclusion in the NRDL and our continued marketing activities,
patient access to SULANDA(®), as well as duration of treatment, have been
expanding with total sales in 2022 increasing by 178% to $32.3 million (2021:
$11.6 million). In 2022, approximately 12,000 new patients were treated with
SULANDA(®), representing approximately 2.5 times the approximately 4,800 new
patients in 2021.
There are two therapies for advanced NETs approved and NRDL reimbursed in
China: SUTENT(®) for the treatment of pancreatic NET (approximately 10% of
NET), and AFINITOR(®) in broadly the same indication as SULANDA(®).
In April 2022, SULANDA(®) was approved in the Macau Special Administrative
Region.
Savolitinib (ORPATHYS(®) in China)
In late June 2021, ORPATHYS(®) became the first-in-class selective MET
inhibitor to be approved in China. Our partner, AstraZeneca, then launched
ORPATHYS(®) in mid-July 2021, less than three weeks after its conditional
approval by the NMPA for patients with MET exon 14 skipping alteration NSCLC.
More than a third of the world's lung cancer patients are in China. Among
those with NSCLC globally, approximately 2-3% have tumors with MET exon 14
skipping alterations.
In 2021 and 2022, ORPATHYS(®) was sold as a self-pay drug. AstraZeneca
introduced a patient access program in late 2021 which subsidizes use of
ORPATHYS(®), through progressive disease. In-market sales for ORPATHYS(®)
grew by 159% in 2022 to $41.2 million (2021: $15.9m) resulting in our
consolidation of $22.3 million (2021: $11.3m) in revenues from manufacturing
fees and royalties in 2022.
Following negotiations with the China NHSA in January 2023, starting on March
1, 2023, ORPATHYS(®) will be included in the updated NRDL, broadening patient
access to this medicine.
Market understanding of the need for MET testing has improved significantly,
with ORPATHYS(®)'s brand share more than doubling since the end of 2021 in
the rapidly growing targeted therapy area. In the National Health Commission's
Treatment Guidelines for Primary Lung Cancer 2022 and the China Medical
Association Oncology Committee Lung Cancer Group's China Medical Association
Guideline for Clinical Diagnosis and Treatment of Lung Cancer, ORPATHYS(®)
was identified as the only targeted therapy recommended for MET exon 14
patients, while similar guideline from CSCO(( 55 (#_edn55) )) also
recommended ORPATHYS(®) as the standard of care for such patients.
ORPATHYS(®) is the first and only selective MET inhibitor on the market in
China. XALKORI(®) is an approved multi-kinase inhibitor of ALK and ROS1 with
modest MET activity. Several selective MET inhibitors are in development in
China, but none are currently expected to reach the market before 2023.
Tazemetostat (TAZVERIK(®) in Hainan, China; the U.S. and Japan)
In May 2022, tazemetostat was approved by the Health Commission and Medical
Products Administration of Hainan Province to be used in the Hainan Boao
Lecheng International Medical Tourism Pilot Zone (Hainan Pilot Zone), under
the Clinically Urgently Needed Imported Drugs scheme, for the treatment of
certain patients with epithelioid sarcoma and follicular lymphoma consistent
with the label as approved by the FDA. Launched in 2013 and located in China,
the Hainan Pilot Zone is a destination for international medical tourism and
global hub for scientific innovation, welcoming 83,900 medical tourists in
2020, according to official data.
Following inclusion in the 2022 CSCO guidelines for epithelioid carcinoma,
three patients began treatment in 2022, with the first patient having remained
on medication for over six months.
In December 2022, an market authorization application was submitted in Hong
Kong.
RESEARCH & DEVELOPMENT
HUTCHMED announced its strategy in November 2022 aimed at accelerating its
path to profitability and establishing a long-term sustainable business, by
prioritizing late-stage and registrational studies to bring the most advanced
drug candidates through regulatory approval as they are most likely to drive
near-term value, particularly the global regulatory approvals and partnership
of fruquintinib outside of China. Selected programs will be considered as
candidates for out-licensing opportunities, particularly outside of China,
with some early phase U.S./EU-related studies deprioritized until then,
enabling the Company to focus internal resources on its later-stage drug
candidates. These studies include surufatinib (outside Japan and China),
amdizalisib, HMPL-760 and HMPL-306. Surufatinib, amdizalisib, HMPL-760,
HMPL-306 and sovleplenib are all considered as candidates for out-licensing
outside of China. HUTCHMED intends to continue to run early phase development
programs for selected drug candidates in U.S., EU and Japan where we believe
we can differentiate from a global perspective.
Savolitinib (ORPATHYS(®) in China)
Savolitinib is an oral, potent, and highly selective oral inhibitor of MET. In
global partnership with AstraZeneca, savolitinib is being studied in NSCLC,
PRCC and gastric cancer clinical trials with over 1,500 patients to date, both
as a monotherapy and in combinations.
In February 2022, a $15 million milestone payment from AstraZeneca was
triggered by the initiation of start-up activities for the SAFFRON study. In
total, AstraZeneca has paid HUTCHMED $85 million of the total $140 million in
upfront payments, development and approvals milestones that are potentially
payable under the relevant license and collaboration agreement.
Savolitinib - Lung cancer:
MET plays an important role in NSCLC. Savolitinib has made significant
development progress in lung cancer, completing NMPA NDA review, gaining
approval and successfully launching as a monotherapy in China. It is also now
in multiple late stage registrational studies as a combination therapy.
The table below shows a summary of the clinical studies for savolitinib in
lung cancer patients.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Savolitinib monotherapy MET exon 14 skipping alterations China II Registration Approved & launched in 2021; Final OS analysis at ELCC 2022 NCT02897479
Savolitinib monotherapy MET exon 14 skipping alterations China III Confirmatory Ongoing since 2021 NCT04923945
Savolitinib + IMFINZI(®) SOUND: MET-driven, EGFR wild type China II Ongoing since 2022 NCT05374603
Savolitinib + TAGRISSO(®) SAVANNAH: 2L/3L EGFRm+(( 56 (#_edn56) )); TAGRISSO(®) refractory; MET+ Global II Registration-intent Ongoing; Data that supported Phase IIIs at WCLC 2022 NCT03778229
Savolitinib + TAGRISSO(®) SAFFRON: 2L/3L EGFRm+; TAGRISSO(®) refractory; MET+ Global III Ongoing since 2022 NCT05261399
Savolitinib + TAGRISSO(®) SACHI: 2L EGFR TKI(( 57 (#_edn57) )) refractory NSCLC; MET+ China III Ongoing since 2021 NCT05015608
Savolitinib + TAGRISSO(®) SANOVO: Naïve patients with EGFRm & MET+ China III Ongoing since 2021 NCT05009836
Update on MET altered, EGFR wild type NSCLC in China - The June 2021
monotherapy approval by the NMPA was based on positive results from a Phase II
trial conducted in China in patients with NSCLC with MET exon 14 skipping
alterations (NCT02897479). Final OS and subgroup analysis was presented for
this trial at ELCC 2022 and published in the journal JTO Clinical and Research
Reports. The updated results further confirmed the favorable benefit of
savolitinib in these patients and in each subgroup and the acceptable safety
profile.
In addition to this trial and the confirmatory study in this patient
population (NCT04923945), the SOUND Phase II trial is an open-label,
interventional, multicenter, exploratory Phase II study to evaluate
savolitinib combined with IMFINZI(®) in EGFR/ALK/ROS1 wild-type, locally
advanced or metastatic NSCLC patients with MET aberrations (NCT05374603). The
primary endpoint is PFS.
Update on combination therapies in EGFR TKI-resistant NSCLC - MET-aberration
is a major mechanism for acquired resistance to both first/second-generation
EGFR TKIs as well as third-generation EGFR TKIs like TAGRISSO(®). Among
patients who experience disease progression post-TAGRISSO(®) treatment,
approximately 15-50% present with MET aberration. The prevalence of MET
amplification and overexpression may differ depending on the sample type,
detection method and assay cut-off used. Savolitinib has been studied
extensively in these patients in the TATTON and SAVANNAH studies. The
encouraging results led to the initiation and planning of three Phase III
studies: SACHI and SANOVO were initiated in China in 2021, and the global,
pivotal Phase III SAFFRON study is currently open for enrollment.
In January 2023, the U.S. FDA designated as a Fast Track development program
the investigation of savolitinib for use in combination with TAGRISSO(®) for
the treatment of patients with locally advanced or metastatic NSCLC whose
tumors have MET overexpression and/or amplification, as detected by an
FDA-approved test, and who have had disease progression during or following
prior TAGRISSO(®).
SAVANNAH (NCT03778229) - This global Phase II study in patients who have
progressed following TAGRISSO(®) due to MET amplification or overexpression
has three dose cohorts of savolitinib combined with TAGRISSO(®). In addition
to continuing TAGRISSO(®) treatment, patients received savolitinib 300mg QD,
300mg BID, or 600mg QD. The study reopened for enrollment to further reinforce
the strength of data, initially presented at WCLC 2022. Recruitment is
expected to be completed in the second half of 2023. We continue to evaluate
the possibility of using the SAVANNAH study as the basis for U.S. accelerated
approval.
The first presentation was at 2022 WCLC. These results were based on an
analysis of 193 efficacy evaluable patients who received savolitinib 300mg
once daily plus TAGRISSO(®) 80mg once daily at data cut-off date of August
27, 2021. Qualifying MET aberrations were FISH5+(( 58 (#_edn58) )) or
IHC50+(( 59 (#_edn59) )). Importantly, additional analysis using a higher
cut-off level of MET aberration were presented. The higher cut-off levels for
MET aberration are FISH10+(( 60 (#_edn60) )) and/or IHC90+(( 61 (#_edn61)
)). The prevalence of this higher cut-off levels of MET aberration was 34% of
patients centrally tested for enrollment in this study versus 62% at the
lower, qualifying cut-off level.
Results showed a trend toward improved response rates with increasing level of
MET aberration. Across all patients in this analysis, ORR was 32% (95% CI:
26-39%), median DoR was 8.3 months (95% CI: 6.9-9.7 months), and median PFS
was 5.3 months (95% CI: 4.2-5.8 months). These results are consistent with the
TATTON and ORCHARD global studies. Among the 108 SAVANNAH patients who met the
criteria for higher cut-off levels of MET aberration, ORR was 49% (95% CI:
39-59%), median DoR was 9.3 months (95% CI: 7.6-10.6 months), and median PFS
was 7.1 months (95% CI: 5.3-8.0 months).
Importantly, among the 87 patients who did not receive prior chemotherapy, ORR
was 52% (95% CI: 41-63%), median DoR was 9.6 months (95% CI: 7.6-14.9 months),
and median PFS was 7.2 months (95% CI: 4.7-9.2 months). The safety profile of
savolitinib plus TAGRISSO(®) was consistent with the known profiles of the
combination and each treatment alone.
SAFFRON (NCT05261399) - Findings based on SAVANNAH and the TATTON studies
supported the initiation of the SAFFRON global Phase III study in patients
with EGFR-mutated, MET-driven, locally advanced or metastatic NSCLC whose
disease progressed on first- or second-line treatment with TAGRISSO(®) as the
most recent therapy, with no prior chemotherapy in the metastatic setting
allowed. Patients are prospectively selected for the higher level of MET
aberration of FISH10+ and/or IHC90+. The SAFFRON study will evaluate the
efficacy and safety of savolitinib in combination with TAGRISSO(®) compared
to pemetrexed plus platinum doublet-chemotherapy, the current standard-of-care
treatment in this setting. The primary endpoint of the study is PFS.
Enrollment of SAVANNAH is being prioritized until it is fully enrolled.
Two registrational studies are ongoing in China in EGFR mutated NSCLC with MET
aberrations: the SANOVO (NCT05009836) study in treatment naïve patients, and
SACHI (NCT05015608) study in patients whose disease progressed following
treatment with any first-line EGFR TKI. Both trials are expected to complete
enrollment in 2024.
Savolitinib - Kidney cancer:
MET is a key genetic driver in papillary RCC, and emerging evidence suggests
that combining immunotherapies with a MET inhibitor could enhance anti-tumor
activity. PRCC is a subtype of kidney cancer, representing about 15% of
patients, with no treatments approved for patients with tumors that harbor
MET-driven alterations. We have conducted multiple global studies of
savolitinib in PRCC patients, including the SAVOIR monotherapy and CALYPSO
combination therapy global Phase II trials, that both demonstrated highly
encouraging results. These results led to the initiation of a global Phase
III, the SAMETA study, in 2021.
The table below shows a summary of the clinical study for savolitinib in
kidney cancer patients.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Savolitinib + IMFINZI(®) SAMETA: MET-driven, unresectable and locally advanced or metastatic PRCC Global III Ongoing since 2021 NCT05043090
Savolitinib - Gastric cancer:
MET-driven gastric cancer has a very poor prognosis. Multiple Phase II studies
have been conducted in Asia to study savolitinib in MET-driven gastric cancer,
of which approximately 5% of all gastric cancer patients, demonstrated
promising efficacy, including VIKTORY. The VIKTORY study reported a 50% ORR
with savolitinib monotherapy in gastric cancer patients whose tumors harbor
MET amplification.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Savolitinib 2L+ gastric cancer with MET amplification. Two-stage, single-arm study China II registration-intent Ongoing since 2021; Consult CDE on registration-intent in H1 2023 NCT04923932
Fruquintinib (ELUNATE(®) in China)
Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that
was designed to improve kinase selectivity to minimize off-target toxicity and
thereby improve efficacy and tolerability. Fruquintinib has been studied in
clinical trials with about 5,000 patients to date, both as a monotherapy and
in combination with other agents.
Aside from its first approved indication of third-line CRC (in China), studies
of fruquintinib combined with various checkpoint inhibitors (including
TYVYT(®), geptanolimab and tislelizumab) are underway, some of which
presented encouraging data in 2021. Registration-intent studies combined with
chemotherapy (FRUTIGA study in gastric cancer) or checkpoint inhibitors
(TYVYT(®) combo, in endometrial cancer and RCC) are ongoing in China.
We are partnered with Lilly in China and have agreed to partner with Takeda
outside of China. The table below shows a summary of the clinical studies for
fruquintinib.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Fruquintinib monotherapy FRESCO-2: metastatic CRC U.S. / Europe / Japan / Aus. III U.S., EU, Japan filings to complete in 2023; Results at ESMO 2022 NCT04322539
Fruquintinib monotherapy CRC; TN(( 62 (#_edn62) )) & HR+(( 63 (#_edn63) ))/Her2-(( 64 (#_edn64) U.S. I/Ib CRC data at ASCO GI 2022. Close to completion NCT03251378
)) breast cancer
Fruquintinib + tislelizumab (PD-1) MSS(( 65 (#_edn65) ))-CRC U.S. Ib/II Ongoing since 2021; Fully enrolled; Submitting data to conference in H2 2023 NCT04577963
Fruquintinib monotherapy FRESCO: ≥ 3L CRC; chemotherapy refractory China III Approved and launched in 2018 NCT02314819
Fruquintinib + paclitaxel FRUTIGA: 2L gastric cancer China III Supplemental NDA to be filed in H1 2023 NCT03223376
Fruquintinib + TYVYT(®) (PD-1) CRC China II Fully enrolled; Data at European Journal of Cancer 181 (2023) 26-37 NCT04179084
Fruquintinib + TYVYT(®) (PD-1) Endometrial cancer China II registration-intent Ongoing since 2021; Ib data at CSCO 2021 NCT03903705
Fruquintinib + TYVYT(®) (PD-1) RCC China Ib/II Fully enrolled; 1L & 2L data submission in 2023 NCT03903705
Fruquintinib + TYVYT(®) (PD-1) RCC China III Ongoing since 2022 NCT05522231
Fruquintinib + TYVYT(®) (PD-1) Gastrointestinal tumors China Ib/II Fully enrolled; Data submission in 2023 NCT03903705
Fruquintinib + TYVYT(®) (PD-1) NSCLC China Ib/II Fully enrolled; Data submission in 2023 if mature NCT03903705
Fruquintinib + TYVYT(®) (PD-1) Cervical cancer China Ib/II Fully enrolled; Data submission in 2023 if mature NCT03903705
Fruquintinib + tislelizumab (PD-1) CRC Korea / China Ib/II Fully enrolled NCT04716634
Fruquintinib - CRC updates:
FRESCO-2 (NCT04322539) - Positive results from this double-blind,
placebo-controlled, global Phase III study in 691 patients with refractory
metastatic CRC were presented at ESMO 2022. The study demonstrated that
treatment with fruquintinib resulted in a statistically significant and
clinically meaningful increase in OS and the key secondary endpoint of PFS
compared to treatment with placebo. Specifically, the median OS was 7.4 months
for the 461 patients treated with fruquintinib compared to 4.8 months for the
230 patients in the placebo group (HR 0.66; 95% CI 0.55-0.80; p<0.001).
Median PFS was 3.7 months with fruquintinib compared to 1.8 months with
placebo (HR 0.32; 95% CI 0.27-0.39; p<0.001). DCR was 55.5% with
fruquintinib compared to 16.1% with placebo.
The safety profile of fruquintinib in FRESCO-2 was consistent with previously
reported fruquintinib studies. Grade 3 or above adverse events occurred in
62.7% of patients who received fruquintinib, compared to 50.4% of patients who
received placebo. Grade 3 or above adverse events that occurred in more than
5% of patients who received fruquintinib were hypertension (13.6% vs. 0.9% in
the placebo group), asthenia (7.7% vs. 3.9% in the placebo group) and
hand-foot syndrome (6.4% vs. 0% in the placebo group).
Filing of a rolling submission of a NDA was initiated in December 2022, and
expected to be completed in the first half of 2023. MAA filing to the EMA and
NDA filing to the PMDA are expected to follow in 2023.
U.S. Phase I/Ib CRC cohorts (NCT03251378) - Preliminary efficacy and safety
data of fruquintinib in patients with refractory, metastatic CRC were
presented at ASCO GI in early 2022. The study provided proof-of-concept
evidence to initiate the FRESCO-2 study.
Fruquintinib - Gastric cancer:
FRUTIGA (NCT03223376) - This randomized, double-blind, Phase III study in
China to evaluate fruquintinib combined with paclitaxel compared with
paclitaxel monotherapy, for second-line treatment of advanced gastric cancer,
enrolled approximately 700 patients in July 2022. Its co-primary endpoints are
PFS and OS. The trial met the PFS endpoint at a statistically and clinically
meaningful level. The OS endpoint was not statistically significant per the
pre-specified statistical plan, although there was an improvement in median
OS. Fruquintinib also demonstrated a statistically significant improvement in
secondary endpoints including ORR, DCR and DoR. The safety profile of
fruquintinib in FRUTIGA was consistent with previously reported studies. Full
detailed results are subject to ongoing analysis and are expected to be
disclosed at an upcoming scientific meeting.
Fruquintinib - Combinations with checkpoint inhibitors:
Advanced endometrial cancer registration-intent cohort of TYVYT(®)
combination (NCT03903705) - Platinum-based systemic chemotherapy is the
standard first-line treatment for advanced endometrial cancer. However,
patients who progress following first-line chemotherapy have limited treatment
options, and the prognosis remains poor. Initially presented at CSCO 2021,
data in this endometrial cancer cohort is encouraging.
We agreed with the NMPA to expand this cohort into a single-arm registrational
Phase II study. The cohort is targeting to enroll over 130 patients.
Advanced metastatic renal cell carcinoma (NCT05522231) - In first-line
clear-cell renal cell carcinoma ("ccRCC"), clinical benefits have been
demonstrated for the combination of antiangiogenic therapy and immunotherapy.
However, there is limited evidence on the benefits of this combination in the
second-line setting. Phase II data disclosed at CSCO 2021 showed encouraging
anti-tumor efficacy and durability in these patients.
A Phase III trial of fruquintinib in combination with TYVYT(®) as second-line
treatment for locally advanced or metastatic RCC was initiated in October
2022. The study is a randomized, open-label, active-controlled study to
evaluate the efficacy and safety of fruquintinib in combination with TYVYT(®)
versus axitinib or everolimus monotherapy for the second-line treatment of
advanced RCC. The primary endpoint is PFS. Approximately 260 patients will be
enrolled in the study.
Tislelizumab combinations (NCT04577963 & NCT04716634) - In August 2021, we
initiated an open-label, multi-center, non-randomized Phase Ib/II study in the
U.S. to assess fruquintinib in combination with tislelizumab in patients with
MSS-CRC. The Phase II study in China and Korea for fruquintinib in combination
with tislelizumab is being led by BeiGene for the treatment of advanced or
metastatic, unresectable CRC.
Fruquintinib - Exploratory development:
In China, we support an investigator initiated trial program for fruquintinib,
and there are about 30 of such trials ongoing in various solid tumor settings.
Fruquintinib - Partnership with Takeda:
In January 2023, HUTCHMED entered into an agreement whereby Takeda will
receive an exclusive worldwide license to develop and commercialize
fruquintinib in all indications and territories outside of mainland China,
Hong Kong and Macau, where it is marketed and will continue to be marketed by
HUTCHMED in partnership with Lilly. Subject to the terms of the agreement,
HUTCHMED will be eligible to receive up to US$1.13 billion, including US$400
million upfront on closing of the agreement, and up to US$730 million in
additional potential payments relating to regulatory, development and
commercial sales milestones, as well as royalties on net sales. The deal is
subject to customary closing conditions, including completion of antitrust
regulatory reviews. Following these clearances, Takeda will become solely
responsible for the development and commercialization of fruquintinib in all
the included territories.
Surufatinib (SULANDA(®) in China)
Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively
inhibits the tyrosine kinase activity associated with VEGFR and FGFR, both
shown to be involved in tumor angiogenesis, and CSF-1R, which plays a key role
in regulating tumor-associated macrophages, promoting the body's immune
response against tumor cells. Surufatinib has been studied in clinical trials
with around 1,200 patients to date, both as a monotherapy and in combinations,
and is approved in China. HUTCHMED currently retains all rights to surufatinib
worldwide.
Initial approvals for surufatinib in China are for the treatment of advanced
NET patients. NETs present in the body's organ system with fragmented
epidemiology. About 58% of NETs originate in the gastrointestinal tract and
pancreas, 27% in the lung or bronchus, and a further 15% in other organs or
unknown origins.
Surufatinib's ability to inhibit angiogenesis, block the accumulation of tumor
associated macrophages and promote infiltration of effector T cells into
tumors could help improve the anti-tumor activity of PD-1 antibodies. Several
combination studies with PD-1 antibodies have shown promising data.
A summary of the clinical studies of surufatinib is shown in the table below.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Surufatinib monotherapy NETs U.S. & Europe Ib/II Bridging Completed NCT02549937
Surufatinib monotherapy NETs Japan Bridging Ongoing since 2021 NCT05077384
Surufatinib + tislelizumab (PD-1) Solid tumors U.S. / Europe Ib/II Since 2021; Enrollment stopped NCT04579757
Surufatinib monotherapy SANET-ep: epNET(( 66 (#_edn66) )) China III Approved; Launched in 2021 NCT02588170
Surufatinib monotherapy SANET-p: pNET(( 67 (#_edn67) )) China III Approved; Launched in 2021; Pooled analysis at ASCO 2022 NCT02589821
Surufatinib + TUOYI(®) (PD-1) SURTORI-01: 2L NEC(( 68 (#_edn68) )) China III Ongoing since 2021 NCT05015621
Surufatinib + TUOYI(®) (PD-1) NENs(( 69 (#_edn69) )) China II Fully enrolled; Data at ASCO 2021 & ESMO IO(( 70 (#_edn70) )) 2021 NCT04169672
Surufatinib + TUOYI(®) (PD-1) Biliary tract cancer China II Fully enrolled NCT04169672
Surufatinib + TUOYI(®) (PD-1) SCLC(( 71 (#_edn71) )) China II Ongoing since 2022 NCT05509699
Surufatinib + TUOYI(®) (PD-1) Solid tumors China II Fully enrolled NCT04169672
Surufatinib - Monotherapy in NET updates:
U.S. NDA and EMA MAA - Surufatinib received FDA Fast Track Designations in
April 2020 for the treatment of pNETs and epNETs. Orphan Drug Designation for
pNETs was granted in November 2019. In a May 2020 pre-NDA meeting, we reached
an agreement with the FDA that the two positive Phase III studies of
surufatinib in patients with pNETs and epNETs in China, along with the
bridging trial in the U.S. could form the basis to support a U.S. NDA
submission. The FDA accepted the filing of the NDA in June 2021. However, in
April 2022, we received a Complete Response Letter from the FDA regarding the
NDA for surufatinib for the treatment of pNETs and epNETs. Based on
interactions with the FDA and EMA, a new multi-regional clinical trial (MRCT)
would be required to move forward with this program in the U.S. and Europe.
