BOARD OF DIRECTORS
Executive Directors
TO Chi Keung, Simon, BSc, ACGI, MBA
Chairman
Christian Lawrence HOGG, BSc, MBA (1)
Chief Executive Officer
Weiguo SU, BSc, PhD (2)
Chief Executive Officer and Chief Scientific Officer
CHENG Chig Fung, Johnny, BEc, CA
Chief Financial Officer
Non-executive Directors
Dan ELDAR, BA, MA, MA, PhD
Edith SHIH, BSE, MA, MA, EdM, Solicitor,
FCG(CS, CGP), HKFCG(CS, CGP)(PE)
Independent Non-executive Directors
Paul Rutherford CARTER, BA, FCMA
Senior Independent Director
Karen Jean FERRANTE, MD, BSc
Graeme Allan JACK, BCom, CA(ANZ), FHKICPA
MOK Shu Kam, Tony, BMSc, MD, FRCPC, FHKCP,
FHKAM, FRCP(Edin), FASCO
AUDIT COMMITTEE
Graeme Allan JACK (Chairman)
Paul Rutherford CARTER
Karen Jean FERRANTE
NOMINATION COMMITTEE
MOK Shu Kam, Tony (Chairman)
Graeme Allan JACK
TO Chi Keung, Simon
REMUNERATION COMMITTEE
Paul Rutherford CARTER (Chairman)
Graeme Allan JACK
TO Chi Keung, Simon
TECHNICAL COMMITTEE
Karen Jean FERRANTE (Chairman)
Paul Rutherford CARTER
Christian Lawrence HOGG (1)
MOK Shu Kam, Tony
Weiguo SU
TO Chi Keung, Simon
SUSTAINABILITY COMMITTEE
Edith SHIH (Chairman)
CHENG Chig Fung, Johnny
Christian Lawrence HOGG (1)
MOK Shu Kam, Tony
COMPANY SECRETARY
Edith SHIH, BSE, MA, MA, EdM, Solicitor,
FCG(CS, CGP), HKFCG(CS, CGP)(PE)
NOMINATED ADVISER
Panmure Gordon (UK) Limited
CORPORATE BROKERS
Panmure Gordon (UK) Limited
HSBC Bank plc
AUDITOR
PricewaterhouseCoopers
Notes:
(1)
(2)
Retired as an Executive Director, Chief Executive Officer, member of Sustainability Committee and Technical Committee on March 4, 2022
Appointed as a Chief Scientific Officer since 2012 and appointed as Chief Executive Officer and Chief Scientific Officer on March 4, 2022
CORPORATE INFORMATION
Corporate Information
Retirement of CEO and Appointment of New CEO
Chairman’s Statement
2021 Full Year Results and Business Updates
Full Year 2021 Financial Results
Financial Summary
Operations Review
Oncology/Immunology
Other Ventures
Use of Non-GAAP Financial Measures and Reconciliation
Group Capital Resources
Other Information
Information on Directors
Information on Senior Management
Directors’ Report
Corporate Governance Report
Independent Auditor’s Report
Consolidated Financial Statements
Form 20-F
References and Abbreviations
Information for Shareholders
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CONTENTS 2
BUILDING A GLOBAL SCIENCE-FOCUSED BIOPHARMA COMPANY FROM AN ESTABLISHED BASE IN CHINA FULLY INTEGRATED R&D AND
FULLY INTEGRATED R&D AND
FULLY INTEGRATED R&D AND
FULLY INTEGRATED R&D AND
COMMERCIALIZATION PLATFORM
COMMERCIALIZATION PLATFORM
COMMERCIALIZATION PLATFORM
COMMERCIALIZATION PLATFORM
BUILT OVER 22 YEARS
BUILT OVER 22 YEARS
BUILT OVER 22 YEARS
BUILT OVER 22 YEARS
>4,600
>4,600
>4,600
>4,600 personnel*
across HUTCHMED group
~1,500
~1,500
~1,500 person team
~1,500
in Oncology/Immunology
Global novel drug discovery and manufacturing
Global novel drug discovery and manufacturing
Global novel drug discovery and manufacturing
Global novel drug discovery and manufacturing
operations
operations
operations
operations
•
•
• Over 20 years novel drug discovery track-record
•
•
•
• 12 novel clinical-stage drug candidates discovered in-house
•
•
•
• ~820 integrated R&D staff focused on oncology & immunological diseases
•
Clinical development & regulatory operations
Clinical development & regulatory operations
Clinical development & regulatory operations
Clinical development & regulatory operations
in all major markets
in all major markets
in all major markets
in all major markets
•
• China, U.S., EU & Japan clinical infrastructure
•
•
• More than 45 clinical studies underway world-wide
•
•
•
• First 3 novel oncology drugs approved
•
•
•
Commercial teams in China & U.S. representing
Commercial teams in China & U.S. representing
Commercial teams in China & U.S. representing
Commercial teams in China & U.S. representing
around half of the global pharma market
around half of the global pharma market
around half of the global pharma market
around half of the global pharma market
•
• ~630 person China oncology commercial team
•
•
• Covering over 2,500 China oncology hospitals
•
•
•
• U.S. team set for possible first launch in 2022
•
•
•
* includes non-consolidated joint venture
HUTCHMED (China) Limited 2021 Annual Report 3
On March 3, 2022, we announced the
retirement of Mr. Christian Hogg after
almost 22 years with HUTCHMED,
including 15 years as Executive
Director and Chief Executive Officer
(“CEO”), and the appointment of Dr.
Weiguo Su as the new CEO.
Dr. Su has been selected and
appointed to his additional role as the
CEO, as part of the Company’s ongoing
succession planning.
Dr. Su, has been with HUTCHMED
for about 17 years, including about
10 years as Chief Scientific Officer
and almost five years as Executive
Director. He has been responsible for
the establishment of all aspects of
the oncology/immunology innovation
platform which led to the in-house
discovery of 12 novel oncology drug
candidates, the first three of which
have achieved approval and successful
commercial launch.
Weiguo SU
“On behalf of the Board, I would like to congratulate Dr. Su on his appointment to CEO of
HUTCHMED and wish him great success in this well-deserved appointment. I would also like to
extend our deepest appreciation to Christian for his contributions and wish him the best in his
retirement.
Christian was the first employee of HUTCHMED twenty-two years ago and he has worked tirelessly
to build the Company from its very beginning into the truly globally facing biopharmaceutical
company it is today. Christian will remain as a strategic advisor to the Company, with an emphasis
on organizational development, relations with our partners, global commercialization strategy
and investor relations matters.”
“After over 34 years away, and 27 years in China, I have taken the decision to return home to
Europe to focus on, and be close to, my important family responsibilities. I am glad to see the
Board’s new appointment of Dr. Weiguo Su, one of the industry’s most respected leaders, and a
person who I believe, with the support of our board and deeply experienced senior management
team, will take HUTCHMED to greater heights.”
Simon To
Chairman
Christian Hogg
4
RETIREMENT OF CEO AND APPOINTMENT OF NEW CEO “
2021 was an exceptional
year for HUTCHMED
”
SIMON TO, CHAIRMAN
Commercial success on ELUNATE® and the launches of SULANDA® and
ORPATHYS® contributed to an almost four-fold increase in consolidated
oncology/immunology revenues to $119.6 million, with momentum
continuing in 2022.
ORPATHYS® took a major step forward in 2021 with its first approval
and important, and as yet unpublished, data from the SAVANNAH
study in combination with TAGRISSO®. We and our partner AstraZeneca
initiated four Phase III studies and one Phase II study, with registration
potential, for ORPATHYS® during 2021. These actions have triggered
$40 million in milestone payments to HUTCHMED since mid-2021.
A seventh registration study, a global Phase III in NSCLC, the SAFFRON
study, is set to initiate in mid-2022.
We are rapidly progressing our plan to expand our oncology assets into
global markets. Led by our team of over 800-personnel in discovery,
development and manufacturing operations, we have an un-equaled
fifteen-year track-record of producing high quality novel oncology/
immunology drug candidates.
enrollment was completed for fruquintinib in a fourteen-country
global Phase III study, the FRESCO-2 study, in CRC which reads-out
later in 2022; positive and differentiated POC data was presented
for amdizalisib and sovleplenib; and our FGFR, IDH1/2, ERK, third
generation BTK and CSF-1R inhibitors all made good progress in early
development.
With a strong track record in bringing innovative drugs to patients
through rigorous clinical trials, our seasoned clinical team is now
enrolling 13 registration studies for six assets with an additional
5 registration studies set to initiate in 2022. With over $1 billion in
cash, and the intention to divest further non-core assets, we anticipate
having sufficient runway to see our plans through.
Our strategy is to launch a stream of new products in both the China
and global markets over the coming years, helping patients with unmet
needs and creating value for all our stakeholders.
Seven of our assets are now being developed outside China. In addition
to the global progress of ORPATHYS®, surufatinib’s U.S. NDA and
EU MAA are in the later stages of regulatory review for advanced NETs;
Simon To
Chairman
March 3, 2022
AstraZeneca = AstraZeneca PLC and its wholly owned subsidiary, AstraZeneca AB (publ)
NSCLC = Non-small cell lung cancer
NDA = New Drug Approval
MAA = Marketing Authorisation Application
NET = Neuroendocrine tumors
CRC = Colorectal cancer
POC = Proof of concept
FGFR = Fibroblast growth factor receptor
IDH = Isocitrate dehydrogenase
ERK = Extracellular signal-regulated kinase
BTK = Bruton’s tyrosine kinase
CSF-1R = Colony stimulating factor-1 receptor
All amounts are expressed in U.S. dollars unless otherwise stated.
HUTCHMED (China) Limited 2021 Annual Report 5
HUTCHMED (China) Limited 2021 Annual Report 5
CHAIRMAN’S STATEMENT COMMERCIAL OPERATIONS
•
•
•
•
Total revenues increased 56% to $356.1 million in 2021 (2020:
$228.0m), driven by commercial progress on our three in-house
developed oncology drugs ELUNATE®, SULANDA® and ORPATHYS®;
Full year 2021 Oncology/Immunology consolidated revenues
of $119.6 million, up 296% (2020: $30.2m), and in line with 2021
guidance of $110-130 million;
Continuing expansion of in-house oncology commercial
organization in China, which at the end of 2021 numbered
about 630 personnel (end 2020: ~390) covering over 2,500 oncology
hospitals and over 29,000 oncology physicians;
ELUNATE® (fruquintinib in China) in-market sales1 increased
111% to $71.0 million (2020: $33.7m), reflecting a full year of
HUTCHMED management of all on-the-ground medical detailing,
promotion and local and regional marketing activities in China;
•
•
•
•
SULANDA® (surufatinib in China) launched for both extra-
pancreatic NET and pancreatic NET with in-market sales in
2021 of $11.6 million (2020: nil). An encouraging start in the self-
pay market and positioned well for national reimbursement which
started in January 2022;
ORPATHYS® (savolitinib in China) launched in mid-2021 through
AstraZeneca’s extensive oncology commercial organization,
with in-market sales of $15.9 million (2020: nil). Rapid initial self-
pay uptake due to being the first-in-class selective MET2 inhibitor in
China;
Successful management of the NRDL3 process to expand access
to our key products in January 2022. Concluded ELUNATE® NRDL
renewal and first time NRDL inclusion of SULANDA®; and
U.S. commercial team continued to build for the potential
surufatinib U.S. approval in 2022. The team, more than 30 personnel,
is fully engaged on all aspects of launch readiness including supply
chain, market access, marketing, sales and commercial operations.
(Growth vs. Prior Period)
ELUNATE®
SULANDA®
ORPATHYS®
Product Sales
Other R&D4 service income
Milestone payments
Total Oncology/Immunology
In-market Sales*
Consolidated Revenue**
2021
Jan-Feb 2022
Unaudited
2021
Jan-Feb 2022
Unaudited
$71.0m (111%)
$21.6m (51%)
$53.5m (168%)
$13.5m (33%)
$11.6m –
$15.9m –
$6.0m (21%)
$7.4m –
$11.6m –
$11.3m –
$6.0m (21%)
$4.8m –
$98.5m (192%)
$35.0m (81%)
$76.4m (282%)
$24.3m (61%)
$18.2m (77%)
$3.7m (80%)
$25.0m –
$15.0m –
$119.6m (296%)
$43.0m (151%)
* = For ELUNATE® and ORPATHYS®, represents total sales to third parties as provided by Lilly and AstraZeneca, respectively;
** = For ELUNATE® and ORPATHYS®, represents manufacturing fees, commercial service fees and royalties paid by Lilly and AstraZeneca, respectively, to HUTCHMED, and sales to other third
parties invoiced by HUTCHMED; For SULANDA®, represents the Company’s sales of the product to third parties.
6
2021 FULL YEAR RESULTS & BUSINESS UPDATES REGULATORY ACHIEVEMENTS
China
o
The PDUFA8 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 EMA9 MAA process update:
o
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
Completed the 120-day assessment, and now entering the
later stages of MAA review.
•
Savolitinib: conducted U.S. FDA EOP210 meeting for SAVANNAH
study of savolitinib plus TAGRISSO® in EGFR11 TKI12 refractory NSCLC.
o
o
Continued evaluation of SAVANNAH study for potential
accelerated approval use; and
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.
•
•
•
•
•
Received China NMPA5 NDA approval for ORPATHYS®
(savolitinib) as a treatment for patients with MET exon 14 skipping
alteration NSCLC in June 2021, making savolitinib the first-in-class
selective MET inhibitor in China;
Received second China NMPA NDA approval for SULANDA®
(surufatinib) in June 2021 as a treatment for patients with advanced
pancreatic NET;
A $25 million milestone payment was made to us by
AstraZeneca in July 2021 upon first sale of ORPATHYS® in China;
Received Breakthrough Therapy Designation in China for
amdizalisib (HMPL-689) in September 2021 for the treatment of
relapsed or refractory follicular lymphoma; and
Received Breakthrough Therapy Designation in China for
sovleplenib (HMPL-523) in January 2022 for the treatment of ITP6.
United States and Europe
•
Surufatinib U.S. FDA7 NDA process update:
o
Completed submission of U.S. FDA NDA for surufatinib,
which was accepted in June 2021, 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
HUTCHMED (China) Limited 2021 Annual Report 7
CLINICAL DEVELOPMENT
ACTIVITIES
Savolitinib (ORPATHYS®), a highly selective oral inhibitor of MET
being developed broadly across MET-driven patient populations in
lung and gastric cancer and renal cell carcinoma
Major clinical milestones for savolitinib in 2021:
Initiated SAMETA, a global Phase III pivotal study of the
savolitinib plus IMFINZI® combination in MET-driven, unresectable
and locally advanced or metastatic PRCC in October 2021
(NCT05043090);
Initiated SANOVO, a pivotal Phase III study in China for the
savolitinib plus TAGRISSO® combination in treatment naïve patients
with EGFR mutant NSCLC with MET aberration in September 2021
(NCT05009836);
Potential upcoming clinical and regulatory milestones for savolitinib in
2022:
•
•
Submit for presentation the SAVANNAH Phase II study
(NCT03778229) for the savolitinib plus TAGRISSO® combination in
NSCLC patients harboring EGFR mutation and MET amplification or
overexpression at a scientific conference in the second half of 2022;
and
Commence enrollment in SAFFRON, a global, pivotal Phase III
study for the savolitinib plus TAGRISSO® combination in mid-
2022 (NCT05261399).
Surufatinib (SULANDA® in China), an oral inhibitor of VEGFR15, FGFR and
CSF-1R designed to inhibit tumor angiogenesis and promote the body’s
immune response against tumor cells via tumor associated macrophage
regulation; approved and launched in China
Major clinical milestones for surufatinib in 2021:
Initiated SACHI, a pivotal Phase III study in China for the
savolitinib plus TAGRISSO® combination in patients with EGFR
mutant NSCLC who have progressed following EGFR TKI treatment
due to MET amplification in November 2021 (NCT05015608);
Initiated Phase II study with potential for registration
(NCT04923932) for savolitinib in metastatic gastric cancer with MET
amplification in China in mid-2021;
Initiated a confirmatory China Phase IIIb post-approval study
(NCT04923945) of savolitinib monotherapy in MET exon 14 skipping
alteration patients in mid-2021; and
•
•
•
Initiated the SURTORI-01 Phase III trial in NEC16 patients in
China, the first pivotal study combining SULANDA® and TUOYI®,
Junshi’s17 anti-PD-1 antibody, in September 2021 (NCT05015621);
Initiated a bridging study in NET patients in Japan in September
2021 (NCT05077384) based on dialogue with the Japanese PMDA18;
and
Initiated an international Phase Ib/II study of surufatinib
combined with tislelizumab (NCT04579757), BeiGene’s19 PD-120
antibody, in the U.S. and Europe in March 2021.
•
•
•
•
•
•
A further $15 million milestone payment, to us by AstraZeneca,
was triggered in February 2022 upon initiation of start-up activities
for SAFFRON.
Major savolitinib clinical data presentations in 2021:
Presented CALYPSO Phase II study data in MET-driven PRCC
patients (NCT02819596) for savolitinib in combination with IMFINZI®
at the 2021 ASCO13 Annual Meeting;
Published in The Lancet Respiratory Medicine updated data
from the Phase II study in patients with MET exon 14 skipping
alteration NSCLC (NCT02897479); and
Presented final Phase II data at WCLC14 2020 for the TATTON
study (NCT02143466) in NSCLC patients with MET amplification who
had progressed after prior treatment with EGFR inhibitors.
•
•
•
8
Major surufatinib clinical data presentations in 2021:
•
•
•
•
Presented NEC cohort data from the China Phase II study of
surufatinib plus TUOYI® (NCT04169672) at the 2021 ASCO and
ESMO IO21 2021 annual meetings;
Presented data from the gastric and gastroesophageal junction
cancers cohort of the China Phase II study of surufatinib plus
TUOYI® (NCT04169672) at the 2021 ASCO and ESMO IO 2021 annual
meetings;
Presented data from two additional cohorts of the China Phase
II study of surufatinib plus TUOYI® (NCT04169672) at the ESMO IO
2021 for esophageal and small cell lung cancer;
Presented updated results from U.S. Phase Ib monotherapy
NET cohorts (NCT02549937) in heavily pretreated patients with NET
at the 2021 ASCO Annual Meeting;
2021 FULL YEAR RESULTS & BUSINESS UPDATES Presented a subgroup analysis by Ki-67 and baseline CgA22 of
the Phase III monotherapy study in pancreatic NET (SANET-p)
(NCT02589821) at the 2021 ASCO Annual Meeting; and
•
Completed enrollment in four cohorts of the Phase II study
of fruquintinib combined with TYVYT® (NCT03903705), in CRC,
endometrial cancer, HCC24 and RCC25 in China.
Presented Phase II data for surufatinib monotherapy in BTC23
patients (NCT02966821) at the 2021 ASCO Annual Meeting in U.S.
patients after first-line chemotherapy.
