REG - Hutchmed China Ltd - 2023 Full Year Results and Business Updates
28/02/2024 11:30
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240228:nRSb8014Ea&default-theme=true
RNS Number : 8014E Hutchmed (China) Limited 28 February 2024
HUTCHMED Reports 2023 Full Year Results and Provides Business Updates
Revenue grew 97% (102% CER) to US$838 million, with net income of US$101
million
First U.S. FDA approval of our self-developed medicine, FRUZAQLA™
(fruquintinib)
Sovleplenib for ITP accepted for NDA review in China, with Priority Review
status and Breakthrough Therapy designation
Hong Kong, Shanghai & Florham Park, NJ - Wednesday, February 28, 2024:
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, 2023 and provides updates on key clinical and commercial
developments. HUTCHMED to host results call and webcasts today at 7:30 a.m.
EST / 12:30 p.m. GMT / 8:30 p.m. HKT in English, and at 8:30 a.m. HKT in
Chinese (Putonghua) on Thursday, February 29, 2024.
All amounts are expressed in U.S. dollars unless otherwise stated.
Strategic: global vision, commitment to patients and path to self-sustainability
· Executed our global vision of bringing our innovative medicines
worldwide, as demonstrated through the Takeda(1) partnership which brought
$435 million in upfront and milestone payments plus manufacturing income and
royalties on net sales, setting a strategic example for the rest of our
pipeline.
· On track to be self-sustaining with a disciplined approach to
leveraging our R&D(2) expertise and creating value through licensing and
commercialization.
Pipeline: fruquintinib global and China expansion, sovleplenib China NDA(3) review, savolitinib NSCLC(4) enrolled
· Fruquintinib U.S. FDA(5) approval three weeks ahead of PDUFA(6)
date for third-line CRC(7), leading to a swift launch by Takeda, inclusion in
NCCN(8) guidelines and U.S. in-market sales(9) of $15.1 million. Global
regulatory progress with MAA(10) filing to the EMA(11) validated in June 2023
and NDA submitted to PMDA(12) in September 2023.
· Fruquintinib NDA for second-line gastric cancer accepted for
review in China. Registrations studies in China for 2L EMC(13) and 2L RCC(14)
completed enrollment during 2023 for fruquintinib in combination with
sintilimab, expecting NDA filing to the NMPA(15) for EMC in early 2024 and
topline results for RCC by end of 2024.
· NDA for sovleplenib, a novel Syk(16) inhibitor, for primary
ITP(17) accepted and granted priority review in China, supported by data from
Phase III trial (ESLIM-01), meeting all endpoints.
· SAVANNAH, the pivotal global Phase II trial for savolitinib in
NSCLC, completed enrollment, to be followed by potential NDA filing to the
U.S. FDA by AstraZeneca(18) around the end of 2024.
Outlook and financial: expecting strong product revenue growth and reduced expenses; substantial cash
· Total revenue up 97% (102% at CER(19)) to $838.0 million for
2023, with Oncology/Immunology consolidated revenue up 223% (228% at CER) to
$528.6 million at high end of guidance, including recognition of $280 million
of the upfront payment from Takeda. Net income attributable to HUTCHMED of
$100.8 million.
· 2024 Oncology/Immunology consolidated revenue guidance of $300
million to $400 million, driven by 30% to 50% growth target in marketed
product sales and royalties.
· R&D expenses focused in line with strategy targeting key
projects.
· Strengthened cash balance, with $886.3 million at year end (2022:
$631.0m), ensures HUTCHMED is well placed to deliver on its objective of
becoming a self-sustaining business.
2023 Full Year Results & Business Updates
Mr Simon To, Executive Chairman of HUTCHMED, said, "We have made significant
progress throughout 2023. We executed against our commitment to bring our
innovative medicines to patients worldwide with the U.S. FDA approval of
FRUZAQLA™ in November 2023, while remaining dedicated to becoming a
self-sustaining business. The Takeda partnership, which is one of the biggest
small-molecule overseas licensing deals in the history of China biotech,
strengthened our cash position by $435 million. Takeda delivered a successful
U.S. launch within 48 hours of approval, and has subsequently seen strong
early patient uptake."
"We will continue to deliver on our strategy in 2024. We will stay focused on
our target of becoming sustainable through our balanced strategy of growing
sales of our novel medicines in China, and advancing our medicines overseas
with our partners. This, when combined with our other goals on pipeline
progression and further business development, means that while the global
macroeconomic environment remains uncertain, HUTCHMED is positioned to thrive
and continue to deliver innovative medicines to ever more patients around the
world."
Dr Weiguo Su, Chief Executive Officer and Chief Scientific Officer of
HUTCHMED, said, "HUTCHMED delivered impressive financial results in 2023, with
revenue up 97% to $838 million. This, alongside our significantly strengthened
cash balance of $886 million, will enable us to continue advancing our
pipeline and successfully executing our strategy."
"2023 was an important year for HUTCHMED, particularly for fruquintinib, for
which we filed market authorization applications in the U.S., EU and Japan,
based on the successful FRESCO-2 study. Following the U.S. FDA approval for
third-line patients with advanced CRC, we continue to work together with
Takeda to pursue additional launches in new markets worldwide. In China, we
also filed an NDA for second-line gastric cancer based on the FRUTIGA study."
"Another milestone was the successful ESLIM-01 registration study in China in
ITP patients for sovleplenib, our first potential novel medicine in
immunological diseases. The NDA was accepted and granted priority review by
the NMPA in January 2024. There are over 250,000 new and existing adult ITP
patients in China(20). The treatment options are limited to steroids and
TPO/TPO-RAs(21), representing an unmet medical need that sovleplenib could
help address, with its new mechanism of action and favorable safety profile.
Syk inhibition has the potential to target other major diseases such as
rheumatoid arthritis. We are also planning to initiate clinical development of
sovleplenib outside China in 2024."
"For savolitinib, we completed the confirmatory trial in NSCLC patients with
MET(22) exon 14 skipping alterations. An NDA submission is expected in the
first quarter of 2024, with potential to expand the label indication to
include first-line patients in China. Outside China, we will continue our work
with AstraZeneca on the pivotal global savolitinib lung cancer trial SAVANNAH,
which, subject to favorable data, can support a filing to the U.S. FDA for
approval. This study completed enrollment with a potential NDA submission
towards the end of 2024 in EGFR(23) mutant NSCLC patients who progressed on
TAGRISSO(®) treatment, which received U.S. FDA Fast Track designation in
January 2023. We believe the convenient dosing, targeted efficacy and safety
profile of savolitinib as an oral medicine in combination with TAGRISSO(®),
the leading oral third-generation EGFR TKI(24), should position it well in a
competitive market and address the unmet needs of MET+ NSCLC patients."
"Our China commercialization efforts progressed well, as we successfully
renewed NRDL(25) coverage for both fruquintinib and surufatinib without
further price reduction. Their in-market sales saw strong growth in 2023. Over
the next two years, we plan to continue growth in China through expanded
indications and the launch of new products together with revenue from
FRUZAQLA™ overseas commercialization."
I. COMMERCIAL OPERATIONS
Total revenue increased 97% (102% at CER) to $838.0 million in 2023 (2022:
$426.4m), driven by the Takeda partnership, our strong commercial progress in
China, and growth in third-party distribution sales, resulting in a net income
of $101 million for 2023.
Oncology/Immunology consolidated revenue were up 223% (228% at CER) to $528.6
million (2022: $163.8m); towards the high end of our guidance, driven by
recognition of $280.0 million in partnering revenue for the upfront payment,
$32.0 million for U.S. FDA approval milestone payments from Takeda, and our
strong product sales growth resulting from in-market sales up 28% (35% at CER)
to $213.6 million (2022: $167.1m);
· ELUNATE(®) (fruquintinib China) in-market sales in 2023
increased 15% (22% at CER) to $107.5 million (2022: $93.5m), reflecting its
continued lead in market share;
· FRUZAQLA™ (fruquintinib U.S.) in-market sales in 2023 were
$15.1 million, reflecting its U.S. launch in November 2023;
· SULANDA(®) (surufatinib) in-market sales in 2023 increased 36%
(43% at CER) to $43.9 million (2022: $32.3m), reflecting its growing market
share after two years on the NRDL;
· ORPATHYS(®) (savolitinib) in-market sales in 2023 increased 12%
(19% at CER) to $46.1 million (2022: $41.2m). Sales in the first quarter were
impacted by customary channel fluctuations ahead of its NRDL inclusion on
March 1, with the subsequent three quarters of 2023 up 30% compared to the
same period in 2022;
· R&D services income up 116% (119% at CER) to $52.4 million
(2022: $24.2m), now also including fees from our new partner Takeda for the
management of regulatory activities;
· Takeda upfront payment of $400.0 million received, of which
$280.0 million recognized in revenue during 2023, with the remainder to be
recognized when services and performance obligations are completed; and
· Successful management of commercial operations to expand coverage
of oncology hospitals and physicians, despite challenges from COVID-19-related
disruptions around the start of the year, and from an anti-corruption
crackdown of the healthcare sector in China in the second half of 2023.
Hospital access and related activities became more restricted, but improved
starting in October 2023.
$'millions In-market Sales* Consolidated Revenue**
2023 2022 %Δ (CER) 2023 2022 %Δ (CER)
ELUNATE(®) $107.5 $93.5 +15% (+22%) $83.2 $69.9 +19% (+26%)
FRUZAQLA™ $15.1 - - $7.2 - -
SULANDA(®) $43.9 $32.3 +36% (+43%) $43.9 $32.3 +36% (+43%)
ORPATHYS(®) $46.1 $41.2 +12% (+19%) $28.9 $22.3 +30% (+37%)
TAZVERIK(®) $1.0 $0.1 >700% $1.0 $0.1 >700%
Products Revenue $213.6 $167.1 +28% (+35%) $164.2 $124.6 +32% (+39%)
Other R&D services income $52.4 $24.2 +116% (+119%)
Upfront and milestone income $312.0 $15.0
Total Oncology/Immunology $528.6 $163.8 +223% (+228%)
Other Ventures $309.4 $262.6 +18% (+24%)
Total revenue $838.0 $426.4 +97% (+102%)
* = For ELUNATE(®), FRUZAQLA™ and ORPATHYS(®), mainly represents total
sales to third parties as provided by Lilly(26), Takeda and AstraZeneca,
respectively.
** = For ELUNATE(®), represents drug product supply, commercial service
fees and royalties paid by Lilly, to HUTCHMED, and sales to other third
parties invoiced by HUTCHMED; for FRUZAQLA™, represents drug product supply
and royalties paid by Takeda; for ORPATHYS(®), represents drug product supply
and royalties paid by AstraZeneca and sales to other third parties invoiced by
HUTCHMED; for SULANDA(®) and TAZVERIK(®), represents the Company's sales of
the products to third parties.
II. REGULATORY UPDATES
China
· Fruquintinib NDA accepted in combination with paclitaxel for
second-line gastric cancer in April 2023;
· Sovleplenib NDA accepted for primary ITP in January 2024, after
receiving priority review status in 2023;
· Fruquintinib received Breakthrough Therapy designation in
combination with sintilimab for second-line endometrial cancer in July 2023;
· Fruquintinib received Hong Kong approval for third-line CRC in
January 2024; and
· ORPATHYS(®) (savolitinib) and TAZVERIK(®) (tazemetostat)
received Macau approvals in March 2023.
Ex-China
· Fruquintinib U.S. FDA approved in November 2023 for previously
treated metastatic CRC, after the NDA was granted priority review in May 2023;
· Fruquintinib NDA submitted to the Japanese PMDA in September
2023;
· Fruquintinib MAA submission to the EMA validated in June 2023;
and
· Savolitinib, in combination with TAGRISSO(®), designated a U.S.
FDA Fast Track program in January 2023 for the treatment of patients with
NSCLC with MET overexpression and/or amplification, and who have had disease
progression during or following prior TAGRISSO(®).
III. LATE-STAGE CLINICAL DEVELOPMENT ACTIVITIES
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
· Completed enrollment of a pivotal global Phase II study SAVANNAH
(NCT03778229) for NSCLC patients who have progressed following TAGRISSO(®)
due to MET amplification or overexpression designated as a Fast Track
development program by the U.S. FDA, with the possibility of accelerated
approval. Continued enrolling SAFFRON (NCT05261399), a global, pivotal Phase
III study of the TAGRISSO(®) combination supporting SAVANNAH;
· Reported positive results from the confirmatory China Phase IIIb
study (NCT04923945) first-line cohort in MET exon 14 skipping alteration
NSCLC; completed enrollment in a second-line cohort; and
· Initiated the registration stage of a China Phase II study in
third-line gastric cancer patients with MET amplification (NCT04923932).
Potential upcoming clinical and regulatory milestones for savolitinib:
· Submit China NDA for first-line and second-line MET exon 14
skipping alteration NSCLC in early-2024;
· Complete enrollment of SACHI (NCT05015608), a pivotal Phase III
study of the TAGRISSO(®) combination in China for NSCLC patients with MET
amplification following progression on EGFR inhibitor treatment in late 2024;
· Complete enrollment of SANOVO (NCT05009836), a pivotal Phase III
study of the TAGRISSO(®) combination in China in first-line NSCLC patients
with EGFR mutation & MET overexpression in late 2024; and
· Engage U.S. FDA regarding possible NDA filing on SAVANNAH,
subject to positive results, around year end 2024.
Fruquintinib (ELUNATE(®) in China, FRUZAQLA™ in the U.S.), a highly selective oral inhibitor of VEGFR(27) 1/2/3 designed to have enhanced selectivity that limits off-target kinase activity, allowing for high drug exposure, sustained target inhibition, and flexibility for the potential use as part of a combination therapy
· Presented FRUTIGA (NCT03223376) results at ASCO(28) Plenary in
February 2024 in second-line gastric cancer patients on fruquintinib plus
paclitaxel. PFS(29), ORR(30) and DCR(31) endpoints showed statistically
significant improvements. Although OS(32) improvement was not statistically
significant overall, it was statistically significant in a pre-specified
analysis excluding patients taking subsequent antitumor therapy;
· Completed enrollment of FRUSICA-1 (NCT03903705), a China
endometrial cancer registration cohort of a Phase II study of fruquintinib in
combination with PD-1(33) antibody sintilimab in July 2023;
· Completed enrollment of FRUSICA-2 (NCT05522231), a China Phase
II/III study of fruquintinib in combination with PD-1 antibody sintilimab in
clear cell RCC in December 2023;
· Updated results from the clear cell RCC cohort of a China Phase
II study on fruquintinib in combination with PD-1 antibody sintilimab at ASCO
2023 (NCT03903705); and
· Published in peer-reviewed journal The Lancet positive results of
the global Phase III FRESCO-2 registration trial (NCT04322539) in previously
treated metastatic CRC patients in June 2023.
Potential upcoming clinical and regulatory milestones for fruquintinib:
· Completion of EMA MAA review for previously-treated metastatic
CRC in mid-2024;
· Completion of PMDA NDA review for previously-treated metastatic
CRC in late-2024;
· Registration filing to the NMPA for second-line endometrial
cancer in early 2024; and
· Top-line results from Phase II/III registration trial in clear
cell RCC around year end 2024.
Surufatinib (SULANDA(®) in China), an oral inhibitor of VEGFR, FGFR(34) and CSF-1R(35) designed to inhibit tumor angiogenesis and promote immune response against tumor cells via tumor associated macrophage regulation
· Reported data from the Phase Ib/II China toripalimab (PD-1
antibody) combination study at the 2023 AACR(36) and ASCO annual meetings
(NCT04169672); and
· Reported encouraging early results at ASCO 2023 of an
investigator-initiated trial of surufatinib in combination with a PD-1
antibody and chemotherapy in first-line treatment for pancreatic ductal
adenocarcinoma.
Sovleplenib (HMPL-523), an investigative and highly selective oral inhibitor of Syk, an important component of the Fc receptor and B-cell receptor signaling pathway
· Met primary endpoint and all secondary endpoints for a pivotal
Phase III study (NCT05029635) in adult patients with primary ITP in China; and
· Met primary endpoint for a Phase II Proof-of-Concept study in
warm AIHA(37) in China (NCT05535933) with Phase III registration study being
planned.
Potential upcoming clinical milestones for sovleplenib:
· Submit ESLIM-01 results for publication and/or presentation in
mid-2024; and
· Initiate a dose-finding study in ITP in the U.S./EU in mid-2024.
Tazemetostat (TAZVERIK(®) in Macau and the China Hainan Pilot Zone), a first-in-class, oral inhibitor of EZH2 licensed from Ipsen(38)
· Completed recruitment of a China bridging study in follicular
lymphoma for conditional registration based on U.S. approvals in September
2023 (NCT05467943);
· Approved and launched in the Macau Special Administrative Region
in March 2023; and
· Published promising results from the Phase Ib portion of
SYMPHONY-1, a global Phase 1b/III combination study in relapsed/refractory
follicular lymphoma patients after at least two prior therapies (NCT04224493).
ORR was 90.9%, and in the recommended Phase III dose cohort, 18-month PFS and
DoR(39) estimates were 94.4% and 100% with no dose-limiting toxicities.
Potential upcoming clinical and regulatory milestones for tazemetostat:
· China NDA filing for relapsed/refractory 3L+ follicular lymphoma
expected in mid-2024.
HMPL-453, a novel, highly selective and potent inhibitor targeting FGFR 1, 2 and 3
· Reported human data for the first time at the 2023 ASCO annual
meeting; and
· After consultation with NMPA, initiated the registration phase of
the ongoing Phase II trial for IHCC(40) patients with FGFR 2 fusion
(NCT04353375).
Amdizalisib (HMPL-689), an investigative and highly selective oral inhibitor of PI3Kδ(41) designed to address the gastrointestinal and hepatotoxicity associated with currently approved and clinical-stage PI3Kδ inhibitors
· Met primary endpoint of ORR in the follicular lymphoma cohort of
a China registration Phase II study with Breakthrough Therapy designation
(NCT04849351). However, in recent discussions with China NMPA, it is clear
that a randomized study is now required to support registration. In view of
the changing regulatory requirement, we are currently evaluating the clinical
development plan and regulatory guidance before deciding the regulatory
strategy for this indication.
IV. COLLABORATION UPDATES
Closed Exclusive Worldwide License to Takeda for Fruquintinib Outside China
· Takeda is responsible for development, manufacturing and
commercialization in all indications and territories outside of mainland
China, Hong Kong and Macau; and
· HUTCHMED is eligible to receive up to $1.13 billion, including
the $400 million upfront received in April 2023, and up to $730 million in
additional potential payments relating to regulatory, development and
commercial sales milestones, of which a $35 million milestone payment was
received in December 2023 after the approval by the U.S. FDA, as well as
manufacturing income and royalties on net sales.