We will continue to explore conducting a multi-regional clinical trial with a
partner that would support approval in U.S. and Europe.
Japan Bridging Study to Support Registration for Advanced NET (NCT05077384) -
Based on dialogue with the Japanese PMDA, it was agreed that the Japanese NDA
would include results from a 34-patient, registration-enabling bridging study
in Japan to complement the existing data package. The trial was initiated in
September 2021 and results are expected in the first half of 2023. We plan to
engage with the PMDA when these results are available.
Surufatinib - Combination therapy with checkpoint inhibitors:
A Phase II China study (NCT04169672) combining surufatinib with TUOYI(®)
enrolled patients in nine solid tumor types, including NENs, biliary tract
cancer, gastric cancer, thyroid cancer, SCLC, soft tissue sarcoma, endometrial
cancer, esophageal cancer and NSCLC. These have led to the initiation in
September 2021 of the first Phase III trial combining surufatinib with a PD-1
antibody, the SURTORI-01 study in NEC and a Phase II study in SCLC in 2022.
We de-prioritized and stopped recruitment into an open-label, Phase Ib/II
study of surufatinib in combination with BeiGene's tislelizumab in the U.S.
and Europe. The study was to evaluate the safety, tolerability,
pharmacokinetics and efficacy in patients with multiple advanced solid tumors
(NCT04579757).
Surufatinib - Exploratory development:
In China, we support an investigator initiated trial program for surufatinib,
with about 50 of such trials in various solid tumor settings being conducted
for both combination and single agent regimens. These trials explore and
answer important medical questions in addition to our own company-sponsored
clinical trials.
Hematological Malignancies Candidates
HUTCHMED currently has six investigational drug candidates targeting
hematological malig-nan-cies in clinical development. Amdizalisib (targeting
PI3Kδ), sovleplenib (HMPL-523, targeting Syk) and HMPL-760 (targeting BTK)
are being studied in several trials against B-cell dominant malignancies. In
addition to the three B-cell receptor pathway inhibitors, HUTCHMED is also
develop-ing HMPL-306 (targeting IDH1 and IDH2), tazemetostat (a
methyl-trans-ferase inhibitor of EZH2) and HMPL-A83 (an anti-CD47 monoclonal
antibody).
Sovleplenib (HMPL-523)
Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the
treatment of hematological malignancies and immune diseases. Syk is a
component in Fc receptor and B-cell receptor signaling pathway.
In 2021, we initiated a Phase III study in China for primary ITP, for which it
has received Breakthrough Therapy Designation, and presented data on both
primary ITP and hematological malignancies at ASH(( 72 (#_edn72) )) 2021.
HUTCHMED currently retains all rights to sovleplenib worldwide. The table
below shows a summary of the clinical studies for sovleplenib.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Sovleplenib monotherapy ESLIM-01: ≥ 2L ITP China III Fully enrolled; Breakthrough Therapy Designation NCT05029635
Sovleplenib monotherapy Indolent NHL(( 73 (#_edn73) )) U.S. / Europe I/Ib Ongoing; Prelim. data at ASH 2021 NCT03779113
Sovleplenib monotherapy Warm AIHA China II/III Ongoing since 2022; Phase III decision in 2023 pending Phase II results NCT05535933
ESLIM-01 (Evaluation of Sovleplenib for immunological diseases-01,
NCT05029635) - In October 2021, we initiated a randomized, double-blinded,
placebo-controlled Phase III trial in China of sovleplenib in approximately
180 adult patients with primary ITP who have received at least one prior line
of standard therapy. ITP is an autoimmune disorder that can lead to increased
risk of bleeding. The primary endpoint of the study is the durable response
rate. In January 2022, the NMPA granted Breakthrough Therapy Designation for
this indication. Enrollment was completed in December 2022.
China Phase II/III in warm AIHA - This is a randomized, double-blind,
placebo-controlled Phase II/III study to evaluate the efficacy, safety,
tolerability, and pharmacokinetics of sovleplenib in the treatment of warm
AIHA. AIHA is the result of destruction of red blood cells due to the
production of antibodies against red blood cells which bind to antigens on the
red blood cell membrane in autoimmune disorders. If the results of the Phase
II stage of the study indicate sufficiently satisfactory efficacy and safety,
the Phase III stage will be initiated. The China IND was approved in July
2022. The first patient was enrolled in September 2022. The enrollment of
Phase II part of the study is expected to be completed in 2023, and lead to a
decision on whether to initiate Phase III.
Amdizalisib (HMPL-689)
Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform
PI3Kδ, a key component in the B-cell receptor signaling pathway.
Amdizalisib's pharmacokinetic properties have been found to be favorable with
good oral absorption, moderate tissue distribution and low clearance in
preclinical studies. We also expect that amdizalisib will have low risk of
drug accumulation and drug-drug interactions, supporting feasibility of
development in combination with other medicines. The first of such activities
is in combination with tazemetostat. HUTCHMED currently retains all rights to
amdizalisib worldwide. The table below shows a summary of the clinical studies
for amdizalisib.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Amdizalisib monotherapy Indolent NHL, peripheral T-cell lymphomas China Ib Ongoing; Expansion data presented at ESMO 2021 NCT03128164
Amdizalisib monotherapy 3L Relapsed/refractory follicular lymphoma China II registration-intent Fully enrolled; Breakthrough Therapy Designation NCT04849351
Amdizalisib monotherapy 2L Relapsed/refractory marginal zone lymphoma China II registration-intent Ongoing since Apr 2021 NCT04849351
Amdizalisib monotherapy Indolent NHL U.S./ Europe I/Ib De-prioritized NCT03786926
Phase II registration-intent trial (NCT04849351) - In April 2021, we commenced
a registration-intent, single-arm, open-label Phase II trial in China in
approximately 100 patients with relapsed/refractory follicular lymphoma and
approximately 80 patients with relapsed/refractory marginal zone lymphoma, two
subtypes of non-Hodgkin's lymphoma. The primary endpoint is ORR. The trial is
being conducted in over 35 sites in China, has fully enrolled the follicular
lymphoma cohort and is expected to complete enrollment for the marginal zone
lymphoma cohort around mid-year.
Tazemetostat
In August 2021, we entered into a strategic collaboration with Epizyme, a
subsidiary of Ipsen, to research, develop, manufacture and commercialize
tazemetostat in Greater China, including the mainland, Hong Kong, Macau and
Taiwan. Tazemetostat is an inhibitor of EZH2 developed by Ipsen that is
approved by the U.S. FDA for the treatment of certain epithelioid sarcoma and
follicular lymphoma patients. It received accelerated approval from the FDA
based on ORR and DoR in January and June 2020 for epithelioid sarcoma and
follicular lymphoma, respectively.
We are developing and plan to seek approval for tazemetostat in various
hematological and solid tumors, in Greater China. We are participating in
Ipsen's SYMPHONY-1 (EZH-302) study, leading it in Greater China. We will
generally be responsible for funding all clinical trials of tazemetostat in
Greater China, including the portion of global trials conducted there. We are
responsible for the research, manufacturing and commercialization of
tazemetostat in Greater China.
The table below shows a summary of the clinical studies for tazemetostat.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Tazemetostat monotherapy Metastatic or locally advanced epithelioid sarcoma; Relapsed/refractory 3L+ Hainan N/A - Hainan Pilot Zone Approved; Launched in 2022 N/A
follicular lymphoma
Tazemetostat + lenalidomide + rituximab (R²) SYMPHONY-1: 2L follicular lymphoma Global Ib/III Ongoing; PhIb data at ASH 2022; China portion of global Ph III started H2 2022 NCT04224493
Tazemetostat monotherapy Relapsed/refractory 3L+ follicular lymphoma China II registration-intent (bridging) Ongoing since July 2022 NCT05467943
Tazemetostat + amdizalisib Lymphoma sub-types China II Ongoing since Feb 2023 NCT05713110
SYMPHONY-1 (NCT04224493) - This is a global, multicenter, randomized,
double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III
study of tazemetostat in combination with R² in patients with relapsed or
refractory follicular lymphoma after at least one prior line of therapy. Ipsen
conducted the Phase Ib portion of the study in 2021, which determined the
recommended Phase III dose and also demonstrated potential efficacy in
second-line follicular lymphoma. The safety profile of the combination was
consistent with the previously reported safety information in the U.S.
prescribing information for both tazemetostat and R², respectively.
An interim analysis of the Phase Ib portion of the study, based on 44
follicular lymphoma patients as of June 14, 2022, was presented at ASH 2022.
The safety profile of the tazemetostat and R² combination was consistent with
the prescribing information for both tazemetostat and R², respectively.
Additionally, there was no clear dose response for treatment-emergent adverse
events (TEAEs) or dose modifications. Of 41 evaluable patients, ORR was 97.6%
with 51.2% complete response rate. Median PFS and DoR were not yet reached
with a median follow-up of 11.2 months.
In the Phase III portion of the trial, approximately 500 patients are randomly
assigned to receive the recommended Phase III dose of tazemetostat + R² or
placebo + R². The study will also include a maintenance arm with tazemetostat
or placebo following the first year of treatment with tazemetostat + R² or
placebo + R². The first patient was enrolled in May 2022 and the first China
patient was enrolled in September 2022.
China Phase II bridging study in relapsed/refractory follicular lymphoma
(NCT05467943) - In July 2022, we initiated a multicenter, open-label, Phase II
study to evaluate the efficacy, safety and pharmacokinetics of tazemetostat
for the treatment of patients with relapsed/refractory follicular lymphoma
intended to support conditional registration in China. The primary objective
is to evaluate the efficacy of tazemetostat in patients with EZH2 mutation
(Cohort 1). The secondary objectives are to evaluate the efficacy of
tazemetostat in patients with EZH2 wild-type (Cohort 2) and to evaluate the
safety and the pharmacokinetics of tazemetostat. Enrollment of cohort 2 is
complete and cohort 1 is ongoing.
China Phase II combination study in relapsed/refractory follicular lymphoma
(NCT05713110) - This is a multicenter, open-label, Phase II study to evaluate
the safety, tolerability and preliminary anti-tumor efficacy of tazemetostat
in combination with amdizalisib in patients with R/R lymphoma. The first
patient was dosed in February 2023.
HMPL-306
HMPL-306 is a novel dual-inhibitor of IDH1 and IDH2 enzymes. IDH1 and IDH2
mutations have been implicated as drivers of certain hematological
malignancies, gliomas and solid tumors, particularly among acute myeloid
leukemia patients. HUTCHMED currently retains all rights to HMPL-306
worldwide. The table below shows a summary of the clinical studies for
HMPL-306.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-306 monotherapy Hematological malignancies China I Ongoing since 2020; RP2D determined NCT04272957
HMPL-306 monotherapy Solid tumors including but not limited to gliomas, chondrosarcomas or U.S. I Ongoing since 2021; nominate RP2D in 2023. NCT04762602
cholangiocarcinomas
HMPL-306 monotherapy Hematological malignancies U.S. I Ongoing since 2021; nominate RP2D in 2023 NCT04764474
HMPL-760
HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor.
It is a highly potent, selective, and reversible inhibitor with long target
engagement against BTK, including wild-type and C481S-mutated BTK. China Phase
I studies opened in early 2022 will include relapsed or refractory B-cell
non-Hodgkin's lymphoma or CLL(( 74 (#_edn74) )) patients with or without a
prior regimen containing a BTK inhibitor. HUTCHMED currently retains all
rights to HMPL-760 worldwide.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-760 monotherapy CLL, SLL(( 75 (#_edn75) )), other B-NHL China I Ongoing since Jan 2022 NCT05190068
HMPL-760 monotherapy CLL, SLL, other NHL U.S. I De-prioritized NCT05176691
HMPL-453
HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3. Aberrant
FGFR signaling is associated with tumor growth, promotion of angiogenesis, as
well as resistance to anti-tumor therapies. Approximately 10-15% of IHCC
patients have tumors harboring FGFR2 fusion. HUTCHMED currently retains all
rights to HMPL-453 worldwide. The table below shows a summary of the clinical
studies for HMPL-453.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-453 monotherapy 2L Cholangiocarcinoma (IHCC with FGFR fusion) China II Ongoing since 2020; Data submission planned in 2023; Preparing registration NCT04353375
study
HMPL-453 + chemotherapies Multiple China I/II Ongoing since 2022 NCT05173142
HMPL-453 +TUOYI(®) (PD‑1) Multiple China I/II Ongoing since 2022 NCT05173142
After consultation with the CDE, a monotherapy registration trial design has
been agreed, and preparations are underway.
HMPL-295
HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of the
RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of
multiple candidates in discovery targeting the MAPK pathway. A China Phase I
study was initiated in July 2021. HUTCHMED currently retains all rights to
HMPL-295 worldwide.
RAS-MAPK pathway is dysregulated in cancer, in which mutations or non-genetic
events hyper-activate the pathway in up to 50% of cancers. RAS and RAF predict
worse clinical prognosis in a wide variety of tumor types, mediate resistance
to targeted therapies, and decrease the response to the approved standards of
care, namely, targeted therapy and immunotherapy. ERK inhibition has the
potential to overcome or avoid the intrinsic or acquired resistance from the
inhibition of RAS, RAF and MEK upstream mechanisms.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-295 monotherapy Solid tumors China I Ongoing since 2021 NCT04908046
HMPL-653
HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor designed to
target CSF-1R driven tumors as a monotherapy or in combination with other
drugs. We initiated a China Phase I study in January 2022. HUTCHMED currently
retains all rights to HMPL-653 worldwide.
CSF-1R is usually expressed on the surface of macrophages and can promote
growth and differentiation of macrophages. Studies have shown that blocking
the CSF-1R signaling pathway could effectively modulate the tumor
microenvironment, relieve tumor immunosuppression, and synergize with other
anti-cancer therapies such as immune checkpoint inhibitors to achieve tumor
inhibition. It has been demonstrated in several clinical studies that CSF-1R
inhibitors could treat tenosynovial giant cell tumors, and treat a variety of
malignancies combined with immuno-oncology or other therapeutic agents.
Currently no CSF-1R inhibitor has been approved in China.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-653 monotherapy Solid tumors & tenosynovial giant cell tumors China I Ongoing since Jan 2022; ~110 expected to be enrolled NCT05190068
HMPL-A83
HMPL-A83 is an investigational IgG4-type humanized anti-CD47 monoclonal
antibody that exhibits high affinity for CD47. HMPL-A83 blocks CD47 binding to
Signal regulatory protein (SIRP) α and disrupts the "do not eat me" signal
that cancer cells use to shield themselves from the immune system. HUTCHMED
currently retains all rights to HMPL-A83 worldwide.
In preclinical studies, HMPL-A83 demonstrated a high affinity for CD47 antigen
on tumor cells and strong phagocytosis induction of multiple tumor cells, as
well as weak affinity for red blood cells and no induction of
hemagglutination, implying low risk of anemia, a potential event of special
interest. HMPL-A83 has also demonstrated strong anti-tumor activity in
multiple animal models.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-A83 monotherapy Advanced malignant neoplasms China I Ongoing since July 2022 NCT05429008
Immunology Collaboration with Inmagene
In January 2021, we entered into a strategic partnership with Inmagene, a
clinical development stage company with a focus on immunological diseases, to
further develop four novel preclinical drug candidates we discovered for the
potential treatment of multiple immunological diseases. Under the terms of the
agreement, we granted Inmagene exclusive options to such drug candidates
solely for the treatment of immunological diseases. Funded by Inmagene, we
work together to move the drug candidates towards IND. If successful, Inmagene
will then advance the drug candidates through global clinical development.
INDs for the first two compounds were submitted in 2022.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
IMG-007 (OX40 monoclonal antibody) Healthy volunteers; adults with moderate to severe atopic dermatitis Global I Ongoing since 2022 NCT05353972
IMG-004 (BTK inhibitor) Healthy volunteers Global I Ongoing since 2022 NCT05349097
IMG-007 in atopic dermatitis - This is a novel antagonistic monoclonal
antibody targeting the OX40 receptor. OX40 is a costimulatory receptor member
of the tumor necrosis factor receptor (TNFR) superfamily expressed
predominantly on activated T cells. The Phase I study in healthy volunteers
was initiated in July 2022 in Australia.
IMG-004 in immunological diseases - This is a non-covalent, reversible small
molecule inhibitor targeting BTK. Designed specifically for inflammatory and
autoimmune diseases that usually require long-term treatment, IMG-004 is
potent, highly selective and brain permeable. The Phase I study in healthy
volunteers in the U.S. was initiated in August 2022.
MANUFACTURING
We continue to use contract manufacturing organizations in China to produce
our clinical and commercial API(( 76 (#_edn76) )) supplies. For manufacturing
drug products, we currently use a combination of contract manufacturers and
our internal manufacturing facility. We have a drug product facility in Suzhou
which manufactures both clinical and commercial supplies for some of our
products. We are building a new drug product facility in Pudong, Shanghai,
which will increase our novel drug product manufacturing capacity by over five
times. The construction and qualification of the Shanghai facility is expected
to be completed in mid-2023 and technology transfer will start for some
projects into the facility in late 2023. We expect to manufacture clinical
supplies from the new facility starting in 2023 and commercial supplies around
2025 after the necessary regulatory filings and approvals.
We completed technology transfer for the API and drug product of amdizalisib
and sovleplenib into the selected commercial manufacturing facilities in
preparation for potential NDA filings. Process validation for these products
(both API and drug product) is expected to complete in 2023.
We completed the NDA enabling work related to manufacturing for the global
launch of fruquintinib at the commercial manufacturing sites. Process
validation for API of this product has been completed, and process validation
for drug product will be completed in the second half of 2023 in time for
potential approval and launch.
OTHER VENTURES
Our Other Ventures include drug marketing and distribution platforms covering
about 290 cities and towns in China with over 2,900 mainly manufacturing and
commercial personnel. Built over the past 20 years, it primarily focuses on
prescription drugs and science-based nutrition products through several joint
ventures and subsidiary companies.
In 2022, our Other Ventures delivered encouraging growth with consolidated
revenues up 11% (15% at CER) to $262.6 million (2021: $236.5m). Consolidated
net income attributable to HUTCHMED from our Other Ventures increased by 16%
(17% at CER) to $54.6 million (2021: $47.3m, excluding net income attributable
to HUTCHMED of $7.1m contributed from HBYS which was disposed in September
2021; $82.9m from the divestment of HBYS and $5.6m from land compensation,
before withholding tax).
Hutchison Sinopharm(( 77 (#_edn77) )): Our prescription drugs commercial
services business, which in addition to providing certain commercial services
for our own products, provides services to third-party pharmaceutical
companies in China, grew sales by 16% (21% at CER) to $237.3 million in 2022
(2021: $204.1m).
In 2021, the Hong Kong International Arbitration Centre made a final award in
favor of Hutchison Sinopharm against Luye(( 78 (#_edn78) )) in the amount of
RMB253.2 million ($36.4 million), plus costs and interest (the "Award"), in
connection with the termination of Hutchison Sinopharm's right to distribute
SEROQUEL(®) in China. In June 2022, Luye provided a bank guarantee of up to
RMB286.0 million to cover the Award, pending the outcome of an application by
Luye to the High Court of Hong Kong to set aside the Award. On July 26, 2022,
Luye's application to set aside the Award was dismissed by the High Court with
costs awarded in favor of Hutchison Sinopharm. On October 7, 2022, Luye filed
a Notice of Appeal to the Court of Appeal regarding the dismissal and was
accepted on November 8, 2022. A Court of Appeal hearing date has been set for
June 2023.
SHPL: Our own-brand prescription drugs business, operated through our
non-consolidated joint venture SHPL, grew sales by 11% (14% at CER) to $370.6
million (2021: $332.6m). This sales growth and favorable product mix led to an
increase of 12% (13% at CER) in net income attributable to HUTCHMED to $49.9
million (2021: $44.7m).
The SHPL operation is large-scale, with a commercial team of about 2,300 staff
managing the medical detailing and marketing of its products not just in
hospitals in provincial capitals and medium-sized cities, but also in the
majority of county-level hospitals in China. SHPL's Good Manufacturing
Practice-certified factory holds 74 drug product manufacturing licenses and is
operated by about 550 manufacturing staff.
SXBX(( 79 (#_edn79) )) pill: SHPL's main product is SXBX pill, an oral
vasodilator prescription therapy for coronary artery disease. SXBX pill is the
third largest botanical prescription drug in this indication in China, with a
national market share in January to December 2022 of 21.0% (2021: 19.6%).
Sales increased by 11% (14% at CER) to $341.6 million in 2022 (2021: $307.1m).
SXBX pill is protected by a formulation patent that expires in 2029, but also
retains certain state protection that extends indefinitely, and is one of less
than two dozen proprietary prescription drugs represented on China's National
Essential Medicines List (NEML). Inclusion on this list means that all Chinese
state-owned health care institutions are required to carry it. SXBX pill is
fully reimbursed in all China.
We continue to review divestment and equity capital market options and we have
started the process for a share reform of the SHPL joint venture.
Dividends: Our share of SHPL's profits are passed to the HUTCHMED Group
through dividend payments. In 2022, dividends of $43.7 million (2021: $49.9m)
were paid from SHPL to the HUTCHMED Group level with aggregate dividends
received by HUTCHMED since inception of over $280 million.
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2023
USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
In addition to financial information prepared in accordance with U.S. GAAP,
this announcement also contains certain non-GAAP financial measures based on
management's view of performance including:
· Adjusted Group net cash flows excluding financing activities
· CER
Management uses such measures internally for planning and forecasting purposes
and to measure the HUTCHMED Group's overall performance. We believe these
adjusted financial measures provide useful and meaningful information to us
and investors because they enhance investors' understanding of the continuing
operating performance of our business and facilitate the comparison of
performance between past and future periods. These adjusted financial measures
are non-GAAP measures and should be considered in addition to, but not as a
substitute for, the information prepared in accordance with U.S. GAAP. Other
companies may define these measures in different ways.
Adjusted Group net cash flows excluding financing activities: We exclude
deposits in and proceeds from short-term investments for the period, and
exclude the net cash generated from financing activities for the period to
derive our adjusted Group net cash flows excluding financing activities. We
believe the presentation of adjusted Group net cash flows excluding financing
activities provides useful and meaningful information about the change in our
cash resources excluding those from financing activities which may present
significant period-to-period differences.
CER: We remove the effects of currency movements from period-to-period
comparisons by retranslating the current period's performance at previous
period's foreign currency exchange rates. Because we have significant
operations in China, the RMB to U.S. dollar exchange rates used for
translation may have a significant effect on our reported results. We believe
the presentation at CER provides useful and meaningful information because it
facilitates period-to-period comparisons of our results and increases the
transparency of our underlying performance.