Potential upcoming clinical and regulatory milestones for surufatinib in
2022:
•
•
•
Submit for presentation data from the Phase Ib/II combination
study with tislelizumab at a scientific conference in the second
half of 2022;
Submit for presentation further Phase II data for the TUOYI®
combination study for biliary tract, thyroid cancer, non-small cell
lung cancer, endometrial cancer and sarcoma cohorts at a scientific
conference in the second half of 2022, and
Plan to initiate SURTORI-02, a Phase III study of surufatinib
in combination with TUOYI® in esophageal cancer in China in the
second half of 2022.
Fruquintinib (ELUNATE® in China), a highly selective oral inhibitor
of VEGFR 1/2/3 designed to improve kinase selectivity to minimize
off-target toxicity and thereby improve tolerability; approved and
launched in China
Major clinical milestones for fruquintinib in 2021:
Completed enrollment in the FRESCO-2 global Phase III
registration study (NCT04322539) in refractory metastatic CRC
in late 2021, with 691 patients recruited in 15 months, across 14
countries including U.S., EU, Japan and Australia, ahead of schedule;
Initiated registration-intent Phase II study in endometrial
cancer for fruquintinib in combination with TYVYT®
(NCT03903705) following discussion with the NMPA;
Initiated a Phase II study in China and Korea for fruquintinib in
combination with tislelizumab (NCT04716634) with advanced or
metastatic, unresectable gastric cancer, CRC or NSCLC;
Major fruquintinib clinical data presentations in 2021:
•
•
•
Presented preliminary endometrial cancer, HCC and RCC
cohorts data from the Phase Ib/II studies of fruquintinib
combined with TYVYT® at CSCO26 2021 (NCT03903705);
Presented preliminary CRC cohorts data from the Phase
Ib/II studies of fruquintinib combined with TYVYT® and of
fruquintinib combined with geptanolimab, Genor’s27 PD-1
antibody, at the 2021 ASCO Annual Meeting (NCT04179084 and
NCT03977090, respectively); and
Presented Phase Ib U.S. monotherapy data in two different
cohorts of patients with refractory metastatic CRC (NCT03251378) at
the 2022 ASCO Gastrointestinal Cancers Symposium.
Potential upcoming clinical and regulatory milestones for fruquintinib in
2022:
•
•
•
•
Complete enrollment of the FRUTIGA China Phase III
registration study (NCT03223376) in advanced gastric cancer in
2022, which is expected to enroll about 700 patients in China;
Report outcome of the FRESCO-2 trial (NCT04322539) in the
second half of 2022 when the event-driven primary endpoint, OS28, is
reached;
If FRESCO-2 is positive, HUTCHMED plans to initiate a
simultaneous submission program to apply for fruquintinib
marketing authorization with the U.S. FDA, the EMA and the PMDA;
and
Plan to initiate Phase III studies of fruquintinib plus TYVYT®
combination in HCC, RCC and endometrial cancer in China.
Amdizalisib (HMPL-689), an investigative and highly selective oral
inhibitor of PI3Kδ29 designed to address the gastrointestinal and
hepatotoxicity associated with currently approved and clinical-stage
PI3Kδ inhibitors
Major clinical milestones for amdizalisib in 2021:
•
•
•
•
•
•
Initiated a Phase Ib/II study in the U.S. for fruquintinib in
combination with tislelizumab (NCT04577963) in patients with
triple negative breast or endometrial cancer and metastatic CRC; and
•
Initiated two Phase II studies with potential for registration
in China for the treatment of patients with follicular lymphoma and
patients with marginal zone lymphoma in April 2021; and
HUTCHMED (China) Limited 2021 Annual Report 9
•
Initiated dose expansion portion of the Phase I/Ib study in
the U.S. and Europe (NCT03786926) in the second half of 2021 in
multiple types of non-Hodgkin’s lymphoma.
Potential upcoming clinical milestone for sovleplenib in 2022:
•
Complete U.S. IND and initiate Phase I study in the U.S. in
patients with ITP.
Major amdizalisib clinical data presentation in 2021:
•
Presented initial dose expansion data at ESMO in September
2021 at the RP2D30, in patients with multiple types of non-Hodgkin’s
lymphoma in China.
Potential upcoming clinical and regulatory milestones for amdizalisib in
2022:
•
•
•
Initiate additional Phase II studies with potential for
registration intent in China in additional relapsed/refractory non-
Hodgkin’s lymphoma indications in the second half of 2022;
Initiate studies in combination with other anti-cancer therapies
in China in early 2022; and
Complete recruitment of patients for Phase II studies with
potential for registration intent in China for the treatment of
follicular lymphoma and marginal zone lymphoma in late 2022.
Sovleplenib (HMPL-523), an investigative and highly selective oral
inhibitor of Syk31, an important component of the B-cell receptor
signaling pathway, for the treatment of hematological cancers and
immune diseases
Major clinical and regulatory milestones for sovleplenib in 2021:
Initiated the ESLIM-01 Phase III pivotal study in ITP
(NCT03951623) in China in October 2021; and
•
•
Tazemetostat (TAZVERIK® in the U.S. and Japan), an inhibitor of EZH2
licensed from Epizyme for which HUTCHMED is collaborating to research,
develop, manufacture and commercialize in Greater China
Potential upcoming clinical and regulatory milestones for tazemetostat in
2022:
•
•
•
•
Initiate a bridging study in follicular lymphoma in China for
conditional registration based on U.S. approvals;
Initiate the China portion of the global SYMPHONY-1 Phase III
trial (NCT04224493) of tazemetostat combined with lenalidomide
and rituximab in patients with relapsed or refractory follicular
lymphoma after at least one prior line of therapy;
Initiate Phase II combination studies with other HUTCHMED
assets; and
Engage with NMPA on potential path for regulatory approval for
the treatment of patients with epithelioid sarcoma, a rare disease for
which TAZVERIK® has FDA approval.
HMPL-453, an investigative and highly selective oral inhibitor of
FGFR 1/2/3
•
Initiated combination studies with other anti-cancer therapies,
including chemotherapies and/or PD-1 antibodies, in China in
January 2022 (NCT05173142).
Initiated dose expansion portion of the international Phase I
study in the second half of 2021 in multiple non-Hodgkin’s
lymphoma indications.
HMPL-306, an investigative and highly selective oral inhibitor of
IDH1/2 designed to address resistance to the currently marketed IDH
inhibitors
Major sovleplenib clinical data presentations in 2021:
Major clinical and regulatory milestones for HMPL-306 in 2021:
Presented initial Phase Ib ITP study (NCT03951623) in China at
ASH 202132; and
Presented initial data from the dose escalation portion of the
international Phase I study (NCT03779113) in lymphoma patients
in the U.S. and Europe at ASH 2021.
•
•
Initiated Phase I dose escalation study in China in hematological
malignancies;
Initiated dose escalation portion of a Phase I study
(NCT04764474) in the U.S. and Europe in patients with hematological
malignancies with an IDH1 and/or IDH2 mutation in early 2021; and
•
•
10
2021 FULL YEAR RESULTS & BUSINESS UPDATES •
Initiated dose escalation portion of a Phase I study
(NCT04762602) in the U.S. and Europe in patients with solid tumors
with an IDH1 and/or IDH2 mutation in early 2021.
HMPL-A83, a differentiated, red blood cell sparing CD47 monoclonal
antibody
•
Completed IND submission for HMPL-A83 in China in early 2022.
Potential upcoming clinical and regulatory milestones for HMPL-306 in 2022:
•
•
•
Submit for presentation data from the dose escalation portion
of the Phase I study (NCT04272957) in China at a scientific
conference in mid-2022;
Initiate dose expansion portion of the Phase I study in China in
mid-2022; and
Initiate dose expansion portion of the Phase I studies in the U.S.
and Europe in mid-2022.
HMPL-295, an investigative and highly selective oral inhibitor of
ERK in the MAPK pathway33 with the potential to address intrinsic or
acquired resistance from upstream mechanisms such as RAS-RAF-
MEK
•
Initiated Phase I trial (NCT04908046) in patients with advanced
solid tumors in China in July 2021.
HMPL-760, an investigative, highly selective, third-generation oral
inhibitor of BTK with improved potency versus first generation BTK
inhibitors against both wild type & C481S mutant enzymes
•
Initiated Phase I trials in China (NCT05190068) and the
U.S. (NCT05176691) in patients with advanced hematological
malignancies in January 2022.
HMPL-653, an investigative, highly selective, and potent CSF-1R
inhibitor designed to target CSF-1R driven tumors as a monotherapy
or in combinations
•
Initiated Phase I trial in China (NCT05190068) in patients with
advanced malignant solid tumors and tenosynovial giant cell tumors
in January 2022.
MANUFACTURING
•
•
•
Commercial scale-up and launches of SULANDA® and
ORPATHYS®, alongside ongoing supply of ELUNATE®;
Completed all relevant amdizalisib and sovleplenib
manufacturing process studies, in preparation for potential NDA
submissions; and
Rapid progress in building our new flagship Shanghai
manufacturing facility, designed to increase our novel drug
product manufacturing capacity by over five-fold. Small molecule
and large molecule equipment installation is planned for late 2022,
with GMP compliance targeted for late 2023.
OTHER VENTURES
Other Ventures include our profitable prescription drug marketing
and distribution platforms covering about 290 cities and towns in China
with around 2,900 mainly manufacturing and commercial personnel.
•
•
•
Other Ventures delivered encouraging growth with
consolidated revenues up 20% (13% at CER34) to $236.5 million
(2020: $197.8m). This does not include revenues from our non-
consolidated joint venture SHPL35, which also grew by 20% (12% at
CER) to $332.6 million (2020: $276.4m);
Consolidated net income attributable to HUTCHMED from our
Other Ventures grew by 24% (16% at CER) to $54.4 million
(2020: $44.0m), excluding one-time gains; and
One-time gains totaled $88.5 million (2020: $28.8m), including
$82.9 million (2020: nil) from the divestment of HBYS36 and $5.6
million (2020: $28.8m) from land compensation, before withholding
tax.
HUTCHMED (China) Limited 2021 Annual Report 11
OTHER CORPORATE
DEVELOPMENTS
•
•
•
•
•
•
Completed listing on the Main Board of HKEX37, raising net
proceeds of approximately $585 million;
Completed divestment of interest in HBYS, a non-core and
non-consolidated over-the-counter drug joint venture business for
$159.1 million in cash, representing about 22 times HBYS’s adjusted
net profit attributable to HUTCHMED equity holders in 2020 with an
additional $46.4 million related to declared dividends expected to be
collected in 2022;
Entered into a collaboration with Epizyme in August 2021 to
research, develop, manufacture and commercialize in Greater China
its drug TAZVERIK®, an EZH2 inhibitor approved by the U.S. FDA
for the treatment of certain patients with epithelioid sarcoma and
follicular lymphoma;
Changed our group company name/corporate identity to
HUTCHMED in April 2021, unifying the names of the majority of our
key subsidiaries;
Announced a strategic partnership with Inmagene38 in January
2021 to further develop four novel preclinical drug candidates
discovered by HUTCHMED for the potential treatment of multiple
immunological diseases; and
Arbitral award in favor of Hutchison Sinopharm39 in connection
with the termination of its distribution rights for SEROQUEL®
in mainland China by Luye Pharma Hong Kong Ltd. In 2021, the
Hong Kong International Arbitration Centre made a final award in
favor of Hutchison Sinopharm against Luye Pharma Hong Kong Ltd.
in the amount of RMB253.2 million ($39.6 million), plus costs and
interest. Payment of the award is expected in 2022.
Potential upcoming corporate developments:
IMPACT OF COVID-19
COVID-19 did not impact our research, our clinical studies or our
commercial activities in any material manner in 2021. Certain regulatory
inspections of our manufacturing facilities in China by the U.S. FDA have,
however, been postponed due to travel restrictions. We will continue to
closely work with regulators and monitor the evolving situation.
SUSTAINABILITY
As an innovative, commercial-stage biopharmaceutical company,
HUTCHMED embraces sustainability at the core of how we operate. Over
the past two decades, we worked hard to strengthen healthcare systems
by providing quality and accessible drugs. As the world is gradually
adapting to the changes brought about by COVID-19, the pandemic has
highlighted the importance of building sustainability and environmental,
social and governance factors into business strategy. HUTCHMED
has embarked on our sustainability journey in 2020 by publishing our
inaugural ESG report to demonstrate our efforts, and establishing a board
level Sustainability Committee in 2021 to support the Board of Directors in
fulfilling their responsibilities. We plan to publish our second sustainability
report for 2021 at the end of May 2022.
Going forward, HUTCHMED will be working with our stakeholders to
embrace sustainable business practices and develop a sustainability
strategy that will help focus our efforts on areas which are most relevant
to our business. Through a materiality assessment exercise for 2021,
priority areas include: Business ethics; Drug research-related topics; Drug
development; Commercial operations responsibilities; Environmental
topics; and Management of our people. Over the course of 2022, we will
continue to engage our stakeholders to identify areas for improvement to
building a more sustainable and responsible future.
Divestment of further non-core operations, we continue to look
for opportunities to divest non-core businesses, including SHPL, to
better focus on the development and global commercialization of
our innovation-driven assets; and
Large molecule advancement, we continue to evaluate
opportunities which might accelerate our capabilities in the large
molecule arena.
•
•
12
2021 FULL YEAR RESULTS & BUSINESS UPDATES Cash, Cash Equivalents and Short-Term Investments were
$1,011.7 million as of December 31, 2021 compared to
$435.2 million as of December 31, 2020.
Revenues for the year ended December 31, 2021 were
$356.1 million compared to $228.0 million in 2020.
Adjusted Group (non-GAAP40) net cash flows excluding financing
activities were -$73.5 million (2020: -$78.4m), with the net decrease
mainly due to $159.1 million in proceeds from the divestment of
HBYS, which offset the increasing Oncology/Immunology R&D
spending and lower dividends received from our non-consolidated
joint ventures totaling $49.9 million (2020: $86.7m); and
Net cash generated from financing activities totaled $650.0 million
(2020: $296.4m) mainly resulting from the global offering of shares
and listing on the HKEX in June 2021 and a private placement in April
2021 to a fund affiliated with Baring Private Equity Asia.
•
Oncology/Immunology consolidated revenues increased 296%
(287% at CER) to $119.6 million (2020: $30.2m) resulting from:
ELUNATE® revenues increased 168% to $53.5 million (2020:
$20.0m) in manufacturing revenues, promotion and marketing
service revenues and royalties, as our in-house sales team increased
in-market sales 111% to $71.0 million (2020: $33.7m), as provided by
Lilly41;
SULANDA® sales revenues of $11.6 million since mid-January
2021 launch, initially approved to treat patients with advanced
extra-pancreatic (non-pancreatic) NET and subsequently also
approved to treat patients with pancreatic NET in June 2021;
ORPATHYS® revenue of $36.3 million since mid-July 2021
launch, which was comprised of a $25.0 million first sale milestone
payment and $11.3 million in manufacturing revenues and royalties.
AstraZeneca reported $15.9 million in-market sales (2020: nil) of
ORPATHYS® in 2021; and
Other R&D service fee revenues of $18.2 million (2020: $10.2m),
which were primarily fees from AstraZeneca and Lilly for the
management of development activities in China.
•
Other Ventures consolidated revenues increased 20% (13% at
CER) to $236.5 million (2020: $197.8m), mainly due to continued sales
growth of third-party prescription drug products.
•
•
14
FULL YEAR 2021 FINANCIAL RESULTS Net Expenses for the year ended December 31, 2021 were
$550.7 million compared to $353.7 million in 2020.
Net Loss attributable to HUTCHMED for the year ended
December 31, 2021 was $194.6 million compared to
$125.7 million in 2020.
•
As a result, the net loss attributable to HUTCHMED in 2021 was $0.25
per ordinary share/$1.23 per ADS43, compared to net loss attributable
to HUTCHMED of $0.18 per ordinary share/$0.90 per ADS, in 2020.
•
•
•
•
Cost of Revenues were $258.2 million (2020: $188.5m), the majority
of which were the cost of third-party prescription drug products
marketed through our profitable Other Ventures, as well as full
year costs associated with ELUNATE®, including the provision of
promotion and marketing services to Lilly which commenced in
October 2020, and the costs for SULANDA® and ORPATHYS® which
commenced commercial sales in 2021;
R&D Expenses were $299.1 million (2020: $174.8m), which increased
mainly as a result of an expansion in the active development
of eleven novel oncology drug candidates. Our rapidly scaling
international clinical and regulatory operations in the U.S. and
Europe incurred expenses of $140.1 million (2020: $63.3m), while R&D
expenses in China were $159.0 million (2020: $111.5m);
SG&A Expenses42 were $127.1 million (2020: $61.3m), which
increased primarily due to higher staff costs and share-based
compensation expense to support rapidly expanding operations. This
included the build-up of a large-scale national oncology commercial
infrastructure in China and commercial launch readiness in the U.S.
to support our oncology products; and
Other Items generated net income of $133.7 million (2020: $70.9m),
which increased primarily due to a one-off gain on the divestment of
HBYS attributable to the Group of $82.9 million (comprised of a gain
of $121.3 million offset in part by related taxes of $14.4 million and
amounts attributable to a non-controlling interest of $24.0 million),
offset in part by lower one-time land compensation of $5.6 million
(2020: $28.8m) recognized for HBYS.
HUTCHMED (China) Limited 2021 Annual Report 15
As of December 31,
2021
2020
1,011,700
83,580
116,796
41,275
76,479
42,831
1,372,661
41,177
210,839
26,905
54,226
333,147
986,893
52,621
1,372,661
435,176
47,870
47,694
24,170
139,505
29,703
724,118
31,612
121,283
26,861
25,413
205,169
484,116
34,833
724,118
CONDENSED CONSOLIDATED BALANCE SHEET DATA
(in $’000)
Assets
Cash and cash equivalents and short-term investments
Accounts receivable
Other current assets
Property, plant and equipment
Investments in equity investees
Other non-current assets
Total assets
Liabilities and shareholders’ equity
Accounts payable
Other payables, accruals and advance receipts
Bank borrowings
Other liabilities
Total liabilities
Company’s shareholders’ equity
Non-controlling interests
Total liabilities and shareholders’ equity
16
FINANCIAL SUMMARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(in $’000, except share and per share data)
Revenues:
Oncology/Immunology – Marketed Products
Oncology/Immunology – R&D
Oncology/Immunology consolidated revenues
Other Ventures
Total revenues
Expenses:
Costs of revenues
Research and development expenses
Selling and general administrative expenses
Total expenses
Loss from Operations
Gain on divestment of an equity investee
Other (expense)/income
Loss before income taxes and equity in earnings of equity investees
Income tax expense
Equity in earnings of equity investees, net of tax
Net loss
Less: Net income attributable to non-controlling interests
Net loss attributable to HUTCHMED
Year Ended December 31,
2021
2020
76,429
43,181
119,610
236,518
356,128
(258,234)
(299,086)
(127,125)
(684,445)
(328,317)
121,310
(8,733)
(215,740)
(11,918)
60,617
(167,041)
(27,607)
(194,648)
19,953
10,262
30,215
197,761
227,976
(188,519)
(174,776)
(61,349)
(424,644)
(196,668)
–
6,934
(189,734)
(4,829)
79,046
(115,517)
(10,213)
(125,730)
Losses per share attributable to HUTCHMED – basic and diluted (US$ per share)
Number of shares used in per share calculation – basic and diluted
Losses per ADS attributable to HUTCHMED – basic and diluted (US$ per ADS)
Number of ADSs used in per share calculation – basic and diluted
(0.25)
792,684,524
(1.23)
158,536,905
(0.18)
697,931,437
(0.90)
139,586,287
HUTCHMED (China) Limited 2021 Annual Report 17
We discover, develop, manufacture and market targeted therapies and
immunotherapies for the treatment of cancer and immunological diseases
through a fully integrated team of approximately 820 scientists and
staff (December 31, 2020: >600), and an in-house oncology commercial
organization of about 630 staff (December 31, 2020: ~390).