Further clinical progress by Inmagene(42) with two candidates discovered by HUTCHMED
· Inmagene initiated two global Phase IIa trials with IMG-007, an
anti-OX40 antibody, in adults with moderate-to-severe atopic dermatitis and in
adults with alopecia areata. It was safe and well-tolerated in the completed
Phase I study with no reports of pyrexia or chills, which are common adverse
events of rocatinlimab, another anti-OX40 treatment;
· Inmagene completed a Phase I study with IMG-004, a reversible,
non-covalent, highly selective oral BTK(43) inhibitor designed to target
immunological diseases. IMG-004 was safe and well-tolerated in this
single-ascending-dose study, with a long half-life and sustained
pharmacodynamic effects that are well above others in its class; and
· Inmagene exercised options for an exclusive license to further
develop, manufacture and commercialize these two drug candidates worldwide
subject to completion of a share subscription agreement signed in February
2024 for approximately 7.5% of Inmagene shares (fully diluted).
V. OTHER VENTURES
Other Ventures include our profitable prescription drug marketing and distribution platforms
· Consolidated revenue increased by 18% (24% at CER) to $309.4
million (2022: $262.6m);
· SHPL(44) non-consolidated joint venture revenue increased by 4%
(10% at CER) to $385.5 million (2022: $370.6m);
· Consolidated net income attributable to HUTCHMED from our Other
Ventures decreased by 8% (3% at CER) to $50.3 million (2022: $54.6m), which
was primarily due to decrease on the net income contributed from SHPL of $47.4
million (2022: $49.9m) resulting from the impact of gradual price adjustment
from volume-based procurement;
· Disposed interests in HHOHK(45) and HSN(46) for $5.1 million; and
· We continue to explore opportunities to monetize the underlying
value of our SHPL joint venture including various divestment and equity
capital market alternatives.
VI. SUSTAINABILITY
HUTCHMED is committed to progressively embedding sustainability into all
aspects of our operations and creating long-term value for our stakeholders.
In 2023, we continued to make progress, including:
· Satisfactory progress made in 11 short- to long-term goals and
targets; sustainability performance on goals and targets continued to be
incorporated into management's performance-based remuneration;
· Enhanced climate actions by conducting Scope 3 emissions
screening and measurement, and engaging with suppliers to gradually implement
sustainability initiatives collaboratively. Following the climate risk
assessment in 2022, regular monitoring and reviews on climate risks and
opportunities have been undertaken; our climate actions continue to be
disclosed in alignment with the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD);
· Enhanced data quality by introducing a digital data collection
platform to streamline collecting, managing, and reporting data, ensuring
improved data reliability, comparability and transparency;
· Strengthened alignment in the five key sustainability pillars
which encompassed the most relevant and material sustainability topics for
HUTCHMED, including (i) climate action; (ii) access to healthcare; (iii) human
capital; (iv) ethics and transparency; and (v) innovation;
· Marked improvements shown in major ESG ratings and awards,
reflecting wider recognition of HUTCHMED's efforts in sustainability; and
· Enhanced disclosure by referencing the latest sustainability
disclosure standards and sector specific disclosure standards ahead of
requirement.
These efforts will continue to guide HUTCHMED towards a more sustainable
future. The 2023 Sustainability Report will be published alongside our 2023
Annual Report in April 2024 and will include further information on HUTCHMED
sustainability initiatives and their performance.
VII. IMPACT OF COVID-19
While restrictive measures related to COVID-19 were gradually lifted in China
starting from December 2022, COVꞮD-19 had some impact on our research,
clinical studies and our commercial activities in the first few months of
2023. Measures were put in place to reduce the impact and, in the second
quarter of 2023, these activities normalized.
Financial Highlights
Foreign exchange impact: The RMB depreciated against the U.S. dollar on
average by approximately 5% during 2023, which has impacted our consolidated
financial results as highlighted below.
Cash, Cash Equivalents and Short-Term Investments were $886.3 million as of December 31, 2023 compared to $631.0 million as of December 31, 2022.
· Adjusted Group (non-GAAP(47)) net cash flows excluding financing
activities in 2023 were $206.7 million (2022: -$297.9m) mainly due to the
receipt of $435 million in upfront and milestone payments from Takeda; and
· Net cash generated from financing activities in 2023 totaled
$48.7 million mainly due to the drawdowns of bank borrowings (2022: net cash
used in financing activities of $82.8m).
Revenue for the year ended December 31, 2023 were $838.0 million compared to $426.4 million in 2022.
· Oncology/Immunology consolidated revenue increased 223% (228% at
CER) to $528.6 million (2022: $163.8m) resulting from:
§ ELUNATE(®) revenue increased 19% (26% at CER) to $83.2 million (2022:
$69.9m) due to continued market share gains, comprising of manufacturing
revenue, promotion and marketing service revenue and royalties;
§ FRUZAQLA™ revenue was $7.2 million, reflecting its U.S. launch in early
November 2023, comprising of manufacturing revenue and royalties;
§ SULANDA(®) revenue increased 36% (43% at CER) to $43.9 million (2022:
$32.3m) from our continuing marketing activities, increasing patient access
and longer durations of treatment;
§ ORPATHYS(®) revenue increased 30% (37% at CER) to $28.9 million (2022:
$22.3m) after inclusion in the NRDL effective from March 2023, comprising of
manufacturing revenue and royalties;
§ TAZVERIK(®) revenue was $1.0 million (2022: $0.1m) from further sales in
the Hainan Pilot Zone;
§ Partnering revenue of $312.0 million was the $280 million recognized
portion of the $400 million upfront payment, and the $32 million recognized
portion of the US$35 million milestone payment from Takeda; and
§ Other R&D services income of $52.4 million (2022: $24.2m), primarily
related to fees from AstraZeneca, Lilly and Takeda for the management of
development and regulatory activities.
· Other Ventures consolidated revenue increased 18% (24% at CER) to
$309.4 million (2022: $262.6m), mainly due to higher sales of prescription
drugs. This excludes 4% (10% at CER) growth in non-consolidated revenue at
SHPL of $385.5 million (2022: $370.6m).
Net Expenses for 2023 were $737.2 million compared to $787.2 million in 2022.
· Cost of Revenue increased by 24% to $384.4 million (2022:
$311.1m), of which cost of revenue from our Other Ventures increased by 21% to
$292.7 million (2022: $241.9m) due to the increasing sales of third-party
prescription drug products. Cost of revenue from Oncology/Immunology increased
by 33% to $91.7 million (2022: $69.2m) due to the increase in product sales of
our marketed products and the cost of provision of promotion and marketing
services for ELUNATE(®) resulting from the increased sales force;
· R&D Expenses reduced 22% to $302.0 million (2022: $386.9m),
mainly due to the completion of several large registration-enabling trials,
the focus on ex-China development through partnerships, and the ongoing
strategic prioritization of our pipeline. Our international clinical and
regulatory operations in the U.S. and Europe incurred expenses of $106.9
million (2022: $170.9m), while R&D expenses in China were $195.1 million
(2022: $216.0m);
· SG&A(48) Expenses were $133.2 million (2022: $136.1m), which
decreased primarily due to the restructuring of our U.S. Oncology/Immunology
commercial operations at the end of 2022 while our China commercial
infrastructure was able to support further revenue growth; and
· Other Items mainly comprised of equity in earnings of SHPL,
interest income and expense, FX and taxes, generated net income of $82.4
million (2022: $46.9m), which increased primarily due to higher interest
income after receiving the $400 million Takeda upfront payment.
Net Income attributable to HUTCHMED for 2023 was $100.8 million compared to Net Loss attributable to HUTCHMED of $360.8 million in 2022.
· The net income attributable to HUTCHMED in 2023 was $0.12 per
ordinary share / $0.59 per ADS(49), compared to net loss attributable to
HUTCHMED of $0.43 per ordinary share / $2.13 per ADS in 2022.
Financial Summary
Condensed Consolidated Balance Sheets Data
(in $'000)
As of December 31,
2023 2022
Assets
Cash and cash equivalents and short-term investments 886,336 630,996
Accounts receivable 116,894 97,988
Other current assets 93,609 110,904
Property, plant and equipment 99,727 75,947
Investments in equity investees 48,411 73,777
Other non-current assets 34,796 39,833
Total assets 1,279,773 1,029,445
Liabilities and shareholders' equity
Accounts payable 36,327 71,115
Other payables, accruals and advance receipts 271,399 264,621
Deferred revenue 127,119 13,537
Bank borrowings 79,344 18,104
Other liabilities 22,197 25,198
Total liabilities 536,386 392,575
Company's shareholders' equity 730,541 610,367
Non-controlling interests 12,846 26,503
Total liabilities and shareholders' equity 1,279,773 1,029,445
Condensed Consolidated Statements of Operations Data
(in $'000, except share and per share data)
Year Ended December 31,
2023 2022
Revenue:
Oncology/Immunology - Marketed Products 164,165 124,642
Oncology/Immunology - R&D 364,451 39,202
Oncology/Immunology consolidated revenue 528,616 163,844
Other Ventures 309,383 262,565
Total revenue 837,999 426,409
Operating expenses:
Cost of revenue (384,447) (311,103)
Research and development expenses (302,001) (386,893)
Selling and general administrative expenses (133,176) (136,106)
Total operating expenses (819,624) (834,102)
Other income/(expense), net 39,933 (2,729)
Income/(loss) before income taxes and equity in earnings of equity investees 58,308 (410,422)
Income tax (expense)/benefit (4,509) 283
Equity in earnings of equity investees, net of tax 47,295 49,753
Net income/(loss) 101,094 (360,386)
Less: Net income attributable to non-controlling interests (314) (449)
Net income/(loss) attributable to HUTCHMED 100,780 (360,835)
Earnings/(losses) per share attributable to HUTCHMED (US$ per share)
- basic 0.12 (0.43)
- diluted 0.12 (0.43)
Number of shares used in per share calculation
- basic 849,654,296 847,143,540
- diluted 869,196,348 847,143,540
Earnings/(losses) per ADS attributable to HUTCHMED (US$ per ADS)
- basic 0.59 (2.13)
- diluted 0.58 (2.13)
Number of ADSs used in per share calculation
- basic 169,930,859 169,428,708
- diluted 173,839,270 169,428,708
Outlook and FINANCIAL GUIDANCE
2023 was an impressive year for HUTCHMED, in large part due to the upfront
payment of $400 million received from Takeda, of which $280 million was
recognized in revenue during 2023, with the remainder to be recognized when
services and performance obligations are completed over approximately three
years.
Full year 2024 guidance for Oncology/Immunology consolidated revenue is $300
million to $400 million, driven by 30% to 50% growth target in oncology
marketed product revenue.
HUTCHMED's work in 2024 and beyond will be supported by its strong balance
sheet, which grew by $255 million to $886 million in Cash, Cash Equivalents
and Short-Term Investments as of December 31, 2023. The Company is thus well
placed to deliver against its target to become a self-sustaining business and
its goal to bring its innovative medicines to patients globally through its
own sales network in China markets and through partners worldwide.
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 calls and audio webcast presentations scheduled today at
7:30 a.m. EST / 12:30 p.m. GMT / 8:30 p.m. HKT in English. In addition
to the usual English webcast, there will also be a Chinese (Putonghua) webcast
at 8:30 a.m. HKT on Thursday, February 29, 2024. After registering,
investors may access a live audio webcast of the call via HUTCHMED's website
at www.hutch-med.com/event/ (http://www.hutch-med.com/event/) .
Participants who wish to join the call by telephone and ask a question must
register. 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 approximately
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 medicines now approved marketed in China,
the first of which is also marketed in the U.S. 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 +852 2121 8200 / +1 973 306 4490 / ir@hutch-med.com
Media Enquiries
Ben Atwell / Alex Shaw, FTI Consulting +44 20 3727 1030 / +44 7771 913 902 (Mobile) /
+44 7779 545 055 (Mobile) / HUTCHMED@fticonsulting.com
(mailto:HUTCHMED@fticonsulting.com)
Zhou Yi, Brunswick +852 9783 6894 (Mobile) / HUTCHMED@brunswickgroup.com
(mailto:HUTCHMED@brunswickgroup.com)
Nominated Advisor
Atholl Tweedie / Freddy Crossley / Daphne Zhang, Panmure Gordon +44 (20) 7886 2500
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 subsidiaries 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 have been obtained will continue to
remain valid and effective in the future, 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; discovery,
development and/or commercialization of 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 pandemics and disease outbreaks. 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(50). 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 (E.U.) No 596/2014 (as it forms part of retained E.U. law as
defined in the European Union (Withdrawal) Act 2018).
Medical Information
This announcement contains information about products that may not be
available in all countries, or may be available under different trademarks,
for different indications, in different dosages, or in different strengths.
Nothing contained herein should be considered a solicitation, promotion or
advertisement for any prescription drugs including the ones under development.
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 900 scientists and staff (December
31, 2022: ~960), and an in-house oncology commercial organization of
approximately 930 staff (December 31, 2022: ~870).
We have 13 oncology drug candidates in clinical trials. Three of our
medicines, fruquintinib, surufatinib and savolitinib, have all been approved
and launched in mainland China with fruquintinib also approved in the U.S.,
Hong Kong and Macau. Our fourth medicine, tazemetostat, has been approved and
launched in Hainan Pilot Zone and Macau.
MARKETED PRODUCT SALES
Despite some initial challenges in the first quarter of the year due to the
impact of COVID-19 and impact from an anti-corruption crackdown of the
healthcare sector in China from the third quarter onwards, in-market sales of
HUTCHMED's novel oncology products continued to grow at 28% (35% at CER) to
$213.6 million (2022: $167.1m) in 2023.
Fruquintinib (ELUNATE(®) in China, FRUZAQLA™ in the U.S.)
ELUNATE(®) is approved for the treatment of third-line metastatic CRC for
which there is an approximate incidence of 105,000 new patients per year in
China. In 2023, ELUNATE(®) in China achieved in-market sales of $107.5
million, up 15% (22 % at CER) versus 2022 ($93.5 million). In China,
ELUNATE(®) is the leading treatment for late-stage CRC with 47% of 3L treated
patient share according to an IQVIA tracking study in Q2 2023.
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 revenue approximately
70-80% of ELUNATE(®) in-market sales from manufacturing fees, service fees
and royalties paid to us by Lilly. In 2023, we consolidated $83.2 million in
revenue for ELUNATE(®), equal to 77% of in-market sales.
Following negotiations with the China NHSA(51), ELUNATE(®) continues to be
included in the NRDL for a new two-year term starting in January 2024 at the
same price as the 2023 NRDL price.
Takeda launched FRUZAQLA™ in the U.S. within 48 hours after it was approved
for previously-treated metastatic CRC on November 8, 2023, with the first
prescription received a day after approval. According to Takeda, uptake has
been strong, with new patient starts exceeding expectations, and additional
regulatory applications progressing as expected including in the EU and Japan.
Since its launch until the end of 2023, FRUZAQLA™ achieved in-market U.S.
sales of $15.1 million.
This U.S. patient uptake was in parallel to the rapid inclusion of
fruquintinib to the 2023 "NCCN Clinical Practice Guidelines for Colon Cancer"
and the 2023 "NCCN Clinical Practice Guidelines for Rectal Cancer" on November
16, 2023. Fruquintinib has also been successfully recommended in six other
major treatment guidelines for colorectal cancer. These will continue to drive
awareness and usage of fruquintinib among doctors and patients.
In January 2024, ELUNATE(®) was approved in the Hong Kong Special
Administrative Region. This was the first medicine to be approved under the
new mechanism for registration of new drugs ("1+" mechanism). CRC was the
second most common cancer in Hong Kong in 2021, with about 5,900 new patients
diagnosed and associated with about 2,300 deaths.
Surufatinib (SULANDA(®) in China)
SULANDA(®) was launched in China in 2021 for the treatment of all advanced
NETs(52) for which there is an approximate incidence of 34,000 new patients
per year in China.
Total in-market sales in 2023 increased by 36% (43% at CER) to $43.9 million
(2022: $32.3 million). According to IQVIA tracking study report in Q4 2023,
SULANDA(®) maintained its position in the market with 21% prescription share
in NET treatment, ahead of competitors SUTENT(®) and AFINITOR(®).
Following negotiations with the China NHSA, SULANDA(®) continues to be
included in the NRDL for a new two-year term starting in January 2024, at the
same price as the 2023 NRDL price.
Surufatinib has been successfully recommended in 2023 "Chinese medical
association consensus for standardized diagnosis and treatment of pancreatic
cancer neuroendocrine neoplasms" and four other treatment guidelines for
neuroendocrine tumors. As a result, doctors' acceptance and patients' access
to SULANDA(®) continue to increase.
Savolitinib (ORPATHYS(®) in China)
ORPATHYS(®) is the first-in-class selective MET inhibitor to be approved in
China, launched and marketed by our partner, AstraZeneca 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, 2022 and the first two months of 2023, ORPATHYS(®) was sold as a
self-pay drug. Following negotiations with the China NHSA in January 2023,
ORPATHYS(®) has been included in the updated NRDL since March 1, 2023 at a
38% discount relative to the self-pay price, broadening patient access to this
medicine. Sales in 2023 were impacted by customary channel fluctuations
following the announcement (in January 2023) and implementation of the NRDL
listing (in March 2023), with increased volume in the latter part of 2023.
In-market sales for ORPATHYS(®) increased 12% (increased 19% at CER) in 2023
to $46.1 million (2022: $41.2m) resulting in our consolidation of $28.9
million (2022: $22.3m) in revenue primarily from drug product supply and
royalties. Sales in the second, third and fourth quarters of 2023 were
substantially higher than during the same period in 2022 before NRDL listing,
increasing 104% by volume.
Market understanding of the need for MET testing has improved significantly,
with approximately half of new advanced/relapsed NSCLC patients in China being
tested. 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 a similar guideline from
CSCO(53) also recommended ORPATHYS(®) as the standard of care for such
patients. As MET testing awareness and access increases, more patients are
expected to be prescribed a selective MET inhibitor.
In March 2023, ORPATHYS(®) was also approved in the Macau Special
Administrative Region.
Tazemetostat (TAZVERIK(®) in Hainan and Macau, China; the U.S. and Japan)
In May 2022, TAZVERIK(®) 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. Tazemetostat was included in the 2022
CSCO guidelines for epithelioid sarcoma. 16 epithelioid sarcoma patients began
treatment in 2023 (2022: 3). Tazemetostat is included in the 2023 CSCO
guideline for follicular lymphoma.
In March 2023, TAZVERIK(®) was approved in the Macau Special Administrative
Region.
RESEARCH & DEVELOPMENT
With U.S. FDA approval of fruquintinib in November 2023, we now possess a
track record of discovery, clinical development and marketing approval of an
innovative medicine in the global market.
Our strategy is aimed at accelerating our path to establish a long-term
sustainable business, by prioritizing late-stage and registrational studies in
China and partnering outside of China. HUTCHMED intends to continue to run
early phase development programs for selected drug candidates internationally
where we believe we can differentiate from a global perspective.
Below is a summary update of the clinical trial progress of our
investigational drug candidates. For more details about each trial, please
refer to recent scientific publications.