Reconciliation of GAAP change in net cash used in operating activities to Adjusted Group net cash flows excluding financing activities:
$'millions 2022 2021
Net cash used in operating activities (268.6) (204.2)
Net cash generated from/(used in) investing activities 296.6 (306.3)
Effect of exchange rate changes on cash and cash equivalents (9.5) 2.4
Excludes: Deposits in short-term investments 1,202.0 1,356.0
Excludes: Proceeds from short-term investments (1,518.4) (921.4)
Adjusted Group net cash flows excluding financing activities (297.9) (73.5)
Reconciliation of GAAP revenues and net income attributable to HUTCHMED to CER:
$'millions (except %) Year Ended Change Amount Change %
December 31, 2022 December 31, 2021 Actual CER Exchange effect Actual CER Exchange effect
Consolidated revenues
- Oncology/Immunology 163.8 119.6 44.2 48.9 (4.7) 37% 41% -4%
- Other Ventures^ 262.6 236.5 26.1 36.4 (10.3) 11% 15% -4%
^ Includes:
- Hutchison Sinopharm - prescription drugs 237.3 204.1 33.2 43.2 (10.0) 16% 21% -5%
Non-consolidated joint venture revenues
- SHPL 370.6 332.6 38.0 47.1 (9.1) 11% 14% -3%
- SXBX pill 341.6 307.1 34.5 42.7 (8.2) 11% 14% -3%
Consolidated net income attributable to HUTCHMED - Other Ventures 54.6 142.9 (88.3) (87.7) (0.6) -62% -61% -1%
- Consolidated entities 4.7 2.6 2.1 2.3 (0.2) 86% 89% -3%
- Equity investees 49.9 140.3 (90.4) (90.0) (0.4) -64% -64% -
- SHPL 49.9 44.7 5.2 5.6 (0.4) 12% 13% -1%
- HBYS (Note) - 95.6 (95.6) (95.6) - -100% -100% -
Excludes net income attributable to HUTCHMED contributed from HBYS and
one-time gains
- Other Ventures 54.6 47.3 7.3 7.9 (0.6) 16% 17% -1%
- Consolidated entities 4.7 2.6 2.1 2.3 (0.2) 86% 89% -3%
- Equity investees 49.9 44.7 5.2 5.6 (0.4) 12% 13% -1%
- SHPL 49.9 44.7 5.2 5.6 (0.4) 12% 13% -1%
Note: On September 28, 2021, the Group completed the divestment of HBYS and
the net income attributable to HUTCHMED contributed from HBYS was $7.1 million
for the period ended September 28, 2021. For the year ended December 31, 2021,
one-time gains include gain on divestment of $82.9 million and land
compensation gain of $5.6 million.
GROUP CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
To date, we have taken a multi-source approach to fund our operations,
including through cash flows generated and dividend payments from our
Oncology/Immunology and Other Ventures operations, service and milestone and
upfront payments from our collaboration partners, bank borrowings, investments
from third parties, proceeds from our listings on various stock exchanges and
follow-on offerings.
Our Oncology/Immunology operations have historically not generated significant
profits and have operated at a net loss, as creating potential global
first-in-class or best-in-class drug candidates requires a significant
investment of resources over a prolonged period of time. As such, we incurred
net losses of $360.8 million for the year ended December 31, 2022 and net
losses of $194.6 million for the year ended December 31, 2021.
As of December 31, 2022, we had cash and cash equivalents and short-term
investments of $631.0 million and unutilized bank facilities of $140.3
million. As of December 31, 2022, we had $18.1 million in bank borrowings.
Certain of our subsidiaries and joint ventures, including those registered as
wholly foreign-owned enterprises in China, are required to set aside at least
10.0% of their after-tax profits to their general reserves until such reserves
reach 50.0% of their registered capital. In addition, certain of our joint
ventures are required to allocate certain of their after-tax profits as
determined in accordance with related regulations and their respective
articles of association to the reserve funds, upon approval of the board.
Profit appropriated to the reserve funds for our subsidiaries and joint
ventures incorporated in the PRC was approximately $318,000 and $89,000 for
the years ended December 31, 2022 and 2021, respectively. In addition, as a
result of PRC regulations restricting dividend distributions from such reserve
funds and from a company's registered capital, our PRC subsidiaries are
restricted in their ability to transfer a certain amount of their net assets
to us as cash dividends, loans or advances. This restricted portion amounted
to $0.1 million as of December 31, 2022.
In addition, our non-consolidated joint venture, SHPL, held an aggregate of
$33.9 million in cash and cash equivalents and no bank borrowings as of
December 31, 2022. Such cash and cash equivalents are only accessible by us
through dividend payments from the joint venture. The level of dividends
declared by the joint venture is subject to agreement each year between us and
our joint venture partner based on the profitability and working capital needs
of the joint venture.
CASH FLOW
Year Ended December 31,
2022 2021
(in $'000)
Cash Flow Data:
Net cash used in operating activities (268,599) (204,223)
Net cash generated from/(used in) investing activities 296,588 (306,320)
Net cash (used in)/generated from financing activities (82,763) 650,028
Net (decrease)/increase in cash and cash equivalents (54,774) 139,485
Effect of exchange rate changes (9,490) 2,427
Cash and cash equivalents at beginning of the year 377,542 235,630
Cash and cash equivalents at end of the year 313,278 377,542
Net Cash used in Operating Activities
Net cash used in operating activities was $204.2 million for the year ended
December 31, 2021, compared to net cash used in operating activities of $268.6
million for the year ended December 31, 2022. The net change of $64.4 million
was primarily attributable to higher operating expenses of $149.7 million from
$684.4 million for the year ended December 31, 2021 to $834.1 million for the
year ended December 31, 2022. The foregoing was partially offset by an
increase in revenue of $70.3 million from $356.1 million for the year ended
December 31, 2021 to $426.4 million for the year ended December 31, 2022 and
an increase in changes of working capital of $26.2 million from $32.5 million
for the year ended December 31, 2021 to $58.7 million for the year ended
December 31, 2022.
Net Cash generated from/(used in) Investing Activities
Net cash used in investing activities was $306.3 million for the year ended
December 31, 2021, compared to net cash generated from investing activities of
$296.6 million for the year ended December 31, 2022. The net change of $602.9
million was primarily attributable to short-term investments which had net
deposits of $434.6 million for the year ended December 31, 2021 as compared to
net withdrawals of $316.4 million for the year ended December 31, 2022. The
net change was partially offset by the proceeds received from divestment of an
equity investee of $159.1 million during the year ended December 31, 2021,
compared to a dividend of $16.5 million received from divestment of the same
equity investee during the year ended December 31, 2022.
Net Cash (used in)/generated from Financing Activities
Net cash generated from financing activities was $650.0 million for the year
ended December 31, 2021, compared to net cash used in financing activities of
$82.8 million for the year ended December 31, 2022. The net change of $732.8
million was mainly attributable to net proceeds from issuances of shares of
$685.4 million from a private placement in April 2021 and our public offering
on the HKEX with over-allotment option exercised in full in June and July,
2021. The net change was also attributable to an increase in purchases of ADSs
of $20.8 million by a trustee for the settlement of equity awards of the
Company which totaled $27.3 million for the year ended December 31, 2021 as
compared to $48.1 million for the year ended December 31, 2022, as well as an
increase in dividends paid to non-controlling shareholders of subsidiaries of
$15.7 million from $9.9 million for the year ended December 31, 2021 to $25.6
million for the year ended December 31, 2022.
LOAN FACILITIES
In May 2019, our subsidiary entered into a credit facility arrangement with
HSBC(( 80 (#_edn80) )) for the provision of unsecured credit facilities in
the aggregate amount of HK$400.0 million ($51.3 million). The 3-year credit
facilities include (i) a HK$210.0 million ($26.9 million) term loan facility
and (ii) a HK$190.0 million ($24.4 million) revolving loan facility, both with
an interest rate at HIBOR(( 81 (#_edn81) )) plus 0.85% per annum. These
credit facilities are guaranteed by us and include certain financial covenant
requirements. The term loan was drawn in October 2019 and was repaid in May
2022. The revolving loan facility also expired in May 2022.
In August 2020, our subsidiary entered into a 24-month revolving loan facility
with Deutsche Bank AG(( 82 (#_edn82) )) in the amount of HK$117.0 million
($15.0 million) with an interest rate at HIBOR plus 4.5% per annum. This
revolving facility is guaranteed by us and includes certain financial covenant
requirements. The revolving loan facility expired in August 2022.
In October 2021, our subsidiary entered into a 10-year fixed asset loan
facility agreement with Bank of China Limited for the provision of a secured
credit facility in the amount of RMB754.9 million ($108.4 million) with an
annual interest rate at the 5-year China Loan Prime Rate less 0.80% (which was
supplemented in June 2022). This credit facility is guaranteed by another
subsidiary of the Group, and secured by the underlying leasehold land and
buildings, and includes certain financial covenant requirements. As of
December 31, 2022, RMB126.1 million ($18.1 million) was utilized from the
fixed asset loan facility.
In May 2022, our subsidiary entered into a 12-month revolving loan facility
with HSBC in the amount of HK$390.0 million ($50.0 million) with an interest
rate at HIBOR plus 0.5% per annum. This revolving facility is guaranteed by
us. As of December 31, 2022, no amount was drawn from the revolving loan
facility.
Our non-consolidated joint venture SHPL had no bank borrowings outstanding as
of December 31, 2022.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations as of December 31,
2022. Our purchase obligations relate to property, plant and equipment that
are contracted for but not yet paid. Our lease obligations primarily comprise
future aggregate minimum lease payments in respect of various factories,
warehouses, offices and other assets under non-cancellable lease agreements.
Payment Due by Period (in $'000)
Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years
Bank borrowings 18,104 - 360 1,918 15,826
Interest on bank borrowings 4,294 318 1,273 1,200 1,503
Purchase obligations 22,130 20,323 1,807 - -
Lease obligations 10,122 4,498 4,149 1,360 115
54,650 25,139 7,589 4,478 17,444
SHPL
The following table sets forth the contractual obligations of our
non-consolidated joint venture SHPL as of December 31, 2022. SHPL's purchase
obligations comprise capital commitments for property, plant and equipment
contracted for but not yet paid. SHPL's lease obligations primarily comprise
future aggregate minimum lease payments in respect of various offices under
non-cancellable lease agreements.
Payment Due by Period (in $'000)
Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years
Purchase obligations 1,307 1,307 - - -
Lease obligations 2,243 826 1,417 - -
3,550 2,133 1,417 - -
FOREIGN EXCHANGE RISK
A substantial portion of our revenues and expenses are denominated in
renminbi, and our consolidated financial statements are presented in U.S.
dollars. We do not believe that we currently have any significant direct
foreign exchange risk and have not used any derivative financial instruments
to hedge our exposure to such risk. In general, our exposure to foreign
exchange risks is limited.
The value of the renminbi against the U.S. dollar and other currencies may
fluctuate and is affected by, among other things, changes in China's political
and economic conditions. The conversion of renminbi into foreign currencies,
including U.S. dollars, has been based on rates set by the PBOC(( 83
(#_edn83) )). If we decide to convert renminbi into U.S. dollars for the
purpose of making payments for dividends on our ordinary shares or ADSs or for
other business purposes, appreciation of the U.S. dollar against the renminbi
would have a negative effect on the U.S. dollar amounts available to us. On
the other hand, if we need to convert U.S. dollars into renminbi for business
purposes, e.g. capital expenditures and working capital, appreciation of the
renminbi against the U.S. dollar would have a negative effect on the renminbi
amounts we would receive from the conversion. In addition, for certain cash
and bank balances deposited with banks in the PRC, if we decide to convert
them into foreign currencies, they are subject to the rules and regulations of
foreign exchange control promulgated by the PRC government.
CREDIT RISK
Substantially all of our bank deposits are in major financial institutions,
which we believe are of high credit quality. We limit the amount of credit
exposure to any single financial institution. We make periodic assessments of
the recoverability of trade and other receivables and amounts due from related
parties. Our historical experience in collection of receivables falls within
the recorded allowances, and we believe that we have made adequate provision
for uncollectible receivables.
INTEREST RATE RISK
We have no significant interest-bearing assets except for bank deposits. Our
exposure to changes in interest rates is mainly attributable to our bank
borrowings, which bear interest at floating interest rates and expose us to
cash flow interest rate risk. We have not used any interest rate swaps to
hedge our exposure to interest rate risk. We have performed sensitivity
analysis for the effects on our results for the period from changes in
interest rates on floating rate borrowings. The sensitivity to interest rates
used is based on the market forecasts available at the end of the reporting
period and under the economic environments in which we operate, with other
variables held constant. According to the analysis, the impact on our net loss
of a 1.0% interest rate shift would be a maximum increase/decrease of $0.1
million for the year ended December 31, 2022.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have during the years presented, and we do not currently have, any
material off-balance sheet arrangements.
CONTINGENT LIABILITIES
Other than as disclosed in note 15 to the full year financial statements, the
Group does not have any other significant commitments or contingent
liabilities.
GEARING RATIO
The gearing ratio of the Group, which was calculated by dividing total
interest-bearing loans by total equity, was 2.8% as of December 31, 2022, an
increase from 2.6% as of December 31, 2021. The increase was primarily
attributable to the decrease in equity due to the increase in net loss during
the year.
SIGNIFICANT INVESTMENTS HELD
Except for our investment in a non-consolidated joint venture SHPL with a
carrying value of $73.5 million including details below and those as disclosed
in note 11 to the full year financial statements, we did not hold any other
significant investments in the equity of any other companies as of December
31, 2022.
Place of establishment and operations Nominal Value of Registered Capital Equity Interest Attributable to the Group
Principal activities
(in RMB'000)
PRC 229,000 50% Manufacture and distribution of prescription drug products
Our own-brand prescription drugs business under our Other Ventures is operated
through SHPL. Dividends received from SHPL for the year ended December 31,
2022 were $43.7 million.
FUTURE PLANS FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS
Note 15 to the full year financial statements discloses our planned
expenditures on capital assets as of December 31, 2022. We are building a new
drug product facility in Shanghai, China, and will make additional investments
in capital assets accordingly.
MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
During the year ended December 31, 2022, we did not have any other material
acquisitions and disposals of subsidiaries, associates and joint ventures.
PLEDGE OF ASSETS
Our 10-year fixed asset loan facility agreement with Bank of China Limited is
secured by the underlying leasehold land and buildings. RMB126.1 million
($18.1 million) was utilized from the fixed asset loan facility as of December
31, 2022.
INFLATION
In recent years, China has not experienced significant inflation, and thus
inflation has not had a material impact on our results of operations.
According to the National Bureau of Statistics of China, the Consumer Price
Index in China increased by 0.2%, 1.5% and 1.8% in 2020, 2021 and 2022,
respectively. Although we have not been materially affected by inflation in
the past, we can provide no assurance that we will not be affected in the
future by higher rates of inflation in China.
FINAL DIVIDEND
The Board does not recommend any final dividend for the year ended December
31, 2022.
OTHER INFORMATION
CORPORATE STRATEGY
The primary objective of the Company and its subsidiaries (the "Group") is to
become a leader in the discovery, development and commercialization of
targeted therapies and immunotherapies for the treatment of cancer and
immunological diseases. The strategy of the Company is to leverage the highly
specialized expertise of the drug discovery division to develop and expand its
drug candidate portfolio for the global market, building on the first-mover
advantage in the development and launch of novel cancer drugs in China, and
engaging partners for late-stage development and commercialization outside
China. This is aligned with the Company's culture of innovation and high
engagement and empowerment with a high focus on reward and recognition. The
Chairman's Statement and the Operations Review contain discussions and
analyses of the Group's opportunities, performance and the basis on which the
Group generates or preserves value over the longer term and the basis on which
the Group will execute its strategy for delivering the objective of the Group.
The Group is increasingly focusing on sustainability and delivering business
solutions that support transition to net-zero carbon emissions. Further
information on the sustainability initiatives of the Group and its key
relationships with stakeholders can also be found in the standalone
sustainability report of the Group.
HUMAN RESOURCES
As at December 31, 2022, the Group employed approximately 2,030 (December 31,
2021: ~1,760) full time staff members. Staff costs for the year ended December
31, 2022, including directors' emoluments, totaled $227.2 million (2021:
$180.2 million).
The Group fully recognizes the importance of high-quality human resources in
sustaining market leadership. Salary and benefits are kept at competitive
levels, while individual performance is rewarded within the general framework
of the salary, bonus and incentive system of the Group, which is reviewed
annually. Employees are provided with a wide range of benefits that include
medical coverage, provident funds and retirement plans, and long-service
awards. The Group stresses the importance of staff development and provides
training programs on an ongoing basis. Employees are also encouraged to play
an active role in community care activities.
SUSTAINABILITY
As an innovative, commercial-stage biopharmaceutical company, the Company
embraces sustainability at the core of how it operates. Over the past two
decades and on an ongoing basis, the Company is working hard to contribute to
the enhancement of healthcare systems by continuously providing quality and
accessible drugs. As the world adapted to the changes brought about by the
COVID-19 pandemic, it has highlighted the importance of incorporating
sustainability factors into our strategy. The Company embarked on its
sustainability journey in 2020 by making voluntary disclosures in its
inaugural sustainability report to demonstrate its efforts, and establishing a
board level Sustainability Committee in 2021 to support the Board of Directors
(the "Board") in fulfilling their responsibilities. The second sustainability
report for 2021, with enhanced disclosures, was published in May 2022 and the
third sustainability report for 2022 will be published alongside our 2022
Annual Report in due course.
Over the course of 2022, we have rolled out a number of substantial
sustainability initiatives, including renewing our focus on sustainability
material topics with the engagement of stakeholders, establishing 11 short- to
long-term sustainability goals and targets, stepping up efforts in
sustainability governance by establishing a four-tier governance framework to
facilitate oversight and implementation of sustainability issues within the
Company, having sustainability KPIs on goals and targets incorporated to
management's performance and remunerations, and conducting our first
climate-related risk assessment. The Company believes that all these efforts
will guide it towards a more sustainable future. Please refer to the upcoming
2022 Sustainability Report for further information on the sustainability
initiatives and their performance.
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from Tuesday, May 9,
2023 to Friday, May 12, 2023, both days inclusive, during which period no
transfer of shares will be effected, to determine shareholders' entitlement to
attend and vote at the 2023 Annual General Meeting (or at any adjournment or
postponement thereof). All share certificates with completed transfer forms,
either overleaf or separately, must be lodged with (a) the Hong Kong Branch
Share Registrar of the Company, Computershare Hong Kong Investor Services
Limited, at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road
East, Wanchai, Hong Kong or (b) the Principal Share Registrar of the Company,
Computershare Investor Services (Jersey) Limited c/o Computershare Investor
Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United
Kingdom, no later than 4:30 pm Hong Kong time on Monday, May 8, 2023.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
During the year ended December 31, 2022, neither the Company nor any of its
subsidiaries has purchased, sold or redeemed any of the listed securities of
the Company.
COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE
The Company strives to attain and maintain high standards of corporate
governance best suited to the needs and interests of the Group as it believes
that effective corporate governance framework is fundamental to promoting and
safeguarding interests of shareholders and other stakeholders and enhancing
shareholder value. Accordingly, the Company has adopted and applied corporate
governance principles and practices that emphasize a quality Board, effective
risk management and internal control systems, stringent disclosure practices,
transparency and accountability as well as effective communication and
engagement with shareholders and other stakeholders. It is, in addition,
committed to continuously enhancing these standards and practices and
inculcating a robust culture of compliance and ethical governance underlying
the business operations and practices across the Group.
The Company has complied throughout the year ended December 31, 2022 with all
code provisions of the Hong Kong Corporate Governance Code contained in
Appendix 14 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "Hong Kong Listing Rules").
COMPLIANCE WITH THE SHARE DEALINGS CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Board has adopted the Code on Dealings in Shares which is on terms no less
exacting than the required standard set out in the Model Code for Securities
Transactions by Directors of Listed Issuers set out in Appendix 10 of the Hong
Kong Listing Rules as the protocol regulating Directors' dealings in
securities of the Company. In response to specific enquiries made, all
Directors have confirmed their compliance with the required standards set out
in such code regarding their securities transactions throughout their tenure
during the year ended December 31, 2022.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held on Friday, May 12,
2023. Notice of the 2023 Annual General Meeting will be published and issued
to shareholders in due course.
USE OF NET PROCEEDS
On June 30, 2021, the Company issued 104,000,000 new ordinary shares for total
gross proceeds of approximately $534.7 million from the listing and offering
of the Company's ordinary shares on HKEX.
On July 15, 2021, the over-allotment option was fully exercised and the
Company issued an aggregate of 15,600,000 ordinary shares for total gross
proceeds of approximately $80.2 million.
The intended use of total net proceeds of approximately $585.2 million from
the offering and the over-allotment option for the purposes and in the amounts
(adjusted on pro rata basis based on the actual net proceeds) as disclosed in
the prospectus issued by the Company dated June 18, 2021 is as below:
Use of Proceeds Percentage of Total Net Proceeds Approximate Amount Actual Usage up to December 31, 2022 Unutilized Net Proceeds as of December 31, 2022 Expected Timeline for Utilization of Proceeds (note)
(%) ($'millions) ($'millions) ($'millions)
Advance our late-stage clinical programs for savolitinib, surufatinib, 50% 292.7 292.7 - Fully utilized
fruquintinib, amdizalisib and sovleplenib through registration trials and
potential NDA submissions
Support further proof-of-concept studies and fund the continued expansion of 10% 58.5 58.5 - Fully utilized
our product portfolio in cancer and immunological diseases through internal
research, including the development cost of early-clinical and
preclinical-stage pipeline drug candidates
Further strengthen our integrated capabilities across commercialization, 20% 117.1 81.7 35.4 2023
clinical and regulatory and manufacturing
Fund potential global business development and strategic acquisition 15% 87.8 32.4 55.4 2023
opportunities to complement our internal research and development activities
and enhance our current drug candidate pipeline
Working capital, expanding internal capabilities globally and in China and 5% 29.1 29.1 - Fully utilized
general corporate purposes
100% 585.2 494.4 90.8
Note: There was no change in the intended use of net proceeds as previously
disclosed, and the Company plans to gradually utilize the remaining net
proceeds in accordance with such intended purposes depending on actual market
conditions and business needs, which is expected to be substantially utilized
by the end of year 2023.
AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its subsidiary
companies for the year ended December 31, 2022 prepared in accordance with
accounting principles generally accepted in the U.S. have been audited by the
Company's auditors, PricewaterhouseCoopers. The consolidated financial
statements of the Company and its subsidiary companies for the year ended
December 31, 2022 have also been reviewed by the Audit Committee of the
Company.
IMPORTANT EVENTS AFTER THE REPORTING DATE
Save as disclosed above, no important events affecting the Company occurred
since December 31, 2022 and up to the date of this announcement.
PUBLICATION OF FULL YEAR RESULTS AND ANNUAL REPORT
This full year results announcement is published on the websites of HKEX
(www.hkexnews.hk (https://www.hkexnews.hk/) ), the U.S. Securities and
Exchange Commission (www.sec.gov/edgar (https://www.sec.gov/edgar.shtml) ),
the London Stock Exchange (www.londonstockexchange.com
(https://www.londonstockexchange.com/stock/HCM/hutchmed-china-limited/company-page)
) and the Company (www.hutch (https://www.hutch-med.com/) ‑
(https://www.hutch-med.com/) med.com (https://www.hutch-med.com/) ). The
annual report of the Group for the year ended December 31, 2022 will be
published on the websites of HKEX and the Company, and dispatched to the
Company's shareholders in due course.
