Good day and thank you for standing by. Welcome to HUTCHMED 2022 Full Year Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation there'll be question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I now like to hand the conference over to Mr. Mark Lee, SVP Corporate Finance and Development of HUTCHMED. Please go ahead, sir.

Thank you, Amber. Welcome, everyone. Good morning. Good afternoon. Good evening. Welcome to the HUTCHMED 2022 full year results and business update presentation. I've just set this time I'll mentioned that the performance and the results of our operations that we'll be talking about today are historic in nature and past performance is not guaranteed. The usage presentation does contain forward-looking statements in relation to the safe harbor provisions and anything that is and discussed should be heard and read in conjunction with HUTCHMED's results that we have published on RNS on our SEC filings and in our announcements in Hong Kong stock exchange. Today we have a broad management team for you to present and answer questions including Weiguo Su, our Chief Executive Officer and Chief Scientific Officer; Johnny Cheng, our Chief Financial Officer; Karen Atkin, Chief Operating Officer; Hong Chen, our Chief Commercial Officer; Mike Shi, our Chief Medical Officer and head of R&D; Zhenping Wu, our Executive Vice President of Pharmaceutical Sciences and Manufacturing, and Charles Nixon, our General Counsel. So with that, I'll hand over to Weiguo.

Okay, thank you very much, Mark. Good morning. Good afternoon. Good evening, everyone. Welcome again to our HUTCHMED 2022 full year results conference call. A few hours ago, we announced all at 2022 full year results. Mark, can you show the next slide please? Thank you. And during 2022 HUTCHMED made significant strategic changes to allow us to better deal with adverse external conditions and to focus on getting to profitability sooner. On the pipeline, we made significant progress, including the positive Phase 2 global registration study FRESCO-2, fruquintinib, and a based on a strong data NDA submissions are planned for 2023 starting from the U.S., followed by EU and Japan. In parallel, our second wave of products, including Sovleplenib, Amdizalisib and Tazemetostat in registration trials in China, also made a significant progress. China NDA submissions are planned for 2023 and 2024. Finally, on the China commercial, despite all the challenges associated with COVID, and unfavorable exchange rate, our China commercial team delivered strong numbers for our three approved products. Now I'll pass it to Mr. Chan Hong, Chief Commercial Officer of China Commercial to lead it off to give you an update on the China commercial operation. Next slide, Mark and for Chan Hong.

Thank you, Weiguo. Hello, everyone. I'm glad to present the 2022 China Commercial achievements of our three novel products. Just as Weiguo said, 2022 was the most difficult year during the last three years, due to the COVID impacts. And furthermore, the foreign exchange rate is unfavorable. Even though our three market products will continue to fascinate and virtually we achieved significant sales growth. So firstly, I would like to update you with a HUTCHMED commercial infrastructure and the capabilities. From this slide, we can see more than 900 dedicated and experienced commercial staff covering more than 33,000 oncologist specialists and 3,000 care hospitals. With this, the hospital pharmacies increased 100% for more than 800 in 2022. In order to mitigate the COVID alternatives this many more and highly effective academic events were held online for covering more expertise. Next slide Please. Annually is to continue to keep on growing. The sales revenue was up to $93.5 million in terms of in marketing sales, with 32% growth. Around the 32,000 new patients were taken with an ELUNATE and we can see ELUNATE continue to keep leading position in 39 [ph] CRC market with 44% patients here according to the latest checking study. Next slide please. 2022 was the first the year for SULANDA listed into NRDL In spite of the 52% price reduction. SULANDA still achieved 178% revenue growth around 17,000 new patients were treated and it was recommended by important catalysts, such as FRESCO and [indiscernible]. The patient's share revenue to be the second net market since Q3 last year, which surpassed [Indiscernible] despite the later launch. Next slide, please. ORPATHYS as the first-in-class MET inhibitor in China, achieved out on the 160% growth for its full commercial year. In-market sales value was up to $41 million. This is recommended by five important guidelines such as NHC, CSCO [Indiscernible]. And the more important is less the in an ideal this year, and will be officially relaunch since March 1, actually tomorrow with modest price reductions. It can be expected that many more patients will be benefited from ORPATHYS treatment. So, overall, in spite of the COVID challenges, we continue to make good progress for all three markets products. Along with everything getting back to normal, we are confident the stronger momentum in 2023. So that's all for the China Commercial part. Thank you.