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(54) and gastric cancer clinical trials with about 2,500 patients to date,
both as a monotherapy and in combinations. AstraZeneca has paid HUTCHMED $85
million of the total $140 million in upfront payments, development and
approval milestones that are potentially payable under the relevant license
and collaboration agreement.
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 (NCT02143466) and SAVANNAH
(NCT03778229) studies. The encouraging results led to the initiation of three
Phase III studies: SACHI and SANOVO were initiated in China in 2021, and the
global, pivotal Phase III SAFFRON study started enrollment in 2022.
Savolitinib - NSCLC updates:
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 + TAGRISSO(®) SAVANNAH: 2L/3L EGFRm+(55); TAGRISSO(®) refractory; MET+ Global II Registration-intent Fully enrolled NCT03778229
Savolitinib + TAGRISSO(®) SAFFRON: 2L/3L EGFRm+; TAGRISSO(®) refractory; MET+ Global III Ongoing since 2022 NCT05261399
Savolitinib + TAGRISSO(®) SACHI: 2L EGFR TKI refractory NSCLC; MET+ China III Ongoing since 2021 NCT05015608
Savolitinib + TAGRISSO(®) SANOVO: Naïve patients with EGFRm & MET+ China III Ongoing since 2021 NCT05009836
Savolitinib monotherapy MET exon 14 skipping alterations China II Registration Approved & launched in 2021; Final OS analysis at ELCC(56) 2022 NCT02897479
Savolitinib monotherapy MET exon 14 skipping alterations China IIIb Confirmatory Fully enrolled in H1 2023; 1L cohort data at WCLC(57) 2023 NCT04923945
Savolitinib + IMFINZI(®) SOUND: MET-driven, EGFR wild type China II Ongoing since 2022 NCT05374603
The SAVANNAH global Phase II study in patients who have progressed following
TAGRISSO(®) due to MET amplification or overexpression has completed
recruitment. 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(®). We continue to evaluate the possibility of
using the SAVANNAH study as the basis for U.S. accelerated approval. In
comparison to other treatments options, this treatment is chemotherapy-free,
biomarker-specific and orally administered, aiming for a balanced efficacy,
safety and quality-of-life profile for lung cancer patients.
The SAFFRON study, which will evaluate the efficacy and safety of savolitinib
in combination with TAGRISSO(®) compared to pemetrexed plus platinum
doublet-chemotherapy, has now activated a majority of the approximately 250
sites in over 20 countries planned for the study.
Two registrational studies are ongoing in China in EGFR mutated NSCLC with MET
aberrations: the SANOVO study in treatment naïve patients, and SACHI study in
patients whose disease progressed following treatment with any first-line EGFR
TKI. Both trials are expected to complete enrollment in 2024.
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). A confirmatory Phase IIIb study in this patient
population fully enrolled in H1 2023 (NCT04923945). Results from the
first-line cohort of this study were disclosed at WCLC 2023. At data cut-off
date of April 30, 2023, among the 84 patients in the tumor response evaluable
set (TRES), ORR was 60.7% (95% CІ: 49.5% to 71.2%) and DCR was 95.2% (95%
CІ: 88.3% to 98.7%), as assessed by an independent review committee. At
median follow-up of 11.1 months, median PFS was 13.8 months (95% CІ: 9.7
months to not reached). Median DoR and OS have not been reached. No new safety
signals were observed.
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 3L gastric cancer with MET amplification. Two-stage, single-arm study China II registration-intent ~64 patient registration cohort enrolling since March 2023; NCT04923932
Breakthrough Therapy Designation
Preliminary efficacy and safety data from an interim analysis of 20 patients
in a Phase II trial of savolitinib monotherapy in patients with MET-amplified
advanced or metastatic gastroesophageal junction adeno-carcinomas or gastric
cancer was reported at AACR 2023, showing promising efficacy in patients with
MET-amplified diseases, particularly in patients with high MET gene copy
number. Confirmed ORR by independent review was 45%, or 50% in the 16 patients
with high MET gene copy number. DoR rate at 4-months was 85.7%. The most
common grade 3 or above TRAEs(58) (more than 5%) were decreased platelet
count, hypersensitivity, anemia, neutropenia and abnormal hepatic function.
The BID(59) regimen is being investigated to further evaluate the efficacy and
safety of savolitinib in MET high patients. Following consultation with the
NMPA with this data, a patient registration cohort began enrolling in March
2023.
Savolitinib - Kidney cancer:
MET is a key genetic driver in PRCC. 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. Savolitinib has been studied in multiple global studies in PRCC
patients, including the SAVOIR monotherapy and CALYPSO combination therapy
global Phase II trials, that both demonstrated highly encouraging results.
24-month follow-up of CALYPSO trial (NCT02819596) showed median PFS of 15.7
months and median OS of 27.4 months in MET-driven PRCC patients. These results
led to the initiation of a global Phase III, the SAMETA study, in 2021. Over
140 sites in over 20 countries are enrolling 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
Fruquintinib (ELUNATE(®) in China, FRUZAQLA™ in the U.S.)
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 5,700 patients to date, both as a monotherapy and
in combination with other agents.
Aside from its first approved indication of previously-treated metastatic CRC
(in China and the U.S.), studies of fruquintinib combined with various
checkpoint inhibitors (including TYVYT(®) and tislelizumab) are underway.
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 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: U.S. / Europe / Japan / Aus. III Approved & launched in the U.S. in Nov 2023; EMA MAA validated in Jun NCT04322539
metastatic CRC 2023; NDA filed in Japan in Sep 2023; Results published in The Lancet; further
data presented at ASCO GI(60), JSMO(61) & ASCO 2023
Fruquintinib monotherapy FRESCO: ≥ 3L CRC; chemotherapy refractory China III Approved & launched in 2018 NCT02314819
Fruquintinib + paclitaxel FRUTIGA: China III Supplemental NDA accepted by NMPA in Apr 2023; data at ASCO Plenary Series Feb NCT03223376
2L gastric cancer 2024
Fruquintinib + TYVYT(®) (PD-1) FRUSICA-1: China II registration-intent Fully enrolled; NDA filing expected in early 2024; Ib data at CSCO 2021 NCT03903705
endometrial cancer
Fruquintinib + TYVYT(®) (PD-1) FRUSICA-2: China II/III Fully enrolled; topline results expected around year end 2024 NCT05522231
clear cell renal cell carcinoma
Fruquintinib + TYVYT(®) (PD-1) Clear cell renal cell carcinoma China Ib/II Fully enrolled; Updated data at ASCO 2023 NCT03903705
Fruquintinib + TYVYT(®) (PD-1) CRC China II Data published in European Journal of Cancer NCT04179084
Fruquintinib + TYVYT(®) (PD-1) Gastrointestinal tumors, NSCLC, cervical cancer China Ib/II Fully enrolled; Gastric cancer data at ESMO(62) 2023; NSCLC and cervical NCT03903705
cancer data at ESMO Asia 2023
Fruquintinib monotherapy CRC; TN(63) & HR+(64)/ U.S. I/Ib CRC data at ASCO GI 2022; results supported the initiation of FRESCO‑2 NCT03251378
Her2-(65) breast cancer
Fruquintinib + tislelizumab (PD-1) MSS(66)-CRC U.S. Ib/II Ongoing since 2021; Fully enrolled; Follow-up ongoing; Conference submission NCT04577963
pending completion of follow-up
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 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. ASCO presentations showed that in subgroup
analyses by prior lines of therapies up to six or more and by prior treatment
with approved agents, fruquintinib improved OS and PFS for all subgroups and
prior therapies, consistent with those of the overall study population. A
separate study showed that during the study adverse events of special interest
led to low rates of dose reduction (13.6% for patients who received
fruquintinib vs 0.9% for patients who received placebo) and dose
discontinuation (8.3% for patients who received fruquintinib vs 6.1% for
patients who received placebo).
Filing of a rolling submission of an NDA was accepted by the FDA in May 2023
for priority review, with PDUFA date of November 30, 2023. Fruquintinib
(FRUZAQLA™ in the U.S.) was approved by the FDA on November 8, 2023. The MAA
filing to the EMA was validated in June 2023. The NDA was submitted to the
Japan PMDA in September 2023.
On January 26, 2024, fruquintinib obtained the marketing approval from the
Pharmacy and Poisons Board of Hong Kong for the treatment of adult patients
with previously treated metastatic CRC. This marked the first medicine to be
approved under the new mechanism for registration of new drugs ("1+"
mechanism) officially commenced on November 1, 2023. It allows drugs which are
beneficial for treatment of life-threatening or severely debilitating diseases
to apply for registration for use in Hong Kong, if they have supporting local
clinical data and recognition from relevant experts, when they have been
approved by only one reference drug regulatory authority (instead of two
otherwise). CRC was the second most common cancer in Hong Kong in 2021.
China Phase IV (NCT04005066) - Results presented at ASCO 2023 from a
prospective, 3,005-patient study to evaluate the safety of fruquintinib in
real-world clinical practice in China are consistent with the fruquintinib
safety profile observed in existing clinical studies, with no new or
significant safety signals identified.
Fruquintinib - Gastric cancer updates:
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.
Results were presented orally at ASCO Plenary Series in February 2024.
Patients on fruquintinib combined with paclitaxel achieved median PFS of 5.6
months, vs 2.7 months in the control group on paclitaxel only with HR of 0.569
and p < 0.0001. There was a numerical improvement in OS, with median OS of
9.6 months vs. 8.4 months; however, this was not statistically significant.
There was an imbalance of patients receiving subsequent antitumor therapies
across the two groups, with 52.7% in the fruquintinib plus paclitaxel group
vs. 72.2% in the paclitaxel monotherapy group. In a pre-specified sensitivity
analysis, when excluding patients taking subsequent antitumor therapy, OS
improvement was statistically significant for the treatment arm at 6.9 months
vs 4.8 months in the control arm with HR of 0.72 and p=0.0422. 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.
In April 2023, the NDA in China was accepted for review by the NMPA.
Fruquintinib - Combinations with checkpoint inhibitors updates:
Advanced endometrial cancer registration-intent cohort of TYVYT(®)
combination (NCT03903705) - Platinum-based systemic chemotherapy is the
standard first-line treatment for advanced endometrial cancer in China.
However, patients who progress following first-line therapy 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. In July 2023, the cohort fully enrolled and was granted
Breakthrough Therapy Designation. If the study results are positive, we expect
to file the NDA with the NMPA in this treatment setting in mid-2024.
Advanced metastatic clear-cell RCC (NCT05522231) - In first-line clear-cell
RCC, 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
(NCT03903705) data disclosed at ASCO 2023 showed encouraging anti-tumor
efficacy and durability in these patients. PFS results from this exploratory
study of the fruquintinib and sintilimab combination in metastatic clear-cell
RCC were reported. At data cut-off on November 30, 2022, median PFS was 15.9
months in 20 previously treated patients. No new safety signals were observed.
A Phase II/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. The enrollment was
completed in December 2023. A total of 234 patients have been enrolled in the
study. We expect to announce topline results around year end 2024.
Fruquintinib - Exploratory development:
In China, we support an investigator-initiated trial program for fruquintinib,
and there are about 90 of such trials ongoing in various solid tumor settings.
A number of investigator-initiated trials were presented at ASCO 2023, ESMO
2023 and ASCO GI 2024, including initial results of a Phase II study of
fruquintinib in combination with investigator's choice of chemotherapy in
second-line metastatic CRC with microsatellite stable (MSS) phenotype, as well
as fruquintinib monotherapy for the treatment of biliary tract cancer and soft
tissue sarcoma.
Fruquintinib - Partnership with Takeda:
In March 2023, HUTCHMED completed an exclusive worldwide license to Takeda 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 is eligible to receive up to $1.13 billion.
This includes $400 million which was received in April 2023 on closing of the
agreement, and up to $730 million in additional potential payments relating to
regulatory, development and commercial sales milestones, of which a $35
million milestone payment was received in December 2023 for the approval by
the U.S. FDA. HUTCHMED is also eligible to receive royalties on net sales.
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 2,900 patients to date, both as a monotherapy and in combinations,
and is approved in China. HUTCHMED currently retains rights to surufatinib
worldwide.
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 SANET-ep: epNET(67) China III Approved; Launched in 2021 NCT02588170
Surufatinib monotherapy SANET-p: pNET(68) China III Approved; Launched in 2021 NCT02589821
Surufatinib + TUOYI(®) (PD-1) SURTORI-01: 2L NEC(69) China III Ongoing since 2021 NCT05015621
Surufatinib + TUOYI(®) (PD-1) NENs(70), GC(71), ESCC(72), SCLC(73), NSCLC, EMC, TC(74), STS(75), BTC(76) China II Fully enrolled; Data at AACR 2023 & ASCO 2023 NCT04169672
Surufatinib + TUOYI(®) (PD-1) SCLC China II Fully enrolled NCT05509699
Ex-China regulatory discussions - 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. While discussions in 2020
suggested that two positive Phase III studies of surufatinib in patients with
pNETs and epNETs in China could form the basis to support a U.S. NDA
submission, this was ultimately not accepted. A new multi-regional clinical
trial (MRCT) would be required to move forward with this program in the U.S.,
Europe and Japan. Following dialogue with the Japanese PMDA, we have decided
not to file a Japanese NDA on the basis of the clinical trial data available
at this time.
Surufatinib - Combination therapy with checkpoint inhibitors:
A Phase II China study (NCT04169672) combining surufatinib with TUOYI(®)
enrolled patients in nine solid tumor types. 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 reported the results from the advanced endometrial cancer cohorts at ASCO
2023. Amongst efficacy evaluable endometrial cancer patients, median PFS was
5.4 months and 12-month OS rate was 71.0% (median follow-up duration was 16.8
months). The combination showed a tolerable safety profile. Additionally,
results from the NSCLC cohort were presented at AACR 2023 demonstrating
promising anti-tumor activity in first-line setting for advanced PD-L1
positive NSCLC patients with manageable toxicity.
Surufatinib - Exploratory development:
In China, we support an investigator-initiated trial program for surufatinib,
with about 110 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. A number of investigator-initiated trials were presented at
ASCO 2023, ESMO 2023 and ASCO GI 2024 for surufatinib in combination with
other agents, including with chemotherapy as well as with anti-PD-1 antibodies
plus different chemotherapy regimens in various solid types including
pancreatic adenocarcinoma, gastric/gastroesophageal junction adenocarcinoma
and biliary tract cancer. In one of these trials (NCT05218889) using
surufatinib in combination with camrelizumab (an anti-PD-1) plus chemotherapy
in first-line therapy for pancreatic adenocarcinoma, median PFS and OS were
9.2 months and 15.6 months, respectively, compared to 6.3 months and 8.6
months in the control group with chemotherapy only.
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. Sovleplenib
has been studied in clinical trials with around 600 patients to date.
In December 2022, we completed recruitment of a Phase III study in China for
primary ITP, for which it has received Breakthrough Therapy designation.
Positive proof of concept data was reported on primary ITP at ASH(77) 2021 and
published in Lancet Hematology in April 2023. In 2024, we plan to start a
dose-finding study in the U.S. 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; positive topline results achieved and NDA accepted with NCT05029635
priority review status in Jan 2024; results to be submitted at an upcoming
conference in mid-2024; Breakthrough Therapy Designation
Sovleplenib monotherapy ≥2L ITP U.S. Ib Dose-finding study to begin in 2024 Pending
Sovleplenib monotherapy Warm AIHA China II/III Phase II fully enrolled; Phase III expected in early 2024 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 188 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. All endpoints were met in August 2023 and the NDA has been
accepted for review and granted priority review by the NMPA in January 2024.
We plan to submit the results for presentation and/or publication in mid-2024.
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. The first patient was
enrolled in September 2022. The enrollment of Phase II part of the study was
completed in mid-2023 and primary end point has been met. We expect to
initiate Phase III in early-2024.
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. Tazemetostat has been studied in clinical
trials with around 1,300 patients to date.
We are developing and plan to seek approval for tazemetostat in various
hematological and solid tumors in China. We are participating in Ipsen's
SYMPHONY-1 (EZH-302) study, leading it in China. We are generally responsible
for funding all clinical trials of tazemetostat in China, including the
portion of global trials conducted there. Separately, we are conducting a
China bridging study in follicular lymphoma for potential conditional
registration based on its U.S. approvals. The study is fully enrolled and,
subject to the data, we plan to file the NDA in China in mid-2024. We are
responsible for the research, manufacturing and commercialization of
tazemetostat in China. Tazemetostat was approved in China Hainan Pilot Zone in
2022 and the Macau Special Administrative Region in 2023.
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, Macau N/A - Hainan Pilot Zone, Macau Approved; Launched in 2022 and 2023, respectively N/A
follicular lymphoma
Tazemetostat monotherapy Relapsed/refractory 3L+ follicular lymphoma China II registration-intent (bridging) Fully enrolled; NDA filing expected in mid-2024 NCT05467943
Tazemetostat + lenalidomide + rituximab (R²) SYMPHONY-1: Global Ib/III Ongoing; PhIb data at ASH 2022; China portion of global Ph III started H2 2022 NCT04224493
2L follicular lymphoma
Tazemetostat + amdizalisib Relapsed/refractory lymphoma China II Ongoing since Feb 2023 NCT05713110
SYMPHONY-1 Global Phase Ib/III combination study in relapsed/refractory
follicular lymphoma with ≥2 prior therapies (NCT04224493) - The Phase Ib
open-label portion of SYMPHONY-1 recruited 44 patients and showed ORR of
90.9%. In the 800-mg BID recommended Phase III dose cohort, 18-month PFS and
DOR estimates were 94.4% and 100%. There were no dose-limiting toxicities.
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 globally 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 Results presented at ASCO 2023; registration cohort enrolling since March 2023 NCT04353375
HMPL-453 + chemotherapies Multiple China I/II Ongoing since 2022 NCT05173142
HMPL-453 +TUOYI(®) (PD‑1) Multiple China I/II Ongoing since 2022 NCT05173142
China Phase II in IHCC (NCT04353375) - This is an open-label, single-arm Phase
II study to evaluate the efficacy and safety of HMPL-453 in the treatment of
patients with advanced IHCC harboring FGFR2 fusions/rearrangements after at
least one line of systemic treatment failure or intolerance. Results from 25
patients treated with two different dosing regimens were presented at the ASCO
2023 annual meeting, supporting the choice of the recommended Phase II dose of
300mg oral QD(78) (ORR of 50%). After consultation with the NMPA, a
monotherapy registration trial design was agreed with ORR as primary endpoint,
and the first patient was enrolled in March 2023.