CONSOLIDATED FINANCIAL STATEMENTS
HUTCHMED (CHINA) LIMITED
Consolidated Balance Sheets
(in US$'000, except share data)
December 31,
Note 2022 2021
Assets
Current assets
Cash and cash equivalents 5 313,278 377,542
Short-term investments 5 317,718 634,158
Accounts receivable 6 97,988 83,580
Other receivables, prepayments and deposits 7 54,214 81,041
Inventories 8 56,690 35,755
Total current assets 839,888 1,212,076
Property, plant and equipment 9 75,947 41,275
Right-of-use assets 10 8,722 11,879
Deferred tax assets 24(ii) 15,366 9,401
Investments in equity investees 11 73,777 76,479
Other non-current assets 15,745 21,551
Total assets 1,029,445 1,372,661
Liabilities and shareholders' equity
Current liabilities
Accounts payable 12 71,115 41,177
Other payables, accruals and advance receipts 13 264,621 210,839
Bank borrowings 14 - 26,905
Income tax payable 24(iii) 1,112 15,546
Other current liabilities 17,055 17,191
Total current liabilities 353,903 311,658
Lease liabilities 10 5,196 7,161
Deferred tax liabilities 24(ii) 2,710 2,765
Long-term bank borrowings 14 18,104 -
Other non-current liabilities 12,662 11,563
Total liabilities 392,575 333,147
Commitments and contingencies 15
Company's shareholders' equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 16 86,478 86,453
and 864,530,850 shares issued at December 31, 2022 and 2021 respectively
Additional paid-in capital 1,497,273 1,505,196
Accumulated losses (971,481) (610,328)
Accumulated other comprehensive (loss)/income (1,903) 5,572
Total Company's shareholders' equity 610,367 986,893
Non-controlling interests 26,503 52,621
Total shareholders' equity 636,870 1,039,514
Total liabilities and shareholders' equity 1,029,445 1,372,661
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Operations
(in US$'000, except share and per share data)
Year Ended December 31,
Note 2022 2021 2020
Revenues
Goods -third parties 314,329 266,199 203,606
-related parties 23(i) 5,293 4,256 5,484
Services -commercialization-third parties 41,275 27,428 3,734
-collaboration research and development 23,741 18,995 9,771
-third parties
-research and development 23(i) 507 525 491
-related parties
Other collaboration revenue
-royalties-third parties 26,310 15,064 4,890
-licensing-third parties 14,954 23,661 -
Total revenues 18 426,409 356,128 227,976
Operating expenses
Costs of goods-third parties (268,698) (229,448) (178,828)
Costs of goods-related parties (3,616) (3,114) (3,671)
Costs of services-commercialization -third parties (38,789) (25,672) (6,020)
Research and development expenses 20 (386,893) (299,086) (174,776)
Selling expenses (43,933) (37,827) (11,334)
Administrative expenses (92,173) (89,298) (50,015)
Total operating expenses (834,102) (684,445) (424,644)
(407,693) (328,317) (196,668)
Gain on divestment of an equity investee 22 - 121,310 -
Other (expense)/income
Interest income 26 9,599 2,076 3,236
Other income 1,833 2,426 4,600
Interest expense 26 (652) (592) (787)
Other expense (13,509) (12,643) (115)
Total other (expense)/income (2,729) (8,733) 6,934
Loss before income taxes and equity in earnings of equity investees (410,422) (215,740) (189,734)
Income tax benefit/(expense) 24(i) 283 (11,918) (4,829)
Equity in earnings of equity investees, net of tax 11 49,753 60,617 79,046
Net loss (360,386) (167,041) (115,517)
Less: Net income attributable to non-controlling interests (449) (27,607) (10,213)
Net loss attributable to the Company (360,835) (194,648) (125,730)
Losses per share attributable to the Company-basic and diluted (US$ per share) 25 (0.43) (0.25) (0.18)
Number of shares used in per share calculation-basic and diluted 25 847,143,540 792,684,524 697,931,437
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Comprehensive Loss
(in US$'000)
Year Ended December 31,
2022 2021 2020
Net loss (360,386) (167,041) (115,517)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain (8,469) 2,964 9,530
Total comprehensive loss (368,855) (164,077) (105,987)
Less: Comprehensive loss/(income) attributable to non-controlling interests 545 (28,029) (11,413)
Total comprehensive loss attributable to the Company (368,310) (192,106) (117,400)
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Changes in Shareholders' Equity
(in US$'000, except share data in '000)
Ordinary Shares Number Ordinary Shares Value Additional Accumulated Accumulated Total Non- Total Shareholders'
Paid-in
Losses
Other
Company's
controlling
Equity
Capital
Comprehensive
Shareholders'
Interests
(Loss)/Income
Equity
As at January 1, 2020 666,906 66,691 514,904 (289,734) (3,849) 288,012 24,891 312,903
Net (loss)/income - - - (125,730) - (125,730) 10,213 (115,517)
Issuance in relation to public offering 23,669 2,366 115,975 - - 118,341 - 118,341
Issuances in relation to private investment in public equity ("PIPE") 36,667 3,667 196,333 - - 200,000 - 200,000
Issuance costs - - (8,317) - - (8,317) - (8,317)
Issuances in relation to share option exercises 480 48 545 - - 593 - 593
Share-based compensation
Share options - - 8,727 - - 8,727 10 8,737
Long-term incentive plan ("LTIP") - - 7,203 - - 7,203 16 7,219
- - 15,930 - - 15,930 26 15,956
LTIP-treasury shares acquired and held by Trustee - - (12,904) - - (12,904) - (12,904)
Dividends declared to non-controlling shareholders of subsidiaries - - - - - - (1,462) (1,462)
Purchase of additional interests in a subsidiary of an equity investee (Note - - (52) (83) (4) (139) (35) (174)
11)
Transfer between reserves - - 44 (44) - - - -
Foreign currency translation adjustments - - - - 8,330 8,330 1,200 9,530
As at December 31, 2020 727,722 72,772 822,458 (415,591) 4,477 484,116 34,833 518,949
Net (loss)/income - - - (194,648) - (194,648) 27,607 (167,041)
Issuance in relation to public offering 119,600 11,960 602,907 - - 614,867 - 614,867
Issuance in relation to PIPE 16,393 1,639 98,361 - - 100,000 - 100,000
Issuance costs - - (29,806) - - (29,806) - (29,806)
Issuances in relation to share option exercises 816 82 2,370 - - 2,452 - 2,452
Share-based compensation
Share options - - 16,339 - - 16,339 26 16,365
LTIP - - 19,808 - - 19,808 70 19,878
- - 36,147 - - 36,147 96 36,243
LTIP-treasury shares acquired and held by Trustee - - (27,309) - - (27,309) - (27,309)
Dividends declared to non-controlling shareholders of subsidiaries - - - - - - (9,894) (9,894)
Transfer between reserves - - 89 (89) - - - -
Divestment of an equity investee - - (21) - (1,447) (1,468) (443) (1,911)
(Note 22)
Foreign currency translation adjustments - - - - 2,542 2,542 422 2,964
As at December 31, 2021 864,531 86,453 1,505,196 (610,328) 5,572 986,893 52,621 1,039,514
Net (loss)/income - - - (360,835) - (360,835) 449 (360,386)
Issuances in relation to share option exercises 244 25 149 - - 174 - 174
Share-based compensation
Share options - - 6,724 - - 6,724 12 6,736
LTIP - - 32,970 - - 32,970 15 32,985
- - 39,694 - - 39,694 27 39,721
LTIP-treasury shares acquired and held by Trustee - - (48,084) - - (48,084) - (48,084)
Dividends declared to non-controlling shareholders of subsidiaries - - - - - - (25,600) (25,600)
Transfer between reserves - - 318 (318) - - - -
Foreign currency translation adjustments - - - - (7,475) (7,475) (994) (8,469)
As at December 31, 2022 864,775 86,478 1,497,273 (971,481) (1,903) 610,367 26,503 636,870
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Cash Flows
(in US$'000)
Year Ended December 31,
Note 2022 2021 2020
Net cash used in operating activities 27 (268,599) (204,223) (62,066)
Investing activities
Purchases of property, plant and equipment (36,664) (16,401) (7,949)
Purchase of leasehold land - (355) (11,631)
Refund/(payment) of leasehold land deposit - 930 (2,326)
Deposits in short-term investments (1,202,013) (1,355,976) (732,908)
Proceeds from short-term investments 1,518,453 921,364 629,373
Purchase of a warrant 19 - (15,000) -
Dividend and proceeds received from divestment of Hutchison Whampoa Guangzhou 22 16,488 159,118 -
Baiyunshan Chinese Medicine Company Limited ("HBYS")
Deposit received for divestment of other equity investee 11 324 - -
Net cash generated from/(used in) investing activities 296,588 (306,320) (125,441)
Financing activities
Proceeds from issuances of ordinary shares 174 717,319 318,934
Purchases of treasury shares 17(ii) (48,084) (27,309) (12,904)
Dividends paid to non-controlling shareholders of subsidiaries (25,600) (9,894) (1,462)
Repayment of loan to a non-controlling shareholder of a subsidiary - (579) -
Proceeds from bank borrowings 17,753 - -
Repayment of bank borrowings (26,923) - -
Payment of issuance costs (83) (29,509) (8,134)
Net cash (used in)/generated from financing activities (82,763) 650,028 296,434
Net (decrease)/increase in cash and cash equivalents (54,774) 139,485 108,927
Effect of exchange rate changes on cash and cash equivalents (9,490) 2,427 5,546
(64,264) 141,912 114,473
Cash and cash equivalents
Cash and cash equivalents at beginning of year 377,542 235,630 121,157
Cash and cash equivalents at end of year 313,278 377,542 235,630
Supplemental disclosure for cash flow information
Cash paid for interest 150 425 815
Cash paid for tax, net of refunds 24(iii) 18,891 5,014 5,940
Supplemental disclosure for non-cash activities
Increase in accrued capital expenditures 9,618 8,607 298
Vesting of treasury shares for LTIP 17(ii) 12,034 1,450 4,828
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Notes to the Consolidated Financial Statements
1. Organization and Nature of Business
HUTCHMED (China) Limited (the "Company") and its subsidiaries (together the
"Group") are principally engaged in researching, developing, manufacturing and
marketing pharmaceutical products. The Group and its equity investees have
research and development facilities and manufacturing plants in the People's
Republic of China (the "PRC") and sell their products mainly in the PRC,
including Hong Kong and Macau. In addition, the Group has established
international operations in the United States of America (the "U.S.") and
Europe.
The Company's ordinary shares are listed on the Main Board of The Stock
Exchange of Hong Kong Limited ("HKEX") and the AIM market of the London Stock
Exchange, and its American depositary shares ("ADS") are traded on the Nasdaq
Global Select Market.
Liquidity
As at December 31, 2022, the Group had accumulated losses of US$971,481,000
primarily due to its spending in drug research and development activities. The
Group regularly monitors current and expected liquidity requirements to ensure
that it maintains sufficient cash balances and adequate credit facilities to
meet its liquidity requirements in the short and long term. As at December 31,
2022, the Group had cash and cash equivalents of US$313,278,000, short-term
investments of US$317,718,000 and unutilized bank borrowing facilities of
US$140,289,000. Short-term investments comprised of bank deposits maturing
over three months. The Group's operating plan includes the continued receipt
of dividends from an equity investee. Dividends received for the years ended
December 31, 2022, 2021 and 2020 were US$43,718,000, US$49,872,000 and
US$86,708,000 respectively.
Based on the Group's operating plan, the existing cash and cash equivalents,
short-term investments and unutilized bank borrowing facilities are considered
to be sufficient to meet the cash requirements to fund planned operations and
other commitments for at least the next twelve months from the issuance date
of the consolidated financial statements (the look-forward period used).
2. Particulars of Principal Subsidiaries and Equity Investee
Place of Equity interest attributable to the Group
establishment
and operations
December 31,
Name 2022 2021 Principal activities
Subsidiaries
HUTCHMED Limited PRC 99.75 % 99.75 % Research, development, manufacture and commercialization of pharmaceutical
products
HUTCHMED International Corporation U.S. 99.75 % 99.75 % Provision of professional, scientific and technical support services
Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited PRC 50.87 % 50.87 % Provision of sales, distribution and marketing services to pharmaceutical
("HSPL") manufacturers
Hutchison Healthcare Limited PRC 100 % 100 % Manufacture and distribution of healthcare products
Hutchison Hain Organic (Hong Kong) Limited ("HHOHK") (note) Hong Kong 50 % 50 % Wholesale and trading of healthcare and consumer products
HUTCHMED Science Nutrition Limited Hong Kong 100 % 100 % Wholesale and trading of healthcare and consumer products
Equity investee
Shanghai Hutchison Pharmaceuticals Limited ("SHPL") PRC 50 % 50 % Manufacture and distribution of prescription drug products
Note: HHOHK is regarded as a subsidiary of the Company, as while both its
shareholders have equal representation at the board, in the event of a
deadlock, the Group has a casting vote and is therefore able to unilaterally
control the financial and operating policies of HHOHK.
3. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements reflect the accounts of the
Company and all of its subsidiaries in which a controlling interest is
maintained. All inter-company balances and transactions have been eliminated
in consolidation. The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the U.S. ("U.S.
GAAP").
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Foreign Currency Translation
The Company's presentation currency and functional currency is the U.S. dollar
("US$"). The financial statements of its subsidiaries with a functional
currency other than the US$ have been translated into the Company's
presentation currency. All assets and liabilities of the subsidiaries are
translated using year-end exchange rates and revenues and expenses are
translated at average exchange rates for the year. Translation adjustments are
reflected in accumulated other comprehensive (loss)/income in shareholders'
equity.
Net foreign currency exchange losses of US$5,704,000 and net foreign currency
exchange gains of US$1,671,000 and US$3,265,000 were recorded in other expense
and income in the consolidated statements of operations for the years ended
December 31, 2022, 2021 and 2020 respectively.
Foreign Currency Risk
The Group's operating transactions and its assets and liabilities in the PRC
are mainly denominated in Renminbi ("RMB"), which is not freely convertible
into foreign currencies. The Group's cash and cash equivalents denominated in
RMB are subject to government controls. The value of the RMB is subject to
fluctuations from central government policy changes and international economic
and political developments that affect the supply and demand of RMB in the
foreign exchange market. In the PRC, certain foreign exchange transactions are
required by law to be transacted only by authorized financial institutions at
exchange rates set by the People's Bank of China (the "PBOC"). Remittances in
currencies other than RMB by the Group in the PRC must be processed through
the PBOC or other PRC foreign exchange regulatory bodies which require certain
supporting documentation in order to complete the remittance.
Allowance for Current Expected Credit Losses and Concentration of Credit Risk
Financial instruments that potentially expose the Group to credit risk consist
primarily of cash and cash equivalents, short-term investments, and financial
assets not carried at fair value including accounts receivable and other
receivables.
The Group recognizes an allowance for current expected credit losses ("CECLs")
on financial assets not carried at fair value. CECLs are calculated over the
expected life of the financial assets on an individual or a portfolio basis
considering information available about the counterparties' credit situation
and collectability of the specific cash flows, including information about
past events, current conditions and future forecasts.
The Group places substantially all of its cash and cash equivalents and
short-term investments in major financial institutions, which management
believes are of high credit quality. The Group has a practice to limit the
amount of credit exposure to any particular financial institution.
Additionally, the Group has policies in place to ensure that sales are made to
customers with an appropriate credit history and the Group performs periodic
credit evaluations of its customers. Normally the Group does not require
collateral from trade debtors. The Group has not had any material credit
losses.
Cash and Cash Equivalents
The Group considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on hand and bank deposits and are stated
at cost, which approximates fair value.
Short-term Investments
Short-term investments include deposits placed with banks with original
maturities of more than three months but less than one year.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect
from customers based on their outstanding invoices. The allowance for CECLs
reflects the Group's current estimate of credit losses expected to be incurred
over the life of the receivables. The Group considers various factors in
establishing, monitoring, and adjusting its allowance for CECLs including the
aging of the accounts and aging trends, the historical level of charge-offs,
and specific exposures related to particular customers. The Group also
monitors other risk factors and forward-looking information, such as country
risk, when determining credit limits for customers and establishing adequate
allowances for CECLs. Accounts receivable are written off after all reasonable
means to collect the full amount (including litigation, where appropriate)
have been exhausted.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined using the weighted average cost method. The cost of finished goods
comprises raw materials, direct labor, other direct costs and related
production overheads based on normal operating capacity. Net realizable value
is the estimated selling price in the ordinary course of business, less
applicable variable selling expenses. A provision for excess and obsolete
inventory will be made based primarily on forecasts of product demand and
production requirements. The excess balance determined by this analysis
becomes the basis for excess inventory charge and the written-down value of
the inventory becomes its cost. Written-down inventory is not written up if
market conditions improve.
Property, Plant and Equipment
Property, plant and equipment consist of buildings, leasehold improvements,
plant and equipment, furniture and fixtures, other equipment and motor
vehicles. Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the depreciable assets.
Buildings 20 years
Plant and equipment 5-10 years
Furniture and fixtures, other equipment and motor vehicles 4-5 years
Leasehold improvements Shorter of (a) 5 years or (b) remaining term of lease
Additions and improvements that extend the useful life of an asset are
capitalized. Repairs and maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets
The Group evaluates the recoverability of long-lived assets in accordance with
authoritative guidance on accounting for the impairment or disposal of
long-lived assets. The Group evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying value
of these assets may not be recoverable. If indicators of impairment exist, the
first step of the impairment test is performed to assess if the carrying value
of the net assets exceeds the undiscounted cash flows of the assets. If yes,
the second step of the impairment test is performed in order to determine if
the carrying value of the net assets exceeds the fair value. If yes,
impairment is recognized for the excess.
Investments in Equity Investees
Investments in equity investees over which the Group has significant influence
are accounted for using the equity method. The Group evaluates equity method
investments for impairment when events or circumstances suggest that their
carrying amounts may not be recoverable. An impairment charge would be
recognized in earnings for a decline in value that is determined to be
other-than-temporary after assessing the severity and duration of the
impairment and the likelihood of recovery before disposal. The investments are
recorded at fair value only if impairment is recognized.
Leasehold Land
Leasehold land represents fees paid to acquire the right to use the land on
which various plants and buildings are situated for a specified period of time
from the date the respective right was granted and are stated at cost less
accumulated amortization and impairment loss, if any. Amortization is computed
using the straight-line basis over the lease period of 50 years.
Goodwill
Goodwill represents the excess of the purchase price plus fair value of
non-controlling interests over the fair value of identifiable assets and
liabilities acquired. Goodwill is not amortized, but is tested for impairment
at the reporting unit level on at least an annual basis or when an event
occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. When performing an
evaluation of goodwill impairment, the Group has the option to first assess
qualitative factors, such as significant events and changes to expectations
and activities that may have occurred since the last impairment evaluation, to
determine if it is more likely than not that goodwill might be impaired. If as
a result of the qualitative assessment, that it is more likely than not that
the fair value of the reporting unit is less than its carrying amount, the
quantitative fair value test is performed to determine if the fair value of
the reporting unit exceeds its carrying value.
Other Intangible Assets
Other intangible assets with finite useful lives are carried at cost less
accumulated amortization and impairment loss, if any. Amortization is computed
using the straight-line basis over the estimated useful lives of the assets.
Borrowings
Borrowings are recognized initially at fair value, net of debt issuance costs
incurred. Borrowings are subsequently stated at amortized cost; any difference
between the proceeds (net of debt issuance costs) and the redemption value is
recognized in the consolidated statements of operations over the period of the
borrowings using the effective interest method.
Ordinary Shares
The Company's ordinary shares are stated at par value of US$0.10 per ordinary
share. The difference between the consideration received, net of issuance
cost, and the par value is recorded in additional paid-in capital.
Treasury Shares
The Group accounts for treasury shares under the cost method. The treasury
shares are purchased for the purpose of the LTIP and held by a trustee
appointed by the Group (the "Trustee") prior to vesting.
Share-Based Compensation
Share options
The Group recognizes share-based compensation expense on share options granted
to employees and directors based on their estimated grant date fair value
using the Polynomial model. This Polynomial pricing model uses various inputs
to measure fair value, including the market value of the Company's underlying
ordinary shares at the grant date, contractual terms, estimated volatility,
risk-free interest rates and expected dividend yields. The Group recognizes
share-based compensation expense in the consolidated statements of operations
on a graded vesting basis over the requisite service period, and accounts for
forfeitures as they occur.
Share options are classified as equity-settled awards. Share-based
compensation expense, when recognized, is charged to the consolidated
statements of operations with the corresponding entry to additional paid-in
capital.
LTIP
The Group recognizes the share-based compensation expense on the LTIP awards
based on a fixed or determinable monetary amount on a straight-line basis for
each annual tranche awarded over the requisite period. For LTIP awards with
performance targets, prior to their determination date, the amount of LTIP
awards that is expected to vest takes into consideration the achievement of
the performance conditions and the extent to which the performance conditions
are likely to be met. Performance conditions vary by awards, and may include
targets for shareholder returns, financings, revenues, net profit after taxes
and the achievement of clinical and regulatory milestones.
These LTIP awards are classified as liability-settled awards before the
determination date (i.e. the date when the achievement of any performance
conditions are known), as they settle in a variable number of shares based on
a determinable monetary amount, which is determined upon the actual
achievement of performance targets. As the extent of achievement of the
performance targets is uncertain prior to the determination date, a
probability based on management's assessment of the achievement of the
performance targets has been assigned to calculate the amount to be recognized
as an expense over the requisite period.
After the determination date or if the LTIP awards have no performance
conditions, the LTIP awards are classified as equity-settled awards. If the
performance target is achieved, the Group will pay the determined monetary
amount to the Trustee to purchase ordinary shares of the Company or the
equivalent ADS. Any cumulative compensation expense previously recognized as a
liability will be transferred to additional paid-in capital. If the
performance target is not achieved, no ordinary shares or ADS of the Company
will be purchased and the amount previously recorded in the liability will be
reversed and included in the consolidated statements of operations.
Defined Contribution Plans
The Group's subsidiaries in the PRC participate in a government-mandated
multi-employer defined contribution plan pursuant to which certain retirement,
medical and other welfare benefits are provided to employees. The relevant
labor regulations require the Group's subsidiaries in the PRC to pay the local
labor and social welfare authority's monthly contributions at a stated
contribution rate based on the monthly basic compensation of qualified
employees. The relevant local labor and social welfare authorities are
responsible for meeting all retirement benefits obligations and the Group's
subsidiaries in the PRC have no further commitments beyond their monthly
contributions. The contributions to the plan are expensed as incurred.
The Group also makes payments to other defined contribution plans for the
benefit of employees employed by subsidiaries outside the PRC. The defined
contribution plans are generally funded by the relevant companies and by
payments from employees.
The Group's contributions to defined contribution plans for the years ended
December 31, 2022, 2021 and 2020 amounted to US$11,795,000, US$7,181,000 and
US$2,660,000 respectively.
Revenue Recognition
Revenue is measured based on consideration specified in a contract with a
customer, and excludes any sales incentives and amounts collected on behalf of
third parties. Taxes assessed by a governmental authority that are both
imposed on and concurrent with a specific revenue-producing transaction, that
are collected by the Group from a customer, are also excluded from revenue.
The Group recognizes revenue when it satisfies a performance obligation by
transferring control over a good, service or license to a customer.
(i) Goods and services
The Group principally generates revenue from (1) sales of goods, which are the
manufacture or purchase and distribution of pharmaceutical products and other
consumer health products, and (2) provision of services, which are the
provision of sales, distribution and marketing services to pharmaceutical
manufacturers. The Group evaluates whether it is the principal or agent for
these contracts. Where the Group obtains control of the goods for
distribution, it is the principal (i.e. recognizes sales of goods on a gross
basis). Where the Group does not obtain control of the goods for distribution,
it is the agent (i.e. recognizes provision of services on a net basis).
Control is primarily evidenced by taking physical possession and inventory
risk of the goods.
Revenue from sales of goods is recognized when the customer takes possession
of the goods. This usually occurs upon completed delivery of the goods to the
customer site. The amount of revenue recognized is adjusted for expected sales
incentives as stipulated in the contract, which are generally issued to
customers as direct discounts at the point-of-sale or indirectly in the form
of rebates. Sales incentives are estimated using the expected value method.
Additionally, sales are generally made with a limited right of return under
certain conditions. Revenues are recorded net of provisions for sales
discounts and returns.
Revenue from provision of services is recognized when the benefits of the
services transfer to the customer over time, which is based on the
proportionate value of services rendered as determined under the terms of the
relevant contract. Additionally, when the amounts that can be invoiced
correspond directly with the value to the customer for performance completed
to date, the Group recognizes revenue from provision of services based on
amounts that can be invoiced to the customer.
Deferred revenue is recognized if consideration is received in advance of
transferring control of the goods or rendering of services. Accounts
receivable is recognized if the Group has an unconditional right to bill the
customer, which is generally when the customer takes possession of the goods
or services are rendered. Payment terms differ by subsidiary and customer, but
generally range from 45 to 180 days from the invoice date.
(ii) License and collaboration contracts
The Group's Oncology/Immunology reportable segment includes revenue generated
from license and collaboration contracts, which generally contain multiple
performance obligations including (1) the license to the commercialization
rights of a drug compound and (2) the research and development services for
each specified treatment indication, which are accounted for separately if
they are distinct, i.e. if a product or service is separately identifiable
from other items in the arrangement and if a customer can benefit from it on
its own or with other resources that are readily available to the customer.
