With the continuous growth of domestic and foreign sales of core products and further cost reduction and efficiency improvement, GF SEC believes that Hutchmed (China) is expected to achieve operational breakeven earlier than the previously guided deadline of 2025.
According to the research report published by Bocom Intl Securities, Hutchmed (China) (00013) exceeded expectations in its tumor/immunology business in 1H24 and achieved rapid volume growth of fruquintinib in the U.S. market. In addition, the company's cost reduction and efficiency improvement efforts have produced remarkable results, leading to higher certainty in achieving profitability in 2025. It maintains a Buy rating on the company and selects it as one of the key recommended symbols in the biotechnology industry with a target price of HKD 40.40.
Bocom Intl Securities' views are as follows:
1H24 tumor/immunology business exceeded expectations, and fruquintinib achieved rapid volume growth in the U.S. market: tumor/immunology business revenue was USD 0.169 billion (YoY -53%, mainly due to one-time upfront payments from the Takeda collaboration in the same period last year) , exceeding the previous Visible Alpha consensus estimate. Tumor product revenue increased by 59% (+64% @CER) to USD 0.128 billion, mainly due to the rapid volume increase of fruquintinib sales in the U.S.: 1H24 sales reached USD 0.131 billion, and the company included about USD 0.043 billion of collaboration revenue; Among them, 2Q sales increased significantly to about USD 80 million compared with USD 50 million in 1Q. Sales of the three core products in China continued to steadily increase: fruquintinib/Elunate/Surufatinib increased by 8%/12%/18% (+13%/17%/22% @CER) to USD 0.061 billion/0.025 billion/0.026 billion. The company maintains the guidance for full-year tumor/immunology business revenue of USD 0.3-0.4 billion in 2024, and based on the 1H24 situation and the payment pace of potential milestones in 2H (European listing and approval in Japan), the final revenue is expected to fall at the high end of the Guideline range.
Remarkable achievements in cost reduction and efficiency improvement, increasing certainty of operating breakeven in 2025: Total operating expenses in 1H24 fell by 28%, of which: 1) R&D expenses fell by 34% to USD 0.095 billion, with domestic and overseas spending of USD 0.08 billion and USD 0.015 billion respectively (1H23: USD 0.089 billion and USD 0.056 billion), mainly due to the overseas team adjustments and strategic reorganization of R&D projects. The company expects to increase R&D investment in new Phase III studies such as ESLIM-02 and RAPHAEL in 2H24, but R&D expenses for the whole year are expected to decrease YoY. 2) Selling and administrative expenses fell by 15% due to the company's stricter control over expenses. The operating loss in 1H24 after deducting Takeda collaboration revenue was USD 0.061 billion, significantly narrowing from USD 0.157 billion in 1H23. With the sustained growth of sales of core products both domestically and internationally and further cost reduction and efficiency improvement, we believe that the company is expected to achieve operating breakeven earlier than the previously guided deadline of 2025.
As the core products continue to grow both domestically and internationally and further cost reduction and efficiency improvement, we believe the company is expected to achieve operating breakeven earlier than the previously guided deadline of 2025.