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
has been studied in clinical trials with around 500 patients to date. HUTCHMED
currently retains all rights to amdizalisib worldwide.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
Amdizalisib monotherapy 3L Relapsed/refractory follicular lymphoma China II registration-intent Met primary endpoint; 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(79), peripheral T-cell lymphomas China Ib Completed; Updated data presented at ICML(80) 2023 NCT03128164
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 with alignment with China NMPA to support
conditional approval. The trial has fully enrolled the follicular lymphoma
cohort and the marginal zone lymphoma cohort enrollment is ongoing. In the
follicular lymphoma cohort, the primary endpoint of ORR met its pre-specified
threshold of demonstrating a clinically meaningful and a significant increase
in ORR in this setting. However, in recent discussions with China NMPA, it is
clear that a randomized study is required to support registration. In view of
the changing regulatory requirement, we are currently evaluating the clinical
development plan and regulatory guidance before deciding the regulatory
strategy for this indication.
Phase Ib expansion study in relapsed/refractory lymphoma (NCT03128164) - This
is an open‑label study to evaluate amdizalisib in relapsed and/or refractory
non-Hodgkin lymphoma patients. Updated safety data as well as efficacy data
were reported at ICML in June 2023. At median follow-up duration of 22.1
months, median DoR and PFS were not reached for the 26 efficacy evaluable
patients in the follicular lymphoma cohort. For the marginal zone lymphoma
cohort of 16 efficacy evaluable patients, at median follow-up duration of 20.3
months, median DoR was not reached and median PFS was 26.8 months. Amdizalisib
showed an acceptable safety profile and promising anti-tumor activity in
relapsed/refractory lymphoma.
HMPL-306
HMPL-306 is a novel dual-inhibitor of IDH1(81) 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 Myeloid hematological malignancies China I Dose escalation data presented at EHA(82) 2023; registration Phase III study NCT04272957
planned in 2024
HMPL-306 monotherapy Solid tumors including but not limited to gliomas, chondrosarcomas or U.S. I Ongoing since 2021 NCT04762602
cholangiocarcinomas
HMPL-306 monotherapy Hematological malignancies U.S. I Ongoing since 2021 NCT04764474
China Phase I in hematological malignancies (NCT04272957) - This is a
two-phase, open-label Phase I study to evaluate the safety, pharmacokinetics,
pharmacodynamics and efficacy of HMPL‑306 in patients of relapsed or
refractory hematological malignancies harboring IDH1 and/or IDH2 mutations.
The dose escalation phase of the study is completed. The first-in-human
dose-escalation phase data was presented at EHA Annual Meeting in June 2023
with ORR of 45-50%. Based on the pharmacodynamic, pharmacokinetic and
preliminary clinical findings, a recommended Phase II dose was determined for
the dose expansion phase of the study. We are planning to initiate a Phase III
registration study during the first half of 2024.
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(83) 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(84), other B-NHL China I Ongoing since Jan 2022; RP2D(85) determined; dose expansion ongoing NCT05190068
HMPL-295
HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of the
RAS-RAF-MEK-ERK signaling cascade (MAPK(86) pathway). This is our first of
multiple candidates in discovery targeting the MAPK pathway, followed by
HMPL-415 targeting SHP2. A China Phase I study was initiated in July 2021 for
HMPL-295. 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. Safety and efficacy
results on 22 patients with advanced solid tumors were reported during ESMO
Asia 2023.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-295 monotherapy Solid tumors China I Ongoing since 2021; data at ESMO Asia 2023 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 in combinations. 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. 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. HUTCHMED currently retains all rights to HMPL-A83
worldwide.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-A83 monotherapy Advanced malignant neoplasms China I Ongoing since July 2022 NCT05429008
HMPL-415
HMPL-415 is a novel SHP2 allosteric inhibitor. A China Phase I study was
initiated in July 2023. HUTCHMED currently retains all rights to HMPL-415
worldwide.
SHP2 is a non-receptor protein tyrosine phosphatase ubiquitously expressed
mainly in the cytoplasm of several tissues. SHP2 modulates diverse cell
signaling events that control metabolism, cell growth, differentiation, cell
migration, transcription and oncogenic transformation. It interacts with
diverse molecules in the cell, and regulates key signaling events including
RAS/ERK, PI3K/AKT, JAK/STAT and PD-1 pathways downstream of several receptor
tyrosine kinases (RTKs) upon stimulation by growth factors and cytokines. This
is the second of multiple candidates to have emerged from our discovery
research that targets this pathway, the first being HMPL-295. Dysregulation of
SHP2 expression or activity causes many developmental diseases, and
hematological and solid tumors.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
HMPL-415 monotherapy Solid tumors China I Ongoing since 2023 NCT05886374
Immunology Collaboration with Inmagene
We have a strategic partnership with Inmagene, a clinical development stage
company with a focus on immunological diseases, to further develop novel
preclinical drug candidates we discovered for the potential treatment of
multiple immunological diseases. Funded by Inmagene, we worked together to
move two drug candidates towards clinical trials. Inmagene advanced the drug
candidates through global clinical development. In October 2023, Inmagene
issued a notice to exercise its options to license these two drug candidates,
and the parties entered into a share subscription agreement in February 2024,
which, subject to customary closing conditions, entitles us to receive common
shares representing approximately 7.5% of the shares (fully diluted) in
Inmagene as consideration for the exercise of the options. Following receipt
of the shares, Inmagene will be granted an exclusive license to further
develop, manufacture and commercialize these two drug candidates worldwide.
Treatment Name, Line, Patient Focus Sites Phase Status/Plan NCT #
IMG-007 (OX40 antibody) Adults with alopecia areata with 50% or greater scalp hair loss Global IIa First patient dosed in October 2023 NCT06060977
IMG-007 (OX40 antibody) Adults with moderate to severe atopic dermatitis Global IIa First patient dosed in August 2023 NCT05984784
IMG-007 (OX40 antibody) Adult healthy volunteers Australia I Single ascending dose completed NCT05353972
IMG-004 (BTK inhibitor) Adult healthy volunteers Global I Single ascending dose completed 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. Phase I study in healthy volunteers
demonstrated that up to 600 mg of IMG-007 was safe and well-tolerated, with no
reports of pyrexia or chills, which were common adverse events of
rocatinlimab, another OX40 antibody treatment. At projected therapeutic dose
levels, IMG-007 demonstrated a mean terminal half-life of 31-37 days. The long
half-life combined with a potentially improved safety profile supports
IMG-007's best-in-class potential as an OX40 targeted therapy.
Two global, proof-of-concept Phase IIa trials are ongoing. One trial evaluates
the safety, pharmacokinetics and efficacy (EASI at week 12) of IMG-007 in
moderate-to-severe atopic dermatitis. Patients received intravenous IMG-007
three times over four weeks. The first patient was dosed in August 2023 and
Inmagene expects interim data readout in the third quarter of 2024. Another
trial evaluates the safety of IMG-007 in adults with alopecia areata with SALT
score ≥ 50. They will be given three doses over four weeks. First patient
was dosed in October 2023 and Inmagene expects interim data readout in the
third quarter of 2024.
IMG-004 in immunological diseases - This is a small molecule inhibitor that
binds to BTK in a non-covalent, reversible manner. Designed specifically for
inflammatory and autoimmune diseases that usually require long-term treatment,
IMG-004 is potent, highly selective and brain permeable. A Phase I single
ascending dose study in healthy volunteers in the U.S., initiated in August
2022, has recently completed. It showed that IMG‑004 was safe and
well-tolerated with a long half-life and sustained pharmacodynamic effects,
supporting further clinical development. Results will be submitted to an
upcoming medical conference.
MANUFACTURING
We have a drug product manufacturing facility in Suzhou which manufactures
both clinical and commercial supplies for fruquintinib and surufatinib. Our
Suzhou facility passed a pre-approval inspection (PAI) by the U.S. FDA in
August 2023. We have qualified two drug product sites for supplying
fruquintinib to the U.S. market: our own facility in Suzhou and a second site
in Switzerland.
We have also completed construction of, qualified, and obtained Drug
Manufacturing Permit for a new drug product facility in Pudong, Shanghai,
which will increase our novel drug product manufacturing capacity by over five
times. The manufacturing and technology transfer for some of our commercial
products are underway to this new facility. This is in line with our
previously outlined expectations of manufacturing clinical supplies from the
new facility starting in 2023 and commercial supplies around 2025, after the
necessary regulatory filings and approvals.
In line with our commitment to sustainable practices and environmental
stewardship, we have installed solar panels at this new facility. They
contribute renewable energy directly to our operations, particularly in
cooling indoor areas, significantly reducing electricity usage and greenhouse
gas emissions.
We completed process validation for the API(87) and drug product of
sovleplenib at the selected commercial manufacturing facilities to support the
approval of the product.
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 2023, our Other Ventures delivered growth with consolidated revenue up 18%
(24% at CER) to $309.4 million (2022: $262.6m). Consolidated net income
attributable to HUTCHMED from our Other Ventures decreased by 8% (3% at CER)
to $50.3 million (2022: $54.6m).
Hutchison Sinopharm(88): 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 24% (31% at CER) to $295.4 million in 2023 (2022: $237.3m).
In 2021, the Hong Kong International Arbitration Centre made a final award in
favor of Hutchison Sinopharm against Luye(89) in the amount of RMB253.2
million ($35.4 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 and subsequent appeals. 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 June 6,
2023, an appeal hearing filed by Luye was heard by the Court of Appeal in Hong
Kong and judgment is awaited.
SHPL: Our own-brand prescription drugs business, operated through our
non-consolidated joint venture SHPL, grew sales by 4% (10% at CER) to $385.5
million (2022: $370.6m). Net income attributable to HUTCHMED slightly
decreased by 5% (increase 1% at CER) to $47.4 million (2022: $49.9m) mainly
due to the impact of gradual price adjustment from volume-based procurement.
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 560 manufacturing staff.
SXBX(90) pill: SHPL's main product is SXBX pill, an oral vasodilator
prescription therapy for coronary artery disease. SXBX pill is the second
largest botanical prescription drug in this indication in China, with a
national market share in January to December 2023 of 22.0% (2022: 21.0%).
Sales increased by 2% (8% at CER) to $348.6 million in 2023 (2022: $341.6m).
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 of China.
We continue to explore divestment and equity capital market opportunities to
monetize our investment in SHPL.
Dividends: Our share of SHPL's profits are passed to the HUTCHMED Group
through dividend payments. In 2023, dividends of $42.3 million (2022: $43.7m)
were paid from SHPL to the HUTCHMED Group level with aggregate dividends
received by HUTCHMED since inception of over $320 million.
Consumer products businesses disposal: On December 7, 2023, HUTCHMED disposed
of its interests in HHOHK and HSN for HK$39.8 million ($5.1 million) to
Hutchison Whampoa (China) Limited. The disposal allows HUTCHMED to focus its
resources on its core business areas.
Weiguo Su
Chief Executive Officer and Chief Scientific Officer
February 28, 2024
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 generated from/(used in) operating activities to Adjusted Group net cash flows excluding financing activities:
$'millions 2023 2022
Net cash generated from/(used in) operating activities 219.3 (268.6)
Net cash (used in)/generated from investing activities (291.1) 296.6
Effect of exchange rate changes on cash and cash equivalents (6.5) (9.5)
Excludes: Deposits in short-term investments 1,627.8 1,202.0
Excludes: Proceeds from short-term investments (1,342.8) (1,518.4)
Adjusted Group net cash flows excluding financing activities 206.7 (297.9)
Reconciliation of GAAP revenue and net income attributable to HUTCHMED to CER:
$'millions (except %) Year Ended December 31, Change Amount Change %
2023 2022 Actual CER Exchange effect Actual CER Exchange effect
Consolidated revenue 838.0 426.4 411.6 437.0 (25.4) 97% 102% -5%
- Oncology/Immunology* 528.6 163.8 364.8 374.0 (9.2) 223% 228% -5%
* Includes:
- Products Sales 164.2 124.6 39.6 48.2 (8.6) 32% 39% -7%
- ELUNATE(®) 83.2 69.9 13.3 17.9 (4.6) 19% 26% -7%
- FRUZAQLA™ 7.2 - 7.2 7.2 - - - -
- SULANDA(®) 43.9 32.3 11.6 13.8 (2.2) 36% 43% -7%
- ORPATHYS(®) 28.9 22.3 6.6 8.3 (1.7) 30% 37% -7%
- TAZVERIK(®) 1.0 0.1 0.9 1.0 (0.1) 713% 728% -15%
- Other R&D services income 52.4 24.2 28.2 28.8 (0.6) 116% 119% -3%
- Other Ventures^ 309.4 262.6 46.8 63.0 (16.2) 18% 24% -6%
^ Includes:
- Hutchison Sinopharm - prescription drugs 295.4 237.3 58.1 74.0 (15.9) 24% 31% -7%
Non-consolidated joint venture revenue
- SHPL 385.5 370.6 14.9 36.1 (21.2) 4% 10% -6%
- SXBX pill 348.6 341.6 7.0 26.2 (19.2) 2% 8% -6%
Consolidated net income attributable to HUTCHMED - Other Ventures 50.3 54.6 (4.3) (1.3) (3.0) -8% -3% -5%
- Consolidated entities 2.9 4.7 (1.8) (1.6) (0.2) -39% -35% -4%
- Equity investees 47.4 49.9 (2.5) 0.3 (2.8) -5% 1% -6%
- SHPL
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.
Primarily due to an increase in total revenue driven by Oncology/Immunology
partnering, its strong commercial progress in China, and growth in third-party
distribution sales, we generated a net income attributable to HUTCHMED of
$100.8 million for the year ended December 31, 2023 (2022: net loss of
$360.8m).
As of December 31, 2023, we had cash and cash equivalents and short-term
investments of $886.3 million and unutilized bank facilities of $68.1 million.
As of December 31, 2023, we had $79.3 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 $168,000 and $318,000 for
the years ended December 31, 2023 and 2022, 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 $1.0 million as of December 31, 2023.
In addition, our non-consolidated joint venture, SHPL, held an aggregate of
$19.1 million in cash and cash equivalents and no bank borrowings as of
December 31, 2023. 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,
2023 2022
(in $'000)
Cash Flow Data:
Net cash generated from/(used in) operating activities 219,258 (268,599)
Net cash (used in)/generated from investing activities (291,136) 296,588
Net cash generated from/(used in) financing activities 48,660 (82,763)
Net decrease in cash and cash equivalents (23,218) (54,774)
Effect of exchange rate changes (6,471) (9,490)
Cash and cash equivalents at beginning of the year 313,278 377,542
Cash and cash equivalents at end of the year 283,589 313,278
Net Cash generated from/(used in) Operating Activities
Net cash used in operating activities was $268.6 million for the year ended
December 31, 2022, compared to net cash generated from operating activities of
$219.3 million for the year ended December 31, 2023. The net change of $487.9
million was primarily attributable to the net loss attributable to HUTCHMED of
$360.8 million for the year ended December 31, 2022 compared to net income
attributable to HUTCHMED of $100.8 million for the year ended December 31,
2023 (which included $312.0 million in upfront and milestone income recognized
from Takeda).
Net Cash (used in)/generated from Investing Activities
Net cash generated from investing activities was $296.6 million for the year
ended December 31, 2022, compared to net cash used in investing activities of
$291.1 million for the year ended December 31, 2023. The net change of $587.7
million was primarily attributable to placement of more short-term investments
which had net withdrawals of $316.4 million for the year ended December 31,
2022 as compared to net deposits of $285.0 million for the year ended December
31, 2023. The net change was partially offset by an increase in dividend
received from divestment of a former equity investee by $13.0 million from
$16.5 million during the year ended December 31, 2022 to $29.5 million during
the year ended December 31, 2023.
Net Cash generated from/(used in) Financing Activities
Net cash used in financing activities was $82.8 million for the year ended
December 31, 2022, compared to net cash generated from financing activities of
$48.7 million for the year ended December 31, 2023. The net change of $131.5
million was mainly attributable to bank borrowings which had a net repayment
of $9.2 million during the year ended December 31, 2022 as compared to net
proceeds of $61.7 million during the year ended December 31, 2023. The net
change was also attributable to a $39.0 million decrease in purchases of ADSs
by a trustee for the settlement of equity awards of the Company which totaled
$48.1 million for the year ended December 31, 2022 as compared to $9.1 million
for the year ended December 31, 2023, as well as a $16.5 million decrease in
dividends paid to non-controlling shareholders of subsidiaries from $25.6
million for the year ended December 31, 2022 to $9.1 million for the year
ended December 31, 2023.
LOAN FACILITIES
In October 2021, our subsidiary entered into a 10-year fixed asset loan
facility agreement with BOC(91) for the provision of a secured credit facility
in the amount of RMB754.9 million ($105.5 million) with an annual interest
rate at the 5-year China LPR(92) less 0.8% (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, 2023, RMB344.8
million ($48.2 million) was utilized from the fixed asset loan facility.
In May 2022, our subsidiary entered into a 12-month revolving loan facility
with HSBC(93) in the amount of HK$390.0 million ($50.0 million) with an
interest rate at HIBOR(94) plus 0.5% per annum. This revolving facility is
guaranteed by us. The revolving loan facility expired in May 2023.
In November 2023, our subsidiary entered into a short-term working capital
loan facility with BOC in the amount of RMB300.0 million ($41.9 million) with
an annual interest rate at the 1-year China LPR less 0.95%. This credit
facility includes certain financial covenant requirements. As of December 31,
2023, RMB222.9 million ($31.1 million) was drawn from the facility.
Our non-consolidated joint venture SHPL had no bank borrowings outstanding as
of December 31, 2023.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations as of December 31,
2023. 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 79,344 31,155 3,192 9,256 35,741
Interest on bank borrowings 11,034 2,411 3,228 2,913 2,482
Purchase obligations 1,259 1,259 - - -
Lease obligations 7,583 3,919 2,682 982 -
99,220 38,744 9,102 13,151 38,223
SHPL
The following table sets forth the contractual obligations of our
non-consolidated joint venture SHPL as of December 31, 2023. 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 376 376 - - -
Lease obligations 1,459 791 668 - -
1,835 1,167 668 - -
FOREIGN EXCHANGE RISK
A substantial portion of our revenue and expenses are denominated in renminbi,
and our consolidated financial statements are presented in U.S. dollars. While
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, any significant fluctuation in the value of
renminbi may adversely affect our cash flows, results of operations and
financial condition in the future.
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(95). 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 results
of a 1.0% interest rate shift would be a maximum increase/decrease of $0.1
million for the year ended December 31, 2023.
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 10.7% as of December 31, 2023, an
increase from 2.8% as of December 31, 2022. The increase was primarily
attributable to the increase in interest-bearing loans.
SIGNIFICANT INVESTMENTS HELD
Except for our investment in a non-consolidated joint venture SHPL with a
carrying value of $48.4 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, 2023.
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,
2023 were $42.3 million.
FUTURE PLANS FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS
Note 15 discloses our capital commitment as of December 31, 2023. Subsequent
to the construction completion of the drug product facility in Shanghai,
certain investments in capital assets in relation to the facility will be
made.
MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
During the year ended December 31, 2023, 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 BOC is secured by the
underlying leasehold land and buildings. RMB344.8 million ($48.2 million) was
utilized from the fixed asset loan facility as of December 31, 2023.