Thank you, Chan Hong. Yes. So on this slide number nine on the right-hand bottom corner, as you can see overall with our oncology business, we have recognized that $164 million of revenue, up 37% from prior year, in-line with our guidance for 2022. As for 2023, our revenue guidance for the oncology business, subject to the closing of the Takeda deal, is $450 million to $550 million. This includes partial recognition of the $400 million upfront income from Takeda and we continue to target the high double-digit growth from our product sales. Moving on to the next page. Page 10, as you all can see, we have over $613 million cash in short term investment and $140 million of unutilized banking facilities. In addition, as mentioned, we expect to receive $400 million of upfront income from Takeda at closing. So overall, we have very strong cash resources. Moving on to the next page, Page 11. A quick summary of our operating performance, consolidated revenue up 20% to $426 million, of which as I mentioned earlier, our oncology revenue up 37% to $164 million; our investment in R&D increased by 29% to 387 million, mainly focused on over 15 registration enabling trials. Also, our joint venture increased their net income contribution by 11% to $50 million. So overall, the net loss the company increased to $361 million. A point to note is that we had a onetime gain from prior year on divestment of one of our equity investees. I will now pass on to, Karen.

Thank you, Johnny. Let's go to Slide 12, please. Our partnership strategy is focused on three main activities. On top a very successful longstanding partnership with other territories worldwide. For fruquintinib, we've already launched in China in partnership with Eli Lilly. And we recently decided to revise our commercial partnership strategy to plan to launch with a single global commercial partner outside of China. We've moved quickly on that strategy to announce the licensing agreement in January with Takeda for the global development, manufacturing and commercialization of fruquintinib in all territories apart from China, Hong Kong and Macau, where we will lead the commercialization. The decision to include the U.S., alongside other territories and scope for partnerships has meant we attracted a great deal of interest. And we were delighted to have selected a strong partner as Takeda. Going forward we will also seek partners for some of our earlier stage assets, as you can see here for all territories outside of China. For the China partnerships, we're also actively seeking additional late-stage products to inlet 100 plus oncology commercial team. Can we go to Slide 13, please? The partnership we have with AstraZeneca for Sovleplenib was announced back in 2011 at a very early stage of development, but has grown from strength to strength, with seven registration studies ongoing. AstraZeneca is leading the clinical development outside of China. The nearest term NDA submission opportunity is in late 2024 in the U.S., subject to a positive readouts from the SAVANNAH study in non-small cell lung cancer and alignment with the FDA on the potential for accelerated approval. Our newest global partnership you can see on the top-line in yellow was announced on the January 23 for fruquintinib with Takeda and is progressing very well. We chose Takeda for their strong oncology commercial capabilities in the U.S. in particular, but also in Japan and Europe. They showed us how they would leverage their recent U.S. product launch experiences, together with the knowledge of the CRC space they have in Japan, to maximize the potential of fruquintinib for patients with refractory colorectal cancer, but also develop beyond CRC. Takeda are hungry for a major oncology product, such as from fruquintinib, and they impressed us with their launch plans. This is a really high-profile landmark feel for us and subject to regulatory clearances, we will receive an upfront payment of $400 million, together with a potential to receive up to an additional $730 million in development and sales related milestones. We've already started the rolling U.S. FDA submission, and we expect to complete it in a few months time. The FDA typically provides target review completion dates on acceptance of an NDA filing. Subject to U.S. approval, we therefore have the potential to start to book royalties from this partnership from 2024 onwards. I now pass on to Mike for the R&D update.