The only other approved and NRDL reimbursed product in third-line CRC
in China is STIVARGA®. LONSURF®, a nucleoside metabolic and thymidine
phosphorylase inhibitor, is approved in China for third-line CRC but is not
on the NRDL.
We have advanced 13 oncology drug candidates into clinical trials in
China, with seven also in clinical development in the U.S. and Europe. Our
first three drug candidates, fruquintinib, surufatinib and savolitinib, have
all been approved and launched in China.
Surufatinib (SULANDA® in China)
SULANDA® was launched in China in 2021 for the treatment of all
advanced NETs for which there is an approximate incidence of 34,000 new
patients per year in China.
MARKETED PRODUCT SALES
Fruquintinib (ELUNATE® in China)
ELUNATE® is approved for the treatment of third-line metastatic CRC for
which there is an approximate incidence of 83,000 new patients per year
in China. We estimate that in 2021, approximately 22,000 new patients
were treated with ELUNATE® in China with resulting in-market sales of
$71.0 million, up 111% versus 2020 ($33.7m).
Under the terms of our agreement with Lilly, HUTCHMED manages all
on-the-ground medical detailing, promotion and local and regional
marketing activities for ELUNATE® in China. We consolidate as revenues
approximately 70-80% of ELUNATE® in-market sales from service fees
and royalties paid to us by Lilly. In 2021, we consolidated $53.5 million in
revenue for ELUNATE®, equal to 75.4% of in-market sales.
Following negotiations with the China National Healthcare Security
Administration (“NHSA”), ELUNATE® continues to be included in the NRDL
for a new two-year term starting in January 2022. For this renewal, we
agreed to a discount of 5% relative to the 2021 NRDL price.
During 2021, our medical marketing and affairs teams conducted about
4,800 educational/scientific events for ELUNATE® in China. As a result of
the above activities, ELUNATE® continues to expand with unaudited
in-market sales in the months of January and February 2022 increasing
51% to $21.6 million (Jan-Feb 2021: $14.3 million). In January 2022, a
total of 5,473 new and continuing patients were treated with ELUNATE®
representing a 50% increase as compared to 3,661 in January 2021.
In 2021, SULANDA® was sold as a self-pay drug. We used means-tested
early access and patient access programs to help patients afford
SULANDA®, and we estimate that approximately 4,800 new patients were
treated. Despite these access programs, duration of treatment was often
affected by the economic constraints of patients. As a result, total sales in
2021 were $11.6 million (2020: nil).
Following negotiations with the China NHSA, SULANDA® was included in
the NRDL starting in January 2022 at a 52% discount on our main 50mg
dosage form, relative to the 2021 self-pay price. Under the NRDL, actual
out-of-pocket costs for patients in 2022 represent approximately 15-20%
of the 2021 self-pay price.
During 2021, we introduced SULANDA® through a campaign of local,
regional and national launch events involving approximately 12,000
healthcare professionals. As a result of the above activities, patient
access to SULANDA®, as well as duration of treatment, are increasing with
unaudited in-market sales for the months of January and February 2022
up 21% to $6.0 million (Jan-Feb 2021: $4.9m). It should be noted that
January and February 2021 in-market sales included normal pipeline fill
behind the initial launch of SULANDA® whereas January and February 2022
figures represent consumption sales. In January 2022, a total of 1,497 new
and continuing patients were treated with SULANDA® representing an
over 7-fold increase as compared to 213 in January 2021.
There are two therapies for advanced NETs approved and NRDL
reimbursed in China: SUTENT® for the treatment of pancreatic NET
(approximately 10% of NET), and AFINITOR® in broadly the same
indication as SULANDA®.
HUTCHMED (China) Limited 2021 Annual Report 19
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Savolitinib (ORPATHYS® in China)
Savolitinib – Lung cancer:
On June 22, 2021, ORPATHYS® became the first-in-class selective MET
inhibitor to be approved in China. Our partner, AstraZeneca, then
launched ORPATHYS® in mid-July 2021, less than three weeks after its
conditional approval by the NMPA for patients with MET exon 14 skipping
alteration NSCLC.
MET plays an important role in NSCLC. Savolitinib has made significant
development progress in lung cancer, completing NMPA NDA review,
gaining approval and successfully launching as a monotherapy in China.
It is also now in multiple late stage registrational studies as a combination
therapy.
More than a third of the world’s lung cancer patients are in China and,
among those with NSCLC, approximately 2-3% have tumors with MET
exon 14 skipping alterations, representing an approximate incidence
of 13,000 new patients per year in China. Importantly also, MET plays a
role in multiple other solid tumors, with an estimated total incidence of
120,000 new patients per year in China.
In-market sales of ORPATHYS® since its launch in July 2021 were $15.9 million
(2020: nil) resulting in our consolidation of $11.3 million (2020: nil) in
revenues from manufacturing fees and royalties. We estimate that
approximately 1,900 patients were treated with ORPATHYS® in 2021.
Following negotiations with the China NHSA, AstraZeneca and HUTCHMED
declined inclusion in the 2022 NRDL, a position that will be reassessed for
potential 2023 inclusion.
AstraZeneca introduced a patient access program in late 2021 which
subsidizes use of ORPATHYS®, through progressive disease. As a result, in-
market sales for ORPATHYS® have started strongly in 2022 with unaudited
in-market sales in the months of January and February 2022 of $7.4
million (Jan-Feb 2021: nil).
ORPATHYS® is the first and only selective MET inhibitor on the market in
China, however XALKORI® is an approved multi-kinase inhibitor of ALK
and ROS1 with modest MET activity. Several selective MET inhibitors are
in development in China, but none are currently expected to reach the
market before 2023.
RESEARCH & DEVELOPMENT
SAVOLITINIB (ORPATHYS® IN CHINA)
Savolitinib is an oral, potent, and highly selective oral inhibitor of MET.
In global partnership with AstraZeneca, savolitinib has been studied in
NSCLC, PRCC and gastric cancer clinical trials with over 1,500 patients to
date, both as a monotherapy and in combinations.
In July 2021, we received a $25 million first sale milestone from
AstraZeneca upon launch of ORPATHYS® in China and in February 2022, a
$15 million milestone from AstraZeneca was triggered by the initiation of
start-up activities for the SAFFRON study. In total, AstraZeneca will have
paid HUTCHMED $85 million of the total $140 million in upfront payments,
development and approvals milestones that are potentially payable under
the 2011 license and collaboration agreement.
20
The table below shows a summary of the clinical studies for savolitinib in
lung cancer patients.
Treatment
Savolitinib
monotherapy
Savolitinib
monotherapy
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Savolitinib +
TAGRISSO®
Name, Line,
Patient Focus
MET exon
14 skipping
alterations
MET exon
14 skipping
alterations
SAVANNAH:
2L/3L EGFRm+44;
TAGRISSO®
refractory; MET+
SAFFRON:
2L/3L EGFRm+;
TAGRISSO®
refractory; MET+
SACHI: 2L EGFR
TKI refractory
NSCLC; MET+
SANOVO: Naïve
patients with
EGFRm & MET+
Sites
Phase
Status/Plan
NCT #
China
II Registration Approved and
NCT02897479
launched
China
III
Confirmatory
Ongoing
NCT04923945
Global
II
Registration-
intent
Global
III
NCT03778229
NCT05261399
Ongoing. Data
has supported
progression
into Phase IIIs
In planning.
Intend to
initiate in mid-
2022
China
III
Ongoing
NCT05015608
China
III
Ongoing
NCT05009836
Update on monotherapy in MET altered NSCLC – In June 2021,
savolitinib was approved by the NMPA based on positive results from a
Phase II trial conducted in China in patients with NSCLC with MET exon
14 skipping alterations (NCT02897479), having demonstrated effective
anti-tumor activity based on ORR45 and DCR46. The approval is conditional
upon successful completion of a confirmatory study in this patient
population (NCT04923945), which is expected to enroll approximately 160
patients from approximately 40 sites.
Update on combination therapies in EGFR TKI-resistant NSCLC –
MET-amplification is a major mechanism for acquired resistance to both
first-generation EGFR TKIs as well as third-generation EGFR TKIs like
TAGRISSO®. As many as 30-40% of EGFR mutation positive NSCLC patients
develop MET amplification driven resistance to EGFR TKIs. Savolitinib has
been studied extensively in these patients in the TATTON and SAVANNAH
studies. The successful results led to the initiation and planning of three
Phase III studies: SACHI and SANOVO were initiated in China in 2021,
and the global, pivotal Phase III study, the SAFFRON study, is planned to
commence enrollment in mid-2022.
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY SAVANNAH (NCT03778229) – This global, single-arm study in patients
who have progressed following TAGRISSO® due to MET amplification
or overexpression has three dose cohorts of savolitinib combined with
TAGRISSO®. We plan to submit results for presentation at a scientific
conference in 2022. In addition to the planned global Phase III, which will
initiate in mid-2022, we continue to evaluate the possibility of using the
SAVANNAH study as the basis for U.S. accelerated approval.
SACHI (NCT05015608) – In November 2021, we initiated this China Phase III
study of savolitinib in combination with TAGRISSO®, which is a multi-
center, open-label, randomized, controlled study in patients with
locally advanced or metastatic EGFR mutation-positive NSCLC with MET
amplification after disease progression on EGFR inhibitor therapy. The
study will evaluate savolitinib in combination with TAGRISSO®, compared
to platinum-based doublet-chemotherapy (pemetrexed plus cisplatin or
carboplatin), the standard-of-care treatment option in this setting. The
primary endpoint of the study is PFS.
SANOVO (NCT05009836) – In September 2021, we initiated this China
Phase III study of savolitinib in combination with TAGRISSO® as a
first-line treatment in certain NSCLC patients whose tumors harbor
EGFR mutations and overexpress MET. The Phase III trial is a blinded,
randomized, controlled study in previously untreated patients with locally
advanced or metastatic NSCLC with activating EGFR mutations and MET
overexpression. The study will evaluate TAGRISSO® in combination with
savolitinib comparing to TAGRISSO® alone, a standard-of-care treatment
option for these patients. The primary endpoint of the study is PFS.
Savolitinib – Kidney cancer:
MET is a key genetic driver in RCC, and emerging evidence suggests
that combining immunotherapies with a MET inhibitor could enhance
anti-tumor activity. PRCC is a subtype of kidney cancer, representing
about 15% of patients, with no treatments approved for patients with
tumors that harbor MET-driven alterations. We have conducted multiple
global studies of savolitinib in PRCC patients, including the SAVOIR
monotherapy and CALYPSO combination therapy global Phase II trials,
that both demonstrated highly encouraging results. These results led to
the initiation of a global Phase III, the SAMETA study, in 2021.
The table below shows a summary of the clinical studies for savolitinib in
kidney cancer patients.
Sites
Phase
Status/Plan
NCT #
Global
III
Ongoing
NCT05043090
Treatment
Savolitinib +
IMFINZI®
Name, Line,
Patient Focus
SAMETA:
MET-driven,
unresectable and
locally advanced
or metastatic
PRCC
Savolitinib +
IMFINZI®
Savolitinib +
IMFINZI®
CALYPSO: PRCC U.K./
Spain
CALYPSO: Clear
cell RCC; VEGFR
TKI refractory
U.K./
Spain
II
II
Data updated at
ASCO 2021
NCT02819596
Ongoing
NCT02819596
SAMETA (NCT05043090) – In November 2021, we initiated this global
Phase III study of savolitinib in combination with AstraZeneca’s PD-L1
inhibitor IMFINZI® in patients with MET-driven advanced PRCC. The
Phase III trial is an open-label, randomized, controlled study in treatment-naïve
patients with MET-driven, unresectable and locally advanced or metastatic
PRCC, to evaluate savolitinib in combination with IMFINZI®, compared
to single agent IMFINZI® or single agent SUTENT®, an oral multi-kinase
inhibitor considered the standard-of-care treatment option in PRCC. The
primary endpoint of the study is median PFS.
CALYPSO (NCT02819596) – This investigator-initiated open-label Phase I/II
study of savolitinib in combination with IMFINZI® is evaluating the
savolitinib/IMFINZI® combination in patients with PRCC and clear cell RCC.
Interim results of the PRCC cohort of the CALYPSO study were presented
at the ASCO 2021 and showed encouraging efficacy across all patients,
particularly in MET-driven PRCC patients. Importantly, for patients whose
tumors are MET-driven, ORR was 57%, median PFS was 10.5 months (95%
CI: 2.9-15.7) and median OS was 27.4 months (95% CI: 7.3-NR). Tolerability
was consistent with established single agent safety profiles.
HUTCHMED (China) Limited 2021 Annual Report 21
Savolitinib – Gastric cancer:
MET-driven gastric cancer has a very poor prognosis. Multiple Phase II
studies have been conducted in Asia to study savolitinib in MET-driven
gastric cancer, of which approximately 5% of all gastric cancer patients,
demonstrated promising efficacy, including VIKTORY. The VIKTORY study
reported a 50% ORR with savolitinib monotherapy in gastric cancer
patients whose tumors harbor MET amplification.
Phase II with potential for registration intent in 2L+ gastric cancer with
MET amplification (NCT04923932) – In July 2021, we initiated a Phase II
registration-intent study in MET-amplified gastric cancer in China. This
is a two-stage, single-arm study which targets advanced gastric cancer
patients who have failed at least one line of treatment. The primary
endpoint is ORR. Subject to the results of the first stage of this study,
we will discuss with the CDE of NMPA the appropriate approach and
necessary criteria for registration.
SURUFATINIB (SULANDA® IN CHINA)
Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively
inhibits the tyrosine kinase activity associated with VEGFR and FGFR,
both shown to be involved in tumor angiogenesis, and CSF-1R, which
plays a key role in regulating tumor-associated macrophages, promoting
the body’s immune response against tumor cells. Surufatinib has been
studied in clinical trials with around 1,200 patients to date, both as a
monotherapy and in combinations, and is approved in China. We currently
retain all rights to surufatinib worldwide.
Initial approvals for surufatinib in China are for the treatment of advanced
NET patients. NETs present in the body’s organ system with fragmented
epidemiology. About 58% of NETs originate in the gastrointestinal tract
and pancreas, 27% in the lung or bronchus, and a further 15% in other
organs or unknown origins.
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of
tumor associated macrophages and promote infiltration of effector T cells
into tumors could help improve the anti-tumor activity of PD-1 antibodies.
Several combination studies with PD-1 antibodies have shown promising
data.
A summary of the clinical studies of surufatinib is shown in the table
below.
22
Treatment
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Surufatinib
monotherapy
SANET-ep: extra-
pancreatic NET
China
III
Approved &
launched
Surufatinib
monotherapy
SANET-p:
pancreatic NET
China
III
Surufatinib
monotherapy
NETs
U.S.
Ib
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib
monotherapy
NETs
NETs
BTC
Surufatinib +
TUOYI® (PD-1)
SURTORI-01:
NEC
Europe II
Japan Bridging Ongoing. Reg-
enabling study.
NCT05077384
China
Ib/IIa
Completed; data
at ASCO 2021
NCT02966821
China
III
Ongoing
NCT05015621
NENs47
China
II
NCT02588170
NCT02589821
NCT02549937
NCT04579679
Approved &
launched;
subgroup analysis
at ASCO 2021
FDA accepted
NDA (June 2021);
updated Ib data
at ASCO 2021
EMA accepted
MAA (July 2021)
NCT04169672
Ongoing; data
at ASCO 2021 &
ESMO IO 2021
Ongoing
NCT04169672
NCT04169672
Ongoing; data at
ASCO 2021 and
updated at ESMO
IO 2021
Ongoing
NCT04169672
Ongoing; data at
ESMO IO 2021
NCT04169672
Ongoing
NCT04169672
Ongoing
NCT04169672
Ongoing; data at
ESMO IO 2021
NCT04169672
Ongoing
NCT04169672
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
TUOYI® (PD-1)
BTC
China
Gastric cancer
China
Thyroid cancer
China
SCLC48
China
China
China
China
Surufatinib +
TUOYI® (PD-1)
Soft tissue
sarcoma
Surufatinib +
TUOYI® (PD-1)
Endometrial
cancer
Surufatinib +
TUOYI® (PD-1)
Esophageal
cancer
Surufatinib +
TUOYI® (PD-1)
Surufatinib +
tislelizumab
(PD-1)
NSCLC
China
Solid tumors
U.S./
Europe
II
II
II
II
II
II
II
II
Ib/II
Ongoing
NCT04579757
Surufatinib – monotherapy in NET updates:
Global development of surufatinib in NET: U.S. NDA and EU MAA under
review – The U.S. NDA and EU MAA are supported by data from two
positive Phase III studies of surufatinib in patients with pancreatic and
extra-pancreatic NET in China (SANET-p and SANET-ep both previously
reported in The Lancet Oncology, as mentioned below), and a surufatinib
Phase Ib study conducted in U.S. NET patients (N=107 for safety and N=67
for efficacy).
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY In June 2021, the U.S. FDA accepted our filing of the NDA for surufatinib for
the treatment of pancreatic and extra-pancreatic (non-pancreatic) NETs.
Surufatinib received fast track designation in April 2020 for the treatment
of pancreatic and extra-pancreatic NET. Orphan Drug Designation for
pancreatic NET was also granted in November 2019. We have also initiated
an Expanded Access Protocol in the U.S. to ensure patients with NET with
limited therapeutic options have access to this treatment. Regulatory
clearance of this protocol has been granted by the U.S. FDA and this
program is open for site activation.
U.S. FDA NDA review, as well as the clinical site inspections and pre-
approval inspections of our manufacturing facilities, are ongoing. The
PDUFA goal date for the FDA’s completion of review is April 30, 2022.
Timing of completion of the NDA review is subject to FDA scheduling
limitations which are contingent on COVID-19 travel restrictions and
security requirements for foreign visitors. Remaining inspections must be
completed before regulatory action can be taken.
We have also submitted the EMA MAA for surufatinib, which was validated
and accepted in July 2021, for the treatment of both pancreatic and
non-pancreatic NET. The 120-day assessment has been completed,
and we are now entering the later stages of MAA review. In addition, we
initiated a registration-enabling bridging study in NET patients in Japan in
September 2021.