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 1.5% and 1.8% in 2021 and 2022 respectively and
decreased by 0.3% in 2023. 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, 2023.
OTHER INFORMATION
CORPORATE STRATEGY
The primary objective of the Company is to be 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, the Oncology/Immunology operations, to develop and expand the drug
candidate portfolio of the Group for the global market, building on the
first-mover advantage in the development and launch of novel cancer medicines
in China, and engaging partners for late-stage development and
commercialization outside of China. This strategy is aligned with the
Company's culture of innovation and high engagement and empowerment of staff
with a strong 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 its objectives. The Group also focuses on
sustainability and delivering business solutions to support the transition to
a low-carbon economy.
HUMAN RESOURCES
As at December 31, 2023, the Group employed approximately 1,990 (2022: ~2,030)
full time staff members. Staff costs for the year ended December 31, 2023,
including directors' emoluments, totaled $213.7 million (2022:
$227.2 million).
The Group fully recognizes the importance of high-quality employees 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
The key sustainability mission of the Group is to create long-term value for
all stakeholders by aligning its sustainability objectives to the strategic
development of its businesses. The Board of Directors ("the Board") has the
overall responsibility to ensure that sustainability issues are integrated
into the strategy and long-term development of the Group. It provides
oversight of the sustainability performance of the Group through closely
monitoring key sustainability matters and performance indicators, along with
trends, risks, and opportunities that may impact the business development of
the Group. Supported by the Sustainability Committee, senior management, and
the Sustainability Working Group, the Board oversees the management approach
to sustainability matters and the formulation of sustainability strategies.
A standalone Sustainability Report of the Company for 2023 will be published
alongside the 2023 Annual Report in April 2024 and included further
information on the Group's sustainability initiatives and their performance.
It will further discuss the abovementioned sustainability mission and
strategies, management approach, progress of goals and targets, material
quantitative data, as well as policies and key initiatives of the Group. Over
the course of 2024, the Group continues to engage its stakeholders to identify
areas for improvement in these sustainability fronts.
CLOSURE OF REGISTER OF MEMBERS
The register of members of the Company will be closed from Tuesday, May 7,
2024 to Friday, May 10, 2024, both days inclusive, during which period no
transfer of shares will be effected, to determine shareholders' entitlement to
attend and vote at the 2024 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 6, 2024.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
During the year ended December 31, 2023, 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 Company and its
subsidiaries 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, 2023 with all
applicable code provisions of the Hong Kong Corporate Governance Code
contained in Appendix C1 of the Rules Governing the Listing of Securities on
HKEX (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 C3 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 that they have complied with the required standards
set out in such code regarding their securities transactions throughout their
tenure during the year ended December 31, 2023.
ANNUAL GENERAL MEETING
The Annual General Meeting of the Company will be held on Friday, May 10,
2024. Notice of the 2024 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 $585.2 million from
the offering and the over-allotment option for the purposes and in the amounts
(adjusted on pro rata basis based on the actual net proceeds) as disclosed in
the prospectus of the Company dated June 18, 2021 is as below:
Use of Proceeds Percentage of Total Net Proceeds Approximate Amount Actual Usage up to December 31, 2023 Unutilized Net Proceeds as of December 31, 2023 Expected Timeline for Utilization of Proceeds (note)
(%) ($'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% 117.1 117.1 - Fully utilized
clinical and regulatory and manufacturing
Fund potential global business development and strategic acquisition 15% 87.8 87.8 - Fully utilized
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% 585.2 585.2 -
Note: There was no change in the intended use of net proceeds as previously
disclosed. The Company utilized the remaining net proceeds in accordance with
such intended purposes by the end of 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, 2023 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, 2023 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, 2023 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.londonstockex-change.com
(http://www.londonstockexchange.com) ) 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, 2023 will be published on the websites of HKEX and the
Company in April 2024.
REFERENCES AND ABBRIVATIONS
1. Takeda = Takeda Pharmaceuticals International AG, a subsidiary of
Takeda Pharmaceutical Company Limited.
2. R&D = Research and development.
3. NDA = New Drug Application.
4. NSCLC = Non-small cell lung cancer.
5. FDA = Food and Drug Administration.
6. PDUFA = U.S. Prescription Drug User Fee Act.
7. CRC = Colorectal cancer.
8. NCCN = National Comprehensive Cancer Network.
9. In-market sales = total sales to third parties provided by Eli
Lilly (ELUNATE(®)), Takeda (FRUZAQLA™), AstraZeneca (ORPATHYS(®)) and
HUTCHMED (ELUNATE(®), SULANDA(®), ORPATHYS(®) and TAZVERIK(®)).
10. MAA = Marketing Authorization Application.
11. EMA = European Medicines Agency.
12. PMDA = Pharmaceuticals and Medical Devices Agency.
13. EMC = Endometrial cancer.
14. RCC = Renal cell carcinoma.
15. NMPA = National Medical Products Administration.
16. Syk = Spleen tyrosine kinase.
17. ITP = Immune thrombocytopenia purpura.
18. AstraZeneca = AstraZeneca AB, a subsidiary of AstraZeneca plc.
19. CER = Constant exchange rate. We also report changes in performance at
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.
20. Source: IQVIA. Report on file.
21. TPO = Thrombopoietin; TPO-RAs = Thrombopoietin receptor agonists.
22. MET = Mesenchymal epithelial transition factor.
23. EGFR = Epidermal growth factor receptor.
24. TKI = Tyrosine kinase inhibitor.
25. NRDL = National Reimbursement Drug List.
26. Lilly = Eli Lilly and Company.
27. VEGFR = Vascular endothelial growth factor receptor.
28. ASCO = American Society of Clinical Oncology.
29. PFS = Progression free survival.
30. ORR = Objective response rate.
31. DCR = Disease control rate.
32. OS = Overall survival.
33. PD-1 = Programmed cell death protein-1.
34. FGFR = Fibroblast growth factor receptor.
35. CSF-1R = Colony-stimulating factor 1 receptor.
36. AACR = American Association for Cancer Research.
37. AIHA = Autoimmune hemolytic anemia.
38. Ipsen = Ipsen SA, parent of Epizyme Inc.
39. DoR = Duration of response.
40. IHCC = Intrahepatic cholangiocarcinoma.
41. PI3Kδ = Phosphoinositide 3-kinase delta.
42. Inmagene = Inmagene Biopharmaceuticals.
43. BTK = Bruton tyrosine kinase.
44. SHPL = Shanghai Hutchison Pharmaceuticals Limited.
45. HHOHK = Hutchison Hain Organic (Hong Kong) Limited.
46. HSN = HUTCHMED Science Nutrition Limited.
47. GAAP = Generally Accepted Accounting Principles.
48. SG&A= Selling, general, and administrative expenses.
49. ADS = American depositary share.
50. HKEX = The Main Board of The Stock Exchange of Hong Kong Limited.
51. NHSA = China National Healthcare Security Administration.
52. NET = Neuroendocrine tumor.
53. CSCO = Chinese Society of Clinical Oncology.
54. PRCC = Papillary renal cell carcinoma.
55. EGFRm+ = Epidermal growth factor receptor mutated.
56. ELCC = The European Lung Cancer Congress.
57. WCLC = World Conference on Lung Cancer.
58. TRAE = Treatment-related adverse events.
59. BID = Twice a day.
60. GI = Gastrointestinal.
61. JSMO = Japanese Society of Medical Oncology.
62. ESMO = European Society for Medical Oncology.
63. TN = Triple negative.
64. HR+ = Hormone receptor positive.
65. Her2- = Human epidermal growth factor receptor 2 negative.
66. MSS = Microsatellite stable.
67. epNET = Extra-pancreatic neuroendocrine tumor.
68. pNET= Pancreatic neuroendocrine tumor.
69. NEC = Neuroendocrine carcinoma.
70. NEN = Neuroendocrine neoplasms.
71. GC = Gastric cancer.
72. ESCC = Esophageal squamous cell carcinoma.
73. SCLC = Small cell lung cancer.
74. TC = Thyroid cancer.
75. STS = Soft tissue sarcoma.
76. BTC = Biliary tract cancer.
77. ASH = American Society of Hematology.
78. QD = Once a day.
79. NHL = Non-Hodgkin Lymphoma.
80. ICML = International Conference on Malignant Lymphoma.
81. IDH = Isocitrate dehydrogenase.
82. EHA = European Hematology Association.
83. CLL = Chronic lymphocytic leukemia.
84. SLL = Small lymphocytic lymphoma.
85. RP2D = Recommended phase 2 dose.
86. MAPK = Mitogen-activated protein kinase.
87. API = Active pharmaceutical ingredient.
88. Hutchison Sinopharm = Hutchison Whampoa Sinopharm Pharmaceuticals
(Shanghai) Company Limited.
89. Luye = Luye Pharma Hong Kong Ltd.
90. SXBX = She Xiang Bao Xin.
91. BOC = Bank of China Limited.
92. LPR = Loan Prime Rate.
93. HSBC = The Hongkong and Shanghai Banking Corporation Limited.
94. HIBOR = Hong Kong Interbank Offered Rate.
95. PBOC = People's Bank of China.
CONSOLIDATED FINANCIAL STATEMENTS
HUTCHMED (CHINA) LIMITED
Consolidated Balance Sheets
(in US$'000, except share data)
December 31,
Note 2023 2022
Assets
Current assets
Cash and cash equivalents 5 283,589 313,278
Short-term investments 5 602,747 317,718
Accounts receivable 6 116,894 97,988
Other receivables, prepayments and deposits 7 14,889 53,216
Amounts due from related parties 24 28,462 998
Inventories 8 50,258 56,690
Total current assets 1,096,839 839,888
Property, plant and equipment 9 99,727 75,947
Right-of-use assets 10 4,665 8,722
Deferred tax assets 25(ii) 15,456 15,366
Investments in equity investees 11 48,411 73,777
Other non-current assets 14,675 15,745
Total assets 1,279,773 1,029,445
Liabilities and shareholders' equity
Current liabilities
Accounts payable 12 36,327 71,115
Other payables, accruals and advance receipts 13 271,399 264,621
Short-term bank borrowings 14 31,155 -
Deferred revenue 18 57,639 13,347
Income tax payable 25(iii) 2,580 1,112
Lease liabilities 10 3,927 3,708
Total current liabilities 403,027 353,903
Lease liabilities, non-current portion 10 2,860 5,196
Deferred tax liabilities 25(ii) 1,484 2,710
Long-term bank borrowings 14 48,189 18,104
Deferred revenue, non-current portion 18 69,480 190
Other non-current liabilities 11,346 12,472
Total liabilities 536,386 392,575
Commitments and contingencies 15
Company's shareholders' equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 871,256,270 16 87,126 86,478
and 864,775,340 shares issued at December 31, 2023 and 2022 respectively
Additional paid-in capital 1,522,447 1,497,273
Accumulated losses (870,869) (971,481)
Accumulated other comprehensive loss (8,163) (1,903)
Total Company's shareholders' equity 730,541 610,367
Non-controlling interests 12,846 26,503
Total shareholders' equity 743,387 636,870
Total liabilities and shareholders' equity 1,279,773 1,029,445
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Operations
(in US$'000, except share and per share data)
Year Ended December 31,
Note 2023 2022 2021
Revenue
Goods -third parties 388,924 314,329 266,199
-related parties 24(i) 8,264 5,293 4,256
Services -commercialization-third parties 48,608 41,275 27,428
-research and development 24(i) 481 507 525
-related parties
-collaboration research and development 80,397 23,741 18,995
-third parties
Other collaboration revenue
-royalties-third parties 32,470 26,310 15,064
-licensing-third parties 278,855 14,954 23,661
Total revenue 18 837,999 426,409 356,128
Operating expenses
Cost of goods-third parties (331,984) (268,698) (229,448)
Cost of goods-related parties (4,777) (3,616) (3,114)
Cost of services-commercialization -third parties (47,686) (38,789) (25,672)
Research and development expenses 20 (302,001) (386,893) (299,086)
Selling expenses (53,392) (43,933) (37,827)
Administrative expenses (79,784) (92,173) (89,298)
Total operating expenses (819,624) (834,102) (684,445)
18,375 (407,693) (328,317)
Gain on divestment of an equity investee 22 - - 121,310
Other income/(expense)
Interest income 27 36,145 9,599 2,076
Other income 23 12,949 1,833 2,426
Interest expense 27 (759) (652) (592)
Other expense 23 (8,402) (13,509) (12,643)
Total other income/(expense) 39,933 (2,729) (8,733)
Income/(loss) before income taxes and equity in earnings of equity investees 58,308 (410,422) (215,740)
Income tax (expense)/benefit 25(i) (4,509) 283 (11,918)
Equity in earnings of equity investees, net of tax 11 47,295 49,753 60,617
Net income/(loss) 101,094 (360,386) (167,041)
Less: Net income attributable to non-controlling interests (314) (449) (27,607)
Net income/(loss) attributable to the Company 100,780 (360,835) (194,648)
Earnings/(losses) per share attributable to the Company (US$ per share)
-basic 26 0.12 (0.43) (0.25)
-diluted 26 0.12 (0.43) (0.25)
Number of shares used in per share calculation
-basic 26 849,654,296 847,143,540 792,684,524
-diluted 26 869,196,348 847,143,540 792,684,524
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Comprehensive INCOME/(Loss)
(in US$'000)
Year Ended December 31,
2023 2022 2021
Net income/(loss) 101,094 (360,386) (167,041)
Other comprehensive (loss)/income
Foreign currency translation (loss)/gain (6,592) (8,469) 2,964
Total comprehensive income/(loss) 94,502 (368,855) (164,077)
Less: Comprehensive loss/(income) attributable to non-controlling interests 39 545 (28,029)
Total comprehensive income/(loss) attributable to the Company 94,541 (368,310) (192,106)
The accompanying notes are an integral part of these consolidated financial
statements.
HUTCHMED (CHINA) LIMITED
Consolidated Statements of Changes in Shareholders' Equity
(in US$'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
Income/(Loss)
Equity
As at January 1, 2021 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 private investment in public equity 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
Long-term incentive plan ("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 (Note - - - - - - (9,894) (9,894)
24(iii))
Transfer between reserves - - 89 (89) - - - -
Divestment of an equity investee (Note 22) - - (21) - (1,447) (1,468) (443) (1,911)
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 (Note 17(ii)) - - (48,084) - - (48,084) - (48,084)
Dividends declared to non-controlling shareholders of subsidiaries (Note - - - - - - (25,600) (25,600)
24(iii))
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
Net income - - - 100,780 - 100,780 314 101,094
Issuances in relation to share option exercises 6,481 648 4,446 - - 5,094 - 5,094
Share-based compensation
Share options - - 6,175 - - 6,175 9 6,184
LTIP - - 23,619 - - 23,619 (4) 23,615
- - 29,794 - - 29,794 5 29,799
LTIP-treasury shares acquired and held by Trustee (Note 17(ii)) - - (9,071) - - (9,071) - (9,071)
Dividends declared to non-controlling shareholders of subsidiaries (Note - - - - - - (9,068) (9,068)
24(iii))
Transfer between reserves - - 168 (168) - - - -
Divestment of subsidiaries - - (114) - (25) (139) (4,555) (4,694)
Divestment of other equity investee - - (49) - 4 (45) - (45)
Foreign currency translation adjustments - - - - (6,239) (6,239) (353) (6,592)
As at December 31, 2023 871,256 87,126 1,522,447 (870,869) (8,163) 730,541 12,846 743,387
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 2023 2022 2021
Net cash generated from/(used in) operating activities 28 219,258 (268,599) (204,223)
Investing activities
Purchases of property, plant and equipment (32,612) (36,664) (16,401)
Purchase of leasehold land - - (355)
Refund of leasehold land deposit - - 930
Deposits in short-term investments (1,627,875) (1,202,013) (1,355,976)
Proceeds from short-term investments 1,342,846 1,518,453 921,364
Purchase of a warrant 19 - - (15,000)
Dividend and proceeds received from divestment of Hutchison Whampoa Guangzhou 22 29,495 16,488 159,118
Baiyunshan Chinese Medicine Company Limited ("HBYS")
Proceeds from divestment of other equity investee - 324 -
Proceeds from divestment of subsidiaries 24(i) 5,103 - -
Cash disposed from divestment of subsidiaries (8,093) - -
Net cash (used in)/generated from investing activities (291,136) 296,588 (306,320)
Financing activities
Proceeds from issuances of ordinary shares 5,094 174 717,319
Purchases of treasury shares 17(ii) (9,071) (48,084) (27,309)
Dividends paid to non-controlling shareholders of subsidiaries 24(iii) (9,068) (25,600) (9,894)
Repayment of loan to a non-controlling shareholder of a subsidiary - - (579)
Proceeds from bank borrowings 61,705 17,753 -
Repayment of bank borrowings - (26,923) -
Payment of issuance costs - (83) (29,509)
Net cash generated from/(used in) financing activities 48,660 (82,763) 650,028
Net (decrease)/increase in cash and cash equivalents (23,218) (54,774) 139,485
Effect of exchange rate changes on cash and cash equivalents (6,471) (9,490) 2,427
(29,689) (64,264) 141,912
Cash and cash equivalents
Cash and cash equivalents at beginning of year 313,278 377,542 235,630
Cash and cash equivalents at end of year 283,589 313,278 377,542
Supplemental disclosure for cash flow information
Cash paid for interest 421 150 425
Cash paid for tax, net of refunds 25(iii) 3,728 18,891 5,014
Supplemental disclosure for non-cash activities
Increase in accrued capital expenditures 5,713 9,618 8,607
Vesting of treasury shares for LTIP 17(ii) 18,148 12,034 1,450
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 investee 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, 2023, the Group had accumulated losses of US$870,869,000
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,
2023, the Group had cash and cash equivalents of US$283,589,000, short-term
investments of US$602,747,000 and unutilized bank borrowing facilities of
US$68,069,000. 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 from Shanghai Hutchison
Pharmaceuticals Limited ("SHPL") for the years ended December 31, 2023, 2022
and 2021 were US$42,308,000, US$43,718,000 and US$49,872,000 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.
2. Particulars of Principal Subsidiaries and Equity Investee
Place of Equity interest attributable
establishment to the Group
and operations
December 31,
Name 2023 2022 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 % Wholesale and trading of healthcare and consumer products
HUTCHMED Science Nutrition Limited ("HSN") (note) Hong Kong - % 100 % Wholesale and trading of healthcare and consumer products
Equity investee
SHPL PRC 50 % 50 % Manufacture and distribution of prescription drug products
Note: On December 7, 2023, the Group completed a transaction to divest its
entire investment in HHOHK and HSN to Hutchison Whampoa (China) Limited, an
indirect subsidiary of CK Hutchison Holdings Limited ("CK Hutchison") (Note
24(i)).