The transaction price generally includes fixed and variable consideration in
the form of upfront payment, research and development cost reimbursements,
contingent milestone payments and sales-based royalties. Contingent milestone
payments are not included in the transaction price until it becomes probable
that a significant reversal of revenue will not occur, which is generally when
the specified milestone is achieved. The allocation of the transaction price
to each performance obligation is based on the relative standalone selling
prices of each performance obligation determined at the inception of the
contract. The Group estimates the standalone selling prices based on the
income approach. Control of the license to the drug compounds transfers at the
inception date of the collaboration agreements and consequently, amounts
allocated to this performance obligation are generally recognized at a point
in time. Conversely, research and development services for each specified
indication are performed over time and amounts allocated to these performance
obligations are generally recognized over time using cost inputs as a measure
of progress. The Group has determined that research and development expenses
provide an appropriate depiction of measure of progress for the research and
development services. Changes to estimated cost inputs may result in a
cumulative catch-up adjustment. Royalty revenues are recognized as future
sales occur as they meet the requirements for the sales-usage based royalty
exception.
Deferred revenue is recognized if allocated consideration is received in
advance of the Group rendering research and development services or earning
royalties on future sales. Accounts receivable is recognized based on the
terms of the contract and when the Group has an unconditional right to bill
the customer, which is generally when research and development services are
rendered.
Research and Development Expenses
Research and development expenses include the following: (i) research and
development costs, which are expensed as incurred; (ii) acquired in-process
research and development ("IPR&D") expenses, which include the initial
costs of externally developed IPR&D projects, acquired directly in a
transaction other than a business combination, that do not have an alternative
future use; and (iii) milestone payment obligations for externally developed
IPR&D projects incurred prior to regulatory approval of the product in the
in-licensed territory, which are accrued when the event requiring payment of
the milestone occurs (milestone payment obligations incurred upon regulatory
approval are recorded as other intangible assets).
Collaborative Arrangements
The Group enters into collaborative arrangements with collaboration partners
that fall under the scope of Accounting Standards Codification ("ASC") 808,
Collaborative Arrangements ("ASC 808"). The Group records all expenditures for
such collaborative arrangements in research and development expenses as
incurred, including payments to third party vendors and reimbursements to
collaboration partners, if any. Reimbursements from collaboration partners are
recorded as reductions to research and development expenses and accrued when
they can be contractually claimed.
Government Grants
Grants from governments are recognized at their fair values. Government grants
that are received in advance are deferred and recognized in the consolidated
statements of operations over the period necessary to match them with the
costs that they are intended to compensate. Government grants in relation to
the achievement of stages of research and development projects are recognized
in the consolidated statements of operations when amounts have been received
and all attached conditions have been met. Non-refundable grants received
without any further obligations or conditions attached are recognized
immediately in the consolidated statements of operations.
Leases
In an operating lease, a lessee obtains control of only the use of the
underlying asset, but not the underlying asset itself. An operating lease is
recognized as a right-of-use asset with a corresponding liability at the date
which the leased asset is available for use by the Group. The Group recognizes
an obligation to make lease payments equal to the present value of the lease
payments over the lease term. The lease terms may include options to extend or
terminate the lease when it is reasonably certain that the Group will exercise
that option.
Lease liabilities include the net present value of the following lease
payments: (i) fixed payments; (ii) variable lease payments that depend on an
index or a rate; and (iii) payments of penalties for terminating the lease if
the lease term reflects the lessee exercising that option, if any. Lease
liabilities exclude the following payments that are generally accounted for
separately: (i) non-lease components, such as maintenance and security service
fees and value added tax, and (ii) any payments that a lessee makes before the
lease commencement date. The lease payments are discounted using the interest
rate implicit in the lease or if that rate cannot be determined, the lessee's
incremental borrowing rate being the rate that the lessee would have to pay to
borrow the funds in its currency and jurisdiction necessary to obtain an asset
of similar value, economic environment and terms and conditions.
An asset representing the right to use the underlying asset during the lease
term is recognized that consists of the initial measurement of the operating
lease liability, any lease payments made to the lessor at or before the
commencement date less any lease incentives received, any initial direct cost
incurred by the Group and any restoration costs.
After commencement of the operating lease, the Group recognizes lease expenses
on a straight-line basis over the lease term. The right-of-use asset is
subsequently measured at cost less accumulated amortization and any impairment
provision. The amortization of the right-of-use asset represents the
difference between the straight-line lease expense and the accretion of
interest on the lease liability each period. The interest amount is used to
accrete the lease liability and to amortize the right-of-use asset. There is
no amount recorded as interest expense.
Payments associated with short-term leases are recognized as lease expenses on
a straight-line basis over the period of the leases.
Subleases of right-of-use assets are accounted for similar to other leases. As
an intermediate lessor, the Group separately accounts for the head-lease and
sublease unless it is relieved of its primary obligation under the head-lease.
Sublease income is recorded on a gross basis separate from the head-lease
expenses. If the total remaining lease cost on the head-lease is more than the
anticipated sublease income for the lease term, this is an indicator that the
carrying amount of the right-of-use asset associated with the head-lease may
not be recoverable, and the right-of-use asset will be assessed for
impairment.
Income Taxes
The Group accounts for income taxes under the liability method. Under the
liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and income tax bases
of assets and liabilities and are measured using the income tax rates that
will be in effect when the differences are expected to reverse. A valuation
allowance is recorded when it is more likely than not that some of the net
deferred income tax asset will not be realized.
The Group accounts for an uncertain tax position in the consolidated financial
statements only if it is more likely than not that the position is sustainable
based on its technical merits and consideration of the relevant tax
authority's widely understood administrative practices and precedents. If the
recognition threshold is met, the Group records the largest amount of tax
benefit that is greater than 50 percent likely to be realized upon ultimate
settlement.
The Group recognizes interest and penalties for income taxes, if any, under
income tax payable on its consolidated balance sheets and under other expenses
in its consolidated statements of operations.
Losses per Share
Basic losses per share is computed by dividing net loss attributable to the
Company by the weighted average number of outstanding ordinary shares in issue
during the year. Weighted average number of outstanding ordinary shares in
issue excludes treasury shares.
Diluted losses per share is computed by dividing net loss attributable to the
Company by the weighted average number of outstanding ordinary shares in issue
and dilutive ordinary share equivalents outstanding during the year. Dilutive
ordinary share equivalents include ordinary shares and treasury shares
issuable upon the exercise or settlement of share-based awards or warrants
issued by the Company using the treasury stock method. The computation of
diluted losses per share does not assume conversion, exercise, or contingent
issuance of securities that would have an anti-dilutive effect.
Segment Reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief executive officer who is the Group's chief
operating decision maker. The chief operating decision maker reviews the
Group's internal reporting in order to assess performance and allocate
resources.
Profit Appropriation and Statutory Reserves
The Group's subsidiaries and equity investees established in the PRC are
required to make appropriations to certain non-distributable reserve funds.
In accordance with the relevant laws and regulations established in the PRC,
the Company's subsidiaries registered as wholly-owned foreign enterprise have
to make appropriations from their after-tax profits (as determined under
generally accepted accounting principles in the PRC ("PRC GAAP") to reserve
funds including general reserve fund, enterprise expansion fund and staff
bonus and welfare fund. The appropriation to the general reserve fund must be
at least 10% of the after-tax profits calculated in accordance with PRC GAAP.
Appropriation is not required if the general reserve fund has reached 50% of
the registered capital of the company. Appropriations to the enterprise
expansion fund and staff bonus and welfare fund are made at the respective
company's discretion. For the Group's equity investees, the amount of
appropriations to these funds are made at the discretion of their respective
boards.
In addition, Chinese domestic companies must make appropriations from their
after-tax profits as determined under PRC GAAP to non-distributable reserve
funds including statutory surplus fund and discretionary surplus fund. The
appropriation to the statutory surplus fund must be 10% of the after-tax
profits as determined under PRC GAAP. Appropriation is not required if the
statutory surplus fund has reached 50% of the registered capital of the
company. Appropriation to the discretionary surplus fund is made at the
respective company's discretion.
The use of the general reserve fund, enterprise expansion fund, statutory
surplus fund and discretionary surplus fund is restricted to the offsetting of
losses or increases to the registered capital of the respective company. The
staff bonus and welfare fund is a liability in nature and is restricted to
fund payments of special bonus to employees and for the collective welfare of
employees. All these reserves are not permitted to be transferred to the
company as cash dividends, loans or advances, nor can they be distributed
except under liquidation.
4. Fair Value Disclosures
The following table presents the Group's financial instruments by level within
the fair value hierarchy under ASC 820, Fair Value Measurement:
Fair Value Measurement Using
Level 1 Level 2 Level 3 Total
(in US$'000)
As at December 31, 2021
Warrant (Note 19) - 2,452 - 2,452
Cash equivalents, short-term investments, accounts receivable, other
receivables, accounts payable and other payables are carried at cost, which
approximates fair value due to the short-term nature of these financial
instruments, and are therefore excluded from the above table. Bank borrowings
are floating rate instruments and carried at amortized cost, which
approximates fair values, and are therefore excluded from the above table.
5. Cash and Cash Equivalents and Short-term Investments
December 31,
2022 2021
(in US$'000)
Cash and Cash Equivalents
Cash at bank and on hand 178,326 104,620
Bank deposits maturing in three months or less 134,952 272,922
313,278 377,542
Short-term Investments
Bank deposits maturing over three months (note) 317,718 634,158
630,996 1,011,700
Note: The maturities for short-term investments ranged from 91 to 99 days and
91 to 180 days for the years ended December 31, 2022 and 2021 respectively.
Certain cash and bank balances denominated in RMB, US$ and UK Pound Sterling
("£") were deposited with banks in the PRC. The conversion of these balances
into foreign currencies is subject to the rules and regulations of foreign
exchange control promulgated by the PRC government. Cash and cash equivalents
and short-term investments were denominated in the following currencies:
December 31,
2022 2021
(in US$'000)
US$ 533,173 895,935
RMB 79,319 53,455
Hong Kong dollar ("HK$") 16,721 60,535
£ 1,370 1,090
Euro 413 685
630,996 1,011,700
6. Accounts Receivable
Accounts receivable from contracts with customers consisted of the following:
December 31,
2022 2021
(in US$'000)
Accounts receivable-third parties 94,531 82,434
Accounts receivable-related parties (Note 23(ii)) 3,517 1,166
Allowance for credit losses (60) (20)
Accounts receivable, net 97,988 83,580
Substantially all accounts receivable are denominated in RMB, US$ and HK$ and
are due within one year from the end of the reporting periods. The carrying
values of accounts receivable approximate their fair values due to their
short-term maturities.
An aging analysis for accounts receivable-third parties based on the relevant
invoice dates is as follows:
December 31,
2022 2021
(in US$'000)
Not later than 3 months 84,007 78,288
Between 3 months to 6 months 7,478 2,867
Between 6 months to 1 year 1,947 78
Later than 1 year 1,099 1,201
Accounts receivable-third parties 94,531 82,434
Movements on the allowance for credit losses:
2022 2021 2020
(in US$'000)
As at January 1 20 95 16
Increase in allowance for credit losses 150 16 95
Decrease in allowance due to subsequent collection (107) (92) (18)
Exchange difference (3) 1 2
As at December 31 60 20 95
7. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the following:
December 31,
2022 2021
(in US$'000)
Dividend receivables (Note 22) 26,246 46,387
Prepayments 22,329 14,128
Value-added tax receivables 1,491 16,616
Deposits 1,214 1,255
Amounts due from related parties (Note 23(ii)) 998 1,149
Others 1,936 1,506
54,214 81,041
No allowance for credit losses has been made for other receivables,
prepayments and deposits for the years ended December 31, 2022 and 2021.
8. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted
of the following:
December 31,
2022 2021
(in US$'000)
Raw materials 27,392 15,837
Finished goods 29,298 19,918
56,690 35,755
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Buildings Leasehold improvements Plant and equipment Furniture Construction in progress Total
and fixtures, other equipment
and motor vehicles
(in US$'000)
Cost
As at January 1, 2022 2,432 17,828 5,987 27,957 19,970 74,174
Additions - 171 541 4,945 40,625 46,282
Disposals - (1,105) (2) (529) - (1,636)
Transfers - 1,336 1,412 1,637 (4,385) -
Exchange differences (199) (1,394) (484) (2,272) (1,660) (6,009)
As at December 31, 2022 2,233 16,836 7,454 31,738 54,550 112,811
Accumulated depreciation
As at January 1, 2022 1,788 11,571 2,352 17,188 - 32,899
Depreciation 116 3,741 590 3,880 - 8,327
Disposals - (1,018) (2) (505) - (1,525)
Transfers - - (56) 56 - -
Exchange differences (151) (1,012) (214) (1,460) - (2,837)
As at December 31, 2022 1,753 13,282 2,670 19,159 - 36,864
Net book value
As at December 31, 2022 480 3,554 4,784 12,579 54,550 75,947
Buildings Leasehold improvements Plant and equipment Furniture Construction in progress Total
and fixtures, other equipment
and motor vehicles
(in US$'000)
Cost
As at January 1, 2021 2,372 16,346 5,643 23,040 3,050 50,451
Additions - 452 24 3,189 19,669 23,334
Disposals - (275) (19) (705) - (999)
Transfers - 916 197 1,849 (2,962) -
Exchange differences 60 389 142 584 213 1,388
As at December 31, 2021 2,432 17,828 5,987 27,957 19,970 74,174
Accumulated depreciation
As at January 1, 2021 1,626 8,652 1,747 14,256 - 26,281
Depreciation 120 2,904 574 3,244 - 6,842
Disposals - (223) (18) (688) - (929)
Exchange differences 42 238 49 376 - 705
As at December 31, 2021 1,788 11,571 2,352 17,188 - 32,899
Net book value
As at December 31, 2021 644 6,257 3,635 10,769 19,970 41,275
10. Leases
Leases consisted of the following:
December 31,
2022 2021
(in US$'000)
Right-of-use assets
Offices 6,634 10,605
Factories 387 702
Warehouses (note) 1,500 281
Others 201 291
Total right-of-use assets 8,722 11,879
Lease liabilities-current 3,708 4,917
Lease liabilities-non-current 5,196 7,161
Total lease liabilities 8,904 12,078
Note: Includes US$1.5 million right-of-use asset for warehouses in Suzhou that
is leased through June 2026 in which the contract has a termination option
with 3-month advance notice. The termination option was not recognized as part
of the right-of-use asset and lease liability as it is uncertain that the
Group will exercise such option.
Lease activities are summarized as follows:
Year Ended December 31,
2022 2021
(in US$'000)
Lease expenses:
Short-term leases with lease terms equal or less than 12 months 134 106
Leases with lease terms greater than 12 months 5,238 4,306
5,372 4,412
Cash paid on lease liabilities 5,212 4,954
Non-cash: Lease liabilities recognized from obtaining right-of-use assets 2,689 7,665
Non-cash: Lease liabilities changed in relation to modifications and (499) (33)
terminations
Lease contracts are typically within a period of 1 to 8 years. The weighted
average remaining lease term and the weighted average discount rate as at
December 31, 2022 was 3.24 years and 3.04% respectively. The weighted average
remaining lease term and the weighted average discount rate as at December 31,
2021 was 3.38 years and 3.33% respectively.
Future lease payments are as follows:
December 31,
2022
(in US$'000)
Lease payments:
Not later than 1 year 3,908
Between 1 to 2 years 2,471
Between 2 to 3 years 1,177
Between 3 to 4 years 911
Between 4 to 5 years 680
Later than 5 years 115
Total lease payments 9,262
Less: Discount factor (358)
Total lease liabilities 8,904
11. Investments in Equity Investees
Investments in equity investees consisted of the following:
December 31,
2022 2021
(in US$'000)
SHPL 73,461 75,999
Other 316 480
73,777 76,479
The equity investees are private companies and there are no quoted market
prices available for their shares.
Summarized financial information for the significant equity investees SHPL and
HBYS (sold in 2021), is as follows:
(i) Summarized balance sheets
SHPL
December 31,
2022 2021
(in US$'000)
Current assets 214,267 190,260
Non-current assets 80,062 91,605
Current liabilities (147,952) (128,993)
Non-current liabilities (4,944) (7,131)
Net assets 141,433 145,741
(ii) Summarized statements of operations
SHPL HBYS((note (a)))
Year Ended December 31,
2022 2021 2020 2021((note (b))) 2020
(in US$'000)
Revenue 370,600 332,648 276,354 209,528 232,368
Gross profit 281,113 255,089 204,191 111,066 116,804
Interest income 980 1,216 975 205 271
Finance cost - - - - (5)
Profit before taxation 116,454 105,325 77,837 36,715 107,715
Income tax expense (note (c)) (16,738) (15,896) (10,833) (4,840) (16,494)
Net income (note(d)) 99,716 89,429 67,004 31,875 91,221
Non-controlling interests - - - (36) 62
Net income attributable to the shareholders of equity investee 99,716 89,429 67,004 31,839 91,283
Notes:
(a) In 2020, HBYS entered into an agreement with the government to return
the land use right for a plot of land in Guangzhou to the government and
recognized land compensation of RMB569.2 million (approximately US$86.1
million). In June 2021, HBYS received a completion confirmation from the
government and became entitled to a land compensation bonus of RMB110.3
million (approximately US$17.0 million) and recorded a gain before tax of
RMB106.8 million (approximately US$16.4 million) after deducting costs of
RMB3.5 million (approximately US$0.6 million).
(b) The summarized statement of operations for HBYS for the year ended
December 31, 2021 includes the period when HBYS was the Group's equity
investee from January 1, 2021 to September 28, 2021, the completion date of
the divestment. The Group has accounted for the investment in HBYS under the
equity method up to September 28, 2021.
(c) The main entity within the SHPL group has been granted the High and New
Technology Enterprise ("HNTE") status. Accordingly, the entity was eligible to
use a preferential income tax rate of 15% for the years ended December 31,
2022, 2021 and 2020.
(d) Net income is before elimination of unrealized profits on transactions
with the Group. The amounts eliminated were approximately US$110,000,
US$36,000 and nil for the years ended December 31, 2022, 2021 and 2020
respectively.
For the years ended December 31, 2022, 2021 and 2020, other equity investee
had net income of approximately US$10,000 and US$41,000 and net losses of
approximately US$194,000 respectively. In August 2022, the Group entered into
an agreement with a third party (the "Buyer") to sell its entire investment in
other equity investee for cash consideration of RMB2.2 million (approximately
US$324,000) with closing subject to regulatory approval in the PRC.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the
carrying amount of investments in equity investees is as follows:
SHPL HBYS
2022 2021 2020 2021 2020
(in US$'000)
Opening net assets after non-controlling interests as at January 1 145,741 152,714 146,759 119,424 44,541
Net income attributable to the shareholders of equity investee 99,716 89,429 67,004 31,839 91,283
Purchase of additional interests in a subsidiary of an equity investee (note) - - - - (347)
Dividends declared (87,436) (99,744) (72,179) (106,159) (20,756)
Other comprehensive (loss)/income (16,588) 3,342 11,130 1,387 4,703
Closing net assets after non-controlling interests as at December 31 141,433 145,741 152,714 46,491 119,424
Group's share of net assets 70,717 72,871 76,357 23,246 59,712
Goodwill 2,872 3,128 3,051 - -
Elimination of unrealized profits on downstream sales (128) - - - -
Divestment (Note 22) - - - (23,246) -
Carrying amount of investments as at December 31 73,461 75,999 79,408 - 59,712
Note: During the year ended December 31, 2020, HBYS acquired an additional 30%
interest in a subsidiary and after the acquisition, it became a wholly owned
subsidiary of HBYS.
SHPL had the following capital commitments:
December 31, 2022
(in US$'000)
Property, plant and equipment
Contracted but not provided for 1,307
12. Accounts Payable
December 31,
2022 2021
(in US$'000)
Accounts payable-third parties 68,193 39,115
Accounts payable-non-controlling shareholders of subsidiaries (Note 23(iv)) 2,922 2,062
71,115 41,177
Substantially all accounts payable are denominated in RMB and US$ and due
within one year from the end of the reporting period. The carrying values of
accounts payable approximate their fair values due to their short-term
maturities.
An aging analysis based on the relevant invoice dates is as follows:
December 31,
2022 2021
(in US$'000)
Not later than 3 months 60,553 35,615
Between 3 months to 6 months 7,216 3,705
Between 6 months to 1 year 2,137 588
Later than 1 year 1,209 1,269
71,115 41,177
13. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the following:
December 31,
2022 2021
(in US$'000)
Accrued research and development expenses 156,134 116,134
Accrued salaries and benefits 42,442 41,786
Accrued capital expenditures 21,390 11,343
Accrued administrative and other general expenses 14,491 15,836
Accrued selling and marketing expenses 11,564 8,412
Deposits 3,616 2,111
Amounts due to related parties (Note 23(ii)) 2,101 1,915
Deferred government grants 673 314
Others 12,210 12,988
264,621 210,839
14. Bank Borrowings
Bank borrowings consisted of the following:
December 31,
2022 2021
(in US$'000)
Current - 26,905
Non-current 18,104 -
The weighted average interest rate for outstanding bank borrowings for the
years ended December 31, 2022 and 2021 was 1.73% per annum and 1.08% per annum
respectively. The carrying amounts of the Group's outstanding bank borrowings
as at December 31, 2022 and 2021 were denominated in RMB and HK$ respectively.
(i) 3‑year term loan and revolving loan facilities and 1-year revolving loan
facility
In May 2019, the Group through its subsidiary, entered into a facility
agreement with a bank for the provision of unsecured credit facilities in the
aggregate amount of HK$400,000,000 (US$51,282,000). The 3-year credit
facilities included (i) a HK$210,000,000 (US$26,923,000) term loan facility
and (ii) a HK$190,000,000 (US$24,359,000) revolving loan facility, both with
an interest rate at the Hong Kong Interbank Offered Rate ("HIBOR") plus 0.85%
per annum, and an upfront fee of HK$819,000 (US$105,000) on the term loan.
These credit facilities were guaranteed by the Company. The term loan was
drawn in October 2019 and was repaid in May 2022. The revolving loan facility
also expired in May 2022.
In May 2022, the Group through its subsidiary, entered into a 1-year revolving
loan facility with the bank in the amount of HK$390,000,000 (US$50,000,000)
with an interest rate at HIBOR plus 0.5% per annum. This credit facility is
guaranteed by the Company. As at December 31, 2022, no amount was drawn from
the revolving loan facility.
(ii) 10‑year fixed asset loan facility
In October 2021, a subsidiary entered into a 10-year fixed asset loan facility
agreement with a bank for the provision of a secured credit facility in the
amount of RMB754,880,000 (US$108,393,000) with an annual interest rate at the
5-year China Loan Prime Rate less 0.8% (which was supplemented in June 2022)
and interest payments commencing upon completion of the underlying
construction in progress. This credit facility is guaranteed by the immediate
holding company of the subsidiary and secured by the underlying leasehold land
and buildings. As at December 31, 2022 and 2021, RMB126,083,000
(US$18,104,000) and nil were utilized from the fixed asset loan facility
respectively, of which RMB769,000 (US$110,000) and nil were related to
capitalized interest respectively.
(iii) 2‑year revolving loan facility
In August 2020, the Group through its subsidiary, entered into a 2-year
revolving loan facility with a bank in the amount of HK$117,000,000
(US$15,000,000) with an interest rate at HIBOR plus 4.5% per annum. This
credit facility was guaranteed by the Company. The revolving loan facility
expired in August 2022.
The Group's bank borrowings are repayable as from the dates indicated as
follows:
December 31,
2022 2021
(in US$'000)
Not later than 1 year - 26,923
Between 1 to 3 years 360 -
Between 3 to 4 years 839 -
Between 4 to 5 years 1,079 -
Later than 5 years 15,826 -
18,104 26,923
As at December 31, 2022 and 2021, the Group had unutilized bank borrowing
facilities of US$140,289,000 and US$157,430,000 respectively.