U.S. Phase Ib NET cohorts (NCT02549937) – Updated data from a study in
U.S. patients was presented at ASCO 2021, reinforcing the dosage, efficacy
and safety profile as comparable to the China trials data. At data cut-
off, confirmed response and DCR was observed in 18.8% and 87.5% of
pancreatic NET patients, and 6.3% and 93.8% of extra-pancreatic NET
patients, respectively. Median PFS was 11.5 months in both cohorts (95%
CI: 6.5-17.5).
Japan Bridging Study to Support Registration for Advanced NET
(NCT05077384) – Based on dialogue with the Japanese PMDA, it was
agreed that the Japanese NDA would include results from a 34-patient,
registration-enabling bridging study in Japan to complement the
registration data package submitted to the U.S. FDA and the EMA. It was
initiated in September 2021.
Surufatinib – combination therapy with checkpoint inhibitor
TUOYI® updates:
A Phase II China study (NCT04169672) is enrolling approximately 260
patients in nine solid tumor indications, including NENs, BTC, gastric
cancer, thyroid cancer, SCLC, soft tissue sarcoma, endometrial cancer,
esophageal cancer and NSCLC. In 2021, we presented encouraging
preliminary data on several of these surufatinib-TUOYI® combination
cohorts at CSCO and ESMO IO. These have led to the initiation of the first
Phase III trial combining surufatinib with a PD-1 antibody, the SURTORI-01
study in NEC, and we are currently considering further registration studies
in gastric cancer, SCLC and esophageal cancer.
NEC (subset of NENs) cohort – At CSCO 2021, we presented data, with a
cutoff date of July 30, 2021, for all 21 enrolled NEC patients that were
efficacy evaluable. Average duration of treatment was 4.9 months (range
1-19) and median OS was 10.3 months (95% CI: 9.1-not reached). The
median PFS was 4.14 months (95% CI: 1.5-5.5) and median DoR49 was 4.1
months (95% CI: 3.0-not reached). The confirmed ORR was 23.8% (95% CI:
8.2-47.2) and DCR was 71.4% (95% CI: 47.8-88.7).
All patients experienced TRAEs50, including 9 (42.9%) who experienced
grade 3 or above TRAEs. One (4.8%) patient reported treatment-related
serious adverse events. Hyperglycemia (3 patients, 14.3%), hypertension (2
patients, 9.5%) and hypertriglyceridemia (2 patients, 9.5%) were the most
commonly (more than one patient) reported grade 3 or above TRAEs. No
TRAEs led to treatment discontinuation or treatment-related deaths.
SURTORI-01 (NCT05015621) – In September 2021, we initiated this
Phase III study to evaluate the combination compared with FOLFIRI
to treat patients with advanced NEC who have progression of disease
or intolerable toxicity after previous first-line chemotherapy. It is
a randomized, controlled, open-label, multi-center study where
approximately 200 patients are expected to be enrolled. For the study
group, all patients will receive study treatment on a 21-day cycle. The
primary outcome measure is OS. HUTCHMED is the sponsor and is
responsible for the study’s execution. HUTCHMED and Junshi Biosciences
are jointly funding the study.
Surufatinib – combination with checkpoint inhibitor
tislelizumab:
In addition to the TUOYI® and TYVYT® combination studies in China, in
March 2021 we initiated an open-label, Phase Ib/II study of surufatinib
in combination with BeiGene’s tislelizumab in the U.S. and Europe,
evaluating the safety, tolerability, pharmacokinetics and efficacy in
patients with advanced solid tumors, including CRC, NET, small cell
lung cancer, gastric cancer and soft tissue sarcoma. The dose finding
phase of the study is now complete and the expansion phase is ongoing
(NCT04579757).
Surufatinib – Exploratory development:
In China, we support an Investigator Initiated Trial (“IIT”) program for
surufatinib, with about 50 IITs in various solid tumor settings being
conducted for both combination and single agent regimens. These trials
explore and answer important medical questions in addition to our own
company-sponsored clinical trials.
HUTCHMED (China) Limited 2021 Annual Report 23
FRUQUINTINIB (ELUNATE® IN CHINA)
Fruquintinib – CRC updates:
Fruquintinib is a novel, selective, oral inhibitor of VEGFR 1/2/3 kinases that
was designed to improve kinase selectivity to minimize off-target toxicity
and thereby improve tolerability. Fruquintinib has been studied in clinical
trials with about 5,000 patients to date, both as a monotherapy and in
combinations.
Aside from its first approved indication of third-line CRC (in China),
several studies of fruquintinib combined with checkpoint inhibitors
(including TYVYT®, geptanolimab and tislelizumab) have been underway,
some of which presented encouraging data in 2021. Registration-intent
studies combined with chemotherapy (FRUTIGA study in gastric cancer)
or checkpoint inhibitors (TYVYT® combo, in endometrial cancer) are
ongoing in China, with further registration studies in HCC and RCC under
consideration.
We retain all rights to fruquintinib outside of China and are partnered with
Lilly in China. The table below shows a summary of the clinical studies for
fruquintinib.
FRESCO-2 (NCT04322539) – This double-blind, placebo-controlled,
global Phase III study in refractory metastatic CRC patients reached its
enrollment goal in December 2021. It recruited 691 patients from over
150 sites in 14 countries in fifteen months, ahead of schedule. The primary
endpoint of the study is OS. Topline results are expected to be reported
in the second half of 2022 when the event-driven primary endpoint, OS,
is mature. If positive, HUTCHMED would simultaneously initiate plans to
apply for marketing authorization of fruquintinib by the U.S. FDA, which
granted Fast Track Designation in 2020, the EMA and the Japanese PMDA.
U.S. Phase I/Ib CRC cohorts (NCT03251378) – Preliminary efficacy and
safety data of fruquintinib in patients with refractory, metastatic CRC were
presented at ASCO GI in early 2022. In patients who had progressed on all
standard therapies, including LONSURF® and/or STIVARGA®, the DCR was
68.3% and the median duration of treatment was 19.3 weeks. In patients
who had not received LONSURF® or STIVARGA®, the DCR was 57.5% and
the median duration of treatment was 14.1 weeks. The safety profile in
both patient populations was consistent with what has previously been
reported.
Treatment
Fruquintinib
monotherapy
Name, Line,
Patient Focus
FRESCO:
≥3L CRC;
chemotherapy
refractory
Fruquintinib
monotherapy
FRESCO-2:
metastatic CRC
Fruquintinib
monotherapy
CRC51; TN &
HR+52/Her2-53
breast cancer
Sites
Phase
Status/Plan
NCT #
China
III
Approved and
launched
NCT02314819
III
Fully enrolled
NCT04322539
U.S./
Europe/
Japan/
Aus.
U.S.
Ib
Ongoing
NCT03251378
Fruquintinib +
paclitaxel
FRUTIGA: 2L
gastric cancer
China
III
Fruquintinib +
TYVYT® (PD-1)
Fruquintinib +
TYVYT® (PD-1)
CRC
HCC
China
II
China
Ib/II
Ongoing;
completed 2nd
interim analysis
Ongoing; data
at ASCO 2021
Ongoing; data
at CSCO 2021
Fruquintinib +
TYVYT® (PD-1)
endometrial
cancer
China
II
registration-
intent
Ongoing; Ib
data at CSCO
2021
NCT03223376
NCT04179084
NCT03903705
NCT03903705
Fruquintinib +
TYVYT® (PD-1)
RCC
China
Ib/II
Ongoing; data
at CSCO 2021
NCT03903705
Fruquintinib +
TYVYT® (PD-1)
Gastrointestinal
tumors
Fruquintinib
+ tislelizumab
(PD-1)
TN breast cancer
& endometrial
cancer
China
Ib/II
Ongoing
NCT03903705
U.S.
Ib/II
Ongoing
NCT04577963
Fruquintinib
+ tislelizumab
(PD-1)
Solid tumors
Korea/
China
Ib/II
Ongoing
NCT04716634
24
Fruquintinib – Gastric cancer:
FRUTIGA (NCT03223376) – This randomized, double-blind, Phase III study
in China to evaluate fruquintinib combined with paclitaxel compared with
paclitaxel monotherapy, for second-line treatment of advanced gastric
cancer, is expected to enroll approximately 700 patients. Its co-primary
endpoints are PFS and OS. We expect to complete enrollment of FRUTIGA
in 2022.
Fruquintinib – combinations with checkpoint inhibitors:
Advanced endometrial cancer registration-intent cohort – Platinum-based
systemic chemotherapy is the standard first-line treatment for advanced
endometrial cancer. However, patients who progress following first-line
chemotherapy have limited treatment options, and the prognosis remains
poor. As disclosed at CSCO 2021, as of data cutoff date of August 31,
2021, 35 patients were enrolled (NCT03903705), including 7 treatment-
naïve and 28 pretreated patients. Of them, 29 were efficacy evaluable,
4 were treatment-naïve and 25 were pretreated. All 4 treatment-naïve
patients experienced confirmed tumor response, for ORR of 100% (95%
CI: 39.8-100.0), and median PFS was not reached. Among the 25 pretreated
patients, the confirmed ORR was 32.0% (95% CI: 14.9-53.5), DCR was
92.0% (95% CI: 74.0-99.0) and the median PFS was 6.9 months (95% CI:
4.1-NR). Among the 19 proficient mismatch repair (pMMR) patients in the
pretreated cohort, the confirmed ORR was 36.8% (95% CI: 16.3-61.6), DCR
was 94.7% (95% CI: 74.0-99.9), median PFS was 6.9 months (95% CI: 4.1-
NR), and the median OS was not reached. Among the 35 enrolled patients,
TRAEs of grade 3 or above that occurred in more than 10% of patients
were hypertension (4 patients, 11.4%) and proteinuria (11.4%). 5 (14.3%)
patients reported treatment-related serious adverse events.
Following discussion with the NMPA in late 2021, the cohort is now
targeting to enroll over 130 patients to meet the requirements to be a
single-arm, registration-intent Phase II study.
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY CRC registration strategy for mCRC under discussion – Encouraging
preliminary data disclosed at ASCO 2021 for fruquintinib in combination
with two PD-1 inhibitors, TYVYT® and geptanolimab, in advanced CRC
showed a five-fold increase in ORR and a doubling of median PFS as
compared to the FRESCO study for fruquintinib as a monotherapy.
In the TYVYT® combination study (NCT04179084), 44 patients were
enrolled into the CRC cohort, 22 of whom received the RP2D. ORR was
23% for all patients and 27% for those who received the RP2D. DCR was
86% for all patients and 96% for those who received the RP2D. Median PFS
was 5.6 months for all patients, and 6.9 months for those who received
the RP2D. Median OS was 11.8 months for all patients.
In the geptanolimab combination study (NCT03977090), for the 15
patients in the CRC cohort ORR was 26.7% (including 1 patient with
unconfirmed PR) and 33% in the group that received the RP2D. DCR for
all evaluable patients was 80% and median PFS was 7.3 months (95% CI:
1.9-NR). Grade 3 TRAEs occurred in 47% of patients, and no incidences of
grade 4 or 5 TRAEs were observed.
Tislelizumab combinations (NCT04577963 & NCT04716634) – In August 2021,
we initiated an open-label, multi-center, non-randomized Phase Ib/II
study in the U.S. to assess fruquintinib in combination with tislelizumab in
patients with locally advanced triple negative breast cancer or advanced
endometrial cancer. In addition, a Phase II study in China and Korea for
fruquintinib in combination with tislelizumab was initiated and is being
led by BeiGene for the treatment of advanced or metastatic, unresectable
gastric cancer, CRC or NSCLC.
Fruquintinib – Exploratory development:
We are conducting multiple Phase Ib expansion cohorts in the U.S. to
explore fruquintinib in CRC and breast cancer. In China, there are about 40
ongoing IIT’s in various solid tumor settings.
Hematological Malignancies Candidates
HUTCHMED currently has five investigational drug candidates targeting
hematological malignancies in clinical development, with its sixth
expected to enter clinical development in mid-2022. Amdizalisib
(targeting PI3Kδ), sovleplenib (HMPL-523, targeting Syk) and HMPL-760
(targeting BTK) are being studied in several trials against B-cell dominant
malignancies. In addition to the three B-cell receptor pathway inhibitors,
HUTCHMED is also developing HMPL-306 (targeting IDH1 and IDH2);
tazemetostat (a methyltransferase inhibitor of EZH2); and HMPL-A83 (a
IND-stage anti-CD47 monoclonal antibody).
AMDIZALISIB (HMPL-689)
Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform
PI3Kδ, a key component in the B-cell receptor signaling pathway.
Amdizalisib’s pharmacokinetic properties have been found to be favorable
with good oral absorption, moderate tissue distribution and low clearance
in preclinical studies. We also expect that amdizalisib will have low risk
of drug accumulation and drug-drug interactions. In 2021, registration-
intent studies for amdizalisib were initiated and Breakthrough Therapy
Designation was granted for relapse or refractory follicular lymphoma in
China. We currently retain all rights to amdizalisib worldwide. The table
below shows a summary of the clinical studies for amdizalisib.
Treatment
Amdizalisib
monotherapy
Amdizalisib
monotherapy
Name, Line,
Patient Focus
Indolent non-
Hodgkin’s
lymphoma
Relapsed/
refractory
follicular
lymphoma
Amdizalisib
monotherapy
Amdizalisib
monotherapy
Relapsed/
refractory
marginal zone
lymphoma
Indolent non-
Hodgkin’s
lymphoma
Sites
Phase
Status/Plan
NCT #
China
Ib
China
II
registration-
intent
NCT03128164
NCT04849351
Ongoing;
expansion data
presented at
ESMO 2021
Ongoing:
initiated in
Apr 2021.
Breakthrough
Therapy
Designation
China
II
registration-
intent
Ongoing:
initiated in Apr
2021
NCT04849351
I/Ib
U.S./
Europe
NCT03786926
Dose expansion
initiated in H2
2021
Phase II registration-intent trial (NCT04849351) – In April 2021, we
commenced a registration-intent, single-arm, open-label Phase II trial in
China in approximately 100 patients with relapsed/refractory follicular
lymphoma and approximately 80 patients with relapsed/refractory
marginal zone lymphoma, two subtypes of non-Hodgkin’s lymphoma. The
primary endpoint is ORR. The trial is being conducted in over 35 sites in
China.
This initiation is based on the highly promising preliminary results
presented at ESMO 2021 from the Phase Ib expansion study ongoing in
China (NCT03128164), which demonstrated that amdizalisib was well
tolerated with single-agent clinical activity in relapsed/refractory B-cell
lymphoma patients.
SOVLEPLENIB (HMPL-523)
Sovleplenib is a novel, selective, oral inhibitor targeting Syk, for the
treatment of hematological cancers and immune diseases. Syk is a
component in B-cell receptor signaling pathway.
In 2021 we initiated Phase III study in China for ITP, for which it has
received Breakthrough Therapy Designation, and presented data on both
ITP and hematological malignancies at ASH 2021. We currently retain all
rights to sovleplenib worldwide. The table below shows a summary of the
clinical studies for sovleplenib.
HUTCHMED (China) Limited 2021 Annual Report 25
Treatment
Sovleplenib
monotherapy
Sovleplenib
monotherapy
Sovleplenib
monotherapy
Sovleplenib
monotherapy
Sovleplenib
monotherapy
Sovleplenib
monotherapy
ESLIM-01 (Evaluation of Sovleplenib for immunological diseases–01,
NCT05029635) – In October 2021, we initiated a randomized, double-
blinded, placebo-controlled Phase III trial in China of sovleplenib in
approximately 180 adult patients with primary ITP, an autoimmune
disorder that can lead to increased risk of bleeding. The primary endpoint
of the study is the durable response rate. In January 2022, the NMPA
granted Breakthrough Therapy Designation for this indication.
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
ESLIM-01: ITP
China
III
ITP
China
I/Ib
Australia Ib
NCT05029635
Ongoing:
initiated in
Oct 2021.
Breakthrough
Therapy
Designation
Completed. Data
at ASH 2021
NCT03951623
Active, not
recruiting
NCT02503033
I/Ib
U.S./
Europe
Ongoing. Prelim.
data at ASH 2021
NCT03779113
China
I/Ib
Completed
NCT02857998
Indolent non-
Hodgkin’s
lymphoma
Indolent non-
Hodgkin’s
lymphoma
Multiple sub-
types of B-cell
malignancies
wAIHA
China
II
In planning
N/A
Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma:
Best response of target lesion (N=76)
FL
n=22
MZL
n=14
CLL/SLL
n=3
MCL
n=8
DLBCL
n=29
CR
PR
PD
SD
100
75
50
25
0
-25
-50
-75
-100
PD
PD
SD
SD
PR
PR
CR
SD
SD
SD
SD
SD
SD
SD
PR
PR
PD
SD
PR
PR
CR
PR
PR
PR
PR
CR PR
CR
PR
CR
PR
PR
PR
CR
PR
PR
CR
CR
CR
CR
CR
CR
CR
PR
PR
PR
PR
PR
PR
PR
2
PR
2
PD-PD-PD-PD-PD-PD-PD-
PD
PD PD
PD
PD
PD
PD
PD SD
SD
PR
PR
PR
PR
PR
SD SD SD SD
SD
PR
PR
PR
PR
PD
PD
PR PR
PR
PR
PR
1
0
0
0
1
1
2
2
1
0
0
0
1
1
2
0
0
1
0
0
0
0
0
0
0
0
1
0
0
0
0
2
0
0
2
0
2
6
-
0
4
-
0
4
7
-
0
-
0
7
-
0
7
-
0
1
-
0
1
-
5
-
4
-
0
0
0
3
-
0
2
4
-
0
-
0
2
1
-
2
-
0
4
3
-
0
-
0
2
-
0
2
-
0
4
-
0
0
3
3
0
0
0
0
0
0
4
1
2
0
0
1
3
3
0
2
3
2
0
3
-
0
6
-
0
7
-
0
4
-
0
3
-
0
9
-
0
8
-
0
4
-
0
4
-
0
4
-
0
1
-
0
3
-
0
4
-
0
3
-
0
4
0
0
3
4
0
0
4
4
2
0
2
3
0
6
4
9
1
3
2
3
5
1
3
1
2
1
7
2
6
6
1
1
2
9
0
2
3
5
2
4
1
9
1
6
4
7
7
4
-
0
1
-
0
3
-
0
4
0
6
8
0
2
1
0
1
0
1
2
1
-
0
5
-
0
4
-
2
6
-
0
3
-
0
6
-
2
1
-
0
0
9
0
2
4
0
8
8
3
7
0
1
1
0
3
-
0
0
0
0
1
1
1
1
2
1
0
0
1
1
1
2
0
2
0
0
0
1
1
0
0
2
1
0
2
0
2
2
-
0
3
-
2
2
-
0
6
-
0
6
-
2
9
4
-
0
-
0
9
8
8
-
0
-
0
-
0
2
-
0
2
-
2
9
-
0
1
-
0
3
4
2
4
4
-
0
-
0
-
0
-
0
-
0
9
-
2
7
4
-
2
-
0
2
-
0
1
-
0
2
3
-
0
-
0
1
-
0
2
-
0
3
-
0
2
0
0
0
0
0
0
0
0
0
0
0
0
1
4
0
1
4
4
0
0
4
1
0
0
3
1
1
0
4
2
6
2
5
2
1
6
3
5
9
3
3
3
1
2
2
0
2
1
1
4
9
6
5
3
1
3
2
0
4
4
-
0
-
0
Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%. Efficacy evaluable population: received at least one tumor assessment. FL = follicular
lymphoma; MZL = marginal zone lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL = diffuse large B cell lymphoma; n = number of patients;
CR = complete response; PR = partial response; PD = progressive disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD)
Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress
on September 20, 2021. Presentation #833O
China Phase I/Ib in ITP (NCT03951623) – ESLIM-01 was initiated based on
encouraging data from this Phase Ib study presented at ASH 2021. At
data cutoff, 34 patients received sovleplenib and 11 received placebo.