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. When a subsidiary is deconsolidated from the date that control
ceases, any gain or loss on the divestment of the interest sold is recognized
in profit or loss. Amounts previously recognized in other comprehensive
income/(loss) for the subsidiary are transferred to the consolidated
statements of operations as part of the gain or loss on the divestment. 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 revenue 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 revenue and expenses are
translated at average exchange rates for the year. Translation adjustments are
reflected in accumulated other comprehensive income/(loss) in shareholders'
equity.
Net foreign currency exchange gains/(losses) of US$8,661,000, (US$5,704,000)
and US$1,671,000 were recorded in other income and expense in the consolidated
statements of operations for the years ended December 31, 2023, 2022 and 2021
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.
The Company's ordinary shares are traded in the form of ordinary shares and
ADS. Each ADS represents five ordinary shares.
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, revenue, net income after taxes
and the achievement of clinical, regulatory, business development and
manufacturing 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, 2023, 2022 and 2021 were US$11,708,000, US$11,795,000 and
US$7,181,000 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. Revenue is 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 licenses to the development,
commercialization and manufacture rights of a drug compound, (2) the research
and development services for each specified treatment indication, and (3)
other deliverables, 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 and cost plus margin 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 a percentage-of-completion method. 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 revenue is
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 expense
in its consolidated statements of operations.
Earnings/(losses) per Share
Basic earnings/(losses) per share is computed by dividing net income/(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 earnings/(losses) per share is computed by dividing net income/(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 earnings/(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 investee 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 investee, the amount of
appropriations to these funds are made at the discretion of its respective
board.
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
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. Bank borrowings are floating rate instruments and carried at
amortized cost, which approximates fair values.
5. Cash and Cash Equivalents and Short-term Investments
December 31,
2023 2022
(in US$'000)
Cash and Cash Equivalents
Cash at bank and on hand 129,968 178,326
Bank deposits maturing in three months or less 153,621 134,952
283,589 313,278
Short-term Investments
Bank deposits maturing over three months (note) 602,747 317,718
886,336 630,996
Note: The maturities for short-term investments ranged from 91 to 187 days and
91 to 99 days for the years ended December 31, 2023 and 2022 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,
2023 2022
(in US$'000)
US$ 836,718 533,173
RMB 45,772 79,319
Hong Kong dollar ("HK$") 3,114 16,721
£ 713 1,370
Others 19 413
886,336 630,996
6. Accounts Receivable
Accounts receivable from contracts with customers consisted of the following:
December 31,
2023 2022
(in US$'000)
Accounts receivable-third parties 115,169 94,531
Accounts receivable-related parties (Note 24(ii)) 1,896 3,517
Allowance for credit losses (171) (60)
Accounts receivable, net 116,894 97,988
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,
2023 2022
(in US$'000)
Not later than 3 months 96,057 84,007
Between 3 months to 6 months 11,507 7,478
Between 6 months to 1 year 6,439 1,947
Later than 1 year 1,166 1,099
Accounts receivable-third parties 115,169 94,531
Movements on the allowance for credit losses:
2023 2022 2021
(in US$'000)
As at January 1 60 20 95
Increase in allowance for credit losses 141 150 16
Decrease in allowance due to subsequent collection (16) (107) (92)
Exchange difference (7) (3) 1
Divestment of subsidiaries (7) - -
As at December 31 171 60 20
7. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the following:
December 31,
2023 2022
(in US$'000)
Prepayments 7,108 22,329
Interest receivables 2,936 807
Value-added tax receivables 2,166 1,491
Deposits 1,065 1,214
Dividend receivables (Note 22) - 26,246
Others 1,614 1,129
14,889 53,216
No allowance for credit losses has been made for other receivables,
prepayments and deposits for the years ended December 31, 2023 and 2022.
8. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted
of the following:
December 31,
2023 2022
(in US$'000)
Raw materials 26,784 27,392
Finished goods 23,474 29,298
50,258 56,690
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Buildings Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Construction in progress Total
(in US$'000)
Cost
As at January 1, 2023 2,233 16,836 7,454 31,738 54,550 112,811
Additions - 216 99 1,094 36,916 38,325
Disposals - - (230) (468) - (698)
Divestment of subsidiaries - (202) - (172) - (374)
Transfers 54,549 1,420 16,373 8,453 (80,795) -
Exchange differences (60) (418) (212) (828) (2,250) (3,768)
As at December 31, 2023 56,722 17,852 23,484 39,817 8,421 146,296
Accumulated depreciation and impairment
As at January 1, 2023 1,753 13,282 2,670 19,159 - 36,864
Depreciation 565 1,824 1,008 4,491 - 7,888
Impairment - 515 2,013 1,150 - 3,678
Disposals - - (148) (464) - (612)
Divestment of subsidiaries - (97) - (143) - (240)
Exchange differences (48) (356) (80) (525) - (1,009)
As at December 31, 2023 2,270 15,168 5,463 23,668 - 46,569
Net book value
As at December 31, 2023 54,452 2,684 18,021 16,149 8,421 99,727
Buildings Leasehold improvements Plant and equipment Furniture and fixtures, other equipment and motor vehicles Construction in progress Total
(in US$'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
10. Leases
Leases consisted of the following:
December 31,
2023 2022
(in US$'000)
Right-of-use assets
Offices 3,321 6,634
Factories 113 387
Warehouse (note) 1,061 1,500
Others 170 201
Total right-of-use assets 4,665 8,722
Lease liabilities, current portion 3,927 3,708
Lease liabilities, non-current portion 2,860 5,196
Total lease liabilities 6,787 8,904
Note: Comprised of a warehouse in Suzhou that is leased through June 2026 in
which the contract has a termination option with 3-month advance notice. The
termination option was not recognized as part of the right-of-use asset and
lease liability as it is uncertain that the Group will exercise such option.
Lease activities are summarized as follows:
Year Ended December 31,
2023 2022
(in US$'000)
Lease expenses:
Short-term leases with lease terms equal or less than 12 months 203 134
Leases with lease terms greater than 12 months 5,314 5,238
Impairment 2,088 -
7,605 5,372
Cash paid on lease liabilities 5,461 5,212
Non-cash: Lease liabilities recognized from obtaining right-of-use assets 3,429 2,689
Non-cash: Lease liabilities changed in relation to modifications and - (499)
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, 2023 was 2.49 years and 2.92% respectively. 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.
Future lease payments are as follows:
December 31,
2023
(in US$'000)
Lease payments:
Not later than 1 year 4,042
Between 1 to 2 years 1,192
Between 2 to 3 years 919
Between 3 to 4 years 698
Between 4 to 5 years 124
Total lease payments 6,975
Less: Discount factor (188)
Total lease liabilities 6,787
11. Investments in Equity Investees
Investments in equity investees consisted of the following:
December 31,
2023 2022
(in US$'000)
SHPL 48,411 73,461
Other (note) - 316
48,411 73,777
Note: On April 13, 2023, the Group completed a transaction to divest its
entire investment in a former equity investee to a third party.
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 (divested in 2021), is as follows:
(i) Summarized balance sheets
SHPL
December 31,
2023 2022
(in US$'000)
Current assets 201,025 214,267
Non-current assets 73,939 80,062
Current liabilities (179,649) (147,952)
Non-current liabilities (3,687) (4,944)
Net assets 91,628 141,433
(ii) Summarized statements of operations
SHPL HBYS
Year Ended December 31, Period Ended September 28,
2023 2022 2021 2021((note (a)))
(in US$'000)
Revenue 385,483 370,600 332,648 209,528
Gross profit 284,361 281,113 255,089 111,066
Interest income 754 980 1,216 205
Profit before taxation 112,488 116,454 105,325 36,715
Income tax expense (note (b)) (17,636) (16,738) (15,896) (4,840)
Net income (note(c)) 94,852 99,716 89,429 31,875
Non-controlling interests - - - (36)
Net income attributable to the shareholders of equity investee 94,852 99,716 89,429 31,839
Notes:
(a) 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.
(b) 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, 2023, 2022 and 2021.
(c) Net income is before elimination of unrealized profits on transactions
with the Group. The amounts eliminated were approximately US$131,000,
US$110,000 and US$36,000 for the years ended December 31, 2023, 2022 and 2021
respectively.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the
carrying amount of investments in equity investees is as follows:
SHPL HBYS
2023 2022 2021 2021((note))
(in US$'000)
Opening net assets after non-controlling interests as at January 1 141,433 145,741 152,714 119,424
Net income attributable to the shareholders of equity investee 94,852 99,716 89,429 31,839
Dividends declared (146,974) (87,436) (99,744) (106,159)
Other comprehensive income/(loss) 2,317 (16,588) 3,342 1,387
Closing net assets after non-controlling interests as at December 31/September 91,628 141,433 145,741 46,491
28
Group's share of net assets 45,814 70,717 72,871 23,246
Goodwill 2,795 2,872 3,128 -
Elimination of unrealized profits on downstream sales (198) (128) - -
Divestment (Note 22) - - - (23,246)
Carrying amount of investments as at December 31 48,411 73,461 75,999 -
Note: The summarized financial information 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.
SHPL had the following capital commitments:
December 31, 2023
(in US$'000)
Property, plant and equipment
Contracted but not provided for 376
12. Accounts Payable
December 31,
2023 2022
(in US$'000)
Accounts payable 36,327 71,115
Substantially all accounts payable are denominated in RMB, EUR 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,
2023 2022
(in US$'000)
Not later than 3 months 33,233 60,553
Between 3 months to 6 months 1,058 7,216
Between 6 months to 1 year 941 2,137
Later than 1 year 1,095 1,209
36,327 71,115
13. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the following:
December 31,
2023 2022
(in US$'000)
Accrued research and development expenses 153,737 156,134
Accrued salaries and benefits 45,048 42,442
Accrued capital expenditures 23,659 21,390
Accrued selling and marketing expenses 16,340 11,564
Accrued administrative and other general expenses 15,777 14,491
Amounts due to related parties (Note 24(ii)) 2,162 2,101
Deposits 1,564 3,616
Deferred government grants 740 673
Others 12,372 12,210
271,399 264,621
14. Bank Borrowings
Bank borrowings consisted of the following:
December 31,
2023 2022
(in US$'000)
Current 31,155 -
Non-current 48,189 18,104
79,344 18,104
The weighted average interest rate for outstanding bank borrowings for the
years ended December 31, 2023 and 2022 was 3.41% per annum and 1.73% per annum
respectively. The carrying amounts of the Group's outstanding bank borrowings
as at December 31, 2023 and 2022 were denominated in RMB.
(i) Short-term working capital loan facility
In November 2023, a subsidiary entered into a short-term working capital loan
facility with a bank in the amount of RMB300,000,000 (US$41,923,000) with an
annual interest rate at the 1-year China Loan Prime Rate ("LPR") less 0.95%.
As at December 31, 2023, RMB222,941,000 (US$31,155,000) was drawn from the
facility.
(ii) 10‑year fixed asset loan facility
In October 2021, a subsidiary entered into a 10-year fixed asset loan facility
agreement with the bank for the provision of a secured credit facility in the
amount of RMB754,880,000 (US$105,490,000) with an annual interest rate at the
5-year China LPR 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, 2023 and 2022, RMB344,840,000 (US$48,189,000) and
RMB126,083,000 (US$18,104,000) were utilized from the fixed asset loan
facility respectively. For the years ended December 31, 2023 and 2022,
US$1,047,000 and US$110,000 were related to capitalized interest.
(iii) 1-year revolving loan facility
In May 2022, the Group through its subsidiary, entered into a 1-year revolving
loan facility with a bank in the amount of HK$390,000,000 (US$50,000,000) with
an interest rate at Hong Kong Interbank Offered Rate plus 0.5% per annum. This
credit facility was guaranteed by the Company and expired in May 2023.
The Group's bank borrowings are repayable as from the dates indicated as
follows:
December 31,
2023 2022
(in US$'000)
Not later than 1 year 31,155 -
Between 1 to 3 years 3,192 360
Between 3 to 4 years 2,872 839
Between 4 to 5 years 6,384 1,079
Later than 5 years 35,741 15,826
79,344 18,104
As at December 31, 2023 and 2022, the Group had unutilized bank borrowing
facilities of US$68,069,000 and US$140,289,000 respectively.
15. Commitments and Contingencies
The Group had the following capital commitments:
December 31, 2023
(in US$'000)
Property, plant and equipment
Contracted but not provided for 1,259
The Group does not have any other significant commitments or contingencies.
16. Ordinary Shares
As at December 31, 2023, the Company is authorized to issue 1,500,000,000
ordinary shares.
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 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, 2023, the aggregate number of shares issuable under the
Hutchmed Share Option Scheme was 42,161,098 ordinary shares. The Company will
issue new shares to satisfy share option exercises. Additionally, the number
of shares authorized but unissued was 628,743,730 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 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, 2022 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
Granted 1,221,900 2.50
Exercised (6,480,930) 2.30
Cancelled (2,832,340) 4.61
Expired (1,893,370) 5.55
Outstanding at December 31, 2023 29,536,655 4.57 6.67 9,924
Vested and exercisable at December 31, 2022 21,113,285 4.57 4.80 6,288
Vested and exercisable at December 31, 2023 18,198,170 5.10 5.91 1,753
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$0.24 per share using the Polynomial model. Vesting of such award will
occur in March 2025 if the performance target based on a market condition is
met.
In estimating the fair value of share options granted, the following
assumptions were used in the Polynomial model for awards granted in the
periods indicated:
Year Ended December 31,
2023 2022
Weighted average grant date fair value of share options (in US$ per share) 1.14 0.85
Significant inputs into the valuation model (weighted average):
Exercise price (in US$ per share) 2.50 2.26
Share price at effective date of grant (in US$ per share) 2.50 2.22
Expected volatility (note (a)) 53.3% 46.7%
Risk-free interest rate (note (b)) 3.69% 2.98%
Contractual life of share options (in years) 10 10
Expected dividend yield (note (c)) 0% 0%
Notes:
(a) The Company calculated its expected volatility with reference to the
historical volatility prior to the issuances of share options.
(b) 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$.
(c) The Company has not declared or paid any dividends and does not
currently expect to do so prior to the exercise of the granted share options,
and therefore uses an expected dividend yield of zero in the Polynomial model.
The Company will issue new shares to satisfy share option exercises. The
following table summarizes the Company's share option exercises:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Cash received from share option exercises 5,094 174 2,452
Total intrinsic value of share option exercises 4,626 92 2,999
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,
2023 2022 2021
(in US$'000)
Research and development expenses 3,250 4,803 8,460
Selling and administrative expenses 2,843 1,803 7,783
Cost of revenue 91 130 122
6,184 6,736 16,365
As at December 31, 2023, the total unrecognized compensation cost was
US$5,057,000, and will be recognized on a graded vesting approach over the
weighted average remaining service period of 2.15 years.
(ii) LTIP
The Company grants awards under the LTIP to participating directors and
employees, giving them a conditional right to receive ordinary shares of the
Company or the equivalent ADS (collectively the "Awarded Shares") to be
purchased by the Trustee up to a cash amount. Vesting will depend upon
continued employment of the award holder with the Group and will otherwise be
at the discretion of the Board of Directors of the Company. Additionally, some
awards are subject to change based on annual performance targets prior to
their determination date.
LTIP awards prior to the determination date
Performance targets vary by award, and may include targets for shareholder
returns, financings, revenue, net income/(loss) after taxes and the
achievement of clinical, regulatory, business development and manufacturing
milestones. As the extent of achievement of the performance targets is
uncertain prior to the determination date, a probability based on management's
assessment on the achievement of the performance target has been assigned to
calculate the amount to be recognized as an expense over the requisite period
with a corresponding entry to liability.
LTIP awards after the determination date
Upon the determination date, the Company will pay a determined monetary
amount, up to the maximum cash amount based on the actual achievement of the
performance target specified in the award, to the Trustee to purchase the
Awarded Shares. Any cumulative compensation expense previously recognized as a
liability will be transferred to additional paid-in capital. Based on the
actual achievement of performance target, the amount previously recorded in
the liability will be adjusted through share-based compensation expense.
Granted awards under the LTIP are as follows:
Maximum cash amount Covered Performance target
Grant date (in US$ millions) financial years determination date
May 23, 2022 60.4 2022 note (a)
September 13, 2022 3.8 2022 note (a)
September 13, 2022 1.7 note (b) note (b)
June 5, 2023 54.9 2023 note (a)
Notes:
(a) 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.
(b) 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.
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 ordinary
shares equivalent) held by the Trustee were as follows:
Number of Cost
treasury shares
(in US$'000)
As at January 1, 2022 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
Purchased 2,725,515 9,071
Vested (4,714,205) (18,148)
As at December 31, 2023 17,612,685 66,987
Based on the estimated achievement of performance conditions for 2023
financial year LTIP awards, the determined monetary amount was US$50,262,000
which is recognized to share-based compensation expense over the requisite
vesting period to March 2026.
For the years ended December 31, 2023 and 2022, US$7,332,000 and US$19,031,000
of the LTIP awards were forfeited respectively based on the determined or
estimated monetary amount as at the forfeiture date.
The following table presents the share-based compensation expenses recognized
under the LTIP awards:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Research and development expenses 18,224 16,101 16,880
Selling and administrative expenses 11,690 7,376 8,451
Cost of revenue 502 373 294
30,416 23,850 25,625
Recorded with a corresponding credit to:
Liability 11,364 6,216 14,263
Additional paid-in capital 19,052 17,634 11,362
30,416 23,850 25,625
For the years ended December 31, 2023, 2022 and 2021, US$4,563,000,
US$15,351,000 and US$8,516,000 were reclassified from liability to additional
paid-in capital respectively upon LTIP awards reaching the determination date.
As at December 31, 2023 and 2022, US$10,502,000 and US$3,701,000 were recorded
as liabilities respectively for LTIP awards prior to the determination date.
As at December 31, 2023, the total unrecognized compensation cost was
approximately US$50,447,000, which considers expected performance targets and
the amounts expected to vest, and will be recognized over the requisite
periods.