Thank you, Karen. Slide 14, please. Yeah, this slide shows the HUTCHMED's deep on both pipeline advancing in the clinic and these compounds cover both spectrum of haematology oncology indication. The first three products a Karen mentioned right we are at eight in the market and two of which within global partnership. And our next wave of compounds, is really entered of clinic for the registration trial and two compounds our end is Amdizalisib, and Sovleplenib, a both have CDs breakthroughs destination stage and we're entering the finishing the clinical enrolment. In the H2 inhibitors, but that is our first in-licensed product and we're working with a partner, Ipsen who have the -- we have the global China right and it's currently the bridging study, we also running the global China part of the study in the second-line lymphoma. The third wave compound is so advancing very rapidly. The FGFR inhibitor, 306 IDH1/2 inhibitor, our third generation BTK inhibitor 760, and CSF-1R inhibitor 653 are all potentially entering pivotal trial stage this year. Next slide. Colorectal cancer is the third most common cancer worldwide, with over 900,000 deaths. And the 35-year survival rate is very poor. And most of the reason our advance in CRC are focused on this more patient population with actionable mutations, such as B-RAF, MFI54 [ph]. But the majority of the metastatic colorectal cancer patients the treatment options are very limited. Essentially, they actually remained the same almost the same about a decade ago with bevacizumab has long served as approved the third line therapy. So there's a still very high unmet need in the late stage metastatic cancer patients. Next slide. So our first global MRCP FRESCO-2 trials was presented at ASMO last year and demonstrate that fruquintinib has a statistically significant clinical and meaningful…

Okay, thanks Mike. Just to sum it up. HUTCHMED took the necessary steps in 2020 to focus on getting to profitability and becoming self-sustaining. We have a lot to execute and deliver on our pipeline. We believe these launches of new products, -- next slide Mark? As Mike just showed you, we have many registration trials ongoing leading to NDA submissions both in China and globally in the next few years. And clearly, we have a lot to execute and deliver on our pipeline. We believe these launches of new products and new indications will position us to continue to grow our China commercial. And we also expect to start receiving royalties from our ex-China sales of our partner products, Sovleplenib and fruquintinib. And we believe these changes will not only help us get through tough market conditions but also ensure that we emerge a stronger company. And with that, I would like to thank you all for your attention. And the management team is available to take questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Kelly Shi from Jeffries. Please ask your question, Kelly.

Thank you for taking my questions and congrats on the progress here. Regarding HUTCHMED's commercial infrastructure for oncology franchise, have you achieved optimal targets in terms of a number of covered hospitals and healthcare providers? And where would be your other focused to area in 2023 to grow sales further? And also, could you talk about when do you expect a company to become profitable? Thank you.

Okay, thanks, Kelly, for the questions. Just very quickly on commercial structure, I'll probably give a quick answer and see if Chen Hong has anything else to add. So basically, we are around 900 FTEs, supporting fruquintinib and Surufatinib, and we should be able to support even more indications for these two products. With regard to further build out, I think given that our next wave of products, Sovleplenib, amdizalisib, and Tazemetostat all in hematologic indications. So we actually plan to build up a specialty team to support our next wave of compounds in hem indications. With regard to specific timeline, for profitability, we are targeting 2025. Obviously, now we need to continue to grow our China commercial to increase revenues, but also, I think the timing of our ex-China products start to contribute income. I think that matters as well, including Sovleplenib and fruquintinib we believe both will start to contributed royalties to us, late-'24 and certainly '25. So, again our target is 2025. Maybe Chen Hong or Johnny, if you have anything else to add with regard to commercial infrastructure in China, are we covering all the hospitals now and anything else where we need to be?

Thank you, Weiguo, I think our commercial infrastructure is optimal for current product -- launch the product, as well as indications. And we continue to improve efficacy for this team. And we catch up the market opportunities. And definitely we will increase with more opportunity coming or more products coming. So it's on your way to build up the great team to achieve more targets.

Thank you.

Thank you.

Okay, thank you. Our next question comes from the line of Louise Chen from Cantor. Please ask your question, Louise.

Okay. Thank you. And congratulations on all the progress this quarter. So I wanted to ask you a few questions. First one, just a follow up on the first question that Kelly had asked you, are you expecting profitability for the full year 2025? And then I also wanted to ask you, you have a lot going on this year, very busy. I wanted to ask you, what are your key most important readouts your approval that you're looking forward to this year? And then last question is how are you thinking about operating expenses year over year? Thank you.

Okay, thank you for these questions, Louise. So, I'll ask Johnny to provide some more details on these questions.

