Hutchmed (HCM) - Chinese so beware!

Decided to be brave and add another of my current holdings to the companies board. I have held for a while and it has been volatile to say the least! The Chinese factor probably doesn’t help. Per the company’s website they are: an innovative, commercial-stage biopharmaceutical company committed to the discovery and global development of targeted therapies and immunotherapies for the treatment of cancer and immunological diseases.

They go on to say: We are among the first global-focused novel drug discovery companies in China. Over the past two decades, we have established a fully integrated R&D platform with world-class discovery and development capabilities. As of late September 2021 we have a pipeline of 13 clinical stage drug candidates in clinical studies around the world, 12 of which were discovered by our in-house scientific team. We have three oncology drugs approved and marketed in China.

We have also developed a profitable commercial platform with deep pan-China market access, which manufactures, markets and distributes our novel oncology products, as well as prescription drugs and consumer health products in China. We are expanding the geographic scope of our commercial operations to include the U.S. and Europe.

HUTCHMED is listed on the Nasdaq Global Select Market, the Stock Exchange of Hong Kong Limited and the London Stock Exchange’s AIM market (Nasdaq/AIM:HCM; HKEX:13).

I have stuck with them, but luckily sold some higher up to move to another investment, and watched them retrace to the recent lows. 7 years of progress, including the 3x oncology drugs that are now approved and providing income, wiped out in short order. When sentiment returns, and it surely must (?), I am sure this time will be looked back on as a great buying opportunity for the long term. The other thing that knocked the price back is that the English CEO recently retired at short notice! Certainly did not help sentiment. Anyway, at ~260p versus a high of 600p not so long ago and a US operations from where news is expected very shortly, I can still see a bright future here. I can see many using the barge-pole on this one but my gut says it will come good. Sentiment is rock bottom now!

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I held them for a while back in 2017-18 and realised a reasonable profit. I got disillusioned by the way the trading statements were full of optimism but all the drug pipelines seemed to be going nowhere - just an endless stream of trials and approvals with no income stream in sight. Since I sold, the shareprice has oscillated greatly but not really shown signs of a sustained rise. I wonder whether they will ever be able to recoup their development costs. It still doesn’t make profits or generate cash

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Thanks for the feedback Diogenes. Certainly valid points. However, I think with 3x oncology drugs now on the market and more to come things SHOULD be improving. Going by the share price it does not seem to be the case! HCM are weighed down by the fact that they are currently on 3x stock markets and there is some doubt about the future of some of the listings and even whether another could take place. This is not good from a stability point of view as markets do not like uncertainty. Then we have the major share holder (CK Hutchison Holdings Limited - 34%) who together with the BOD don’t help when it comes to last minute decisions etc… The main point for me is that they have alliances with Astra Zeneca and Eli Lilly among others, now have 3x commercial drugs, a fantastic pipeline of other in-house developed drugs, manufacturing capabilities for those commercial ones available now and future drugs, and also have the US/EU/Japan markets either close to producing income or scheduled to add income a bit further down the line. Hence, I believe at current levels they are a good bet on the future. The Chinese part and the current negative stance on Chinese companies by the US is a negative. I am hoping that the newsflow from HCM’s US arm will help improve sentiment when it comes to HCM though.

Please see this text from last results:

United States and Europe

• Surufatinib U.S. FDA & NDA process update:

o Completed submission of U.S. FDA NDA for surufatinib, which was accepted in June OPO@, for
the treatment of both pancreatic and extra-pancreatic NET;

o U.S. FDA NDA review, as well as the clinical site inspections and pre-approval inspections
of our manufacturing facilities, are ongoing, several inspections have been completed with
others pending subject to COVID-19 travel restrictions and security requirements for foreign
visitors; and

o The PDUFA goal date is April 30, 2022 and mid- and late-cycle review meetings with the FDA
have completed. Timing of completion of the NDA review is subject to FDA scheduling limitations.

• Surufatinib EMA( MAA process update:

o Fully submitted EMA MAA for surufatinib, which was validated and accepted in July 2021, for
the treatment of both pancreatic and non-pancreatic NET; and

o Completed the 120-day assessment, and now entering the later stages of MAA review.

• Savolitinib: conducted U.S. FDA EOP>) meeting for SAVANNAH study of savolitinib plus*
TAGRISSO® in EGFR TK refractory NSCLC.

o Continued evaluation of SAVANNAH study for potential accelerated approval use; and

o Completed clinical trial applications in U.S., EU and Japan for the SAFFRON study, a global
pivotal Phase III study of savolitinib and TAGRISSO® in patients with NSCLC who have
progressed following TAGRISSO® treatment due to MET amplification

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Hi Nivasha,

I too have been accumulating HCM. I made an initial, badly timed purchase at over 400p just before Christian made his unexpected retirement notice. It appears that he’d had enough of life in the Far East and has elderly parents in poor health in Scotland so decided that enough was enough. As he’d been instrumental in the NASDAQ listing and drawing institutional investors’ support for the ADRs at prices well above where they are now there’s hope for recovery - and the Chinese have been making conciliatory noises about permitting US oversight of the Chinese accounts. It’s going to take time for the share to recover but it’s a bet I’m willing to take and have the patience for.

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Thanks for your feedback Lomcovaks! I agree patience is needed. It usually is for investments unless you are a day trader and I have never been one of those! Unless more disappointing news comes our way I am sure we will do okay if we hold for a while. Let’s see what happens re: any US news over the coming days and reevaluate once that side of the business is even clearer. Would just need some good news on that front to create a new direction in the share price and boy, do we need that! Hope your investment in HCM proves rewarding over the months and years (if you hold that long!) to come.

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Well, the last RNS was very disappointing and the share price dropped 15%+ because of it. The FDA determined that the current data package, based on two positive Phase III trials in China and one bridging study in the United States (U.S.), does not support an approval in the U.S. at this time. The CRL indicated that a multi-regional clinical trial (“MRCT”) is required for U.S. approval.

Not what was expected given HCM’s history with seeking approvals, but they have been in China. Just shows you that you have to be prepared for anything. So, the waiting game continues and the share price continues to weaken. One day HCM will have their day in the sun, I am pretty sure of it, but when that will be is very uncertain at present.

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