18. Revenue
The following table presents revenue disaggregated by contract type:
Year Ended December 31, 2023
Oncology/Immunology Other Ventures Total
(in US$'000)
Invoiced Goods-Marketed Products 83,087 - 83,087
-Distribution - 309,383 309,383
Services-Commercialization of Marketed Products 48,608 - 48,608
-Research and Development 481 - 481
License & Collaborations-Services 80,397 - 80,397
-Royalties 32,470 - 32,470
-Licensing 278,855 - 278,855
-Manufacturing supply 4,718 - 4,718
528,616 309,383 837,999
Third parties 528,135 301,119 829,254
Related parties (Note 24(i)) 481 8,264 8,745
528,616 309,383 837,999
Year Ended December 31, 2022
Oncology/Immunology Other Ventures Total
(in US$'000)
Invoiced Goods-Marketed Products 57,057 - 57,057
-Distribution - 262,565 262,565
Services-Commercialization of Marketed Products 41,275 - 41,275
-Research and Development 507 - 507
License & Collaborations-Services 23,741 - 23,741
-Royalties 26,310 - 26,310
-Licensing 14,954 - 14,954
163,844 262,565 426,409
Third parties 163,337 257,272 420,609
Related parties (Note 24(i)) 507 5,293 5,800
163,844 262,565 426,409
Year Ended December 31, 2021
Oncology/Immunology Other Ventures Total
(in US$'000)
Invoiced Goods-Marketed Products 33,937 - 33,937
-Distribution - 236,518 236,518
Services-Commercialization of Marketed Products 27,428 - 27,428
-Research and Development 525 - 525
License & Collaborations-Services 18,995 - 18,995
-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 24(i)) 525 4,256 4,781
119,610 236,518 356,128
The following table presents liability balances from contracts with customers:
December 31,
2023 2022
(in US$'000)
Deferred revenue
Current-Oncology/Immunology segment (note (a)) 57,566 11,817
Current-Other Ventures segment (note (b)) 73 1,530
57,639 13,347
Non-current-Oncology/Immunology segment (note (a)) 69,480 190
Total deferred revenue (note (c) and (d)) 127,119 13,537
Notes:
(a) Oncology/Immunology segment deferred revenue relates to unamortized
upfront and milestone payments, invoiced amounts for royalties where the
customer has not yet completed the in-market sale and advance consideration
received for cost reimbursements which are attributed to research and
development services that have not yet been rendered as at the reporting date.
(b) Other Ventures segment deferred revenue relates to payments in advance
from customers for goods that have not been transferred and services that have
not been rendered to the customer as at the reporting date.
(c) Estimated deferred revenue to be recognized over time as from the date
indicated is as follows:
December 31,
2023 2022
(in US$'000)
Not later than 1 year 57,639 13,347
Between 1 to 2 years 32,797 150
Between 2 to 3 years 30,918 40
Between 3 to 4 years 844 -
Later than 4 years 4,921 -
127,119 13,537
(d) As at January 1, 2023, deferred revenue was US$13.5 million, of which
US$12.7 million was recognized during the year ended December 31, 2023.
License and collaboration agreement with Takeda Pharmaceuticals
On January 23, 2023, the Group and Takeda Pharmaceuticals International AG
("Takeda") entered into an exclusive out-licensing agreement (the "Takeda
Agreement") in territories outside of Mainland China, Hong Kong and Macau (the
"Territory") to further the global development, commercialization and
manufacturing of Fruzaqla, also known as fruquintinib, a targeted oncology
therapy for the treatment of various types of solid tumors. Under the terms of
the Takeda Agreement, the Group is entitled to receive a series of payments up
to US$1.13 billion, including upfront, regulatory, development and commercial
sales milestone payments, plus royalties on net sales in the Territory.
Fruzaqla was successfully approved for commercialization in the U.S. in
November 2023, which triggered a regulatory approval milestone of US$35
million.
Upfront and milestone payments according to the Takeda Agreement received up
to December 31, 2023 are summarized as follows:
(in US$'000)
Upfront payment 400,000
Regulatory approval milestone payment achieved 35,000
As of December 31, 2023, the total revenue recognized under the Takeda
Agreement is US$353.1 million, which included US$280.0 million of the upfront
payment and US$32.0 million of the regulatory approval milestone payment
received.
The Takeda Agreement has the following material performance obligations: (1)
the licenses for the development and commercialization of Fruzaqla in the
Territory and the manufacture of Fruzaqla for use in the Territory, (2)
manufacturing supply and (3) services for research and development including
ongoing clinical trials and regulatory submissions and manufacturing
technology transfer.
The transaction price for these performance obligations includes the upfront
payment, service cost reimbursements, milestone payments and sales-based
royalties. Milestone payments are not included in the transaction price until
they become probable that a significant reversal of revenue would not occur,
which is generally when the criteria to receive the specified milestone are
achieved.
The allocation of the transaction price to each relevant performance
obligation was based on the relative standalone selling price of each
performance obligation determined at the inception of the contract. Variable
consideration is allocated entirely to a performance obligation or to a
distinct good or service that forms part of a single performance obligation if
the terms of the variable consideration relate to the satisfaction of the
respective performance obligation and the amount allocated is consistent with
the amount expected to be received for the satisfaction of the respective
performance obligation. The standalone selling price of the licenses for the
development and commercialization of Fruzaqla in the Territory and the
manufacture of Fruzaqla for use in the Territory and manufacturing supply was
determined using a discounted cash flow method based on the
probability-weighted present value of forecasted cash flows associated with
out-licensing Fruzaqla in the Territory, and the standalone selling price of
the services for research and development of ongoing clinical trials,
regulatory submissions and manufacturing technology transfer was determined
using a cost plus margin approach based on the present value of estimated
future service costs plus a reasonable margin. Significant assumptions
included in the determination of the standalone selling prices for each
performance obligation identified including forecasted revenue, probabilities
of regulatory approvals, estimated future service costs, margin rates and
discount rates. Based on these estimations, proportionate amounts of
transaction price to be allocated to the licenses, and other performance
obligations were 62% and 38% respectively at contract inception. Control of
the licenses to Fruzaqla was transferred at the inception date of the
agreement and consequently, amounts allocated to this performance obligation
were recognized at inception. Manufacturing supply is recognized at a point in
time when the control of the goods is transferred. Services are performed over
the term of the Takeda Agreement and amounts allocated are recognized over
time using a percentage-of-completion method. Royalties are recognized as
future sales occur as they meet the requirements for the sales-usage based
royalty exception.
Revenue recognized under the Takeda Agreement is as follows:
Year Ended
December 31, 2023
(in US$'000)
Manufacturing supply-Invoiced Marketed Products sales 5,053
-Allocated from upfront payment 4,718
Services-Research and Development 33,892
-Allocated from upfront and milestone payments 28,494
Royalties-Marketed Products 2,092
Licensing-Allocated from upfront and milestone payments 278,855
353,104
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"), as the China brand name for
fruquintinib. 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$10 million in lieu of cost reimbursement.
Upfront and cumulative milestone payments according to the Lilly Agreement
received up to December 31, 2023 are summarized as follows:
(in US$'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 a percentage-of-completion
method. 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,
2023 2022 2021
(in US$'000)
Goods-Invoiced Marketed Products sales 16,966 14,407 15,792
Services-Commercialization of Marketed Products 48,608 41,275 27,428
-Research and Development 2,828 8,031 4,491
-Allocated from upfront and milestone payments 12 23 -
Royalties-Marketed Products 16,560 13,954 10,292
84,974 77,690 58,003
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$50 million of phase III clinical trial costs related to
developing Orpathys for renal cell carcinoma ("RCC"), and remaining costs will
be shared between the Group and AZ. Subject to approval of Orpathys in RCC,
the Group would receive additional tiered royalties on all sales outside of
China, with the incremental royalty rates determined based on actual sharing
of development costs. In November 2021, the Group entered into an additional
amendment which revised the sharing between the Group and AZ of development
costs for Orpathys in China for non-small cell lung cancer, as well as adding
potential development milestones.
Upfront and cumulative milestone payments according to the AZ Agreement
received up to December 31, 2023 are summarized as follows:
(in US$'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 a percentage-of-completion
method.
Revenue recognized under the AZ Agreement and subsequent amendments is as
follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Goods-Invoiced Marketed Products sales 15,013 9,904 6,509
Services-Research and Development 14,993 14,106 12,743
-Allocated from upfront and milestone payments 77 361 1,370
Royalties-Marketed Products 13,818 12,356 4,772
Licensing-Allocated from upfront and milestone payments - 14,954 23,661
43,901 51,681 49,055
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 is 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 (which occurred in 2023), the
Group will incur tiered royalties based on net sales. For the year ended
December 31, 2023, the Group incurred royalties of US$9,000.
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 IPR&D. During the year ended December 31, 2022, US$5.0 million
development milestone was paid and expensed to research and development
expenses as IPR&D.
The warrant was recorded as a financial asset at fair value with changes to
fair value recognized to the consolidated statements of operations. During the
year ended December 31, 2022, an affiliate of Ipsen S.A. acquired all
outstanding shares of Epizyme and the warrant 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$12.5 million were recognized
to other expense in the consolidated statements of operations respectively.
20. Research and Development Expenses
Research and development expenses are summarized as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Clinical trial related costs 199,728 255,935 190,051
Personnel compensation and related costs 93,030 119,306 91,639
Other research and development expenses 9,243 11,652 17,396
302,001 386,893 299,086
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, 2023,
2022 and 2021, the Group has incurred research and development expenses of
US$22.0 million, US$14.7 million and US$18.4 million 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, 2023, 2022 and 2021, the Group received
government grants of US$4,111,000, US$8,474,000 and US$9,095,000 respectively.
Government grants were recognized in the consolidated statements of operations
as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Research and development expenses 1,054 4,556 15,515
Other income 3,134 1,434 318
4,188 5,990 15,833
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 was entitled to a portion of such
dividends and as at December 31, 2022, the Group recorded US$26.2 million
dividend receivables, net of taxes, from the third party to other receivables
(Note 7), and as at December 31, 2023, the third party has fully settled these
amounts.
In addition, the Group and Hutchison Whampoa Enterprises Limited, an affiliate
of 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, 2023 and 2022, US$1.5 million was included
in amounts due to related parties and US$7.6 million and US$8.7 million were
included in other non-current liabilities respectively (Note 24(ii)).
The gain on divestment of an equity investee was recognized in the
consolidated statements of operations as follows:
Year Ended December 31,
2021
(in US$'000)
Proceeds 159,118
Dividend receivables-third party 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. Other income/(expense)
Year Ended December 31,
2023 2022 2021
(in US$'000)
Other income:
Foreign exchange gains 8,661 - 1,671
Government grants 3,134 1,434 318
Others 1,154 399 437
12,949 1,833 2,426
Other expense:
Impairment of property, plant and equipment (3,678) - -
Impairment of right-of-use assets (2,088) - -
Foreign exchange losses - (5,704) -
Fair value losses on warrant - (2,452) (12,548)
Others (2,636) (5,353) (95)
(8,402) (13,509) (12,643)
24. Significant Transactions with Related Parties and Non-Controlling Shareholders of Subsidiaries
The Group has the following significant transactions with related parties and
non-controlling shareholders of subsidiaries, which were carried out in the
normal course of business at terms determined and agreed by the relevant
parties:
(i) Transactions with related parties:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Sales to:
Indirect subsidiaries of CK Hutchison 1,914 3,610 4,256
An equity investee 6,350 1,683 -
8,264 5,293 4,256
Revenue from research and development services from:
An equity investee 481 507 525
Purchases from:
Equity investees 3,651 4,231 3,770
Rendering of marketing services from:
Indirect subsidiaries of CK Hutchison 150 227 350
An equity investee - 127 -
150 354 350
Rendering of management services from:
An indirect subsidiary of CK Hutchison 997 980 971
Entered brand license agreement with:
An indirect subsidiary of CK Hutchison (note (a)) - - 12,721
Divestment of subsidiaries to:
An indirect subsidiary of CK Hutchison (note (b)) 5,103 - -
(ii) Balances with related parties included in:
December 31,
2023 2022
(in US$'000)
Accounts receivable-related parties
Indirect subsidiaries of CK Hutchison (note (c)) - 1,319
An equity investee (note (c)) 1,896 2,198
1,896 3,517
Amounts due from related parties
An indirect subsidiary of CK Hutchison (note (c)) 228 -
An equity investee (note (c) and (d)) 28,234 998
28,462 998
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (e) and (g)) 2,017 1,953
An equity investee (note (c) and (f)) 145 148
2,162 2,101
Other non-current liabilities
An equity investee (note (f)) 450 755
An indirect subsidiary of CK Hutchison (note (g)) 7,619 8,716
8,069 9,471
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 each of the years
ended December 31, 2023, 2022 and 2021, the Group paid US$1,538,000 for the
branding rights.
(b) On December 7, 2023, the Group completed a transaction to divest HHOHK
and HSN to an indirect subsidiary of CK Hutchison for proceeds of
US$5,103,000. A gain on divestment of US$96,000 was recorded in other income
for the year ended December 31, 2023.
(c) 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. No allowance
for credit losses has been made for amounts due from related parties for the
years ended December 31, 2023 and 2022.
(d) As at December 31, 2023, dividends receivable of US$27,130,000 was
included in amounts due from related parties.
(e) Amounts due to indirect subsidiaries of CK Hutchison are unsecured,
repayable on demand and interest-bearing if not settled within one month.
(f) Includes other deferred income representing amounts recognized from
granting of commercial, promotion and marketing rights.
(g) As at December 31, 2023 and 2022, 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, 2023 and 2022,
US$7,619,000 and US$8,716,000 of the branding liability payable was included
in other non-current liabilities.
(iii) Transactions with non‑controlling shareholders of subsidiaries:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Sales 66,417 47,611 41,974
Purchases 5,733 7,936 10,660
Dividends declared 9,068 25,600 9,894
Distribution service fee 369 - -
(iv) Balances with non‑controlling shareholders of subsidiaries included
in:
December 31,
2023 2022
(in US$'000)
Accounts receivable 7,824 11,139
Accounts payable 27 2,922
Other payables, accruals and advance receipts 309 -
25. Income Taxes
(i) Income tax expense/(benefit)
Year Ended December 31,
2023 2022 2021
(in US$'000)
Current tax
HK (note (a)) 45 301 310
PRC (note (b) and (c)) 1,767 2,580 15,909
U.S. and others (note (d)) 471 399 417
Total current tax 2,283 3,280 16,636
Deferred income tax expense/(benefit) 2,226 (3,563) (4,718)
Income tax expense/(benefit) 4,509 (283) 11,918
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, 2025 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, 2023, 2022 and 2021, 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$14.4 million arising from the indirect disposal of HBYS (Note 22),
calculated at 10% of the excess of the disposal proceeds over the cost of
acquiring the equity investment in HBYS.
(d) The Company's subsidiary in the U.S. with operations primarily in New
Jersey is subject to U.S. taxes, primarily federal and state taxes, which have
been provided for at approximately 21% (federal) and 0% to 11.5% (state tax)
on the estimated assessable profit over the reporting years. Certain income
receivable by the Company is subject to U.S. withholding tax of 30%. Two of
the Group's subsidiaries are subject to corporate tax in the UK and EU
countries at 19% and 15% to 25%, respectively, on the estimated assessable
profits in relation to their presence in these countries.
The reconciliation of the Group's reported income tax expense to the
theoretical tax amount that would arise using the tax rates of the Company
against the Group's income/(loss) before income taxes and equity in earnings
of equity investees is as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Income/(loss) before income taxes and equity in earnings of equity investees 58,308 (410,422) (215,740)
Tax calculated at the statutory tax rate of the Company 9,621 (67,720) (35,597)
Tax effects of:
Different tax rates applicable in different jurisdictions 541 6,316 136
Tax valuation allowance 26,629 93,243 63,975
Preferential tax rate difference (3,065) (171) (148)
Preferential tax deduction and credits (32,667) (40,791) (29,838)
Expenses not deductible for tax purposes 7,086 8,886 8,684
Withholding tax on undistributed earnings of PRC entities 2,386 2,492 3,153
Income not subject to tax (5,826) (2,142) (2,704)
Temporary difference (817) (1,614) 2,717
Others 621 1,218 1,540
Income tax expense/(benefit) 4,509 (283) 11,918
(ii) Deferred tax assets and liabilities
The significant components of deferred tax assets and liabilities are as
follows:
December 31,
2023 2022
(in US$'000)
Deferred tax assets
Cumulative tax losses 284,271 264,751
Others 14,707 15,254
Total deferred tax assets 298,978 280,005
Less: Valuation allowance (283,522) (264,639)
Deferred tax assets 15,456 15,366
Deferred tax liabilities
Undistributed earnings from a PRC entity 1,478 2,686
Others 6 24
Deferred tax liabilities 1,484 2,710
The movements in deferred tax assets and liabilities are as follows:
2023 2022 2021
(in US$'000)
As at January 1 12,656 6,636 (3,548)
Movement of previously recognized withholding tax on undistributed earnings 3,674 2,186 5,148
(Charged)/Credited to the consolidated statements of operations
Withholding tax on undistributed earnings of PRC entities (2,385) (2,492) (3,153)
Deferred tax on amortization of intangible assets 18 19 19
Deferred tax on temporary differences, tax loss carried forward and research 142 6,036 7,852
tax credits
Reclassification from current tax 11 - -
Divestment of subsidiaries (49) - -
Divestment of an equity investee - - 370
Exchange differences (95) 271 (52)
As at December 31 13,972 12,656 6,636
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,
2023 2022
(in US$'000)
No expiry date 74,515 71,325
2024 3,529 3,763
2025 35,030 36,098
2026 46,766 48,150
2027 60,033 61,808
2028 103,913 107,297
2029 171,142 175,853
2030 237,384 243,918
2031 379,321 389,761
2032 594,311 610,800
2033 176,363 -
1,882,307 1,748,773
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$4.7 million and US$1.1
million U.S. Federal and New Jersey state research tax credits which will
expire between 2041 and 2043 (Federal) and 2028 and 2030 (New Jersey)
respectively, if not utilized.
The table below summarizes changes in the deferred tax valuation allowance:
2023 2022 2021
(in US$'000)
As at January 1 264,639 189,700 122,378
Charged to consolidated statements of operations 26,629 93,243 63,975
Utilization of previously unrecognized tax losses (39) (1) (186)
Write-off of tax losses (112) (125) -
Divestment of subsidiaries (433) - -
Others - - (9)
Exchange differences (7,162) (18,178) 3,542
As at December 31 283,522 264,639 189,700
As at December 31, 2023, 2022 and 2021, the Group did not have any material
unrecognized uncertain tax positions.
(iii) Income tax payable
2023 2022 2021
(in US$'000)
As at January 1 1,112 15,546 1,120
Current tax 2,283 3,280 16,636
Withholding tax upon dividend declaration from PRC entities 3,674 2,186 5,148
Tax paid (note) (3,728) (18,891) (5,014)
Reclassification (from)/to prepaid tax (397) (241) 25
Reclassification to deferred tax 11 - -
Divestment of subsidiaries (177) - -
Divestment of an equity investee (Note 22) - - (2,644)
Exchange difference (198) (768) 275
As at December 31 2,580 1,112 15,546
Note: The amount for 2022 includes US$14.4 million capital gain tax paid for
gain on divestment of HBYS (Note 22).
26. Earnings/(Losses) Per Share
(i) Basic earnings/(losses) per share
Basic earnings/(losses) per share is calculated by dividing the net
income/(loss) attributable to the Company by the weighted average number of
outstanding ordinary shares in issue during the year. Treasury shares held by
the Trustee are excluded from the weighted average number of outstanding
ordinary shares in issue for purposes of calculating basic earnings/(losses)
per share.
Year Ended December 31,
2023 2022 2021
Weighted average number of outstanding ordinary shares in issue 849,654,296 847,143,540 792,684,524
Net income/(loss) attributable to the Company (US$'000) 100,780 (360,835) (194,648)
Basic earnings/(losses) per share attributable to the Company (US$ per share) 0.12 (0.43) (0.25)
(ii) Diluted earnings/(losses) per share
Diluted earnings/(losses) per share is calculated by dividing net
income/(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.