Okay, so, first regarding profitability. 2025 is consistent with what we have communicated to the market for the last couple of years that remains our target to be able to breakeven and turn around to become profitable in 2025. And as I said, this is our target. And we haven't changed our target for the last couple of years. And in terms of the OpEx year-on-year, I think for 2023, you can expect the level for OpEx --operating expenses will be similar by enlarge overall will be similar to 2022. The reason being we are continuing to grow our China commercial, but at the same time, we have synergy and cost reduction in U.S. as we are not building our U.S. commercial team due to this partnership with Takeda. So that is the overall in terms of profitability and OpEx.

Thanks, Johnny.

Our next question comes from the line of Alec Stranahan from Bank of America. Please ask your question, Alec.

Hey, guys. Thanks for taking our questions. Just a few from us. First, which was for the rolling submission for fruquintinib? And just remind us whether you guys are handling the submission yourself or if Takeda or a combination of both are doing the submission? Second, on amdizalisib, the follicular lymphoma readout, I think is second half of this year. Is this just due from the pace of enrollment or when the study started? Or is it a prioritized indication for you guys at this point? And if you file in follicular lymphoma next year, if the data looks good, or would you wait for say MZL readout, as well. And then just lastly, on the business update. Obviously, some trade-offs are giving us economic partners, while maximizing the revenue potential and same thing on focusing on the late stage pipeline. Maybe just help us walk through the thought process a little bit more, that'd be helpful. Thanks.

Okay. Thanks, Alec, for the questions. Let me ask to Mike to take your questions first, Mike?

Yeah. So just to answer your question for fruquintinib submission, we already started rolling submissions because we have the bridge fast track destinations. So, as you know, that Takeda deal has not yet been finalized. So we are a big plus hit on four cylinders to do the submission. The NDA submission, the EU submission and Japan submission we already get started. We also plan a lot of things, for example, the EU market access, all these program has been ongoing. And of course, when the final transaction happen, we'll certainly discuss with our partner about how we can really accelerate the registration process, for example Takeda has a very strong presence in Japan. We do think right, with their expertise in all the markets, we're going to accelerate the registration process without slowing it down. And to answer the question for amdizalisib, is we thought we just finished Phase 2 follicular lymphoma enrollment. We're anticipating a readout, again, I remind you, this is the third line follicular lymphoma. We previously have agreement with the CD about the trial design. And if the trial is have a positive readout, we're going to submit later this year for the CD for approval. And also mentioned right, for amdizalisib, we are still we also have other combination trial going on. But with the base of the submission will be all the data will we have right for follicular lymphoma and also all the patient data, what we have to support the NDA package. And for the development prioritization, what we really focus on the late-stage product where we can -- how we can really -- in the near term drive the value for all these late stage towards what Dr. Su mentioned, towards a breakeven point, right, by 2025. So we have multiple products in the development. We hope our registration and the evaluation and development will support our path to for the sustain to profitability.

Okay. Thanks, Mike. Maybe just add a couple of points, Alec, regarding amdizalisib filing strategy, certainly, FL will be firstm Marginal zone will be actually a second, NDA will be sometime likely next year or late next year. So this will be filed separately instead of together. Regarding prioritization -- portfolio prioritization, we will plan an R&D day sometime this year to go over in detail the prioritization process and the priorities going forward with various trials in China and outside. Thank you

Thank you. The next question comes from the line of Yang Huang from Credit Suisse. Please ask your question, Yang.

Thanks. I have two questions. First one, management has just guided for this year, oncology revenue will be 450 to 550 with some partial recognition of Takeda upfront payment. Can you give us some more color on how you're going to kind of recognize partially? And then what's going to be kind of more color can we have in terms of product sales for this year's guidance? That's my first question. Thanks.

Okay. Maybe, Johnny can provide some details on the $450 million to $550 million guidance as well as our expectation for 2023 product sales. Johnny?

Okay. Thank you for question. So $400 million upfront income. The accounting recognitions would have to take into consideration of the performance obligation under the terms of the licensing agreement. So that as the closing has yet to happen. So our auditors have to determine when it actually happens and the degree of percentage of completion in terms of our obligation. As a result, we have estimated a certain level of recognition in 2023. Part of the performance obligation, we anticipate that will be completed in 2024 and some of which may be beyond. So this is -- although we received the full $400 million, the accounting recognition would not allow us to actually recognize it in full. So in terms of the product sales, as you have looked at, our recognitions of the product sales, HUTCHMED level is about 63% growth versus last year. We continue to project a high double-digit growth in 2023. So basically, in a range of high double-digit estimation. As such, we are not giving specific guidance to this. So you can estimate that the level of projection growth, you have to take into account -- basically, you have to take into account ELUNATE, SULANDA already entered into the NRDL and ORPATHYS will be in the first year starting from March that they would be able to -- the patients will be able to gain access from -- benefits from the NRDL.

