Hong Kong-based Hutchmed (China) Ltd. (HCM) has emerged as a success story among Chinese drug companies venturing into international markets. Its flagship anti-cancer drug, Fruzaqla, has secured approval in the US and Europe, and the company boasts a track record of licensing deals with multinational pharmaceutical giants.
The latest earnings report, released on July 31, revealed that Fruzaqla’s US sales performance was robust in the first half of the year. However, Hutchmed’s net profits declined by nearly 85% to $25.8 million, primarily due to a high base effect from a licensing deal with Japan’s Takeda Pharmaceutical last year. The $259 million down payment for exclusive rights to market Fruzaqla outside of China contributed significantly to Hutchmed’s profits in the first half of 2023.
Despite the decline, Hutchmed remains profitable. The US launch of Fruzaqla in November 2023 has started contributing to the bottom line. The company’s overall revenues reached $310 million in the first half of 2024, with $169 million coming from the oncology business. Notably, product sales surged by 64% to $128 million.
While US sales of Fruzaqla were strong, reaching $131 million in the first half of the year, Chinese sales growth has slowed. Despite being approved for domestic use six years ago, Fruzaqla’s Chinese sales grew by only 8% in the first half of 2024, a stark contrast to the 111% growth in 2021.
Hutchmed’s other two oncology drugs, Surufatinib (Sulanda in China) and Savolitinib (Orpathys in China), are currently only available in the Chinese market. Surufatinib, a treatment for neuroendocrine tumors, generated $25.40 million in the first half of 2024, a 12% increase from the previous year. However, the US drug regulator rejected a marketing application for Surufatinib in 2022, citing a lack of data from studies on US patients, delaying its overseas launch. Sales of Savolitinib, which targets lung and renal cancer, rose by 18% to $25.90 million in the first half.
While investors initially greeted the earnings report with lukewarm reception, Hutchmed’s share price saw a boost when Takeda Pharmaceutical released its earnings report on July 31. The report revealed a significant jump in Fruzaqla sales in Japan, suggesting strong potential for the drug in the global market.
Hutchmed’s profits for the period were achieved through strict cost controls, with reductions in operating expenses. The company also announced a strategic shift, focusing on innovative drugs and considering divesting its traditional Chinese medicine business. This decision stems from the lower prices and profit margins associated with drugs covered by China’s state healthcare insurance scheme.
Fruzaqla, approved in June 2024 for use in Europe, is poised for wider access to overseas markets. Hutchmed anticipates its oncology drugs to generate $300 million to $400 million in revenue this year. Analysts believe that Fruzaqla’s strong overseas sales, cost control measures, and potential for higher milestone revenue in the second half could potentially accelerate the drug’s profitability timeline beyond the previously projected 2025.
Despite being valued in the middle to lower end of the industry range, Hutchmed’s growing sales of its key cancer drug suggest a promising path toward stable revenue growth in the long term.