Among 16 patients who received the RP2D of 300mg once daily, 11 (68.8%)
experienced response (defined by at least one incident of platelet count
being ≥ 50x10⁹/L in the initial 8-week double-blinded phase of the study),
compared to one placebo patient (9.1%). One additional patient at the
RP2D experienced response during the subsequent 16-week open-label
phase of the study, and all four placebo patients that crossed over to
receive treatment at RP2D after the initial 8-week double-blinded phase
experienced response. In total, 16 out of 20 patients (80%) experienced
response during both phases of the study. Durable response (defined as
platelet count being ≥ 50x10⁹/L in at least 4 out of 6 last scheduled visits)
was reported in 8 out of 20 patients (40%) who received RP2D in both
phases of the study.
26
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY Phase Ib Study of Sovleplenib in Adult Patients with Primary Immune Thrombocytopenia
Notes: Data cut-off as of September 30, 2021. Overall Response was defined as at least one incident of platelet count being ≥ 50×109/L in the initial 8-week double blinded phase of the study. Durable Response was defined
as platelet count being ≥ 50×109/L in at least 4 out of 6 last scheduled visits.
*The 300mg QD cohort includes 4 patients who, after receiving placebo in the first 8 weeks of double blind treatment, received sovleplenib 300mg QD in a 16-week open-label treatment period. QD= once daily
Source: Yang R, et al. “Safety, Pharmacokinetics and Preliminary Efficacy of HMPL-523 in Adult Patients with Primary Immune Thrombocytopenia: A Randomized, Double-Blind and Placebo-Controlled Phase Ib Study.”
Presented at the 63rd American Society of Hematology (ASH) Annual Meeting and Exposition on December 11, 2021. Abstract #149895.
Safety data were presented for all 41 patients treated by sovleplenib. The
median duration of treatment was 142 days (range: 23-170). No patients
discontinued treatment due to TRAE, and no cases of treatment-related
serious adverse events were reported. There were 30 patients (73%) who
experienced TRAEs, including 3 (7.3%) who experienced grade 3 or above
TRAEs, one of whom received the RP2D. No TRAEs of grade 3 or above
occurred in more than one patient.
Australia/China Phase I/Ib studies in multiple subtypes of B-cell
malignancies (NCT02503033/NCT02857998) – Our Phase I/Ib dose
escalation and expansion studies in Australia and China have now
enrolled over 200 patients in a broad range of hematological cancers and
have identified indications of interest for future development.
U.S./Europe Phase I/Ib in indolent non-Hodgkin’s lymphoma (NCT03779113)
– We presented preliminary results from this Phase I study at ASH 2021,
which support progressing sovleplenib into the ongoing dose expansion
phase of the study to evaluate its safety and efficacy in multiple subtypes
of B-cell and T-cell lymphoma at the RP2D of 700mg.
TAZVERIK® (TAZEMETOSTAT)
In August 2021, we entered into a strategic collaboration with Epizyme
to research, develop, manufacture and commercialize TAZVERIK® in
Greater China, including mainland China, Hong Kong, Macau and Taiwan.
TAZVERIK® is an inhibitor of EZH2 developed by Epizyme that is approved
by the U.S. FDA for the treatment of certain epithelioid sarcoma and
follicular lymphoma patients. It received accelerated approval from the
FDA based on ORR and DoR in January and June 2020 for epithelioid
sarcoma and follicular lymphoma, respectively.
Under the terms of the agreement, we are responsible for the
development and commercialization of TAZVERIK® in Greater China.
Epizyme received a $25 million upfront payment and is eligible to
receive up to an additional $110 million in development and regulatory
milestone payments, across up to eight potential indications, and up to
an additional $175 million in sales milestone payments. Epizyme is also
eligible to receive tiered royalties of mid -teen to low-twenties percent
based on annual net sales of TAZVERIK® in Greater China. In addition,
we received a four-year warrant to acquire up to $65 million of Epizyme
shares at $11.50 per share.
We are developing and plan to seek approval for TAZVERIK® in various
hematological and solid tumors, including epithelial sarcoma, follicular
lymphoma and diffuse large b-cell lymphoma (DLBCL) in Greater China.
We are participating in Epizyme’s SYMPHONY-1 (EZH-302) study, leading
it in Greater China. The parties also intend to conduct additional global
studies jointly. We will generally be responsible for funding all clinical
trials of TAZVERIK® in Greater China, including the portion of global trials
conducted there. We are responsible for the research, manufacturing and
commercialization of TAZVERIK® in Greater China.
HUTCHMED (China) Limited 2021 Annual Report 27
The table below shows a summary of the clinical studies for TAZVERIK®.
HMPL-306
In planning
Pending
Treatment
Name, Line,
Patient Focus
Sites
Phase Status/Plan
NCT #
HMPL-306 is a novel dual-inhibitor of IDH1 and IDH2 enzymes. IDH1 and
IDH2 mutations have been implicated as drivers of certain hematological
malignancies, gliomas and solid tumors, particularly among acute myeloid
leukemia patients. We currently retain all rights to HMPL-306 worldwide.
The table below shows a summary of the clinical studies for HMPL-306.
HMPL-306
monotherapy
Hematological
malignancies
China
I
HMPL-306
monotherapy
U.S.
Solid tumors
including but not
limited to gliomas,
chondrosarcomas or
cholangiocarcinomas
HMPL-306
monotherapy
Hematological
malignancies
U.S.
I
I
NCT04272957
NCT04762602
NCT04764474
Ongoing: close
to establishing
the RP2D, dose
expansion in
mid-2022
Ongoing:
initiated in
Mar 2021 Dose
expansion phase
is expected to
start in mid-2022
Ongoing:
initiated in Mar
2021
HMPL-760
HMPL-760 is an investigational, non-covalent, third-generation BTK
inhibitor. It is a highly potent, selective, and reversible inhibitor with long
target engagement against BTK, including wild-type and C481S-mutated
BTK. China and U.S. Phase I studies initiated in early 2022 will include
patients treated with a prior regimen containing a BTK inhibitor. We
currently retain all rights to HMPL-760 worldwide.
Treatment
Name, Line,
Patient Focus
Sites
Phase Status/Plan
NCT #
HMPL-760
monotherapy
CLL, SLL, other
NHL
China
HMPL-760
monotherapy
CLL, SLL, other
NHL
U.S.
I
I
Ongoing: initiated
in Jan 2022
NCT05190068
Initiating
NCT05176691
Treatment
Name, Line,
Patient Focus
TAZVERIK® + R²
(lenalidomide &
rituximab)
SYMPHONY-1:
2L follicular
lymphoma
TAZVERIK®
monotherapy
TAZVERIK®
combinations
Relapsed/
refractory
3L+ follicular
lymphoma
Indolent
lymphoma
combinations
Sites
Phase
Status/Plan
NCT #
Global
III
NCT04224493
Ongoing:
HUTCHMED is
leading China
portion of
global Ph III
China
II
registration-
intent
(bridging)
China
II
In planning
N/A
SYMPHONY-1 (NCT04224493) – This is a global, multicenter, randomized,
double-blind, active-controlled, 3-stage, biomarker-enriched, Phase
Ib/III study of TAZVERIK® in combination with R² in patients with
relapsed or refractory follicular lymphoma after at least one prior line of
therapy. Epizyme conducted the Phase Ib portion of the study in 2021,
which determined the recommended Phase III dose (“RP3D”) and also
demonstrated potential efficacy in second-line follicular lymphoma.
The safety profile of the combination was consistent with the previously
reported safety information in the U.S. prescribing information for both
TAZVERIK® and R², respectively.
In the Phase III portion of the trial, approximately 500 patients are
randomly assigned to receive the RP3D of TAZVERIK® + R² or placebo + R².
The study will also include a maintenance arm with TAZVERIK® or placebo
following the first year of treatment with TAZVERIK® + R² or placebo + R².
We anticipate the first patient enrollment in H1 2022 in the China Phase III
portion of SYMPHONY-1.
We intend to initiate a bridging study in follicular lymphoma to support
China registration, as well as several combination studies of TAZVERIK®
with HUTCHMED assets.
28
OPERATIONS REVIEW – ONCOLOGY/IMMUNOLOGY HMPL-453
HMPL-653
HMPL-453 is a novel, selective, oral inhibitor targeting FGFR 1/2/3.
Aberrant FGFR signaling is associated with tumor growth, promotion of
angiogenesis, as well as resistance to anti-tumor therapies. We currently
retain all rights to HMPL-453 worldwide. The table below shows a
summary of the clinical studies for HMPL-453.
HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor
designed to target CSF-1R driven tumors as a monotherapy or in
combination with other drugs. We initiated a China Phase I study in
January 2022. We currently retain all rights to HMPL-653 worldwide.
Name, Line,
Patient Focus
2L
Cholangiocarcinoma
(IHCC with FGFR
fusion)
Multiple
China
I/II
Multiple
China
I/II
Treatment
HMPL-453
monotherapy
HMPL-453 +
chemotherapies
HMPL-453
+TUOYI® (PD 1)
Sites
Phase Status/Plan
NCT #
China
II
NCT04353375
NCT05173142
NCT05173142
Ongoing. ~10-
15% of IHCC pts’
tumors harbor
FGFR2 fusion
Ongoing:
initiated in Jan
2022
Ongoing:
initiated in Jan
2022
HMPL-295
HMPL-295 is a novel ERK inhibitor. ERK is a downstream component of
the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first
of multiple candidates in discovery targeting the MAPK pathway. A China
Phase I study was initiated in July 2021. We currently retain all rights to
HMPL-295 worldwide.
RAS-MAPK pathway is dysregulated in cancer, in which mutations or
non-genetic events hyper-activate the pathway in more than 50% of
cancers. RAS and RAF predict worse clinical prognosis in a wide variety of
tumor types, mediate resistance to targeted therapies, and decrease the
response to the approved standards of care, namely, targeted therapy and
immunotherapy. ERK inhibition has the potential to overcome or avoid
the intrinsic or acquired resistance from the inhibition of RAS, RAF and
MEK upstream mechanisms.
Treatment
HMPL-295
monotherapy
Name, Line,
Patient Focus
Sites
Phase
Status/Plan
NCT #
Solid tumors
China
I
Ongoing: initiated
in Jul 2021
NCT04908046
CSF-1R is usually expressed on the surface of macrophages and can
promote growth and differentiation of macrophages. Studies have shown
that blocking the CSF-1R signaling pathway could effectively modulate
the tumor microenvironment, relieve tumor immunosuppression, and
synergize with other anti-cancer therapies such as immune checkpoint
inhibitors to achieve tumor inhibition. It has been demonstrated in several
clinical studies that CSF-1R inhibitors could treat tenosynovial giant cell
tumors, and treat a variety of malignancies combined with immuno-
oncology or other therapeutic agents. Currently no CSF-1R inhibitor has
been approved in China.
Treatment
HMPL-653
monotherapy
Name, Line,
Patient Focus
Solid tumors
& tenosynovial
giant cell tumors
Sites
Phase
Status/Plan
NCT #
China
I
NCT05190068
Ongoing: initiated
in Jan 2022, ~110
patients expected
to be enrolled
IMMUNOLOGY COLLABORATION WITH INMAGENE
In January 2021, we entered into a strategic partnership with Inmagene,
a clinical development stage company with a focus on immunological
diseases, to further develop four novel preclinical drug candidates
we discovered for the potential treatment of multiple immunological
diseases. Funded by Inmagene, we will work together to move the drug
candidates towards IND. If successful, Inmagene will then advance the
drug candidates through global clinical development. INDs for the first
two compounds are expected to be submitted in China in 2022.
HUTCHMED (China) Limited 2021 Annual Report 29
Our Other Ventures include drug marketing and distribution platforms
covering about 290 cities and towns in China with around 2,900 mainly
manufacturing and commercial personnel. Built over the past 20 years,
it primarily focuses on prescription drug and science-based nutrition
products through several joint ventures and subsidiary companies.
In 2021, our Other Ventures delivered encouraging growth with
consolidated revenues up 20% (13% at CER) to $236.5 million (2020:
$197.8m). Consolidated net income attributable to HUTCHMED from our
Other Ventures grew by 24% (15% at CER) to $54.4 million (2020: $44.0m),
excluding one-time gains. One-time gains in 2021 totaled $88.5 million
(2020: $28.8m), including $82.9 million (2020: nil) from the divestment of
HBYS and $5.6 million (2020: $28.8m) from one-time land compensation.
Hutchison Sinopharm:
Our prescription drugs commercial services business, which in addition
to providing certain commercial services for our own products, provides
services to third-party pharmaceutical companies in China, grew sales by
24% (16% at CER) to $204.1 million in 2021 (2020: $165.1m).
In 2021, the Hong Kong International Arbitration Centre made a final
award in favor of Hutchison Sinopharm against Luye Pharma Hong Kong
Ltd. in the amount of RMB253.2 million ($39.6 million), plus costs and
interest, in connection with the termination of Hutchison Sinopharm’s
right to distribute SEROQUEL® in China. Payment of the award is expected
in 2022.
Hutchison Sinopharm has a dedicated team of about 130 commercial
staff focused on two key areas of operation. First, a team that markets
third-party prescription drug products directly to about 700 public and
private hospitals in the Shanghai region and through a network of about
50 distributors to cover all other provinces in China. Second, a team that
markets HUTCHMED’s science-based maternal and infant supplements
through a network of over 32,000 promoters in China.
SHPL:
Our own-brand prescription drugs business, operated through our non-
consolidated joint venture SHPL, grew sales by 20% (12% at CER) to
$332.6 million (2020: $276.4m). This sales growth and favorable product
mix led to an increase of 33% (24% at CER) in net income attributable to
HUTCHMED to $44.7 million (2020: $33.5m).
The SHPL operation is large-scale, with a commercial team of over 2,200
staff managing the medical detailing and marketing of its products not just
in hospitals in provincial capitals and medium-sized cities, but also in the
majority of county-level hospitals in China. SHPL’s Good Manufacturing
Practice-certified factory holds 74 drug product manufacturing licenses
and is operated by over 530 manufacturing staff.
HUTCHMED (China) Limited 2021 Annual Report 31
OPERATIONS REVIEW – OTHER VENTURES SXBX54 pill: SHPL’s main product is SXBX pill, an oral vasodilator
prescription therapy for coronary artery disease. SXBX pill is the third
largest botanical prescription drug in this indication in China, with a
national market share in January to December 2021 of 19.6% (2020:
18.2%). Sales increased by 23% (15% at CER) to $307.1 million in 2021
(2020: $250.0m).
SXBX pill is protected by a formulation patent that expires in 2029, but
also retains certain state protection that extends indefinitely, and is one of
less than two dozen proprietary prescription drugs represented on China’s
National Essential Medicines List (“NEML”). Inclusion on the NEML means
that all Chinese state-owned health care institutions are required to carry
it. SXBX pill is fully reimbursed in all China.
Dividends: Our share of SHPL’s profits are passed to the HUTCHMED
Group through dividend payments. In 2021, dividends of $49.9 million
(2020: $36.1m) were paid from SHPL to the HUTCHMED Group level with
aggregate dividends received by HUTCHMED since inception of over $240
million.
HBYS disposal:
In September 2021, we divested our entire indirect interest in HBYS, a
non-core and non-consolidated over-the-counter drug joint venture
business, to GL Capital for $159.1 million in cash and including $46.4
million expected to be received related to undistributed profits, this
represents about 22 times of HBYS’ adjusted 2020 net profit attributable
to HUTCHMED equity holders of $7.7 million55. The sale of this non-
core consumer health products business resulted in a one-time gain of
approximately $82.9 million attributable to HUTCHMED equity holders.
Christian Hogg
Chief Executive Officer
March 3, 2022
32
OPERATIONS REVIEW – OTHER VENTURES used for translation may have a significant effect on our reported results.
We believe the presentation at CER provides useful and meaningful
information because it facilitates period-to-period comparisons of our
results and increases the transparency of our underlying performance.
Reconciliation of GAAP change in cash and cash equivalents
and short-term investments to Adjusted Group net cash
flows excluding financing activities:
$’millions
2021
2020
Cash and cash equivalents and short-term
investments at end of year
1,011.7
435.2
Excludes: Cash and cash equivalents and short-
term investments at beginning of year
(435.2)
(217.2)
Excludes: Net cash generated from financing
activities for the year
(650.0)
(296.4)
Adjusted Group net cash flows excluding financing
activities
(73.5)
(78.4)
In addition to financial information prepared in accordance with U.S.
GAAP, this annual report also contains certain non-GAAP financial
measures based on management’s view of performance including:
•
•
Adjusted Group net cash flows excluding financing activities
CER
Management uses such measures internally for planning and forecasting
purposes and to measure the HUTCHMED Group’s overall performance.
We believe these adjusted financial measures provide useful and
meaningful information to us and investors because they enhance
investors’ understanding of the continuing operating performance of our
business and facilitate the comparison of performance between past and
future periods. These adjusted financial measures are non-GAAP measures
and should be considered in addition to, but not as a substitute for, the
information prepared in accordance with U.S. GAAP. Other companies
may define these measures in different ways.
Adjusted Group net cash flows excluding financing activities: We include
the change in short-term investments for the period to the change in cash
and cash equivalents for the period, and exclude the net cash generated
from financing activities for the period to derive our adjusted Group net
cash flows excluding financing activities. We believe the presentation of
adjusted Group net cash flows excluding financing activities provides
useful and meaningful information about the change in our cash
resources excluding those from financing activities which may present
significant period-to-period differences.