15. Commitments and Contingencies
The Group had the following capital commitments:
December 31, 2022
(in US$'000)
Property, plant and equipment
Contracted but not provided for 22,130
The Group does not have any other significant commitments or contingencies.
16. Ordinary Shares
As at December 31, 2022, the Company is authorized to issue 1,500,000,000
ordinary shares.
On April 14, 2021, the Company issued 16,393,445 ordinary shares to a third
party for gross proceeds of US$100.0 million through a PIPE. Issuance costs
totaled US$0.1 million.
On June 30, 2021 and July 15, 2021, the Company issued an aggregate of
119,600,000 ordinary shares in a public offering on the HKEX with
over-allotment option exercised in full for aggregate gross proceeds of
US$614.9 million. Issuance costs totaled US$29.7 million.
Each ordinary share is entitled to one vote. The holders of ordinary shares
are also entitled to receive dividends whenever funds are legally available
and when declared by the Board of Directors of the Company.
17. Share-based Compensation
(i) Share‑based Compensation of the Company
The Company conditionally adopted a share option scheme on June 4, 2005 (as
amended on March 21, 2007) and such scheme has a term of 10 years. It expired
in 2016 and no further share options can be granted. Another share option
scheme was conditionally adopted on April 24, 2015 (as amended on April 27,
2020) (the "Hutchmed Share Option Scheme"). Pursuant to the Hutchmed Share
Option Scheme, the Board of Directors of the Company may, at its discretion,
offer any employees and directors (including Executive and Non-executive
Directors but excluding Independent Non-executive Directors) of the Company,
holding companies of the Company and any of their subsidiaries or affiliates,
and subsidiaries or affiliates of the Company share options to subscribe for
shares of the Company.
As at December 31, 2022, the aggregate number of shares issuable under the
Hutchmed Share Option Scheme was 48,611,458 ordinary shares and the aggregate
number of shares issuable under the prior share option scheme which expired in
2016 was 660,570 ordinary shares. The Company will issue new shares to satisfy
share option exercises. Additionally, the number of shares authorized but
unissued was 635,224,660 ordinary shares.
Share options granted are generally subject to a four-year vesting schedule,
depending on the nature and the purpose of the grant. Share options subject to
the four-year vesting schedule, in general, vest 25% upon the first
anniversary of the vesting commencement date as defined in the grant letter,
and 25% every subsequent year. However, certain share option grants may have a
different vesting schedule as approved by the Board of Directors of the
Company. No outstanding share options will be exercisable or subject to
vesting after the expiry of a maximum of eight to ten years from the date of
grant.
A summary of the Company's share option activity and related information is as
follows:
Number of share options Weighted average exercise price in US$ per share Weighted average remaining contractual life Aggregate intrinsic value
(years)
(in US$'000)
Outstanding at January 1, 2020 19,432,560 4.48 6.67 24,316
Granted 15,437,080 4.66
Exercised (480,780) 1.23
Cancelled (4,486,200) 5.02
Expired (741,670) 6.46
Outstanding at December 31, 2020 29,160,990 4.49 7.21 53,990
Granted 10,174,840 5.96
Exercised (815,190) 3.01
Cancelled (1,287,650) 5.50
Expired (42,400) 5.52
Outstanding at December 31, 2021 37,190,590 4.88 7.04 82,377
Granted (note) 7,680,820 2.26
Exercised (244,490) 1.98
Cancelled (3,849,905) 5.19
Expired (1,255,620) 5.66
Outstanding at December 31, 2022 39,521,395 4.34 6.55 11,525
Vested and exercisable at December 31, 2021 16,077,770 4.24 4.91 46,491
Vested and exercisable at December 31, 2022 21,113,285 4.57 4.80 6,288
Note: Includes 861,220 share options (represented by 172,244 ADS) granted to
an executive director in May 2022 where the number of share options
exercisable is subject to a performance target based on a market condition
covering the 3-year period from 2022 to 2024 which has been reflected in
estimating the grant date fair value. The grant date fair value of such awards
is US$0.24 per share using the Polynomial model. Vesting of such award will
occur in March 2025.
In estimating the fair value of share options granted, the following
assumptions were used in the Polynomial model for awards granted in the
periods indicated:
Year Ended December 31,
2022 2021 2020
Weighted average grant date fair value of share options (in US$ per share) 0.85 2.24 1.76
Significant inputs into the valuation model (weighted average):
Exercise price (in US$ per share) 2.26 5.96 4.66
Share price at effective date of grant (in US$ per share) 2.22 5.91 4.66
Expected volatility (note (a)) 46.7% 41.1% 42.6%
Risk-free interest rate (note (b)) 2.98% 1.62% 0.59%
Contractual life of share options (in years) 10 10 10
Expected dividend yield (note (c)) 0% 0% 0%
Notes:
(a) The Company calculated its expected volatility with reference to the
historical volatility prior to the issuances of share options.
(b) For share options exercisable into ADS, the risk-free interest rates
reference the U.S. Treasury yield curves because the Company's ADS are
currently listed on the NASDAQ and denominated in US$. For share options
exercisable into ordinary shares, the risk-free interest rates reference the
sovereign yield of the United Kingdom because the Company's ordinary shares
are currently listed on AIM and denominated in £.
(c) The Company has not declared or paid any dividends and does not
currently expect to do so prior to the exercise of the granted share options,
and therefore uses an expected dividend yield of zero in the Polynomial model.
The Company will issue new shares to satisfy share option exercises. The
following table summarizes the Company's share option exercises:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Cash received from share option exercises 174 2,452 593
Total intrinsic value of share option exercises 92 2,999 2,475
The Group recognizes compensation expense on a graded vesting approach over
the requisite service period. The following table presents share-based
compensation expense included in the Group's consolidated statements of
operations:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Research and development expenses 4,803 8,460 4,061
Selling and administrative expenses 1,803 7,783 4,586
Cost of revenues 130 122 90
6,736 16,365 8,737
As at December 31, 2022, the total unrecognized compensation cost was
US$10,907,000, and will be recognized on a graded vesting approach over the
weighted average remaining service period of 2.63 years.
(ii) LTIP
The Company grants awards under the LTIP to participating directors and
employees, giving them a conditional right to receive ordinary shares of the
Company or the equivalent ADS (collectively the "Awarded Shares") to be
purchased by the Trustee up to a cash amount. Vesting will depend upon
continued employment of the award holder with the Group and will otherwise be
at the discretion of the Board of Directors of the Company. Additionally, some
awards are subject to change based on annual performance targets prior to
their determination date.
LTIP awards prior to the determination date
Performance targets vary by award, and may include targets for shareholder
returns, financings, revenues, net profit after taxes and the achievement of
clinical and regulatory milestones. As the extent of achievement of the
performance targets is uncertain prior to the determination date, a
probability based on management's assessment on the achievement of the
performance target has been assigned to calculate the amount to be recognized
as an expense over the requisite period with a corresponding entry to
liability.
LTIP awards after the determination date
Upon the determination date, the Company will pay a determined monetary
amount, up to the maximum cash amount based on the actual achievement of the
performance target specified in the award, to the Trustee to purchase the
Awarded Shares. Any cumulative compensation expense previously recognized as a
liability will be transferred to additional paid-in capital. If the
performance target is not achieved, no Awarded Shares of the Company will be
purchased and the amount previously recorded in the liability will be reversed
through share-based compensation expense.
Granted awards under the LTIP are as follows:
Maximum cash amount Covered Performance target
Grant date (in US$ millions) financial years determination date
April 20, 2020 5.3 2019 note (a)
April 20, 2020 37.4 2020 note (b)
April 20, 2020 1.9 note (c) note (c)
April 20, 2020 0.2 note (d) note (d)
August 12, 2020 2.1 2020 note (b)
August 12, 2020 0.3 note (c) note (c)
March 26, 2021 57.3 2021 note (b)
September 1, 2021 7.3 2021 note (b)
September 1, 2021 0.5 note (c) note (c)
October 20, 2021 1.7 note (c) note (c)
December 14, 2021 0.1 note (c) note (c)
December 14, 2021 0.1 note (d) note (d)
May 23, 2022 60.4 2022 note (b)
September 13, 2022 3.8 2022 note (b)
September 13, 2022 1.7 note (c) note (c)
Notes:
(a) This award does not stipulate performance targets and vesting occurs two
business days after the announcement of the Group's annual results for the
financial year falling two years after the covered financial year to which the
LTIP award relates.
(b) The annual performance target determination date is the date of the
announcement of the Group's annual results for the covered financial year and
vesting occurs two business days after the announcement of the Group's annual
results for the financial year falling two years after the covered financial
year to which the LTIP award relates.
(c) This award does not stipulate performance targets and is subject to a
vesting schedule of 25% on each of the first, second, third and fourth
anniversaries of the date of grant.
(d) This award does not stipulate performance targets and will be vested on
the first anniversary of the date of grant.
The Trustee has been set up solely for the purpose of purchasing and holding
the Awarded Shares during the vesting period on behalf of the Company using
funds provided by the Company. On the determination date, if any, the Company
will determine the cash amount, based on the actual achievement of each annual
performance target, for the Trustee to purchase the Awarded Shares. The
Awarded Shares will then be held by the Trustee until they are vested.
The Trustee's assets include treasury shares and funds for additional treasury
shares, trustee fees and expenses. The number of treasury shares (in the form
of ordinary shares or ADS of the Company) held by the Trustee were as follows:
Number of Cost
treasury shares
(in US$'000)
As at January 1, 2020 941,310 6,079
Purchased 3,281,920 12,904
Vested (712,555) (4,828)
As at December 31, 2020 3,510,675 14,155
Purchased 4,907,045 27,309
Vested (278,545) (1,450)
As at December 31, 2021 8,139,175 40,014
Purchased 14,028,465 48,084
Vested (2,566,265) (12,034)
As at December 31, 2022 19,601,375 76,064
Based on the estimated achievement of performance conditions for 2022
financial year LTIP awards, the determined monetary amount was US$17,429,000
which is recognized to share-based compensation expense over the requisite
vesting period to March 2025.
For the years ended December 31, 2022, 2021 and 2020, US$19,031,000,
US$6,618,000 and US$7,038,000 of the LTIP awards were forfeited respectively
based on the determined or estimated monetary amount as at the forfeiture
date.
The following table presents the share-based compensation expenses recognized
under the LTIP awards:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Research and development expenses 16,101 16,880 7,252
Selling and administrative expenses 7,376 8,451 3,552
Cost of revenues 373 294 101
23,850 25,625 10,905
Recorded with a corresponding credit to:
Liability 6,216 14,263 7,778
Additional paid-in capital 17,634 11,362 3,127
23,850 25,625 10,905
For the years ended December 31, 2022, 2021 and 2020, US$15,351,000,
US$8,516,000 and US$4,092,000 were reclassified from liability to additional
paid-in capital respectively upon LTIP awards reaching the determination date.
As at December 31, 2022 and 2021, US$3,701,000 and US$12,836,000 were recorded
as liabilities respectively for LTIP awards prior to the determination date.
As at December 31, 2022, the total unrecognized compensation cost was
approximately US$34,668,000, which considers expected performance targets and
the amounts expected to vest, and will be recognized over the requisite
periods.
18. Revenues
The following table presents disaggregated revenue, with sales of goods
recognized at a point-in-time and provision of services recognized over time:
Year Ended December 31, 2022
Oncology/Immunology Other Ventures Total
(in US$'000)
Goods-Marketed Products 57,057 - 57,057
Goods-Distribution - 262,565 262,565
Services-Commercialization-Marketed Products 41,275 - 41,275
-Collaboration Research and Development 23,741 - 23,741
-Research and Development 507 - 507
Royalties 26,310 - 26,310
Licensing 14,954 - 14,954
163,844 262,565 426,409
Third parties 163,337 257,272 420,609
Related parties (Note 23(i)) 507 5,293 5,800
163,844 262,565 426,409
Year Ended December 31, 2021
Oncology/Immunology Other Ventures Total
(in US$'000)
Goods-Marketed Products 33,937 - 33,937
Goods-Distribution - 236,518 236,518
Services-Commercialization-Marketed Products 27,428 - 27,428
-Collaboration Research and Development -
18,995 18,995
-Research and Development 525 - 525
Royalties 15,064 - 15,064
Licensing 23,661 - 23,661
119,610 236,518 356,128
Third parties 119,085 232,262 351,347
Related parties (Note 23(i)) 525 4,256 4,781
119,610 236,518 356,128
Year Ended December 31, 2020
Oncology/Immunology Other Ventures Total
(in US$'000)
Goods-Marketed Products 11,329 - 11,329
Goods-Distribution - 197,761 197,761
Services-Commercialization-Marketed Products 3,734 - 3,734
-Collaboration Research and Development -
9,771 9,771
-Research and Development 491 - 491
Royalties 4,890 - 4,890
30,215 197,761 227,976
Third parties 29,724 192,277 222,001
Related parties (Note 23(i)) 491 5,484 5,975
30,215 197,761 227,976
The following table presents liability balances from contracts with customers:
December 31,
2022 2021
(in US$'000)
Deferred revenue
Current-Oncology/Immunology segment (note (a)) 11,817 11,078
Current-Other Ventures segment (note (b)) 1,530 1,196
13,347 12,274
Non-current-Oncology/Immunology segment (note (a)) 190 878
Total deferred revenue (note (c) and (d)) 13,537 13,152
Notes:
(a) Oncology/Immunology segment deferred revenue relates to invoiced amounts
for royalties where the customer has not yet completed the in-market sale,
unamortized upfront and milestone payments and advance consideration received
for cost reimbursements which are attributed to research and development
services that have not yet been rendered as at the reporting date.
(b) Other Ventures segment deferred revenue relates to payments in advance
from customers for goods that have not been transferred and services that have
not been rendered to the customer as at the reporting date.
(c) Estimated deferred revenue to be recognized over time as from the date
indicated is as follows:
December 31,
2022 2021
(in US$'000)
Not later than 1 year 13,347 12,274
Between 1 to 2 years 150 476
Between 2 to 3 years 40 255
Between 3 to 4 years - 147
13,537 13,152
(d) As at January 1, 2022, deferred revenue was US$13.2 million, of which
US$11.8 million was recognized during the year ended December 31, 2022.
License and collaboration agreement with Eli Lilly
On October 8, 2013, the Group entered into a licensing, co-development and
commercialization agreement in China with Eli Lilly and Company ("Lilly")
relating to Elunate ("Lilly Agreement"), also known as fruquintinib, a
targeted oncology therapy for the treatment of various types of solid tumors.
Under the terms of the Lilly Agreement, the Group is entitled to receive a
series of payments up to US$86.5 million, including upfront payments and
development and regulatory approval milestones. Development costs after the
first development milestone are shared between the Group and Lilly. Elunate
was successfully commercialized in China in November 2018, and the Group
receives tiered royalties in the range of 15% to 20% on all sales in China.
In December 2018, the Group entered into various amendments to the Lilly
Agreement (the "2018 Amendment"). Under the terms of the 2018 Amendment, the
Group is entitled to determine and conduct future life cycle indications
("LCI") development of Elunate in China beyond the three initial indications
specified in the Lilly Agreement and will be responsible for all associated
development costs. In return, the Group will receive additional regulatory
approval milestones of US$20 million for each LCI approved, for up to three
LCI or US$60 million in aggregate, and will increase tiered royalties to a
range of 15% to 29% on all Elunate sales in China upon the commercial launch
of the first LCI. Additionally, through the 2018 Amendment, Lilly has provided
consent, and freedom to operate, for the Group to enter into joint development
collaborations with certain third-party pharmaceutical companies to explore
combination treatments of Elunate and various immunotherapy agents. The 2018
Amendment also provided the Group rights to promote Elunate in provinces that
represent 30% to 40% of the sales of Elunate in China upon the occurrence of
certain commercial milestones by Lilly. Such rights were further amended
below.
In July 2020, the Group entered into an amendment to the Lilly Agreement (the
"2020 Amendment") relating to the expansion of the Group's role in the
commercialization of Elunate across all of China. Under the terms of the 2020
Amendment, the Group is responsible for providing promotion and marketing
services, including the development and execution of all on-the-ground medical
detailing, promotion and local and regional marketing activities, in return
for service fees on sales of Elunate made by Lilly. In October 2020, the Group
commenced such promotion and marketing services. In addition, development and
regulatory approval milestones for an initial indication under the Lilly
Agreement were increased by US$10 million in lieu of cost reimbursement.
Upfront and cumulative milestone payments according to the Lilly Agreement
received up to December 31, 2022 are summarized as follows:
(in US$'000)
Upfront payment 6,500
Development milestone payments achieved 40,000
The Lilly Agreement has the following performance obligations: (1) the license
for the commercialization rights to Elunate and (2) the research and
development services for the specified indications. The transaction price
includes the upfront payment, research and development cost reimbursements,
milestone payments and sales-based royalties. Milestone payments were not
included in the transaction price until it became probable that a significant
reversal of revenue would not occur, which is generally when the specified
milestone is achieved. The allocation of the transaction price to each
performance obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the contract. Based
on this estimation, proportionate amounts of transaction price to be allocated
to the license to Elunate and the research and development services were 90%
and 10% respectively. Control of the license to Elunate transferred at the
inception date of the agreement and consequently, amounts allocated to this
performance obligation were recognized at inception. Conversely, research and
development services for each specified indication are performed over time and
amounts allocated are recognized over time using the prior and estimated
future development costs for Elunate as a measure of progress. Royalties are
recognized as future sales occur as they meet the requirements for the
sales-usage based royalty exception.
The 2018 Amendment is a separate contract as it added distinct research and
development services for the LCIs to the Lilly Agreement. The 2020 Amendment
related to the promotion and marketing services is a separate contract as it
added distinct services to the Lilly Agreement. Such promotion and marketing
services are recognized over time based on amounts that can be invoiced to
Lilly. The 2020 Amendment related to the additional development and regulatory
approval milestone amounts is a modification as it only affected the
transaction price of research and development services for a specific
indication under the Lilly Agreement, and therefore, such additional milestone
amounts will be included in the transaction price accounted under the Lilly
Agreement once the specified milestones are achieved.
Revenue recognized under the Lilly Agreement and subsequent amendments is as
follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Goods-Marketed Products 14,407 15,792 11,329
Services-Commercialization-Marketed Products 41,275 27,428 3,734
-Collaboration Research and Development 8,054 4,491 1,991
Royalties 13,954 10,292 4,890
77,690 58,003 21,944
License and collaboration agreement with AstraZeneca
On December 21, 2011, the Group and AstraZeneca AB (publ) ("AZ") entered into
a global licensing, co-development, and commercialization agreement for
Orpathys ("AZ Agreement"), also known as savolitinib, a novel targeted
therapy and a highly selective inhibitor of the c-Met receptor tyrosine kinase
for the treatment of cancer. Under the terms of the AZ Agreement, the Group is
entitled to receive a series of payments up to US$140 million, including
upfront payments and development and first-sale milestones. Additionally, the
AZ Agreement contains possible significant future commercial sale milestones.
Development costs for Orpathys in China will be shared between the Group and
AZ, with the Group continuing to lead the development in China. AZ will lead
and pay for the development of Orpathys for the rest of the world. Orpathys
was successfully commercialized in China in July 2021, and the Group receives
fixed royalties of 30% based on all sales in China. Should Orpathys be
successfully commercialized outside China, the Group would receive tiered
royalties from 9% to 13% on all sales outside of China.
In August 2016 (as amended in December 2020), the Group entered into an
amendment to the AZ Agreement whereby the Group shall pay the first
approximately US$50 million of phase III clinical trial costs related to
developing Orpathys for renal cell carcinoma ("RCC"), and remaining costs will
be shared between the Group and AZ. Subject to approval of Orpathys in RCC,
the Group would receive additional tiered royalties on all sales outside of
China, with the incremental royalty rates determined based on actual sharing
of development costs. In November 2021, the Group entered into an additional
amendment which revised the sharing between the Group and AZ of development
costs for Orpathys in China for non-small cell lung cancer, as well as adding
potential development milestones.
Upfront and cumulative milestone payments according to the AZ Agreement
received up to December 31, 2022 are summarized as follows:
(in US$'000)
Upfront payment 20,000
Development milestone payments achieved 40,000
First-sale milestone payment achieved 25,000
The AZ Agreement has the following performance obligations: (1) the license
for the commercialization rights to Orpathys and (2) the research and
development services for the specified indications. The transaction price
includes the upfront payment, research and development cost reimbursements,
milestone payments and sales-based royalties. Milestone payments were not
included in the transaction price until it became probable that a significant
reversal of revenue would not occur, which is generally when the specified
milestone is achieved. The allocation of the transaction price to each
performance obligation was based on the relative standalone selling prices of
each performance obligation determined at the inception of the contract. Based
on this estimation, proportionate amounts of transaction price to be allocated
to the license to Orpathys and the research and development services were 95%
and 5% respectively. Control of the license to Orpathys transferred at the
inception date of the agreement and consequently, amounts allocated to this
performance obligation were recognized at inception. Conversely, research and
development services for each specified indication are performed over time and
amounts allocated are recognized over time using the prior and estimated
future development costs for Orpathys as a measure of progress.
Revenue recognized under the AZ Agreement and subsequent amendments is as
follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Goods-Marketed Products 9,904 6,509 -
Services-Collaboration Research and Development 14,467 14,113 7,780
Royalties 12,356 4,772 -
Licensing 14,954 23,661 -
51,681 49,055 7,780
19. In-Licensing arrangement
On August 7, 2021, the Group and Epizyme, Inc. ("Epizyme") entered into a
license agreement (the "In-license Agreement") for tazemetostat, a novel
inhibitor of EZH2 that is approved by the U.S. Food and Drug Administration
for the treatment of certain patients with epithelioid sarcoma and follicular
lymphoma. The Group will be responsible for the development and
commercialization of tazemetostat in the PRC, Hong Kong, Macau and Taiwan (the
"Territory") and also holds rights to manufacture tazemetostat for the
Territory. The Group also received a 4-year warrant, exercisable up to August
7, 2025, to purchase up to 5,653,000 shares of Epizyme common stock for an
exercise price of US$11.50 per share ("Warrant Exercise Price").
Under the terms of the In-license Agreement and warrant, the Group paid
Epizyme a US$25 million upfront payment and is obligated for a series of
success-based payments up to US$110 million in development and regulatory
milestones and up to US$175 million in sales milestones. Success-based
payments are recognized when the related milestone is achieved. After
tazemetostat is commercialized in the Territory, the Group will incur tiered
royalties based on net sales. For the year ended December 31, 2022, US$5.0
million development milestone was paid and expensed to research and
development expenses as in-process research and development.
The US$25 million upfront payment was first allocated to the warrant for its
initial fair value of US$15 million, and the remainder was allocated to the
rights to tazemetostat which were expensed to research and development expense
as in-process research and development.
The warrant was recorded as a financial asset at fair value with changes to
fair value recognized to the consolidated statements of operations. On August
12, 2022, a third party announced that it has acquired all outstanding shares
of Epizyme under a definitive merger agreement. Consequently, the warrant was
deemed expired under the terms of the In-license Agreement and warrant. For
the years ended December 31, 2022 and 2021, fair value losses of US$2.5
million and US$12.5 million were recognized to other expense in the
consolidated statements of operations respectively.
20. Research and Development Expenses
Research and development expenses are summarized as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Clinical trial related costs 255,935 190,051 105,869
Personnel compensation and related costs 119,306 91,639 63,542
Other research and development expenses 11,652 17,396 5,365
386,893 299,086 174,776
The Group has entered into multiple collaborative arrangements under ASC 808
to evaluate the combination of the Group's drug compounds with the
collaboration partners' drug compounds. For the years ended December 31, 2022,
2021 and 2020, the Group has incurred research and development expenses of
US$14,654,000, US$18,408,000 and US$8,291,000 respectively, related to such
collaborative arrangements.
21. Government Grants
Government grants in the Oncology/Immunology segment are primarily given in
support of the construction of a manufacturing plant in Shanghai and R&D
activities which are conditional upon i) the Group spending a predetermined
amount, regardless of success or failure of the research and development
projects and/or ii) the achievement of certain stages of research and
development projects being approved by the relevant PRC government authority.