Year Ended December 31,
2023 2022 2021
Weighted average number of outstanding ordinary shares in issue 849,654,296 847,143,540 792,684,524
Effect of share options and LTIP awards 19,542,052 - -
Weighted average number of outstanding ordinary shares in issue and dilutive 869,196,348 847,143,540 792,684,524
ordinary share equivalents outstanding
Net income/(loss) attributable to the Company (US$'000) 100,780 (360,835) (194,648)
Diluted earnings/(losses) per share attributable to the Company (US$ per 0.12 (0.43) (0.25)
share)
For the years ended December 31, 2022 and 2021, 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.
27. 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, out-licensing of in-house developed drugs, as well as
administrative activities to support research and development operations; and
(b) Marketed Products: comprises the invoiced sales, marketing,
manufacture and distribution of drugs developed from research and development
activities including out-licensed marketed products.
(ii) Other Ventures: comprises other commercial businesses which include
the sales, marketing, manufacture and distribution of other prescription drugs
and healthcare products.
The performance of the reportable segments is assessed based on segment net
income/(loss) attributable to the Company.
The segment information is as follows:
Year Ended December 31, 2023
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC U.S. and Others Subtotal Subtotal PRC Un- Total
allocated
(in US$'000)
Revenue from external customers 18,492 345,959 364,451 157,020 7,145 164,165 528,616 309,383 - 837,999
Interest income 786 16 802 - - - 802 455 34,888 36,145
Interest expense (279) - (279) - - - (279) (38) (442) (759)
Equity in earnings of equity investees, net of tax - - - - - - - 47,295 - 47,295
Income tax (expense)/ (420) (208) (628) (159) - (159) (787) (1,201) (2,521) (4,509)
benefit
Net (loss)/income attributable to the Company (198,551) 224,055 25,504 23,090 2,568 25,658 51,162 50,272 (654) 100,780
Depreciation/ amortization (7,146) (494) (7,640) - - - (7,640) (344) (223) (8,207)
Additions to non-current assets (other than financial instruments and deferred 41,228 110 41,338 - - - 41,338 330 86 41,754
tax assets)
December 31, 2023
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC U.S. and Others Subtotal Subtotal PRC Un- Total
allocated
(in US$'000)
Total assets 177,601 24,687 202,288 61,472 2,129 63,601 265,889 163,311 850,573 1,279,773
Property, plant and equipment 98,034 918 98,952 - - - 98,952 564 211 99,727
Right-of-use assets 3,454 551 4,005 - - - 4,005 366 294 4,665
Leasehold land 11,261 - 11,261 - - - 11,261 - - 11,261
Goodwill - - - - - - - 3,064 - 3,064
Other intangible asset - - - - - - - 21 - 21
Investments in equity investees - - - - - - - 48,411 - 48,411
Year Ended December 31, 2022
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC U.S. and Others Subtotal Subtotal PRC Un- allocated Total
(in US$'000)
Revenue from external customers 39,202 - 39,202 124,642 - 124,642 163,844 262,565 - 426,409
Interest income 674 4 678 - - - 678 272 8,649 9,599
Interest expense - - - - - - - - (652) (652)
Equity in earnings of equity investees, net of tax 5 - 5 - - - 5 49,748 - 49,753
Income tax (expense)/ (552) 6,053 5,501 (631) - (631) 4,870 (1,345) (3,242) 283
benefit
Net (loss)/income attributable to the Company (215,834) (186,945) (402,779) 17,367 - 17,367 (385,412) 54,604 (30,027) (360,835)
Depreciation/ amortization (7,576) (484) (8,060) - - - (8,060) (299) (305) (8,664)
Additions to non-current assets (other than financial instruments and deferred 47,563 725 48,288 - - - 48,288 664 21 48,973
tax assets)
December 31, 2022
Oncology/Immunology
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC U.S. and Others Subtotal Subtotal PRC Un-allocated Total
(in US$'000)
Total assets 221,337 30,281 251,618 45,984 - 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
R&D Marketed Products Other
Ventures
PRC U.S. and Others Subtotal PRC U.S. and Others Subtotal Subtotal PRC Un- allocated Total
(in US$'000)
Revenue from external customers 43,181 - 43,181 76,429 - 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 22 7,160 7,182 (1,320) - (1,320) 5,862 (14,573) (3,207) (11,918)
benefit /(expense)
Net (loss)/income attributable to the Company (143,528) (152,235) (295,763) 4,032 - 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)
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 R&D
in Oncology/Immunology segment were US$36,370,000, US$55,433,000, and
US$46,891,000 for the years ended December 31, 2023, 2022, and 2021
respectively.
A summary of customers which accounted for over 10% of the Group's revenue for
the years ended December 31, 2023, 2022 and 2021 is as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Customer A 353,104 - -
Customer B 84,065 75,606 56,082
Customer C (note) 51,681 49,055
Customer D (note) 47,611 41,974
Note: Customer did not account for over 10% of the Group's revenue during the
year.
Customer A, B and C are included in Oncology/Immunology and Customer D is
primarily included in Other Ventures.
Unallocated expenses mainly represent corporate expenses which include
corporate administrative costs, corporate employee benefit expenses and the
relevant share-based compensation expenses, net of interest income.
Unallocated assets mainly comprise cash and cash equivalents and short-term
investments.
28. Note to Consolidated Statements of Cash Flows
Reconciliation of net income/(loss) for the year to net cash generated
from/(used in) operating activities:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Net income/(loss) 101,094 (360,386) (167,041)
Adjustments to reconcile net income/(loss) to net cash generated from/(used
in) operating activities
Depreciation and amortization 8,207 8,664 7,190
Amortization of finance costs - 18 44
Loss on disposals of property, plant and equipment 86 111 70
Impairment of property, plant and equipment 3,678 - -
Impairment of right-of-use assets 2,088 - -
Provision for excess and obsolete inventories, net 552 293 (23)
Provision for credit losses, net 125 43 (76)
Share-based compensation expense-share options 6,184 6,736 16,365
Share-based compensation expense-LTIP 30,416 23,850 25,625
Equity in earnings of equity investees, net of tax (47,295) (49,753) (60,617)
Dividends received from SHPL 42,308 43,718 49,872
Impairment of investment in other equity investee - 130 -
Changes in right-of-use assets 1,604 2,721 (3,727)
Fair value losses on warrant - 2,452 12,548
Gain from divestment of HBYS - - (121,310)
Gain from divestment of subsidiaries (96) - -
Gain from divestment of other equity investee (45) - -
Unrealized currency translation (gain)/loss (1,574) 13,274 (2,505)
Changes in income tax balances 780 (19,174) 6,904
Changes in operating assets and liabilities
Accounts receivable (21,336) (14,451) (35,634)
Other receivables, prepayments and deposits 8,624 11,922 (5,596)
Amounts due from related parties (339) 150 (162)
Inventories 4,135 (21,213) (16,002)
Accounts payable (32,542) 29,938 9,565
Other payables, accruals and advance receipts (4,409) 52,629 66,224
Lease liabilities (1,752) (2,701) 3,079
Deferred revenue 119,810 386 11,071
Others (1,045) 2,044 (87)
Total changes in operating assets and liabilities 71,146 58,704 32,458
Net cash generated from/(used in) operating activities 219,258 (268,599) (204,223)
29. 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$35.4 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 and subsequent appeals. 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. On June 6, 2023, a Court of Appeal
hearing was held and a judgment is expected but yet to be received. The legal
proceedings are ongoing and as no Award amounts have been received as at the
issuance date of these consolidated financial statements, no Award amounts
have been recognized and no adjustment has been made to Seroquel-related
balances as at December 31, 2023. Such Seroquel-related balances include
accounts receivable, long-term prepayment, accounts payable and other payables
of US$1.1 million, US$0.2 million, US$0.9 million and US$1.1 million
respectively.
30. 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$1.0 million and US$0.1
million as at December 31, 2023 and 2022 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 an equity investee in the PRC, where the Group's
equity in undistributed earnings amounted to US$29.6 million and US$53.7
million as at December 31, 2023 and 2022 respectively.
31. Subsequent Events
The Group evaluated subsequent events through February 28, 2024, which is the
date when the consolidated financial statements were issued.
In February 2024, pursuant to the strategic partnership with Inmagene
Biopharmaceuticals ("Inmagene"), Inmagene has exercised its options to license
two drug candidates discovered by HUTCHMED, IMG-007 and IMG-004, for
approximately 7.5% of shares (fully diluted) in Inmagene, subject to customary
closing conditions.
32. Additional Information: Company Balance Sheets (Parent Company Only)
December 31,
Note 2023 2022
(in US$'000)
Assets
Current assets
Cash and cash equivalents 65 7,892
Other receivables, prepayments and deposits 1,308 947
Total current assets 1,373 8,839
Investments in subsidiaries 795,326 726,430
Total assets 796,699 735,269
Liabilities and shareholders' equity
Current liabilities
Other payables, accruals and advance receipts 65,501 124,178
Income tax payable 142 16
Total current liabilities 65,643 124,194
Other non-current liabilities 515 708
Total liabilities 66,158 124,902
Commitments and contingencies 15
Company's shareholders' equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized; 871,256,270 16 87,126 86,478
and 864,775,340 shares issued at December 31, 2023 and 2022 respectively
Additional paid-in capital 1,522,447 1,497,273
Accumulated losses (870,869) (971,481)
Accumulated other comprehensive loss (8,163) (1,903)
Total Company's shareholders' equity 730,541 610,367
Total liabilities and shareholders' equity 796,699 735,269
33. Dividends
No dividend has been declared or paid by the Company since its incorporation.
34. Directors' Remuneration
Directors' remuneration disclosed pursuant to the Listing Rules, Section
383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of
the Companies (Disclosure of Information about Benefits of Directors)
Regulation, is as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Fees: 615 683 883
Other remuneration
Salaries, allowances and benefits in kind 1,154 1,173 1,160
Pension contributions 101 98 93
Performance related bonuses 2,008 1,587 2,245
Share-based compensation expenses (note) 2,573 2,036 5,553
5,836 4,894 9,051
6,451 5,577 9,934
Note: During the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022 and 2021.
(i) Independent non-executive directors
The fees paid to independent non-executive directors were as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Paul Carter 117 117 117
Karen Ferrante (note) 37 103 103
Graeme Jack 111 111 111
Tony Mok 115 103 99
380 434 430
The share-based compensation expenses of the independent non-executive
directors were as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Paul Carter 71 139 91
Karen Ferrante (note) (101) 139 91
Graeme Jack 71 139 91
Tony Mok 71 139 91
112 556 364
Note: Dr Karen Ferrante retired as an independent non-executive director on
May 12, 2023.
There were no other remunerations payable to independent non-executive
directors during the years ended December 31, 2023, 2022 and 2021.
(ii) Executive directors and non-executive directors
Year Ended December 31, 2023
Fees Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation Total
(in US$'000)
Executive directors
Simon To 85 - - - 71 156
Wei-guo Su (note a) 75 805 71 1,500 1,659 4,110
Johnny Cheng 75 349 30 508 589 1,551
235 1,154 101 2,008 2,319 5,817
Non-executive directors
Dan Eldar - - - - 71 71
Edith Shih - - - - 71 71
Ling Yang (note b) - - - - - -
- - - - 142 142
235 1,154 101 2,008 2,461 5,959
Year Ended December 31, 2022
Fees Salaries, allowances and benefits in kind Pension contributions Performance related bonuses Share-based compensation Total
(in US$'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 b) 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 b) 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
Notes:
(a) In connection with share options granted in the year ended December
31, 2016 under the 2015 Share Option Scheme, Dr. Wei-guo Su was awarded
retention bonuses payable when and if he exercised his options. During the
year ended December 31, 2023, a retention bonus of US$5,225,000 was settled
when he exercised such options, which amount is not included in the table
above.
(b) Mr Christian Hogg retired as executive director on March 4, 2022, and
Ms Ling Yang was appointed as non-executive director on July 13, 2023.
35. Five Highest-Paid Employees
The five highest-paid employees during the years ended December 31, 2023, 2022
and 2021 included the following number of directors and non-directors:
Year Ended December 31,
2023 2022 2021
Directors 2 2 3
Non-directors 3 3 2
5 5 5
Details of the remuneration for the years ended December 31, 2023, 2022 and
2021 of the five highest-paid employees who are non-directors (the
"Non-director Individuals") were as follows:
Year Ended December 31,
2023 2022 2021
(in US$'000)
Salaries, allowances and benefits in kind 1,506 1,497 859
Pension contributions 54 51 52
Performance related bonuses 1,909 1,759 802
Share-based compensation expenses (note) 3,226 2,001 1,465
6,695 5,308 3,178
Note: During the years ended December 31, 2023, 2022 and 2021, 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, 2023, 2022 and 2021.
The number of Non-director Individuals whose remuneration fell within the
following bands is as follows:
Year Ended December 31,
2023 2022 2021
HK$12,000,000 to HK$12,500,000 1 2 1
HK$12,500,000 to HK$13,000,000 - - 1
HK$15,500,000 to HK$16,000,000 1 - -
HK$16,500,000 to HK$17,000,000 - 1 -
HK$24,000,000 to HK$24,500,000 1 - -
3 3 2
During the years ended December 31, 2023, 2022 and 2021, no remuneration was
paid by the Group to any directors or Non-director Individuals as an
inducement to join the Group or as compensation for loss of office.
Additionally, none of the directors or Non-director Individuals have waived
any remuneration during the years ended December 31, 2023, 2022 and 2021.
36. Reconciliation between U.S. GAAP and International Financial Reporting Standards
These consolidated financial statements are prepared in accordance with U.S.
GAAP, which differ in certain respects from International Financial Reporting
Standards ("IFRS"). The effects of material differences prepared under U.S.
GAAP and IFRS are as follows:
(i) Reconciliation of consolidated statements of operations
Year Ended December 31, 2023
Amounts as reported under IFRS adjustments
U.S. GAAP
Lease amortization (note (a)) Tax effects of intercompany unrealized profit Amounts under IFRS
(note (b))
(in US$'000)
Cost of goods-third parties (331,984) 66 - (331,918)
Research and development expenses (302,001) 106 - (301,895)
Selling expenses (53,392) 46 - (53,346)
Administrative expenses (79,784) 89 - (79,695)
Total operating expenses (819,624) 307 - (819,317)
Interest expense (759) (281) - (1,040)
Other expense (8,402) 63 - (8,339)
Total other income/(expense) 39,933 (218) - 39,715
Income/(loss) before income taxes and equity in earnings of equity investees 58,308 89 - 58,397
Equity in earnings of equity investees, net of tax 47,295 (1) 307 47,601
Net income/(loss) 101,094 88 307 101,489
Less: Net income attributable to non-controlling interests (314) (19) - (333)
Net income/(loss) attributable to the Company 100,780 69 307 101,156
Year Ended December 31, 2022
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Capitalization of rights
(note (c))
(in US$'000)
Cost of goods-third parties (268,698) 57 - (268,641)
Research and development expenses (386,893) 31 5,000 (381,862)
Selling expenses (43,933) 49 - (43,884)
Administrative expenses (92,173) 182 - (91,991)
Total operating expenses (834,102) 319 5,000 (828,783)
Interest expense (652) (322) - (974)
Other expense (13,509) 12 - (13,497)
Total other income/(expense) (2,729) (310) - (3,039)
Income/(loss) before income taxes and equity in earnings of equity investees (410,422) 9 5,000 (405,413)
Equity in earnings of equity investees, net of tax 49,753 (16) - 49,737
Net income/(loss) (360,386) (7) 5,000 (355,393)
Less: Net income attributable to non-controlling interests (449) (5) - (454)
Net income/(loss) attributable to the Company (360,835) (12) 5,000 (355,847)
Year Ended December 31, 2021
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights Divestment of an equity investee
(note (d)) (note (c)) (note (e))
(in US$'000)
Cost 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 income/(expense) (8,733) (391) - - - (9,124)
Income/(loss) before income taxes and equity in earnings of equity investees (215,740) (114) (163) 11,111 11,266 (193,640)
Income tax (expense)/benefit (11,918) - - - 370 (11,548)
Equity in earnings of equity investees, net of tax 60,617 (1) - - (11,636) 48,980
Net income/(loss) (167,041) (115) (163) 11,111 - (156,208)
Less: Net income attributable to non-controlling interests (27,607) (2) - (27) - (27,636)
Net income/(loss) attributable to the Company (194,648) (117) (163) 11,084 - (183,844)
(ii) Reconciliation of consolidated balance sheets
December 31, 2023
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Tax effects of intercompany unrealized profit Issuance costs Capitalization of rights LTIP classification (note (f))
(note (b)) (note (d)) (note (c))
(in US$'000)
Right-of-use assets 4,665 (137) - - - - 4,528
Investments in equity investees 48,411 (37) 307 - - - 48,681
Other non-current assets 14,675 - - - 15,093 - 29,768
Total assets 1,279,773 (174) 307 - 15,093 - 1,294,999
Other payables, accruals and advance receipts 271,399 - - - - (10,502) 260,897
Total current liabilities 403,027 - - - - (10,502) 392,525
Total liabilities 536,386 - - - - (10,502) 525,884
Additional paid-in capital 1,522,447 - - (697) - 10,502 1,532,252
Accumulated losses (870,869) (177) 307 697 16,084 - (853,958)
Accumulated other comprehensive loss (8,163) 14 - - (1,016) - (9,165)
Total Company's shareholders' equity 730,541 (163) 307 - 15,068 10,502 756,255
Non-controlling interests 12,846 (11) - - 25 - 12,860
Total shareholders' equity 743,387 (174) 307 - 15,093 10,502 769,115
December 31, 2022
Amounts as reported under IFRS adjustments Amounts under IFRS
U.S. GAAP
Lease amortization (note (a)) Issuance costs Capitalization of rights LTIP classification (note (f))
(note (d)) (note (c))
(in US$'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 (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
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) Tax effects of intercompany unrealized profit
Under U.S. GAAP, deferred taxes for unrealized profit resulting from
intercompany sales of inventory is not recognized.
Under IFRS, deferred taxes for unrealized profit resulting from an
intercompany sale of inventory is recognized at the buyer's tax rate.
(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 IPR&D 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) 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.
(e) Divestment of an equity investee
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.
(f) 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR UWVRRSNUUUARRecent news on HUTCHMED (China)
See all newsREG - Hutchmed China Ltd - Positive CHMP Opinion for Fruquintinib
AnnouncementREG - Hutchmed China Ltd - Vesting of Awards Under the LTIP
AnnouncementREG - Hutchmed China Ltd - 2023 Annual Report and Notice of AGM
AnnouncementRCS - Hutchmed China Ltd - Data to be Presented at AACR Congress 2024
AnnouncementRCS - Hutchmed China Ltd - HUTCHMED and Innovent Announce NDA Acceptance
Announcement