Yeah. Thanks, Johnny. I think given the opening of China, COVID impact is going to diminish this year. And certainly, in January, we had COVID outbreak, right, and also China New Year as well, but we expect conditions to become far better this year compared to last year. So we expect similar levels of growth this year, if not better.

Okay. Got it. Yes. That's helpful. My second question is the company is going to file sNDA for in gastric cancer. It looked like a larger indication, can company comment how should we compare the commercial kind of prospect of -- in terms of gastric cancer compared with its kind of indication in CRC?

Sure. Maybe Mike, you can take this question.

Yeah. So for the gastric cancer, right? And in the second line, currently approved product is really paclitaxel and also ram-paclitaxel, right? So it was approved last year, the ram plus paclitaxel. And we look at, I think, the fruquintinib, but it's really started the trial when the paclitaxel was the standard of care. So the trial was a positive and met one of your primary endpoint. It is a large indication for second-line gastric cancer. So as I mentioned, 44% patient globally in China and also is representing is a huge opportunity in terms of patient volume. And for the commercial side, I think the company will plan accordingly, right, for the NDA submission and the follow-on commercial part. Yeah.

So briefly, second-line GC patient population size should almost double that of third-line CRC or later-line CRC. And last competitive treatments available also other than paclitaxel still standard of care. And as Mike mentioned, paclitaxel plus ramucirumab was approved last year, but it is highly priced and it is far from standard of care in China. So we view it a great opportunity here.

Okay. I see. Just a quick follow-up. Have we got any feedback or have any meeting with the CV in terms of gastric cancer finding?

No. The answer is no. We are actually focusing on preparation of CSR and just to get ready for submission.

Okay, got it. Thanks.

Thank you. Our next question comes from the line of Mike Mitchell from Panmure Gordon. Please ask your question, Mike.

Thanks, everyone. And thanks for taking my questions. I just wanted to know from your perspective, what the likely steps are regarding the SEC and the U.S. accounting oversight issue. I know you've put a comment in today's statement. But if you have any more on that, that would be great. And just a second question, actually, just a follow-up to the previous Q&A. I just wondered would return to the Takeda deal, just on the point of partial recognition of the upfront. Would there be material obligations still to be completed in 2024, relating to the upfront payment? I'm just trying to understand exactly what those would be. So any more color on that would be helpful.

Okay. Thanks, Mike. Maybe, Johnny.

Yes, Okay. So thank you for question. . So FDA from the PCAOB, we heard it from December last year that they have come to this side of the world. And basically, they have review and they were able to gain access. This is what we have know, and we do not foresee issues in terms of the U.S. authorities gaining access to the audit working paper of the auditors of the company that they have selected. This is as far as we know. Our resources and our auditors have not able to give us more color on this, but we believe that this issue based on the announcement by the PCOB last year, actually, we have no further negative news regarding this issue. So in terms of the revenue recognitions, in terms of this performance obligation, basically, by enlarge I think, 2023-2024 is all related to the regulatory submission as well as some of the approval step that requires us to follow up. So -- some of which I think made it to 2023 and also, of course, some items related to technical transfer, for example, they are all the consideration that the auditor would assess. As I said, the closing timing hasn't occurred yet. So we are not in a position to actually comment in great detail about the recognition method and the extent that we can recognize for this year. I hope that answers. Yeah, thank you.

Our next question comes from the line of Roderick Ma from Goldman Sachs. Please ask your question, Roderick.

Hi, this is Roderick for Paul. And just two questions from us. So since you already started the rolling submission for fruquintinib in the U.S. and have you heard any FDA feedback on the submission? And the second question is for the NRDL inclusion of savolitinib. Just is there any like details on the price maybe will be provided at some point. Thanks.

Okay. Thanks for the question. For the U.S. NDA for fruquintinib, I'll ask Mike to provide some feedback.