They are refundable to the government if the conditions, if any, are not met.
Government grants in the Other Ventures segment are primarily given to promote
local initiatives. These government grants may be subject to ongoing reporting
and monitoring by the government over the period of the grant.
Government grants, which are deferred and recognized in the consolidated
statements of operations over the period necessary to match them with the
costs that they are intended to compensate, are recognized in other payables,
accruals and advance receipts (Note 13) and other non-current liabilities. For
the years ended December 31, 2022, 2021 and 2020, the Group received
government grants of US$8,474,000, US$9,095,000 and US$4,724,000 respectively.
Government grants were recognized in the consolidated statements of operations
as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Research and development expenses 4,556 15,515 1,607
Other income 1,434 318 539
5,990 15,833 2,146
22. Gain on divestment of an equity investee
In March 2021, the Group entered into a sale and purchase agreement (the
"SPA") with a third party to sell its entire investment in HBYS with closing
subject to regulatory approval in the PRC. On September 28, 2021, the Group
completed the divestment for cash consideration of US$159.1 million.
On May 13, 2021 and September 23, 2021, HBYS had declared dividends to
shareholders of US$46.5 million and US$59.7 million respectively which were
related to prior year undistributed profits and distributions of a land bonus
payment. Based on the SPA, the Group is entitled to a portion of such
dividends and the third party will settle these amounts, net of taxes, after
HBYS completes the distribution. As at December 31, 2022 and 2021, US$26.2
million and US$46.4 million of dividend receivables, net of taxes, from the
third party was recorded respectively in other receivables, prepayments and
deposits (Note 7).
In addition, the Group and Hutchison Whampoa Enterprises Limited, an affiliate
of CK Hutchison Holdings Limited ("CK Hutchison"), entered into a license
agreement on June 15, 2021, conditional upon the completion of the divestment,
to grant a continuing right to use the "Hutchison Whampoa" brand by HBYS for
10 years at HK$12 million (approximately US$1.5 million) per year with
aggregate amounts not to exceed HK$120 million (approximately US$15.4
million). On September 28, 2021, the Group recorded the present value of
future branding liability payments of US$12.7 million. As at December 31, 2022
and 2021, US$1.5 million was included in amounts due to related parties (Note
23(ii)) and US$8.7 million and US$9.8 million were included in other
non-current liabilities respectively.
The gain on divestment of an equity investee was recognized in the
consolidated statements of operations as follows:
Year Ended December 31,
2021
(in US$'000)
Proceeds 159,118
Dividend receivables-third party (Note 7) 46,387
205,505
Less: Group's share of net assets of HBYS (Note 11(iii)) (23,246)
Dividend receivables-HBYS (52,887)
Withholding tax liability on dividend receivables-HBYS 2,644
Branding liability (12,721)
Accumulated other comprehensive income and reserves 1,911
Transaction costs and others 104
Gain on divestment of an equity investee 121,310
Less: Capital gain tax (14,373)
Less: Gain on divestment of an equity investee attributable to non-controlling (24,010)
interests
Gain on divestment of an equity investee attributable to the Group 82,927
23. Significant Transactions with Related Parties and Non-Controlling Shareholders of Subsidiaries
The Group has the following significant transactions with related parties and
non-controlling shareholders of subsidiaries, which were carried out in the
normal course of business at terms determined and agreed by the relevant
parties:
(i) Transactions with related parties:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Sales to:
Indirect subsidiaries of CK Hutchison 3,610 4,256 5,484
An equity investee 1,683 - -
5,293 4,256 5,484
Revenue from research and development services from:
An equity investee 507 525 491
Purchases from:
Equity investees 4,231 3,770 3,347
Rendering of marketing services from:
Indirect subsidiaries of CK Hutchison 227 350 332
An equity investee 127 - -
354 350 332
Rendering of management services from:
An indirect subsidiary of CK Hutchison 980 971 955
Entered brand license agreement with:
An indirect subsidiary of CK Hutchison (note (a)) - 12,721 -
(ii) Balances with related parties included in:
December 31,
2022 2021
(in US$'000)
Accounts receivable-related parties
Indirect subsidiaries of CK Hutchison (note (b)) 1,319 1,166
An equity investee (note (b)) 2,198 -
3,517 1,166
Other receivables, prepayments and deposits
An equity investee (note (b)) 998 1,149
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (c) and (e)) 1,953 1,915
An equity investee (note (b) and (d)) 148 -
2,101 1,915
Other non-current liabilities
An equity investee (note (d)) 755 736
An indirect subsidiary of CK Hutchison (note (e)) 8,716 9,766
9,471 10,502
Notes:
(a) The branding rights for HBYS from an indirect subsidiary of CK Hutchison
were recognized in the consolidated statements of operations through the gain
on divestment of an equity investee (Note 22). For the years ended December
31, 2022 and 2021, the Group paid US$1,538,000 for each of the two years.
(b) Balances with related parties are unsecured, repayable on demand and
interest-free. The carrying values of balances with related parties
approximate their fair values due to their short-term maturities.
(c) Amounts due to indirect subsidiaries of CK Hutchison are unsecured,
repayable on demand and interest-bearing if not settled within one month.
(d) Other deferred income represents amounts recognized from granting of
commercial, promotion and marketing rights.
(e) As at December 31, 2022 and 2021, a branding liability payable of
US$1,538,000 was included in amounts due to related parties under other
payables, accruals and advance receipts. As at December 31, 2022 and 2021,
US$8,716,000 and US$9,766,000 of the branding liability payable was included
in other non-current liabilities.
(iii) Transactions with non‑controlling shareholders of subsidiaries:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Sales 47,611 41,974 36,500
Purchases 7,936 10,660 13,936
Dividends declared 25,600 9,894 1,462
(iv) Balances with non‑controlling shareholders of subsidiaries included in:
December 31,
2022 2021
(in US$'000)
Accounts receivable 11,139 8,436
Accounts payable 2,922 2,062
24. Income Taxes
(i) Income tax (benefit)/expense
Year Ended December 31,
2022 2021 2020
(in US$'000)
Current tax
HK (note (a)) 301 310 457
PRC (note (b) and (c)) 2,580 15,909 872
U.S. and others (note (d)) 399 417 219
Total current tax 3,280 16,636 1,548
Deferred income tax (benefit)/expense (3,563) (4,718) 3,281
Income tax (benefit)/expense (283) 11,918 4,829
Notes:
(a) The Company, three subsidiaries incorporated in the British Virgin
Islands and its Hong Kong subsidiaries are subject to Hong Kong profits tax.
Under the Hong Kong two-tiered profits tax rates regime, the first HK$2.0
million (US$0.3 million) of assessable profits of qualifying corporations will
be taxed at 8.25%, with the remaining assessable profits taxed at 16.5%. Hong
Kong profits tax has been provided for at the relevant rates on the estimated
assessable profits less estimated available tax losses, if any, of these
entities as applicable.
(b) Taxation in the PRC has been provided for at the applicable rate on the
estimated assessable profits less estimated available tax losses, if any, in
each entity. Under the PRC Enterprise Income Tax Law (the "EIT Law"), the
standard enterprise income tax rate is 25%. In addition, the EIT Law provides
for a preferential tax rate of 15% for companies which qualify as HNTE.
HUTCHMED Limited and its wholly-owned subsidiary HUTCHMED (Suzhou) Limited
qualify as a HNTE up to December 31, 2022 and 2023 respectively.
Pursuant to the EIT law, a 10% withholding tax is levied on dividends paid by
PRC companies to their foreign investors. A lower withholding tax rate of 5%
is applicable under the China-HK Tax Arrangement if direct foreign investors
with at least 25% equity interest in the PRC companies are Hong Kong tax
residents, and meet the conditions or requirements pursuant to the relevant
PRC tax regulations regarding beneficial ownership. Since the equity holders
of the equity investees of the Company are Hong Kong incorporated companies
and Hong Kong tax residents, and meet the aforesaid conditions or
requirements, the Company has used 5% to provide for deferred tax liabilities
on retained earnings which are anticipated to be distributed. As at December
31, 2022, 2021 and 2020, the amounts accrued in deferred tax liabilities
relating to withholding tax on dividends were determined on the basis that
100% of the distributable reserves of the equity investees operating in the
PRC will be distributed as dividends.
Pursuant to PRC Bulletin on Issues of Enterprise Income Tax and Indirect
Transfers of Assets by Non-PRC Resident Enterprises, an indirect transfer of a
PRC resident enterprise by a non-PRC resident enterprise, via the transfer of
an offshore intermediate holding company, shall be subject to PRC withholding
tax under certain conditions.
(c) Current tax in the PRC for the year ended December 31, 2021 includes
US$14.4 million arising from the indirect disposal of HBYS (Note 22),
calculated at 10% of the excess of the disposal proceeds over the cost of
acquiring the equity investment in HBYS.
(d) The Company's subsidiary in the U.S. with operations primarily in New
Jersey is subject to U.S. taxes, primarily federal and state taxes, which have
been provided for at approximately 21% (federal) and 0% to 11.5% (state tax)
on the estimated assessable profit over the reporting years. Certain income
receivable by the Company is subject to U.S. withholding tax of 30%. Two of
the Group's subsidiaries are subject to corporate tax in the UK and EU
countries at 19% and 15% to 25%, respectively, on the estimated assessable
profits in relation to their presence in these countries.
The reconciliation of the Group's reported income tax expense to the
theoretical tax amount that would arise using the tax rates of the Company
against the Group's loss before income taxes and equity in earnings of equity
investees is as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Loss before income taxes and equity in earnings of equity investees (410,422) (215,740) (189,734)
Tax calculated at the statutory tax rate of the Company (67,720) (35,597) (31,306)
Tax effects of:
Different tax rates applicable in different jurisdictions 6,316 136 4,025
Tax valuation allowance 93,243 63,975 46,321
Preferential tax rate difference (171) (148) (154)
Preferential tax deduction and credits (40,791) (29,838) (18,814)
Expenses not deductible for tax purposes 8,886 8,684 3,476
Withholding tax on undistributed earnings of PRC entities 2,492 3,153 3,962
Others (2,538) 1,553 (2,681)
Income tax (benefit)/expense (283) 11,918 4,829
(ii) Deferred tax assets and liabilities
The significant components of deferred tax assets and liabilities are as
follows:
December 31,
2022 2021
(in US$'000)
Deferred tax assets
Cumulative tax losses 264,751 186,832
Others 15,254 12,269
Total deferred tax assets 280,005 199,101
Less: Valuation allowance (264,639) (189,700)
Deferred tax assets 15,366 9,401
Deferred tax liabilities
Undistributed earnings from PRC entities 2,686 2,720
Others 24 45
Deferred tax liabilities 2,710 2,765
The movements in deferred tax assets and liabilities are as follows:
2022 2021 2020
(in US$'000)
As at January 1 6,636 (3,548) (2,343)
Utilization of previously recognized withholding tax on undistributed earnings 2,186 5,148 2,323
(Charged)/Credited to the consolidated statements of operations
Withholding tax on undistributed earnings of PRC entities (2,492) (3,153) (3,962)
Deferred tax on amortization of intangible assets 19 19 18
Deferred tax on temporary differences, tax loss carried forward and research 6,036 7,852 663
tax credits
Divestment of an equity investee - 370 -
Exchange differences 271 (52) (247)
As at December 31 12,656 6,636 (3,548)
The deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off and when the deferred income taxes relate to the
same fiscal authority.
The cumulative tax losses can be carried forward against future taxable income
and will expire in the following years:
December 31,
2022 2021
(in US$'000)
No expiry date 71,325 60,450
2022 - 200
2023 - -
2024 3,763 4,099
2025 36,098 39,321
2026 48,150 52,452
2027 61,808 67,217
2028 107,297 117,376
2029 175,853 191,554
2030 243,918 265,696
2031 389,761 432,278
2032 610,800 -
1,748,773 1,230,643
The Company believes that it is more likely than not that future operations
outside the U.S. will not generate sufficient taxable income to realize the
benefit of the deferred tax assets. Certain of the Company's subsidiaries have
had sustained tax losses, which will expire within five years if not utilized
in the case of PRC subsidiaries (ten years for HNTEs), and which will not be
utilized in the case of Hong Kong subsidiaries as they do not generate taxable
profits. Accordingly, a valuation allowance has been recorded against the
relevant deferred tax assets arising from the tax losses.
A U.S. subsidiary of the Company has approximately US$3.9 million and US$1.2
million U.S. Federal and New Jersey state research tax credits which will
expire between 2041 and 2042 (Federal) and 2028 and 2029 (New Jersey)
respectively, if not utilized.
The table below summarizes changes in the deferred tax valuation allowance:
2022 2021 2020
(in US$'000)
As at January 1 189,700 122,378 69,399
Charged to consolidated statements of operations 93,243 63,975 46,321
Utilization of previously unrecognized tax losses (1) (186) (114)
Write-off of tax losses (125) - -
Others - (9) -
Exchange differences (18,178) 3,542 6,772
As at December 31 264,639 189,700 122,378
As at December 31, 2022, 2021 and 2020, the Group did not have any material
unrecognized uncertain tax positions.
(iii) Income tax payable
2022 2021 2020
(in US$'000)
As at January 1 15,546 1,120 1,828
Current tax 3,280 16,636 1,548
Withholding tax upon dividend declaration from PRC entities 2,186 5,148 2,323
Tax paid (note) (18,891) (5,014) (5,940)
Reclassification from non-current withholding tax - - 812
Reclassification (from)/to prepaid tax (241) 25 485
Divestment of an equity investee (Note 22) - (2,644) -
Exchange difference (768) 275 64
As at December 31 1,112 15,546 1,120
Note: The amount for 2022 includes US$14.4 million capital gain tax paid for
gain on divestment of HBYS (Note 22). The amount for 2020 is net of the PRC
Enterprise Income Tax refund of US$0.4 million received by HSPL.
25. Losses Per Share
(i) Basic losses per share
Basic losses per share is calculated by dividing the net loss attributable to
the Company by the weighted average number of outstanding ordinary shares in
issue during the year.
Year Ended December 31,
2022 2021 2020
Weighted average number of outstanding ordinary shares in issue 847,143,540 792,684,524 697,931,437
Net loss attributable to the Company (US$'000) (360,835) (194,648) (125,730)
Losses per share attributable to the Company (US$ per share) (0.43) (0.25) (0.18)
(ii) Diluted losses per share
Diluted losses per share is calculated by dividing net loss attributable to
the Company by the weighted average number of outstanding ordinary shares in
issue and dilutive ordinary share equivalents outstanding during the year.
Dilutive ordinary share equivalents include shares issuable upon the exercise
or settlement of share options, LTIP awards and warrants issued by the Company
using the treasury stock method.
For the years ended December 31, 2022, 2021 and 2020, the share options, LTIP
awards and warrants issued by the Company were not included in the calculation
of diluted losses per share because of their anti-dilutive effect. Therefore,
diluted losses per share were equal to basic losses per share for the years
ended December 31, 2022, 2021 and 2020.
26. Segment Reporting
The Group's operating segments are as follows:
(i) Oncology/Immunology: focuses on discovering, developing, and
commercializing targeted therapies and immunotherapies for the treatment of
cancer and immunological diseases. Oncology/Immunology is further segregated
into two core business areas:
(a) R&D: comprises research and development activities covering drug
discovery, development, manufacturing and regulatory functions as well as
administrative activities to support research and development operations; and
(b) Marketed Products: comprises the sales, marketing, manufacture and
distribution of drugs developed from research and development activities.
(ii) Other Ventures: comprises other commercial businesses which include
the sales, marketing, manufacture and distribution of other prescription drugs
and consumer health products.
The performance of the reportable segments is assessed based on segment net
(loss)/income attributable to the Company.
The segment information is as follows:
Year Ended December 31, 2022
Oncology/Immunology
Marketed Other
R&D Products Ventures
PRC U.S. and Others Subtotal PRC Subtotal PRC Unallocated Total
(in US$'000)
Revenue from external customers 39,202 - 39,202 124,642 163,844 262,565 - 426,409
Interest income 674 4 678 - 678 272 8,649 9,599
Interest expense - - - - - - (652) (652)
Equity in earnings of equity investees, net of tax 5 - 5 - 5 49,748 - 49,753
Income tax (expense)/benefit (552) 6,053 5,501 (631) 4,870 (1,345) (3,242) 283
Net (loss)/income attributable to the Company (215,834) (186,945) (402,779) 17,367 (385,412) 54,604 (30,027) (360,835)
Depreciation/ amortization (7,576) (484) (8,060) - (8,060) (299) (305) (8,664)
Additions to non-current assets (other than financial instruments and deferred 47,563 725 48,288 - 48,288 664 21 48,973
tax assets)
December 31, 2022
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC Subtotal PRC Unallocated Total
(in US$'000)
Total assets 221,337 30,281 251,618 45,984 297,602 235,500 496,343 1,029,445
Property, plant and equipment 72,775 2,103 74,878 - 74,878 735 334 75,947
Right-of-use assets 3,350 3,167 6,517 - 6,517 1,308 897 8,722
Leasehold land 11,830 - 11,830 - 11,830 - - 11,830
Goodwill - - - - - 3,137 - 3,137
Other intangible asset - - - - - 85 - 85
Investments in equity investees 316 - 316 - 316 73,461 - 73,777
Year Ended December 31, 2021
Oncology/Immunology
Marketed Other
R&D Products Ventures
PRC U.S. and Others Subtotal PRC Subtotal PRC Unallocated Total
(in US$'000)
Revenue from external customers 43,181 - 43,181 76,429 119,610 236,518 - 356,128
Interest income 809 3 812 - 812 282 982 2,076
Interest expense - - - - - - (592) (592)
Equity in earnings of equity investees, net of tax 20 - 20 - 20 60,597 - 60,617
Income tax benefit/(expense) 22 7,160 7,182 (1,320) 5,862 (14,573) (3,207) (11,918)
Net (loss)/income attributable to the Company (143,528) (152,235) (295,763) 4,032 (291,731) 142,890 (45,807) (194,648)
Depreciation/ amortization (6,436) (197) (6,633) - (6,633) (318) (239) (7,190)
Additions to non-current assets (other than financial instruments and deferred 25,295 4,321 29,616 - 29,616 1,056 327 30,999
tax assets)
December 31, 2021
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC Subtotal PRC Unallocated Total
(in US$'000)
Total assets 166,802 19,870 186,672 35,978 222,650 225,898 924,113 1,372,661
Property, plant and equipment 38,049 1,862 39,911 - 39,911 746 618 41,275
Right-of-use assets 4,798 3,768 8,566 - 8,566 1,827 1,486 11,879
Leasehold land 13,169 - 13,169 - 13,169 - - 13,169
Goodwill - - - - - 3,380 - 3,380
Other intangible asset - - - - - 163 - 163
Investments in equity investees 480 - 480 - 480 75,999 - 76,479
Year Ended December 31, 2020
Oncology/Immunology
Marketed Other
R&D Products Ventures
PRC U.S. and Others Subtotal PRC Subtotal PRC Unallocated Total
(in US$'000)
Revenue from external customers 10,262 - 10,262 19,953 30,215 197,761 - 227,976
Interest income 461 - 461 - 461 167 2,608 3,236
Interest expense - - - - - - (787) (787)
Equity in earnings of equity investees, net of tax (97) - (97) - (97) 79,143 - 79,046
Income tax (expense)/benefit (402) 642 240 (167) 73 (824) (4,078) (4,829)
Net (loss)/income attributable to the Company (120,096) (62,683) (182,779) 7,282 (175,497) 72,785 (23,018) (125,730)
Depreciation/ amortization (5,458) (119) (5,577) - (5,577) (292) (192) (6,061)
Additions to non-current assets (other than financial instruments and deferred 22,574 754 23,328 - 23,328 817 1,090 25,235
tax assets)
Revenue from external customers is after elimination of inter-segment sales.
Sales between segments are carried out at mutually agreed terms. The amounts
eliminated attributable to sales between PRC and U.S. and others under
Oncology/Immunology segment were US$55,433,000, US$46,891,000, and
US$19,230,000 for the years ended December 31, 2022, 2021, and 2020
respectively.
A summary of customers which accounted for over 10% of the Group's revenue for
the years ended December 31, 2022, 2021 and 2020 is as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Customer A 75,606 56,082 (note)
Customer B 51,681 49,055 (note)
Customer C 47,611 41,974 36,500
Customer D (note) (note) 25,993
Note: Customer did not account for over 10% of the Group's revenue during the
year.
Customer A and B are included in Oncology/Immunology and Customer C and D are
primarily included in Other Ventures.
Unallocated expenses mainly represent corporate expenses which include
corporate employee benefit expenses and the relevant share-based compensation
expenses. Unallocated assets mainly comprise cash and cash equivalents and
short-term investments.
27. Note to Consolidated Statements of Cash Flows
Reconciliation of net loss for the year to net cash used in operating
activities:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Net loss (360,386) (167,041) (115,517)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 8,664 7,190 6,061
Amortization of finance costs 18 44 43
Loss on disposals of property, plant and equipment 111 70 85
Provision for excess and obsolete inventories 293 (23) 65
Provision for credit losses, net 43 (76) 77
Share-based compensation expense-share options 6,736 16,365 8,737
Share-based compensation expense-LTIP 23,850 25,625 10,905
Equity in earnings of equity investees, net of tax (49,753) (60,617) (79,046)
Dividends received from SHPL and HBYS 43,718 49,872 86,708
Impairment of investment in other equity investee 130 - -
Changes in right-of-use assets 2,721 (3,727) (2,197)
Fair value losses on warrant 2,452 12,548 -
Gain from divestment of HBYS - (121,310) -
Unrealized currency translation loss/(gain) 13,274 (2,505) (6,149)
Changes in income tax balances (19,174) 6,904 (1,111)
Changes in working capital
Accounts receivable (14,451) (35,634) (4,693)
Other receivables, prepayments and deposits 12,072 (5,758) (9,602)
Inventories (21,213) (16,002) (3,623)
Accounts payable 29,938 9,565 7,651
Other payables, accruals and advance receipts 52,629 66,224 37,472
Lease liabilities (2,701) 3,079 2,258
Deferred revenue 386 11,071 (158)
Other 2,044 (87) (32)
Total changes in working capital 58,704 32,458 29,273
Net cash used in operating activities (268,599) (204,223) (62,066)
28. Litigation
From time to time, the Group may become involved in litigation relating to
claims arising from the ordinary course of business. The Group believes that
there are currently no claims or actions pending against the Group, the
ultimate disposition of which could have a material adverse effect on the
Group's financial position, results of operations or cash flows. However,
litigation is subject to inherent uncertainties and the Group's view of these
matters may change in the future. When an unfavorable outcome occurs, there
exists the possibility of a material adverse impact on the Group's financial
position, results of operations or cash flows for the periods in which the
unfavorable outcome occurs, and potentially in future periods.
On May 17, 2019, Luye Pharma Hong Kong Ltd. ("Luye") issued a notice to the
Group purporting to terminate a distribution agreement that granted the Group
exclusive commercial rights to Seroquel in the PRC for failure to meet a
pre-specified target. The Group disagrees with this assertion and believes
that Luye have no basis for termination. As a result, the Group commenced
legal proceedings in 2019 in order to seek damages. On October 21, 2021 (and a
decision on costs and interest in December 2021), the Group was awarded an
amount of RMB253.2 million (equivalent to US$36.4 million) with interest of
5.5% per annum from the date of the award until payment and recovery of costs
of approximately US$2.2 million (collectively the "Award"). On June 27, 2022,
Luye provided the Group a bank guarantee of up to RMB286.0 million to cover
the Award amounts, pending the outcome of an application by Luye to the High
Court of Hong Kong to set aside the Award. On July 26, 2022, Luye's
application to set aside the Award was dismissed by the High Court with costs
awarded in favor of the Group. On October 7, 2022, Luye filed a Notice of
Appeal to the Court of Appeal regarding the dismissal and the notice was
accepted on November 8, 2022. A Court of Appeal hearing date has been set for
June 2023. The legal proceedings are ongoing, no Award amounts have been
received as at the issuance date of these consolidated financial statements
and no Award amounts have been recognized and no adjustment has been made to
Seroquel-related balances as at December 31, 2022. Such Seroquel-related
balances include accounts receivable, long-term prepayment, accounts payable
and other payables of US$1.1 million, US$0.5 million, US$0.9 million and
US$1.2 million respectively.