CER: We remove the effects of currency movements from period-to-
period comparisons by retranslating the current period’s performance
at previous period’s foreign currency exchange rates. Because we have
significant operations in China, the RMB to U.S. dollar exchange rates
HUTCHMED (China) Limited 2021 Annual Report 33
USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
Reconciliation of GAAP revenues and net income attributable to HUTCHMED to CER:
$’millions (except %)
Year Ended
Change Amount
Change %
December
December
Exchange
Exchange
31, 2021
31, 2020
Actual
CER
effect
Actual
CER
effect
Consolidated revenues
Oncology/Immunology
119.6
30.2
Other Ventures^
236.5
197.8
89.4
38.7
86.6
25.2
2.8
296%
287%
13.5
20%
13%
9%
7%
^ Includes:
— Hutchison Sinopharm
– prescription drugs
Non-consolidated joint venture
revenues
— SHPL
— SXBX pill
Consolidated net income attributable
to HUTCHMED
Other Ventures
— Consolidated entities
— Equity investees
— SHPL
— HBYS*
Excluding one-time gains
Other Ventures
— Consolidated entities
— Equity investees
— SHPL
— HBYS*
204.1
165.1
39.0
26.2
12.8
24%
16%
8%
332.6
307.1
276.4
250.0
56.2
57.1
34.1
36.5
22.1
20.6
20%
23%
12%
15%
142.9
2.6
140.3
44.7
95.6
54.4
2.6
51.8
44.7
7.1
72.8
2.8
70.0
33.5
36.5
44.0
2.8
41.2
33.5
7.7
70.1
(0.2)
70.3
11.2
59.1
10.4
(0.2)
10.6
11.2
(0.6)
66.4
(0.3)
66.7
7.9
58.8
6.7
(0.3)
7.0
7.9
(0.9)
3.7
0.1
3.6
3.3
0.3
3.7
0.1
3.6
3.3
0.3
96%
-8%
100%
33%
162%
24%
-8%
26%
33%
-7%
91%
-12%
95%
24%
161%
15%
-12%
17%
24%
-12%
8%
8%
5%
4%
5%
9%
1%
9%
4%
9%
9%
5%
* Period from January 1, 2021 to September 28, 2021. For the year ended December 31, 2021, one-time gains include gain on divestment of $82.9 million (2020:
nil) and land compensation gain of $5.6 million (2020: $28.8 million), respectively.
34
USE OF NON-GAAP FINANCIAL MEASURES AND RECONCILIATION
LIQUIDITY AND CAPITAL
RESOURCES
To date, we have taken a multi-source approach to fund our operations,
including through cash flows generated and dividend payments from
our Oncology/Immunology and Other Ventures operations, service and
milestone and upfront payments from our collaboration partners, bank
borrowings, investments from third parties, proceeds from our listings on
various stock exchanges and follow-on offerings.
Our Oncology/Immunology operations have historically not generated
significant profits or have operated at a net loss, as creating potential
global first-in-class or best-in-class drug candidates requires a significant
investment of resources over a prolonged period of time. As such, we
incurred net losses of $194.6 million for the year ended December 31, 2021
and net losses of $125.7 million for the year ended December 31, 2020.
As of December 31, 2021, we had cash and cash equivalents and short-
term investments of $1,011.7 million and unutilized bank facilities of
$157.4 million. As of December 31, 2021, we had $26.9 million in bank
borrowings.
Certain of our subsidiaries and joint ventures, including those registered
as wholly foreign-owned enterprises in China, are required to set aside
at least 10.0% of their after-tax profits to their general reserves until such
reserves reach 50.0% of their registered capital. In addition, certain of our
joint ventures are required to allocate certain of their after-tax profits as
determined in accordance with related regulations and their respective
articles of association to the reserve funds, upon approval of the board.
Profit appropriated to the reserve funds for our subsidiaries and joint
ventures incorporated in the PRC was approximately $89,000 and $44,000
for the years ended December 31, 2021 and 2020, respectively. In addition,
as a result of PRC regulations restricting dividend distributions from
such reserve funds and from a company’s registered capital, our PRC
subsidiaries are restricted in their ability to transfer a certain amount of
their net assets to us as cash dividends, loans or advances. This restricted
portion amounted to $0.1 million as of December 31, 2021.
In addition, our non-consolidated joint venture, SHPL, held an aggregate
of $50.0 million in cash and cash equivalents and no bank borrowings as
of December 31, 2021. Such cash and cash equivalents are only accessible
by us through dividend payments from the joint venture. The level of
dividends declared by the joint venture is subject to agreement each year
between us and our joint venture partner based on the profitability and
working capital needs of the joint venture.
CASH FLOW
Cash Flow Data:
Net cash used in operating activities
Net cash used in investing activities
Year Ended
December 31,
2021
2020
(in $’000)
(204,223)
(62,066)
(306,320)
(125,441)
Net cash generated from financing activities
650,028
296,434
Net increase in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at beginning
of the year
139,485
108,927
2,427
5,546
235,630
121,157
Cash and cash equivalents at end of the year
377,542
235,630
Net Cash used in Operating Activities
Net cash used in operating activities was $62.1 million for the year ended
December 31, 2020, compared to net cash used in operating activities of
$204.2 million for the year ended December 31, 2021. The net change of
$142.1 million was primarily attributable to higher operating expenses
of $259.8 million from $424.6 million for the year ended December 31,
2020 to $684.4 million for the year ended December 31, 2021, partially
offset by an increase in revenues of approximately $128.1 million from
$228.0 million for the year ended December 31, 2020 to $356.1 million for
the year ended December 31, 2021.
HUTCHMED (China) Limited 2021 Annual Report 35
GROUP CAPITAL RESOURCES
Net Cash used in Investing Activities
Net cash used in investing activities was $125.4 million for the year ended
December 31, 2020, compared to net cash used in investing activities of
$306.3 million for the year ended December 31, 2021. The net change of
$180.9 million was primarily attributable to an increase in net deposits
in short-term investments of $331.1 million from $103.5 million for the
year ended December 31, 2020 to $434.6 million for the year ended
December 31, 2021. The net change was also attributable to the payment
of $15.0 million during the year ended December 31, 2021 to acquire a
warrant to purchase Epizyme shares. The net change was partially offset
by the proceeds received from the divestment of Hutchison Baiyunshan of
$159.1 million during the year ended December 31, 2021.
Net Cash generated from Financing Activities
Net cash generated from financing activities was $296.4 million for the
year ended December 31, 2020, compared to net cash generated from
financing activities of $650.0 million for the year ended December 31, 2021.
The net change of $353.6 million was primarily attributable to net
proceeds of $685.4 million from a private placement in April 2021 and from
our public offering on the SEHK with over-allotment option exercised in
full in June and July 2021, as compared to net proceeds of $310.0 million
from our follow-on offering in the United States and private placements
in 2020. The net change was partially offset by an increase in purchases of
ADSs by our Company for the settlement of certain equity awards which
totaled $12.9 million for the year ended December 31, 2020 as compared
to $27.3 million for the year ended December 31, 2021, as well as an
increase in dividends paid to non-controlling shareholders of subsidiaries
which totaled $1.5 million for the year ended December 31, 2020 as
compared to $9.9 million for the year ended December 31, 2021.
LOAN FACILITIES
In November 2018, our subsidiary renewed a three-year revolving loan
facility with HSBC56. The facility amount of this loan was HK$234.0 million
($30.0 million) with an interest rate at HIBOR57 plus 0.85% per annum.
This credit facility was guaranteed by us and includes certain financial
covenant requirements. The revolving loan facility expired in November
2021.
In May 2019, our subsidiary entered into additional credit facility
arrangements with HSBC for the provision of unsecured credit facilities
in the aggregate amount of HK$400.0 million ($51.3 million). The 3-year
credit facilities include (i) a HK$210.0 million ($26.9 million) term loan
facility and (ii) a HK$190.0 million ($24.4 million) revolving loan facility,
both with an interest rate at HIBOR plus 0.85% per annum. These credit
facilities are guaranteed by us and include certain financial covenant
requirements. In October 2019, we drew down HK$210.0 million
($26.9 million) from the term loan facility and as of December 31, 2021, no
amount was drawn from the revolving loan facility.
In August 2020, our subsidiary entered into a 24-month revolving credit
facility with Deutsche Bank AG58 in the amount of HK$117.0 million
($15.0 million) with an interest rate at HIBOR plus 4.5% per annum.
This revolving facility is guaranteed by us and includes certain financial
covenant requirements. As of December 31, 2021, no amount was drawn
from the revolving loan facility.
In October 2021, our subsidiary entered into a 10-year fixed asset loan
facility agreement with Bank of China Limited for the provision of a
secured credit facility in the amount of RMB754.9 million ($118.1 million)
with an annual interest rate at the 5-year China Loan Prime Rate less
0.65%. This credit facility is guaranteed by another subsidiary of the Group,
and secured by the underlying leasehold land and buildings, and includes
certain financial covenant requirements. As of December 31, 2021, no
amount was drawn from the fixed asset loan facility.
Our non-consolidated joint venture SHPL had no bank borrowings
outstanding as of December 31, 2021.
36
GROUP CAPITAL RESOURCES CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table sets forth our contractual obligations as of December 31, 2021. Our purchase obligations relate to property, plant and equipment that
are contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various factories,
warehouse, offices and other assets under non-cancellable lease agreements.
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
SHPL
Payment Due by Period (in $’000)
Total
Less than 1 Year
1-3 Years
3-5 Years More than 5 Years
26,923
104
44,204
12,818
84,049
26,923
104
42,519
5,348
74,894
–
–
1,685
5,316
7,001
–
–
–
1,359
1,359
–
–
–
795
795
The following table sets forth the contractual obligations of our non-consolidated joint venture SHPL as of December 31, 2021. SHPL’s purchase obligations
comprise capital commitments for property, plant and equipment contracted for but not yet paid. SHPL’s lease obligations primarily comprise future
aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements.
Purchase obligations
Lease obligations
FOREIGN EXCHANGE RISK
Payment Due by Period (in $’000)
Total
Less than 1 Year
1-3 Years
3-5 Years More than 5 Years
155
3,149
3,304
155
859
1,014
–
1,577
1,577
–
713
713
–
–
–
Most of our revenues and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S. dollars. We do not
believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure
to such risk. In general, our exposure to foreign exchange risks is limited.
The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political
and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC59. If we
decide to convert renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business
purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amounts available to us. On the other hand,
if we need to convert U.S. dollars into renminbi for business purposes, e.g. capital expenditures and working capital, appreciation of the renminbi against
the U.S. dollar would have a negative effect on the renminbi amounts we would receive from the conversion. In addition, for certain cash and bank
balances deposited with banks in the PRC, if we decide to convert them into foreign currencies, they are subject to the rules and regulations of foreign
exchange control promulgated by the PRC government.
HUTCHMED (China) Limited 2021 Annual Report 37
CREDIT RISK
SIGNIFICANT INVESTMENTS HELD
Substantially all of our bank deposits are in major financial institutions,
which we believe are of high credit quality. We limit the amount of credit
exposure to any single financial institution. We make periodic assessments
of the recoverability of trade and other receivables and amounts due
from related parties. Our historical experience in collection of receivables
falls within the recorded allowances, and we believe that we have made
adequate provision for uncollectible receivables.
INTEREST RATE RISK
We have no significant interest-bearing assets except for bank deposits.
Our exposure to changes in interest rates is mainly attributable to our
bank borrowings, which bear interest at floating interest rates and expose
us to cash flow interest rate risk. We have not used any interest rate swaps
to hedge our exposure to interest rate risk. We have performed sensitivity
analysis for the effects on our results for the period from changes in
interest rates on floating rate borrowings. The sensitivity to interest rates
used is based on the market forecasts available at the end of the reporting
period and under the economic environments in which we operate, with
other variables held constant. According to the analysis, the impact on
our net loss of a 1.0% interest rate shift would be a maximum increase/
decrease of $0.3 million for the year ended December 31, 2021.
OFF-BALANCE SHEET
ARRANGEMENTS
We did not have during the periods presented, and we do not currently
have, any material off-balance sheet arrangements.
Except for our investment in a non-consolidated joint venture SHPL with
a carrying value of $76.0 million including details below and those as
disclosed in note 11 to the full year financial statements, we did not hold
any other significant investments in the equity of any other companies as
of December 31, 2021.
Place of
Nominal Value
Equity Interest
establishment
of Registered
Attributable to
and operations
Capital
the Group
Principal
activities
(in RMB’000)
PRC
229,000
50%
Manufacture and
distribution of
prescription drug
products
Our own-brand prescription drugs business under Other Ventures is
operated through SHPL. Dividends received from SHPL for the year ended
December 31, 2021 were $49.9 million.
FUTURE PLANS FOR MATERIAL
INVESTMENTS AND CAPITAL
ASSETS
Note 16 to the full year financial statements discloses our planned
expenditures on capital assets as of December 31, 2021. At this date
there were no other plans to incur material expenditures on additional
investments or capital assets.
CONTINGENT LIABILITIES
Other than as disclosed in note 16 to the full year financial statements, the
Group does not have any other significant commitments or contingent
liabilities.
MATERIAL ACQUISITIONS AND
DISPOSALS OF SUBSIDIARIES,
ASSOCIATES AND JOINT
VENTURES
GEARING RATIO
The gearing ratio of the Group, which was calculated by dividing total
interest-bearing loans by total equity, was 2.6% as of December 31, 2021, a
decrease from 5.2% as of December 31, 2020. The decrease was primarily
attributable to the increase in equity due to the primary offering of shares
on HKEX.
During the year ended December 31, 2021, except for the HBYS disposal as
disclosed in note 23 to the full year financial statements, we did not have
any other material acquisitions and disposals of subsidiaries, associates
and joint ventures.
38
GROUP CAPITAL RESOURCES
PLEDGE OF ASSETS
As of December 31, 2021, we did not have any pledge of assets (as of
December 31, 2020: nil). Our 10-year fixed asset loan facility agreement
with Bank of China Limited is secured by the underlying leasehold land
and buildings; however, no amount was drawn from the fixed asset loan
facility as of December 31, 2021.
INFLATION
In recent years, China has not experienced significant inflation, and thus
inflation has not had a material impact on our results of operations.
According to the National Bureau of Statistics of China, the Consumer
Price Index in China increased by 4.5%, 0.2% and 1.5% in 2019, 2020
and 2021, respectively. Although we have not been materially affected
by inflation in the past, we can provide no assurance that we will not be
affected in the future by higher rates of inflation in China.
FINAL DIVIDEND
The Board does not recommend any final dividend for the year ended
December 31, 2021.
HUTCHMED (China) Limited 2021 Annual Report 39
HUMAN RESOURCES
As at December 31, 2021, the Group employed approximately 1,760
(2020: ~1,280) full time staff members. Staff costs during the year
ended December 31, 2021, including directors’ emoluments, totaled
$180.2 million (2020: $101.0m).
The Group fully recognizes the importance of high-quality human
resources in sustaining market leadership. Salary and benefits are kept at
competitive levels, while individual performance is rewarded within the
general framework of the salary, bonus and incentive system of the Group,
which is reviewed annually. Employees are provided with a wide range of
benefits that include medical coverage, provident funds and retirement
plans, and long-service awards. The Group stresses the importance of
staff development and provides training programs on an ongoing basis.
Employees are also encouraged to play an active role in community care
activities.
ENVIRONMENTAL, SOCIAL
AND GOVERNANCE (“ESG”)
RESPONSIBILITY
The Group is committed to the long-term sustainability of its businesses
and the communities in which it conducts business. The Group supports
the proposition that enterprises should give back to society and bear
social responsibility. It encourages its business units to contribute to
the welfare of the communities in which it operates. Moreover, the
Group’s business is anchored to the purpose of serving medical needs of
the public and distributing its drugs to those in need. While advancing
breakthroughs with its novel drugs, the Group ensures every drug product
is marketed and manufactured in a high quality, safe, traceable and
affordable manner. Furthermore, the Group is continually improving its
business practices and employee training in such best practices. It has
adopted a proactive approach to ESG responsibility and has established
a Sustainability Committee comprising four Directors to spearhead the
ESG initiatives and activities of the Group and to enhance the Group’s ESG
efforts.
CLOSURE OF REGISTER OF
MEMBERS
The register of members of the Company will be closed from Friday, April
22, 2022 to Wednesday, April 27, 2022, both days inclusive, during which
period no transfer of shares will be effected, to determine shareholders’
entitlement to attend and vote at the 2022 Annual General Meeting (or
at any adjournment or postponement thereof). All share certificates
with completed transfer forms, either overleaf or separately, must be
lodged with (a) the Hong Kong Branch Share Registrar of the Company,
Computershare Hong Kong Investor Services Limited, at Rooms 1712-
1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong
Kong or (b) the Principal Share Registrar of the Company, Computershare
Investor Services (Jersey) Limited c/o Computershare Investor Services
PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY, United Kingdom,
no later than 4:30 pm Hong Kong time on Thursday, April 21, 2022.
40
OTHER INFORMATION USE OF NET PROCEEDS
On June 30, 2021, the Company issued 104,000,000 new ordinary shares for total gross proceeds of approximately $534.7 million from the listing and
offering of the Company’s ordinary shares on HKEX.
On July 15, 2021, the over-allotment option was fully exercised and the Company issued an aggregate of 15,600,000 ordinary shares for total gross
proceeds of approximately $80.2 million.
The intended use of total net proceeds of approximately $585.2 million from the offering and the over-allotment option for the purposes and in the
amounts (adjusted on pro rata basis based on the actual net proceeds) as disclosed in the Prospectus is as below:
Use of Proceeds
Advance our late-stage clinical programs
for savolitinib, surufatinib, fruquintinib,
amdizalisib and sovleplenib through
registration trials and potential NDA
submissions
Support further proof-of-concept studies
and fund the continued expansion of
our product portfolio in cancer and
immunological diseases through internal
research, including the development cost of
early-clinical and preclinical-stage pipeline
drug candidates
Further strengthen our integrated capabilities
across commercialization, clinical and
regulatory and manufacturing
Fund potential global business development
and strategic acquisition opportunities
to complement our internal research and
development activities and enhance our
current drug candidate pipeline
Working capital, expanding internal
capabilities globally and in China and
general corporate purposes
Percentage of
Total Net
Proceeds
(%)
50%
Approximate
Amount
($’millions)
292.7
Actual Usage
up to
December 31,
2021
($’millions)
99.8
Unutilized Net
Proceeds as of
December 31, 2021
($’millions)
192.9
Expected Timeline
for Utilization of
Proceeds (note)
2023
10%
58.5
17.9
40.6
2023
20%
15%
5%
100%
117.1
87.8
29.1
585.2
21.9
25.0
17.2
181.8
95.2
62.8
11.9
403.4
2023
2023
2022
Note: There was no change in the intended use of net proceeds as previously disclosed, and the Company plans to gradually utilize the remaining net proceeds in
accordance with such intended purposes depending on actual market conditions and business needs, which is expected to be fully utilized by the end of year 2023.
AUDIT REPORT ON THE ANNUAL FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its subsidiary companies for the year ended December 31, 2021 have been audited by the
Company’s auditor, PricewaterhouseCoopers, in accordance with accounting principles generally accepted in the U.S. The unqualified auditor’s report is
set out on pages 92 to 95 of this annual report. The consolidated financial statements of the Company and its subsidiary companies for the year ended
December 31, 2021 have also been reviewed by the Audit Committee of the Company.