Yeah. So we are -- it's ongoing smoothly, and we already have the first modules submitted. And as what I said, right, this is all went through we'll continue to targeting to finish those -- the other modules in the first half of this year. So, so far, it's been going on smoothly.

Okay. Yeah, typically, you don't hear anything until you finish or complete filing. With regard to savo NRDL, we agreed with AstraZeneca not to disclose the price after negotiation. However, it will become available tomorrow, I assume how much first. So I probably will be able to find out the NRDL price very soon.

Got it. Thank you.

Thank you. Our next question comes from the line of Matthew Yan from CLSA. Please ask your question, Matthew.

Hi, thanks for taking my questions. Congratulation on the results. I've got two questions. First is regarding the supplementary filing for second-line gastric cancer for fruquintinib. I wonder what's your view regarding fruquintinib results and that the primary endpoint of PFS but not overall survival. So do you think that CD is very likely to agree that PFS will be enough to support this filing this year? And my second question is regarding the [Indiscernible], I wonder can you elaborate more on how will it differentiate itself in the China UK market especially versus there are more leading peers approval and about to be approved from [Indiscernible]. Yeah, those are my two questions. Thanks.

Okay. Thanks for the questions, and I'll ask Mike again to provide his view on second-line GC for fruquintinib and also amdizalisib differentiation.

Yeah. So for the second-line gastric cancer. So what the -- for a lot of trials, as you can see, particularly in Asia, right? Because the subsequent treatment is very high compared with the global. So so far, if you look at all the Asian trials, including the subset of patients in the RAINBOW trial, right, the global trial is all even for ramuciruab plus paclitaxel and the RAINBOW Asia trial, as you can see, is the PFS significant and the OS is not significant. And this is particularly related to the treatment paradigm in Asia. So we think this is -- as what we have is the design, right, we have a lot of the factors looking to. I think this is really reflecting the practice in Asia and in China. So from what we have, we do think this is the PFS as a primary and is one of the -- we have built in statistical analysis to really adjust the offer for this specific design and it was a trial design was agreeable CD. So we do intend to use this trial data to submit for the second-line GC and pretty much benchmarking for the RAINBOW Asia, if you look at that data, right? And it's all proved in China, like what I mentioned last year. And go back to amdizalisib, right? So the data will be reported is really, if you look at the comparisons that the competitor, the safety profile is really quite -- not only the efficacy is quite robust, but also the safety profile, some of the areas of interest like diarrhea, liver enzyme increase, we do see amdizalisib looks very favorable. And in the treatment landscape, again, right, the single-arm registration to Phase 2 trial was discussed and agreed upon with the CDE design. And at the moment, right, we also received the breakthrough designated -- breakthrough therapy in China. So we do -- based on the safety profile and the robust clinical efficacy, we are intending. Of course, if you look at the CD discussion recently, we are also preparing for conditional approval and potentially confirmatory trial. So at this stage, right, based on the time frame what we have, we do think it's a good opportunity to file based on the single-arm followed with the confirmatory trial to confirm this study. Yeah.

Thanks, Mike.

Thank you. I'm showing no further questions. I'll now turn the conference back to Mark for closing remarks.

Okay. And Weiguo, any comments or can close, I think?

Well, again, -- thank you, everyone, for attending the call. 2022, we made really significant strategic changes. And now we believe we are well positioned to execute on our plan towards profitability -- we have a lot to deliver in our pipeline, including our three approved products with additional life cycle management indications as well as our second wave of products now reaching NDA stage, all in parallel with our third wave of compounds entering into registration studies later this year. So we are really positioned to grow -- actually to accelerate our growth in China and outside China. And this will actually see us all the way through '25 and even beyond, '26-'27 with all this third wave of compounds lineup for registration studies and potential NDA submissions in China. So we are really confident that we will be able to deliver on our pipeline and also our China commercial team led by Chen Hong is really high performing, very -- worked through 2022 with all the difficulties. And they are, again, also positioned to grow very quickly, very rapidly with new launches of new indications and also new products in the next few years. So all in all, we are -- we got through 2022, a very difficult year. But now we believe we are on our way to profitability, and we are a much stronger company today. Thank you all for your attention. And if you have any further questions, reach out to us, to Mark's team or to myself. Thank you.

Right. Thank you. So this concludes today's conference call. Thank you for participating. You may now disconnect.