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HUTCHMED (China) Limited (HCM)

Q4 2018 Earnings Call· Mon, Mar 11, 2019

$13.52

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Transcript

Christian Hogg

Management

Okay. All right. Well, 9:00. So thank you, everybody, for attending today the Hutchison China MediTech 2018 Results Presentation. As always, it's a very detailed presentation, but I'm going to just go through the slides and touch on the main points. The disclaimer, as always. So starting off with the financial results. Before I go diving into the actual numbers for the year, I thought I'd stop on this slide for a moment, Slide #3 -- 4 rather. We really have 3 core areas of our focus these days as we strive to build a science-based or science-focused global biopharmaceutical company off of our base in China. The 3 areas we're focused on are: global innovation, China oncology and obviously our existing China business. Global innovation these days is all about bringing our small molecule targeted therapies to development in the global market. We, today, have 5 assets that we are either in development outside of China or about to start development out of China. So more and more, this is us trying to maximize the potential of our assets as we look beyond the China market. The second area is China oncology. This is an area that's just really over the last few years has become very high profile. The unmet medical need in oncology in China is so enormous. And the amount of investment these days that's going into China oncology to try to innovate, to bring better medicines, better therapies to the patients in China is really an area of focus. And so we find ourselves in a really sort of wonderful first-mover-type position in China oncology, at least with regards to innovation. And we'll talk a little bit about Elunate and the launch of fruquintinib in China as a sort of a case study of what…

Q - Michael Mitchell

Management

Mike Mitchell from Panmure Gordon. The Two-Invoice System, just wondering how the restructuring or if we should think about any further restructuring during 2019. Or was that now completed? And on the QCE bidding process, has that -- how do you think about that mapping on to the Commercial Platform as it stands at present and over the coming years?

Christian Hogg

Management

So the Two-Invoice policy has basically played out. I think you might see a little bit of impact in 2019 but not much. On the 7+4 QCE policy that's come out, it's essentially a policy that's designed to squeeze pricing in the generic drug industry. I actually see that -- it will hit the Hutchison Sinopharm business a little bit in terms of revenues just because we do sell some third-party generic products under this Hutchison Sinopharm JV. But they're very low margin. It won't affect our profitability at all. But I think, in general, that 4+7 QCE policy is going to be really positive for Chi-Med over the next few years because ultimately the whole point of it is to bring price down on generic drugs to open up more headroom for reimbursement of innovative drugs, which will be where we will be bringing our oncology assets. So yes, I think in the short term, you might see these commercial reforms impacting Hutchison Sinopharm sales a little bit, won't impact our profit by much. And in the long term, mid- to long term, it will really help us as a company.

Cinney Zhang

Management

Cinney Zhang from Bloomberg Intelligence. You're pushing to get fruquintinib on the National Drug Reimbursement List. When exactly do you expect that to happen? Also do you expect the final reimbursement price to be significantly lower than your retail price?

Christian Hogg

Management

Thank you, Cinney. I'm hearing that there's going to be an update on the National Drug Reimbursement List sometime in September, October this year. I don't know whether that's certain. But they're trying to get it done this year is what I'm hearing. Whenever you bring a new drug into the National Drug Reimbursement List, it's a negotiation on the price. And that's a negotiation that is set to happen. It hasn't happened yet. So it's difficult for me to really comment on what the price will be. I haven't seen any drug go into the national reimbursement list with a premium. So it will be a discount. But the extent of that discount will have to be determined through negotiations basically.

Susie Jana

Management

Susie Jana, Edison. Could you just talk us through the hirings in the U.S., 30 more people this year, what sort of profile you're looking for? And how rapidly are you going to expand in 2020 and 2021, given the amount of assets going into global development?

Christian Hogg

Management

Thanks, Susie. Yes, the team in the U.S., I mean, it's wonderful to be able to attract high-quality clinical regulatory talent into our U.S. organization. We've recruited in a Chief Medical Officer in the U.S. from Eli Lilly. And he has set about building a fully functional clinical regulatory organization, clinical operations, clinical science, everything. So we are just in a great position having -- I think what's able -- what allows us to really attract high-quality talent is our assets and our appetite to develop those assets in the U.S. and Europe. So I would imagine, as I say on this presentation, by the end of this year, our target is to be up to about 30 people. I would imagine that would grow quite rapidly after that because we'll be running multiple programs in parallel and we'll need the resources to manage that. But particularly, it's not just the U.S., it's Europe as well. Because in a lot of these global studies, you need European sites and you need those European sites to be functioning properly. So you need people on the ground over here as well. I don't know whether that answers your question. But it's a full-fledged building of a big multifunctional organization in this space.

Unidentified Analyst

Management

And just picking up on the -- you mentioned the ASCO GU data, kind of the KEYNOTE-426, you've seen some impressive stuff there. Are you thinking yourself about maybe a PD-1 fruquintinib combination in kidney cancer? Or is it -- are they too far ahead, those kind of your Merck's world?

Christian Hogg

Management

So it's a bit -- clearly, fruquintinib or surufatinib in combination with a PD-1 in kidney cancer is attractive to us. It's very competitive. There are a lot of players that are already in that space. But we're looking at a lot of things. I won't go into details of what we're looking at. But we're looking at a lot of things. And I think there is certainly clear proof of concept in there that both of those assets, surufatinib and fruquintinib, could do well in RCC. But I think you can't just be following what everybody else is doing. You've got to think about it in a slightly different way. And that's what Weiguo and the team are looking into.

Christian Hogg

Management

Any more questions? Okay. Do we have any? Okay. So if that's it, thank you all very much for coming, and appreciate your attendance and look forward to a good year. Thank you.