IMPORTANT EVENTS AFTER THE REPORTING DATE
Save as disclosed above, no important events affecting the Company occurred since December 31, 2021 and up to the date of this annual report.
HUTCHMED (China) Limited 2021 Annual Report 41
BIOGRAPHICAL DETAILS OF
DIRECTORS
TO Chi Keung, Simon
Weiguo SU
Executive Director and Chairman
Mr To, aged 70, has been a Director since 2000 and
an Executive Director and Chairman of HUTCHMED
(China) Limited (the “Company”) since 2006. He
is also a member of the Nomination Committee,
Remuneration Committee and Technical Committee of the Company.
He is the managing director of Hutchison Whampoa (China) Limited
(“Hutchison China”) and has been with Hutchison China for over 40 years,
building its business from a small trading company to a multi-billion
dollar investment group. He has negotiated major transactions with
multinational corporations such as Procter & Gamble, Lockheed, Pirelli,
Beiersdorf, United Airlines, and British Airways. He is currently chairman
of Gama Aviation Plc and formerly served as independent non-executive
director on the boards of China Southern Airlines Company Limited and
Air China Limited. In addition, Mr To is a director of certain substantial
shareholders (within the meaning of the Securities and Futures Ordinance)
of the Company and certain companies controlled by substantial
shareholders of the Company.
Mr To’s career in China spans more than 45 years. He is the original
founder of the China healthcare business of Hutchison Whampoa
Limited (currently a subsidiary of CK Hutchison Holdings Limited,
(“CKHH”)) and has been instrumental in its acquisitions made to date.
He received a Bachelor’s degree in Mechanical Engineering from Imperial
College, London and a Master in Business Administration from Stanford
University’s Graduate School of Business.
Executive Director, Chief Executive
Officer and Chief Scientific Officer
Dr Su, aged 64, has been an Executive Director
since 2017 and Chief Executive Officer of the
Company since March 4, 2022. He is also executive
vice president and Chief Scientific Officer of the Company since 2012.
He is also a member of Technical Committee of the Company. Dr Su has
headed all drug discovery and research since he joined the Company,
including master-minding the scientific strategy of the Company, being
a key leader of the Oncology/Immunology operations, and responsible
for the discovery of each and every small molecule drug candidate in our
pipeline. Prior to joining the Company in 2005, Dr Su worked with the U.S.
research and development department of Pfizer, Inc. (“Pfizer”).
In 2017, Dr Su was granted the prestigious award by the China
Pharmaceutical Innovation and Research Development Association
(PhIRDA) as one of the Most Influential Drug R&D Leaders in China.
Dr Su received a Bachelor of Science degree in Chemistry from Fudan
University in Shanghai and completed a PhD and Post-Doctoral Fellowship
in Chemistry at Harvard University under the guidance of Nobel Laureate
Professor E. J. Corey.
42
INFORMATION ON DIRECTORS CHENG Chig Fung, Johnny
Edith SHIH
Executive Director and Chief Financial
Officer
Mr Cheng, aged 55, has been an Executive
Director since 2011 and Chief Financial Officer
of the Company since 2008. He is a member of the
Sustainability Committee of the Company.
Prior to joining the Company, Mr Cheng was Vice President, Finance
of Bristol Myers Squibb in China and was a director of Sino-American
Shanghai Squibb Pharmaceuticals Ltd. and Bristol-Myers Squibb (China)
Investment Co. Ltd. in Shanghai between late 2006 and 2008.
Mr Cheng started his career as an auditor with Price Waterhouse (currently
PricewaterhouseCoopers) in Australia and then KPMG in Beijing before
spending eight years with Nestlé China where he was in charge of a
number of finance and control functions in various operations. Mr Cheng
received a Bachelor of Economics, Accounting Major from the University
of Adelaide and is a member of Chartered Accountants Australia and New
Zealand.
Dan ELDAR
Non-executive Director
Dr Eldar, aged 68, has been a Non-executive
Director of the Company since 2016. He has more
than 30 years of experience as a senior executive,
leading global operations in telecommunications,
water, biotech and healthcare. He is an executive director of Hutchison
Water Israel Ltd which focuses on large scale projects including
desalination, wastewater treatment and water reuse. He was formerly an
independent non-executive director of Leumi Card Ltd., a subsidiary of
Bank Leumi Le-Israel B.M., one of Israel’s leading credit card companies.
Dr Eldar received a Doctor of Philosophy degree in Government from
Harvard University, Master of Arts degree in Government from Harvard
University, Master of Arts degree in Political Science and Public
Administration from the Hebrew University of Jerusalem and a Bachelor of
Arts degree in Political Science from the Hebrew University of Jerusalem.
Non-executive Director and Company
Secretary
Ms Shih, aged 70, has been a Non-executive
Director since 2006, the Company Secretary of
the Company and the company secretary of Group
companies since 2000. She is also chairman of the Sustainability
Committee of the Company. She has over 35 years of experience in legal,
regulatory, corporate finance, compliance and corporate governance
fields. She is also executive director and company secretary of CKHH.
She has been with the Cheung Kong (Holdings) Limited (“CKH”) group
since 1989 and with Hutchison Whampoa Limited (“HWL”) from 1991 to
2015. Both CKH and HWL became wholly-owned subsidiaries of CKHH
in 2015. She has acted in various capacities within the HWL group,
including head group general counsel and company secretary of HWL
as well as director and company secretary of HWL subsidiaries and
associated companies. Ms Shih is in addition a non-executive director of
Hutchison Telecommunications Hong Kong Holdings Limited, Hutchison
Port Holdings Management Pte. Limited as the trustee-manager of
Hutchison Port Holdings Trust and a member of Board of Commissioners
of PT Duta Intidaya Tbk. In addition, Ms Shih is a director of certain
substantial shareholders (within the meaning of the Securities and
Futures Ordinance) of the Company and certain companies controlled
by substantial shareholders of the Company. The aforementioned
companies are either subsidiaries or associated companies of CKHH of
which Ms Shih has oversight as director of CKHH. She is the immediate
past international president and current member of the Executive
Committee of The Chartered Governance Institute (“CGI”), as well as a
past president and current chairperson of the Nomination Committee of
The Hong Kong Chartered Governance Institute (“HKCGI”, formerly known
as The Hong Kong Institute of Chartered Secretaries). She is also chairman
of the Process Review Panel for the Financial Reporting Council, a panel
member of the Securities and Futures Appeals Tribunal and a member of
the Hong Kong- Europe Business Council.
Ms Shih is a solicitor qualified in England and Wales, Hong Kong and
Victoria, Australia. She is a fellow of both the CGI and HKCGI, holding
Chartered Secretary and Chartered Governance Professional dual
designations. Ms Shih holds a Bachelor of Science degree and a Master
of Arts degree from the University of the Philippines as well as a Master of
Arts degree and a Master of Education degree from Columbia University,
New York.
HUTCHMED (China) Limited 2021 Annual Report 43
Paul Rutherford CARTER
Karen Jean FERRANTE
Senior Independent Non-executive
Director
Mr Carter, aged 61, has been a senior Independent
Non-executive Director of the Company since 2017.
He is also chairman of the Remuneration Committee
and a member of the Audit Committee and Technical Committee
of the Company. He has more than 26 years of experience in the
pharmaceutical industry. From 2006 to 2016, Mr Carter served in various
senior executive roles at Gilead Sciences, Inc. (“Gilead”), a research-based
biopharmaceutical company, with the last position as executive vice
president, commercial operations. In this role, Mr Carter headed the
worldwide commercial organization responsible for the launch and
commercialization of all of the products of Gilead. He also worked as
a senior executive at GlaxoSmithKline Plc. He is currently a director of
Mallinckrodt plc. He is also a director of Immatics N.V. and VectivBio
Holding AG. He is chairman of Evox Therapeutics and a retained advisor to
several firms active in the life sciences sector. He was formerly a director
of Alder Biopharmaceuticals, Inc.
Mr Carter received a degree in Business Studies from the Ealing School of
Business and Management (now merged into University of West London)
and is a Fellow of the Chartered Institute of Management Accountants in
the United Kingdom.
Independent Non-executive Director
Dr Ferrante, aged 64, has been an Independent
Non-executive Director of the Company since
2017. She is also chairman of the Technical
Committee and a member of the Audit Committee
of the Company. She has more than 26 years of experience in the
pharmaceutical industry. She was the former chief medical officer and
head of research and development of Tokai Pharmaceuticals, Inc.,
a biopharmaceutical company focused on developing and commercializing
innovative therapies for prostate cancer and other hormonally driven
diseases. Dr Ferrante previously held senior positions at Millennium
Pharmaceuticals, Inc. and its parent company, Takeda Pharmaceutical
Company Limited, including chief medical officer and most recently
as oncology therapeutic area and Cambridge USA site head. She had
also held positions of increasing responsibility at Pfizer, with the last
position as vice president, oncology development. Dr Ferrante is currently
a member of the board of directors of MacroGenics, Inc., and Cogent
Biosciences, Inc. (formerly Unum Therapeutics Inc.). She is also currently
a member of the Scientific Advisory Board of Kazia Therapeutics Limited.
Dr Ferrante was previously a director of Baxalta Incorporated until it was
acquired by Shire plc in 2016 and a director of Progenics Pharmaceuticals,
Inc., until it was acquired by Lantheus Holdings, Inc. in 2020.
She was previously a member of the Scientific Advisory Board of Trillium
Therapeutics Inc. until it was acquired by Pfizer in November 2021.
Dr Ferrante is an author of a number of papers in the field of oncology,
an active participant in academic and professional associations and
symposia and holder of several patents. Dr Ferrante received a Bachelor
of Science degree in Chemistry and Biology from Providence College and
a Doctor of Medicine from Georgetown University.
44
INFORMATION ON DIRECTORS Graeme Allan JACK
MOK Shu Kam, Tony
Independent Non-executive Director
Independent Non-executive Director
Mr Jack, aged 71, has been an Independent
Non-executive Director of the Company since
2017. He is also chairman of the Audit Committee
and a member of the Nomination Committee
and Remuneration Committee of the Company. He has more than
40 years of experience in finance and audit. He retired as partner of
PricewaterhouseCoopers in 2006 after a distinguished career with the firm
for over 33 years. He is currently an independent non-executive director of
The Greenbrier Companies, Inc. (an international supplier of equipment
and services to the freight rail transportation markets) and Hutchison Port
Holdings Management Pte. Limited as the trustee-manager of Hutchison
Port Holdings Trust (a developer and operator of deep water container
terminals). He was formerly a director of COSCO SHIPPING Development
Co., Ltd. (formerly known as “China Shipping Container Lines Company
Limited”, an integrated financial services platform principally engaged in
vessel and container leasing).
Mr Jack received a Bachelor of Commerce degree from University of
New South Wales, Australia and is a Fellow of the Hong Kong Institute of
Certified Public Accountants and an Associate of Chartered Accountants
Australia and New Zealand.
Professor Mok, aged 61, has been an Independent
Non-executive Director of the Company since 2017.
He is also chairman of the Nomination Committee
and a member of the Sustainability Committee and
Technical Committee of the Company. Professor Mok has more than
31 years of experience in clinical oncology with his main research interest
focusing on biomarker and molecular targeted therapy in lung cancer.
He is currently Li Shu Fan Medical Foundation named professor and
chairman of department of clinical oncology at The Chinese University of
Hong Kong.
Professor Mok has contributed to over 250 articles in international
peer reviewed journals, as well as multiple editorials and textbooks. In
October 2018, Professor Mok was the first Chinese to be bestowed with
the European Society for Medical Oncology (ESMO) Lifetime Achievement
Award, one of the most prestigious international honors and recognitions
given to cancer researchers, for his contribution to and leadership in lung
cancer research worldwide.
Professor Mok is a non-executive director of AstraZeneca PLC, a board
director of the American Society of Clinical Oncology (“ASCO”) and a
steering committee member of the Chinese Society of Clinical Oncology
(“CSCO”). He is also currently chairman of the board of ACT Genomics
Holdings Ltd. (“ACT Genomics”) and a non-executive independent director
of Lunit USA Inc. He is past president of the International Association for
the Study of Lung Cancer, and co-founder of Sanomics Limited (acquired
by ACT Genomics in November 2021) and Aurora Tele-Oncology Limited.
Professor Mok is also closely affiliated with the oncology community in
China and has been awarded an Honorary Professorship at Guangdong
Province People’s Hospital, Guest Professorship at Peking Union Medical
College Hospital and Visiting Professorship at Shanghai Jiao Tong
University. He received his Bachelor of Medical Science degree and a
Doctor of Medicine from University of Alberta, Canada. He is also a fellow
of the Royal College of Physicians and Surgeons of Canada, Hong Kong
College of Physicians, Hong Kong Academy of Medicine, Royal College of
Physicians of Edinburgh and ASCO.
HUTCHMED (China) Limited 2021 Annual Report 45
CHANGES IN INFORMATION OF DIRECTORS
Pursuant to Rule 13.51B(1) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the changes in information of
Directors of the Company, as notified to the Company, subsequent to the date of the 2021 Interim Report or the date of announcement of appointment
of Chief Executive Officer are set out below:
Directors
Paul Rutherford CARTER
Details of changes
Appointed as a Director, Chairman of Compensation Committee and a Member of Governance
and Nomination Committee of VectivBio Holding AG on September 2, 2021
MOK Shu Kam, Tony
Appointed as Chairman of the board of ACT Genomics Holdings Limited on November 22, 2021
Edith SHIH
Appointed as a member of Nomination Committee of Hutchison Telecommunications Hong Kong
Holdings Limited on February 28, 2022
46
INFORMATION ON DIRECTORS
DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES,
UNDERLYING SHARES AND DEBENTURES
As at December 31, 2021, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and
debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571
of the Laws of Hong Kong) (the “SFO”)) which were notified to the Company and The Stock Exchange of Hong Kong Limited (the “HKEX”) pursuant to
Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Directors and chief executive of the Company were deemed or
taken to have under such provisions of the SFO), or which were recorded in the register required to be kept by the Company pursuant to Section 352 of
the SFO, or as otherwise notified to the Company and the HKEX pursuant to the Code on Dealings in Shares by Directors adopted by the Company (the
“Share Dealings Code”) were as follows:
Interests and short positions in the shares, underlying shares and debentures of the Company
Long positions in the shares and underlying shares of the Company
Directors
TO Chi Keung, Simon
Christian Lawrence HOGG(20)
CHENG Chig Fung, Johnny
Weiguo SU
Dan ELDAR
Capacity
Nature of Interests
Beneficial owner
Interest of spouse
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Personal interest
Family interest
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Number of Shares/
Underlying
Shares Held
1,020,000
1,446,185 (1)
13,478,405 (2)
336,840 (3)
3,275,865 (4)
135,755 (5)
6,487,575 (6)
346,005 (7)
75,950 (8)
74,710 (9)
Approximate%
Total
of Shareholding
2,466,185
0.29%
13,815,245
1.60%
3,411,620
0.39%
6,833,580
0.79%
150,660
0.02%
0.14%
Edith SHIH
Beneficial owner
Personal interest
1,200,000 (10)
1,200,000
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Beneficial owner
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Beneficial owner
Interest of spouse
Beneficiary of a trust
Beneficial owner
Beneficiary of a trust
Personal interest
Personal interest
Personal interest
Personal interest
Personal interest
Family interest
Personal interest
Personal interest
Personal interest
45,425 (11)
63,500 (12)
40,910 (13)
68,895 (14)
11,985 (15)
15,000 (16)
74,710 (17)
61,995 (18)
74,710 (19)
108,925
0.01%
109,805
0.01%
101,695
0.01%
136,705
0.02%
HUTCHMED (China) Limited 2021 Annual Report 47
Notes:
(1)
(2)
The spouse of Mr To Chi Keung, Simon is interested in 780,000 ordinary shares (“Shares”) and 133,237 American depositary shares (“ADSs”, each representing five
Shares) in the Company as beneficiary of trusts. Mr To Chi Keung, Simon is the settlor of the same trusts in which his spouse has interests.
Includes (1) 10,938,020 Shares and 68,035 ADSs held by Mr Christian Lawrence Hogg and (2) entitlement of Mr Christian Lawrence Hogg to receive up to 440,042 ADSs
pursuant to the exercise of options granted to him under the 2015 Share Option Scheme of the Company (the “2015 Share Option Scheme”), subject to the vesting
conditions of those options. Details of the interests of Mr Christian Lawrence Hogg in the options are set out on page 60.
(3)
Mr Christian Lawrence Hogg is interested in 67,368 ADSs as beneficiary of a trust pursuant to a Long Term Incentive Plan (“LTIP”), subject to vesting conditions.
(4)
Includes (1) 2,561,460 Shares and 14,401 ADSs held by Mr Cheng Chig Fung, Johnny, (2) entitlement of Mr Cheng Chig Fung, Johnny to receive up to 128,480 ADSs
pursuant to the exercise of options granted to him under the 2015 Share Option Scheme, subject to the vesting conditions of those options. Details of the interests of
Mr Cheng Chig Fung, Johnny in the options are set out on page 60.
(5)
Mr Cheng Chig Fung, Johnny is interested in 27,151 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(6)
Includes (1) 74,317 ADSs held by Dr Weiguo Su, (2) entitlement of Dr Weiguo Su to receive up to 5,000,000 Shares pursuant to the exercise of options granted to him
under the 2015 Share Option Scheme, subject to the vesting conditions of those options, and (3) entitlement of Dr Weiguo Su to receive up to 223,198 ADSs pursuant
to the exercise of options granted to him, subject to the vesting conditions of those options. Details of the interests of Dr Weiguo Su in the options are set out on
page 60.
(7)
Dr Weiguo Su is interested in 69,201 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(8)
Includes 19,000 Shares and 11,390 ADSs held by Dr Dan Eldar.
(9)
Dr Dan Eldar is interested in 14,942 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(10)
Includes 700,000 Shares and 100,000 ADSs held by Ms Edith Shih.
(11)
Includes 35,240 Shares and 2,037 ADSs held by Mr Paul Rutherford Carter.
(12) Mr Paul Rutherford Carter is interested in 12,700 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(13)
Represents 8,182 ADSs held by Dr Karen Jean Ferrante.
(14)
Dr Karen Jean Ferrante is interested in 13,779 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(15)
Represents 2,397 ADSs held by Mr Graeme Allan Jack.
(16)
The spouse of Mr Graeme Allan Jack is interested in 3,000 ADSs.
(17) Mr Graeme Allan Jack is interested in 14,942 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(18)
Represents 12,399 ADSs held by Professor Mok Shu Kam, Tony.
(19)
Professor Mok Shu Kam, Tony is interested in 14,942 ADSs as beneficiary of a trust pursuant to LTIP, subject to vesting conditions.
(20) Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive Officer on March 4, 2022.
Save as disclosed above, as at December 31, 2021, none of the Directors or chief executive of the Company and their respective associates had any
interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of
Part XV of the SFO) as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the
Company and the HKEX pursuant to the Share Dealings Code.