29. Restricted Net Assets
Relevant PRC laws and regulations permit payments of dividends by the
Company's subsidiaries in the PRC only out of their retained earnings, if any,
as determined in accordance with PRC accounting standards and regulations. In
addition, the Company's subsidiaries in the PRC are required to make certain
appropriations of net after-tax profits or increases in net assets to the
statutory surplus fund prior to payment of any dividends. In addition,
registered share capital and capital reserve accounts are restricted from
withdrawal in the PRC, up to the amount of net assets held in each subsidiary.
As a result of these and other restrictions under PRC laws and regulations,
the Company's subsidiaries in the PRC are restricted in their ability to
transfer their net assets to the Group in terms of cash dividends, loans or
advances, with restricted portions amounting to US$0.1 million and US$0.1
million as at December 31, 2022 and 2021 respectively, which excludes the
Company's subsidiaries with a shareholders' deficit. Even though the Group
currently does not require any such dividends, loans or advances from the PRC
subsidiaries, for working capital and other funding purposes, the Group may in
the future require additional cash resources from the Company's subsidiaries
in the PRC due to changes in business conditions, to fund future acquisitions
and development, or merely to declare and pay dividends to make distributions
to shareholders.
In addition, the Group has certain investments in equity investees in the PRC,
where the Group's equity in undistributed earnings amounted to US$53.7 million
and US$54.4 million as at December 31, 2022 and 2021 respectively.
30. Subsequent Events
The Group evaluated subsequent events through February 28, 2023, which is the
date when the consolidated financial statements were issued.
On January 23, 2023, the Group and Takeda Pharmaceuticals International AG
("Takeda") entered into an exclusive out-licensing agreement (the "Agreement")
to further the global development, commercialization and manufacturing of
Fruquintinib outside Mainland China, Hong Kong and Macau. The Group will
receive up to US$1,130.0 million from Takeda, including upfront payments of
US$400.0 million upon closing of the Agreement, as well as potential
regulatory, development and commercial sales milestone payments, plus
royalties on net sales.
31. Additional Information: Company Balance Sheets (Parent Company Only)
December 31,
Note 2022 2021
(in US$'000)
Assets
Current assets
Cash and cash equivalents 7,892 979
Short-term investments - 55,128
Other receivables, prepayments and deposits 947 934
Total current assets 8,839 57,041
Investments in subsidiaries 726,430 972,831
Total assets 735,269 1,029,872
Liabilities and shareholders' equity
Current liabilities
Other payables, accruals and advance receipts 124,178 42,952
Income tax payable 16 16
Total current liabilities 124,194 42,968
Other non-current liabilities 708 11
Total liabilities 124,902 42,979
Commitments and contingencies 15
Company's shareholders' equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 864,775,340 16 86,478 86,453
and 864,530,850 shares issued at December 31, 2022 and 2021 respectively
Additional paid-in capital 1,497,273 1,505,196
Accumulated losses (971,481) (610,328)
Accumulated other comprehensive (loss)/income (1,903) 5,572
Total Company's shareholders' equity 610,367 986,893
Total liabilities and shareholders' equity 735,269 1,029,872
32. Dividends
No dividend has been declared or paid by the Company since its incorporation.
33. Directors' Remuneration
Directors' remuneration disclosed pursuant to the Listing Rules, Section
383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of
the Companies (Disclosure of Information about Benefits of Directors)
Regulation, is as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Fees: 683 883 848
Other remuneration
Salaries, allowances and benefits in kind 1,173 1,160 1,093
Pension contributions 98 93 89
Performance related bonuses 1,587 2,245 2,005
Share-based compensation expenses (note) 2,036 5,553 3,336
4,894 9,051 6,523
5,577 9,934 7,371
Note: During the years ended December 31, 2022, 2021 and 2020, certain
directors were granted share options and LTIP awards in respect of their
services to the Group under the share option schemes and LTIP of the Company,
further details of which are set out in Note 17. The share-based compensation
expenses were recognized in the consolidated statements of operations during
the years ended December 31, 2022, 2021 and 2020.
(i) Independent non-executive directors
The fees paid to independent non-executive directors were as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Paul Carter 117 117 117
Karen Ferrante 103 103 103
Graeme Jack 111 111 104
Tony Mok 103 99 84
434 430 408
The share-based compensation expenses of the independent non-executive
directors were as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Paul Carter 139 91 73
Karen Ferrante 139 91 73
Graeme Jack 139 91 73
Tony Mok 139 91 73
556 364 292
There were no other remunerations payable to independent non-executive
directors during the years ended December 31, 2022, 2021 and 2020.
(ii) Executive directors and non-executive directors
Year Ended December 31, 2022
Fees Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation Total
(in US$'000)
Executive directors
Simon To 85 - - - 139 224
Wei-guo Su 75 706 64 1,127 1,650 3,622
Johnny Cheng 75 340 29 442 732 1,618
Christian Hogg (note) 14 127 5 18 (1,319) (1,155)
249 1,173 98 1,587 1,202 4,309
Non-executive directors
Dan Eldar - - - - 139 139
Edith Shih - - - - 139 139
- - - - 278 278
249 1,173 98 1,587 1,480 4,587
Year Ended December 31, 2021
Fees Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation Total
(in US$'000)
Executive directors
Simon To 85 - - - 92 177
Wei-guo Su 75 412 35 835 1,934 3,291
Johnny Cheng 72 328 28 410 733 1,571
Christian Hogg (note) 77 420 30 1,000 2,246 3,773
309 1,160 93 2,245 5,005 8,812
Non-executive directors
Dan Eldar 70 - - - 92 162
Edith Shih 74 - - - 92 166
144 - - - 184 328
453 1,160 93 2,245 5,189 9,140
Year Ended December 31, 2020
Fees Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation Total
(in US$'000)
Executive directors
Simon To 80 - - - 73 153
Wei-guo Su 75 362 32 736 1,472 2,677
Johnny Cheng 70 320 27 372 341 1,130
Christian Hogg (note) 75 411 30 897 1,012 2,425
300 1,093 89 2,005 2,898 6,385
Non-executive directors
Dan Eldar 70 - - - 73 143
Edith Shih 70 - - - 73 143
140 - - - 146 286
440 1,093 89 2,005 3,044 6,671
Note: Mr Christian Hogg retired as executive director on March 4, 2022.
34. Five Highest-Paid Employees
The five highest-paid employees during years ended December 31, 2022, 2021 and
2020 included the following number of directors and non-directors:
Year Ended December 31,
2022 2021 2020
Directors 2 3 3
Non-directors 3 2 2
5 5 5
Details of the remuneration for the years ended December 31, 2022, 2021 and
2020 of the five highest-paid employees who are non-directors (the
"Non-director Individuals") were as follows:
Year Ended December 31,
2022 2021 2020
(in US$'000)
Salaries, allowances and benefits in kind 1,497 859 715
Pension contributions 51 52 48
Performance related bonuses 1,759 802 735
Share-based compensation expenses (note) 2,001 1,465 1,104
5,308 3,178 2,602
Note: During the years ended December 31, 2022, 2021 and 2020, the
Non-director Individuals were granted share options and LTIP awards in respect
of their services to the Group under the share option schemes and LTIP of the
Company, further details of which are set out in Note 17. The share-based
compensation expenses were recognized in the consolidated statements of
operations during the years ended December 31, 2022, 2021 and 2020.
The number of Non-director Individuals whose remuneration fell within the
following bands is as follows:
Year Ended December 31,
2022 2021 2020
HK$10,000,000 to HK$10,500,000 - - 2
HK$12,000,000 to HK$12,500,000 2 1 -
HK$12,500,000 to HK$13,000,000 - 1 -
HK$16,500,000 to HK$17,000,000 1 - -
3 2 2
During the years ended December 31, 2022, 2021 and 2020, no remuneration was
paid by the Group to any directors or Non-director Individuals as an
inducement to join the Group or as compensation for loss of office.
Additionally, none of the directors or Non-director Individuals have waived
any remuneration during the years ended December 31, 2022, 2021 and 2020.
35. Reconciliation between U.S. GAAP and International Financial Reporting Standards
These consolidated financial statements are prepared in accordance with U.S.
GAAP, which differ in certain respects from International Financial Reporting
Standards ("IFRS"). The effects of material differences prepared under U.S.
GAAP and IFRS are as follows:
(i) Reconciliation of consolidated statements of operations
Year Ended December 31, 2022
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee
(note (b)) (note (c)) (note (d))
(in US$'000)
Costs of goods-third parties (268,698) 57 - - - (268,641)
Research and development expenses (386,893) 31 - 5,000 - (381,862)
Selling expenses (43,933) 49 - - - (43,884)
Administrative expenses (92,173) 182 - - - (91,991)
Total operating expenses (834,102) 319 - 5,000 - (828,783)
Interest expense (652) (322) - - - (974)
Other expense (13,509) 12 - - - (13,497)
Total other (expense)/income (2,729) (310) - - - (3,039)
Loss before income taxes and equity in earnings of equity investees (410,422) 9 - 5,000 - (405,413)
Equity in earnings of equity investees, net of tax 49,753 (16) - - - 49,737
Net loss (360,386) (7) - 5,000 - (355,393)
Less: Net income attributable to non-controlling interests (449) (5) - - - (454)
Net loss attributable to the Company (360,835) (12) - 5,000 - (355,847)
Year Ended December 31, 2021
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee
(note (b)) (note (c)) (note (d))
(in US$'000)
Costs of goods-third parties (229,448) 40 - - - (229,408)
Research and development expenses (299,086) 23 - 11,111 - (287,952)
Selling expenses (37,827) 53 - - - (37,774)
Administrative expenses (89,298) 161 (163) - - (89,300)
Total operating expenses (684,445) 277 (163) 11,111 - (673,220)
Gain on divestment of an equity investee 121,310 - - - 11,266 132,576
Interest expense (592) (400) - - - (992)
Other expense (12,643) 9 - - - (12,634)
Total other (expense)/income (8,733) (391) - - - (9,124)
Loss before income taxes and equity in earnings of equity investees (215,740) (114) (163) 11,111 11,266 (193,640)
Income tax benefit/(expense) (11,918) - - - 370 (11,548)
Equity in earnings of equity investees, net of tax 60,617 (1) - - (11,636) 48,980
Net loss (167,041) (115) (163) 11,111 - (156,208)
Less: Net income attributable to non-controlling interests (27,607) (2) - (27) - (27,636)
Net loss attributable to the Company (194,648) (117) (163) 11,084 - (183,844)
Year Ended December 31, 2020
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee
(note (b)) (note (c)) (note (d))
(in US$'000)
Costs of goods-third parties (178,828) 29 - - - (178,799)
Research and development expenses (174,776) 18 - - - (174,758)
Selling expenses (11,334) 51 - - - (11,283)
Administrative expenses (50,015) 132 860 - - (49,023)
Total operating expenses (424,644) 230 860 - - (423,554)
Interest expense (787) (237) - - - (1,024)
Other expense (115) 15 - - - (100)
Total other (expense)/income 6,934 (222) - - - 6,712
Loss before income taxes and equity in earnings of equity investees (189,734) 8 860 - - (188,866)
Equity in earnings of equity investees, net of tax 79,046 4 - - - 79,050
Net loss (115,517) 12 860 - - (114,645)
Less: Net income attributable to non-controlling interests (10,213) 17 - - - (10,196)
Net loss attributable to the Company (125,730) 29 860 - - (124,841)
(ii) Reconciliation of consolidated balance sheets
December 31, 2022
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee (note (d)) LTIP classification (note (e))
(note (b)) (note (c))
(in US$'000)
Right-of-use assets 8,722 (233) - - - - 8,489
Investments in equity investees 73,777 (37) - - - - 73,740
Other non-current assets 15,745 - - 15,370 - - 31,115
Total assets 1,029,445 (270) - 15,370 - - 1,044,545
Other payables, accruals and advance receipts 264,621 - - - - (3,701) 260,920
Total current liabilities 353,903 - - - - (3,701) 350,202
Total liabilities 392,575 - - - - (3,701) 388,874
Additional paid-in capital 1,497,273 - (697) - - 3,701 1,500,277
Accumulated losses (971,481) (246) 697 16,084 - - (954,946)
Accumulated other comprehensive (loss)/income (1,903) 8 - (739) - - (2,634)
Total Company's shareholders' equity 610,367 (238) - 15,345 - 3,701 629,175
Non-controlling interests 26,503 (32) - 25 - - 26,496
Total shareholders' equity 636,870 (270) - 15,370 - 3,701 655,671
December 31, 2021
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee LTIP classification (note (e))
(note (b)) (note (c)) (note (d))
(in US$'000)
Right-of-use assets 11,879 (257) - - - - 11,622
Investments in equity investees 76,479 (24) - - - - 76,455
Other non-current assets 21,551 - - 11,296 - - 32,847
Total assets 1,372,661 (281) - 11,296 - - 1,383,676
Other payables, accruals and advance receipts 210,839 - - - - (12,836) 198,003
Total current liabilities 311,658 - - - - (12,836) 298,822
Total liabilities 333,147 - - - - (12,836) 320,311
Additional paid-in capital 1,505,196 - (697) - - 12,836 1,517,335
Accumulated losses (610,328) (233) 697 11,084 - - (598,780)
Accumulated other comprehensive (loss)/income 5,572 (7) - 185 - - 5,750
Total Company's shareholders' equity 986,893 (240) - 11,269 - 12,836 1,010,758
Non-controlling interests 52,621 (41) - 27 - - 52,607
Total shareholders' equity 1,039,514 (281) - 11,296 - 12,836 1,063,365
Notes:
(a) Lease amortization
Under U.S. GAAP, for operating leases, the amortization of right-of-use assets
and the interest expense element of lease liabilities are recorded together as
lease expenses, which results in a straight-line recognition effect in the
consolidated statements of operations.
Under IFRS, all leases are accounted for like finance leases where
right-of-use assets are generally depreciated on a straight-line basis while
lease liabilities are measured under the effective interest method, which
results in higher expenses at the beginning of the lease term and lower
expenses near the end of the lease term.
(b) Issuance costs
Under U.S. GAAP and IFRS, there are differences in the criteria for
capitalization of issuance costs incurred in the offering of equity
securities.
(c) Capitalization of development and commercial rights
Under U.S. GAAP, the acquired development and commercial rights do not meet
the capitalization criteria as further development is needed as of the
acquisition date and there is no alternative future use. Such rights are
considered as in-process research and development and were expensed to
research and development expense.
Under IFRS, the acquired development and commercial rights were capitalized to
intangible assets. The recognition criterion is always assumed to be met as
the price already reflects the probability that future economic benefits will
flow to the Group.
(d) Divestment of HBYS
Under U.S. GAAP, an equity method investment to be divested that does not
qualify for discontinued operations reporting would not qualify for
held-for-sale classification. The investment in HBYS was not presented as a
discontinued operation or as an asset classified as held-for-sale after the
signing of the SPA in March 2021 and therefore, it was accounted for under the
equity method until closing on September 28, 2021.
Under IFRS, an equity method investment may be classified as held-for-sale
even if the discontinued operations criteria are not met. The investment in
HBYS was not presented as a discontinued operation but was classified as
held-for-sale and therefore equity method accounting was discontinued in March
2021 on the initial classification as held-for-sale. Accordingly, the
reconciliation includes a classification difference in the consolidated
statement of operations between gain on divestment of an equity investee,
equity earnings of equity investees, net of tax and income tax expense.
(e) LTIP classification
Under U.S. GAAP, LTIP awards with performance conditions are classified as
liability-settled awards prior to the determination date as they settle in a
variable number of shares based on a determinable monetary amount, which is
determined upon the actual achievement of performance targets. After the
determination date, the LTIP awards are reclassified as equity-settled awards.
Under IFRS, LTIP awards are classified as equity-settled awards, both prior to
and after the determination date, as they are ultimately settled in ordinary
shares or the equivalent ADS of the Company instead of cash.
(( 1 (#_ednref1) )) Takeda = Takeda Pharmaceuticals International AG.
(( 2 (#_ednref2) )) CRC = Colorectal cancer.
(( 3 (#_ednref3) )) ESMO = European Society for Medical Oncology.
(( 4 (#_ednref4) )) NDA = New Drug Application.
(( 5 (#_ednref5) )) FDA = Food and Drug Administration.
(( 6 (#_ednref6) )) PFS = Progression-free survival.
(( 7 (#_ednref7) )) MET = Mesenchymal epithelial transition factor.
(( 8 (#_ednref8) )) NSCLC = Non-small cell lung cancer.
(( 9 (#_ednref9) )) NRDL = National Reimbursement Drug List.
(( 10 (#_ednref10) )) We also report changes in performance at constant
exchange rate ("CER") which is a non-GAAP measure. Please refer to "Use of
Non-GAAP Financial Measures and Reconciliation" below for further information
relevant to the interpretation of these financial measures and reconciliations
of these financial measures to the most comparable GAAP measures.
(( 11 (#_ednref11) )) In-market sales = total sales to third parties provided
by Eli Lilly (ELUNATE(®)), AstraZeneca (ORPATHYS(®)) and HUTCHMED
(ELUNATE(®), SULANDA(®) and TAZVERIK(®)).
(( 12 (#_ednref12) )) AstraZeneca = AstraZeneca AB (publ), a wholly-owned
subsidiary of AstraZeneca PLC.
(( 13 (#_ednref13) )) R&D = Research and development.
(( 14 (#_ednref14) )) Lilly = Eli Lilly and Company.
(( 15 (#_ednref15) )) ITP = Immune thrombocytopenia purpura.
(( 16 (#_ednref16) )) NMPA = National Medical Products Administration.
(( 17 (#_ednref17) )) EMA = European Medicines Agency.
(( 18 (#_ednref18) )) PMDA = Pharmaceuticals and Medical Devices Agency.
(( 19 (#_ednref19) )) MAA = Marketing Authorization Application.
(( 20 (#_ednref20) )) EGFR = Epidermal growth factor receptor.
(( 21 (#_ednref21) )) WCLC = World Conference on Lung Cancer.
(( 22 (#_ednref22) )) ORR = Objective response rate.
(( 23 (#_ednref23) )) DoR = Duration of response.
(( 24 (#_ednref24) )) OS = Overall survival.
(( 25 (#_ednref25) )) ELCC = European Lung Cancer Congress.
(( 26 (#_ednref26) )) PRCC = Papillary renal cell carcinoma.
(( 27 (#_ednref27) )) VEGFR = Vascular endothelial growth factor receptor.
(( 28 (#_ednref28) )) ASCO GI = ASCO (American Society of Clinical Oncology)
Gastrointestinal Cancers Symposium.
(( 29 (#_ednref29) )) DCR = Disease control rate.
(( 30 (#_ednref30) )) PD-1 = Programmed cell death protein-1.
(( 31 (#_ednref31) )) RCC = Renal cell carcinoma.
(( 32 (#_ednref32) )) FGFR = Fibroblast growth factor receptor.
(( 33 (#_ednref33) )) CSF-1R = Colony-stimulating factor 1 receptor.
(( 34 (#_ednref34) )) ASCO = American Society of Clinical Oncology.
(( 35 (#_ednref35) )) NANETS = North American Neuroendocrine Tumor Society
Medical Symposium.
(( 36 (#_ednref36) )) Syk = Spleen tyrosine kinase.
(( 37 (#_ednref37) )) AIHA = autoimmune hemolytic anemia.
(( 38 (#_ednref38) )) PI3Kδ = Phosphoinositide 3-kinase delta.
(( 39 (#_ednref39) )) Ipsen = Ipsen SA, parent of Epizyme Inc.
(( 40 (#_ednref40) )) Epizyme = Epizyme Inc., a wholly owned subsidiary of
Ipsen SA.
(( 41 (#_ednref41) )) IDH = Isocitrate dehydrogenase.
(( 42 (#_ednref42) )) BTK = Bruton's tyrosine kinase.
(( 43 (#_ednref43) )) ERK = Extracellular signal-regulated kinase.
(( 44 (#_ednref44) )) MAPK pathway = RAS-RAF-MEK-ERK signaling cascade.
(( 45 (#_ednref45) )) CDE = Center for Drug Evaluation
(( 46 (#_ednref46) )) IHCC = Intrahepatic cholangiocarcinoma.
(( 47 (#_ednref47) )) SHPL = Shanghai Hutchison Pharmaceuticals Limited.
(( 48 (#_ednref48) )) HBYS = Hutchison Whampoa Guangzhou Baiyunshan Chinese
Medicine Company Limited.
(( 49 (#_ednref49) )) GAAP = Generally Accepted Accounting Principles.
(( 50 (#_ednref50) )) HKEX = The Main Board of The Stock Exchange of Hong
Kong Limited.
(( 51 (#_ednref51) )) ADS = American depositary share.
(( 52 (#_ednref52) )) SG&A Expenses = selling, general and administrative
expenses.
(( 53 (#_ednref53) )) NHSA = China National Healthcare Security
Administration.
(( 54 (#_ednref54) )) NET = Neuroendocrine tumor.
(( 55 (#_ednref55) )) CSCO = Chinese Society of Clinical Oncology.
(( 56 (#_ednref56) )) EGFRm+ = Epidermal growth factor receptor mutated.
(( 57 (#_ednref57) )) TKI = Tyrosine kinase inhibitor.
(( 58 (#_ednref58) )) FISH5+ = MET amplification as detected by FISH with MET
copy number ≥ 5 and/or MET: CEP signal ratio ≥ 2.
(( 59 (#_ednref59) )) IHC50+ = MET overexpression as detected by IHC with 3+
in ≥ 50% tumor cells.
(( 60 (#_ednref60) )) FISH10+ = MET amplification as detected by FISH with
MET copy number ≥ 10.
(( 61 (#_ednref61) )) IHC90+ = MET overexpression as detected by IHC with 3+
in ≥ 90% tumor cells.
(( 62 (#_ednref62) )) TN = Triple negative.
(( 63 (#_ednref63) )) HR+ = Hormone receptor positive.
(( 64 (#_ednref64) )) Her2- = Human epidermal growth factor receptor 2
negative.
(( 65 (#_ednref65) )) MSS = Microsatellite Stable.
(( 66 (#_ednref66) )) epNET = extra-pancreatic neuroendocrine tumor.
(( 67 (#_ednref67) )) pNET= pancreatic neuroendocrine tumor.
(( 68 (#_ednref68) )) NEC = Neuroendocrine carcinoma.
(( 69 (#_ednref69) )) NEN = Neuroendocrine neoplasms.
(( 70 (#_ednref70) )) IO = Immuno-oncology.
(( 71 (#_ednref71) )) SCLC = Small cell lung cancer.
(( 72 (#_ednref72) )) ASH = American Society of Hematology.
(( 73 (#_ednref73) )) NHL = Non-Hodgkin's Lymphoma.
(( 74 (#_ednref74) )) CLL = Chronic lymphocytic leukemia.
(( 75 (#_ednref75) )) SLL = Small lymphocytic lymphoma.
(( 76 (#_ednref76) )) API = Active pharmaceutical ingredient.
(( 77 (#_ednref77) )) Hutchison Sinopharm = Hutchison Whampoa Sinopharm
Pharmaceuticals (Shanghai) Company Limited.
(( 78 (#_ednref78) )) Luye = Luye Pharma Hong Kong Ltd.
(( 79 (#_ednref79) )) SXBX = She Xiang Bao Xin.
(( 80 (#_ednref80) )) HSBC = The Hongkong and Shanghai Banking Corporation
Limited.
(( 81 (#_ednref81) )) HIBOR = Hong Kong Interbank Offered Rate.
(( 82 (#_ednref82) )) Deutsche Bank AG = Deutsche Bank AG, Hong Kong Branch.
(( 83 (#_ednref83) )) PBOC = People's Bank of China.
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