DIRECTORS’ INTERESTS IN COMPETING BUSINESS
During the year ended December 31, 2021, none of the Directors had any interests in certain businesses (apart from the business of the Company or
its subsidiaries) which competes or is likely to compete, either directly or indirectly, with the principal businesses of the Company or its subsidiaries
conducted during the year, which would require disclosure under Rule 8.10(2) of the Listing Rules.
48
INFORMATION ON DIRECTORS BIOGRAPHICAL DETAILS OF
SENIOR MANAGEMENT
Marek Krzysztof KANIA
Karen Jane ATKIN
Executive President, Managing Director and Chief Medical
Officer
Dr Kania, aged 59, is the Executive President, Managing Director and Chief
Medical Officer of the Company. Prior to joining the Company in 2018,
Dr Kania spent 25 years with Eli Lilly where he led teams on multiple
oncology products around the world. While at Eli Lilly, Dr Kania was
involved in clinical research and development, global medical affairs
including product launches and medical policy and strategy. Prior to
joining Eli Lilly, Dr Kania practiced as an anesthesiologist and critical
care physician. Dr Kania is a member of the American Society of Clinical
Oncology and the American Association for Cancer Research. He received
his medical training at the Silesian School of Medicine in Katowice,
Poland, and subsequently completed an anesthesiology and critical-care
residency, with board certification from Jagiellonian University School
of Medicine in Krakow. Dr Kania also holds an MBA degree from The
University of Chicago Booth Graduate School of Business.
Executive Vice President and Chief Operating Officer
Dr Atkin, aged 56, is the Executive Vice President and Chief Operating
Officer of the Company. Prior to joining the Company in 2021, Dr Atkin
spent 24 years at AstraZeneca in senior Medical, Regulatory,
Pharmacovigilance, R&D and Commercial leadership roles, including as
Senior Vice President of Medical for Biopharmaceuticals, Vice President of
the Global Infection, Neuroscience and Autoimmunity Therapy Area and
the Established Brand Business, Country President of Indonesia and led
China R&D for over four years. Dr Atkin is also a registered physician with
advanced level qualifications in internal medicine and pharmaceutical
medicine. Dr Atkin holds three Bachelor’s degrees in Physiology, Medicine
and Surgery, respectively, from University College London. She graduated
with a First Class Honors degree in Medicine, holds an MBA from the Open
University, is a Member of the Royal College of Physicians and a fellow of
the Faculty of Pharmaceutical Medicine in the UK.
HUTCHMED (China) Limited 2021 Annual Report 49
INFORMATION ON SENIOR MANAGEMENT Zhenping WU
Hong CHEN
Senior Vice President, Pharmaceutical Sciences
Senior Vice President and Chief Commercial Officer (China)
Dr Wu, aged 62, joined the Company in 2008 and has been the Senior
Vice President of Pharmaceutical Sciences since 2012. Dr Wu has
over 28 years of experience in drug discovery and development. His
past positions include Senior Director of Pharmaceutical Sciences at
Phenomix Corporation, a US-based biotechnology company, Director of
Pharmaceutical Development at Pfizer Global Research & Development
in California (formerly Agouron Pharmaceuticals) and a group leader
at Roche at its Palo Alto site. He is a past Chairman and President of
the Board of the Sino-American Biotechnology and Pharmaceutical
Association. Dr Wu received a PhD from the University of Hong Kong and
a Master in Business Administration from the University of California at
Irvine.
Mark Kin Hung LEE
Senior Vice President, Corporate Finance and Development
Mr Lee, aged 44, is the Senior Vice President of Corporate Finance
and Development of the Company. He began working in healthcare
investment banking in the United States and Europe in 1998 and joined
the Company in 2009. Based in the New York and London offices of Credit
Suisse, Mr Lee was involved in the execution and origination of mergers,
acquisitions, public and private financings and corporate strategy for
life science companies such as AstraZeneca, Bristol-Myers Squibb and
Genzyme, as well as others medical product and service companies.
Mr Lee received his Bachelor’s Degree in Biochemical Engineering
with First Class Honors from University College London, where he was
awarded a Dean’s Commendation. He also received a Master of Business
Administration from the Massachusetts Institute of Technology’s Sloan
School of Management.
May Qingmei WANG
Senior Vice President, Business Development & Strategic
Alliances
Dr Wang, aged 58, is the Senior Vice President of Business Development &
Strategic Alliances of the Company. Prior to joining the Company in 2010,
Dr Wang spent 16 years with Eli Lilly where she was the Head of Eli Lilly’s
Asian Biology Research and responsible for establishing and managing
research collaborations in China and across Asia. Dr Wang holds
numerous patents, has published more than 50 peer-reviewed articles
and has given dozens of seminars and plenary lectures. Dr Wang received
a PhD in Biochemistry from Purdue University.
Mr Chen, aged, 51, is the Senior Vice President and Chief Commercial
Officer (China) of the Company. Prior to joining the Company in 2011,
Mr Chen spent 12 years with Bristol-Myers Squibb and was last serving
as its National Sales & Marketing Director in China. Mr Chen received a
Bachelor’s degree in Medicine from Nanjing Medical University and an
EMBA from Cheung Kong Graduate School of Business.
Thomas R. HELD
Senior Vice President, Commercial (US)
Mr Held, aged 61, is the Senior Vice President, Commercial (US) of the
Company. He is responsible for establishing and leading the commercial
presence in the US and building the commercial infrastructure for the
international operations, inclusive of launch strategy, marketing, sales,
market access, and operational planning.
Mr Held has more than 30 years of experience in the pharmaceutical
industry with a majority of time spent in the oncology commercial
space. In his most recent assignment at Daiichi Sankyo, he served as
Vice President of Daiichi Sankyo’s emergent Antibody Drug Conjugate
strategic platform. Prior to this, he held commercial roles of increasing
responsibility at Novartis Oncology, where he worked from 1997 to
2017, gaining invaluable experience in the solid tumor arena, including
importantly neuroendocrine tumors.
Mr Held holds a Bachelor’s degree in Economics from Allegheny College
and an MBA from Ashland University.
Charles George Rupert NIXON
Group General Counsel
Mr Nixon, aged 52, has been Group General Counsel of the Company since
May 2015 and has worked with the Company since 2006. Prior to joining
the Company, Mr Nixon was Group Senior Legal Counsel for Hutchison
Whampoa Limited (previously a listed company in Hong Kong and after
a restructuring, a subsidiary of CK Hutchison Holdings Limited) in both
Hong Kong and London and prior to that Senior Legal Counsel for Three
UK, the mobile phone operator. Mr Nixon has been with the CK Hutchison
Group since 2001.
Mr Nixon received an LLB (Hons) from Middlesex University and is a
qualified solicitor in England & Wales with 30 years of experience.
50
INFORMATION ON SENIOR MANAGEMENT The Directors have pleasure in submitting to shareholders their report and
the audited financial statements for the year ended December 31, 2021.
DIVIDENDS
PRINCIPAL ACTIVITIES
The principal activity of the Company is that of a holding company of a
biopharmaceutical group with operations in China, the U.S. and Europe. It
is focused on the research, development, manufacture and marketing of
pharmaceutical products.
BUSINESS REVIEW
A detailed review of the performance, business activities and future
development of the Company and its subsidiaries (the “Group”) is set out
in the Chairman’s Statement and the Operations Review.
RESULTS
No interim dividend for the year ended December 31, 2021 was declared
and the Directors do not recommend the payment of a final dividend for
the year ended December 31, 2021.
RESERVES
Movements in the reserves of the Group during the year ended December
31, 2021 are set out in the Consolidated Statements of Changes in
Shareholders’ Equity on page 100.
CHARITABLE DONATIONS
Donations to charitable organizations by the Group during the year ended
December 31, 2021 amounted to approximately US$1.89 million (2020 –
approximately US$0.3 million).
The Consolidated Statements of Operations are set out on page 98 and
show the Group’s results for the year ended December 31, 2021.
PROPERTY, PLANT AND
EQUIPMENT
Particulars of the movements of property, plant and equipment of the
Group are set out in note 9 to the Consolidated Financial Statements.
SHARE CAPITAL
The share capital of the Company is set out in the Consolidated Balance
Sheets on page 97. Details of the ordinary shares of the Company are set
out in note 17 to the Consolidated Financial Statements.
HUTCHMED (China) Limited 2021 Annual Report 51
DIRECTORS’ REPORT DIRECTORS
The Directors of the Company as of December 31, 2021 were:
Executive Directors:
TO Chi Keung, Simon
Christian Lawrence HOGG
CHENG Chig Fung, Johnny
Weiguo SU
Non-executive Directors:
Dan ELDAR
Edith SHIH
Independent Non-executive Directors:
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
During the year ended December 31, 2021 and up to the date of this
report, the following changes to the Board composition took place on
March 4, 2022:
The Company has received written confirmation from all Independent
Non-executive Directors regarding their independence as required
under Rule 3.13 of the Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (the “HK Listing Rules”) as well as
Rule 5605(a)(2) of the Nasdaq Listing Rules. The Board considers all the
Independent Non-executive Directors to be independent.
The Directors’ biographical details are set out on pages 42 to 45.
DIRECTORS’ SERVICE CONTRACT
None of the Directors of the Company who are proposed for re-election at
the 2022 AGM has a service contract with the Company not terminable by
the Company within one year without payment of compensation (other
than statutory compensation).
DIRECTORS’ MATERIAL
INTERESTS IN SIGNIFICANT
TRANSACTIONS, ARRANGEMENTS
OR CONTRACTS
There were no transactions, arrangements or contracts that are of
significance subsisting during or at the end of the year in which a Director
of the Company or an entity connected with a Director is or was materially
interested, whether directly or indirectly.
Mr Christian Lawrence Hogg retired as Executive Director and Chief
Executive Officer; and
(i)
(ii)
Dr Weiguo Su was appointed as Chief Executive Officer, in
additional to his roles as Executive Director and Chief Scientific
Officer.
CONTINUING CONNECTED
TRANSACTIONS
Mr Christian Lawrence Hogg has confirmed that he has no disagreement
with the Board and nothing relating to the affairs of the Company needed
to be brought to the attention of the shareholders of the Company.
The Board would like to record its appreciation for the contribution of
Mr Christian Lawrence Hogg made to the Group during his tenure and
is pleased to congratulate Dr Weiguo Su on his appointment to Chief
Executive Officer of the Company.
The Company’s articles of association require not less than one-third
of the Directors to retire by rotation at each annual general meeting,
and a retiring Director is eligible for re-election. In the interests of good
corporate governance, all Directors, being Mr To Chi Keung, Simon,
Dr Weiguo Su, Mr Cheng Chig Fung, Johnny, Dr Dan Eldar, Ms Edith Shih,
Mr Paul Rutherford Carter, Dr Karen Jean Ferrante, Mr Graeme Allan Jack
and Professor Mok Shu Kam, Tony will all retire at the 2022 annual general
meeting (the “AGM”) and, being eligible, will offer themselves for
re-election by shareholders.
1.
Supply of Products by the Group to A.S. Watson Group and
Provision of Associated Marketing Services by A.S. Watson Group
From time to time, the Group may supply products to A.S. Watson
Holdings Limited (“A.S. Watson”), an indirect subsidiary of CK
Hutchison Holdings Limited (“CKHH”), and/or its subsidiaries (“A.S.
Watson Group”), including the retail grocery and pharmacy chains,
Park N Shop (HK) Ltd. (“PARKnSHOP”) and A.S. Watson Retail (HK)
Ltd (“Watsons”), which are owned and operated by A.S. Watson. In
connection with the supply and sale of the products by the Group,
A.S. Watson Group may also from time to time provide marketing
services associated with the products to the Group.
The Company entered into a framework products supply and
marketing services agreement with A.S. Watson (the “A.S. Watson
Framework Connected Transactions Agreement”) on June 15, 2021
to govern all existing and future supply of products by the Group
to A.S. Watson Group and the associated provision of marketing
services by A.S. Watson Group to the Group.
52
DIRECTORS’ REPORT The A.S. Watson Framework Connected Transactions Agreement
expires on December 31, 2023 and is automatically renewable for a
successive period of three years thereafter, subject to compliance
with the applicable provisions of the HK Listing Rules, unless
terminated earlier by not less than one month’s prior notice
or otherwise in accordance with the terms of the A.S. Watson
Framework Connected Transactions Agreement.
In relation to the supply of products by the Group, it is expected
that the maximum annual transaction amount receivable by the
Group from A.S. Watson Group for the financial years 2021, 2022
and 2023 will not exceed US$12.46 million, US$14.95 million and
US$17.94 million, respectively.
In relation to the provision of associated marketing services by
A.S. Watson Group to the Group, it is expected that the maximum
annual transaction amount payable by the Group to A.S. Watson
Group for the financial years 2021, 2022 and 2023 will not exceed
US$1.25 million, US$1.50 million and US$1.79 million, respectively.
As A.S. Watson is a subsidiary of CKHH, it is a connected person
of the Company by virtue of being an associate of a substantial
shareholder of the Company, and the supply of products by the
Group to A.S. Watson Group and the provision of associated
marketing services by A.S. Watson Group to the Group constitutes
continuing connected transactions of the Company.
2.
Product Labelling Services
The Company has entered into the A.S. Watson Framework
Connected Transactions Agreement with A.S. Watson (as described
above), which provides for the provision of product labelling
services by A.S. Watson Group, whereby Hutchison Hain Organic
(Hong Kong) Limited (“HHOHK”), a wholly-owned subsidiary of a
consolidated joint venture of the Company, engaged PARKnSHOP
to provide product labelling services for products supplied by
HHOHK to PARKnSHOP, a retail grocery chain owned and operated
by the A.S. Watson Group.
It is expected that the maximum annual transaction amount
payable by the Group to A.S. Watson Group for the financial years
2021, 2022 and 2023 will not exceed US$0.66 million, US$0.79
million and US$0.95 million, respectively.
3.
Provision of Travel Services
The Company entered into a framework travel services agreement
with Hutchison Travel Limited (“Hutchison Travel”) on June 15,
2021 (the “Framework Travel Services Agreement”) whereby
Hutchison Travel and/or its subsidiaries (together, the “Hutchison
Travel Group”) provide travel services (e.g. bookings and
reservations for air tickets) to the Group and charge the Group
services fees based on market prices. The Framework Travel
Services Agreement governs all existing and future provision of
travel services by Hutchison Travel Group to the Group.
The Framework Travel Services Agreement expires on December
31, 2023 and is automatically renewable for a successive period of
three years thereafter, subject to compliance with the applicable
provisions of the HK Listing Rules, unless terminated earlier by not
less than one month’s prior notice or otherwise in accordance with
the terms of the Framework Travel Services Agreement.
It is expected that the maximum annual service fees payable by
the Group to Hutchison Travel Group for the financial years 2021,
2022 and 2023 will not exceed US$1.00 million, US$1.50 million and
US$2.25 million, respectively.
As Hutchison Travel is a subsidiary of CKHH, it is a connected
person of the Company by virtue of being an associate of a
substantial shareholder of the Company, the supply of travel
services by Hutchison Travel Group to the Group constitutes
continuing connected transactions of the Company.
4.
Hain Products Supply Agreement
As part of the commercial reasons for the establishment of HHOHK,
and pursuant to the terms of the joint venture agreement entered
into between The Hain Celestial Group, Inc. (“Hain Celestial”) and
Hutchison Organic Holdings Limited, a wholly-owned subsidiary
of the Company, on October 8, 2009 (the “Hain JV Agreement”),
a Hain Products Supply Agreement (the “Hain Products Supply
Agreement”) was entered into between Hain Celestial and HHOHK
on October 27, 2009 (as amended and supplemented on July
1, 2011), pursuant to which Hain Celestial appointed HHOHK to
market, distribute and sell the products within the current brands
of Hain Celestial in certain territories and agreed to supply such
products in connection with the appointment.
The supply price for each product will be an amount equal to
Hain Celestial’s standard cost plus a margin of 10%, or such
other percentage that is equal to Hain Celestial’s sales margin
for intercompany sales among its group companies plus 2%. The
standard cost will consist of the actual cost of the raw materials,
packaging materials, manufacturing expenses, amortization of
HUTCHMED (China) Limited 2021 Annual Report 53
mold and die expenses, variation and logistics. HHOHK will also
reimburse Hain Celestial for any necessary licensing fees in relation
to the third-party endorsement incurred in connection with the
supply of the products to HHOHK.
Unless terminated in accordance with the Hain Products Supply
Agreement, the Hain Products Supply Agreement became effective
on the date of signing and will continue in full force and effect so
long as the Hain JV agreement is in full force and effect. Pursuant
to the Hain Products Supply Agreement, either party may terminate
the Hain Products Supply Agreement if, among other things, (i)
the other party files a petition of any type as to its bankruptcy, be
declared bankrupt or become insolvent, or (ii) the other party is in
material breach of the Hain Products Supply Agreement and shall
have failed to cure such breach within 30 days of receipt of written
notice thereof.
It is expected that the maximum annual transaction amount to be
recorded by the Group from Hain Celestial for the financial years
2021, 2022 and 2023 will not exceed US$23.14 million, US$27.76
million and US$33.32 million, respectively.
Hutchison Hain Organic Holdings Limited (“Hutchison Hain
Organic”) is a consolidated joint venture of the Company and
therefore a subsidiary of the Company under the HK Listing Rules.
As Hain Celestial holds 50% of the interest in Hutchison Hain
Organic, Hain Celestial is a connected person of the Company
by virtue of being a substantial shareholder of a subsidiary of the
Company. Accordingly, the transactions under the Hain Products
Supply Agreement constitutes continuing connected transactions
of the Company under the HK Listing Rules.
5.
Framework Sinopharm Products Supply and Purchase Agreement
Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai)
Company Limited has been supplying/purchasing prescription
drugs to/from Sinopharm Group Co. Ltd., (“Sinopharm”) and/or
its associates. The Company entered into a framework products
supply and purchase agreement with Sinopharm (the “Framework
Sinopharm Products Supply and Purchase Agreement”) on June
15, 2021 to govern all existing and future (i) supply of products by
the Group to Sinopharm and/or its associates and (ii) purchase of
products by the Group from Sinopharm and/or its associates.
The Framework Sinopharm Products Supply and Purchase
Agreement expires on December 31, 2023 and is automatically
renewable for a successive period of three years thereafter, subject
to compliance with the applicable provisions of the HK Listing
Rules, unless terminated earlier by not less than one month’s prior
notice or otherwise in accordance with the terms of the Framework
Sinopharm Products Supply and Purchase Agreement.
54
In relation to the supplying of products by the Group, it is expected
that the maximum annual transaction amount receivable by the
Group from Sinopharm and/or its associates for the financial years
2021, 2022 and 2023 will not exceed US$134.50 million, US$236.75
million and US$335.78 million, respectively.
In relation to the purchase of products by the Group, it is expected
that the maximum annual transaction amount payable by the
Group to Sinopharm and/or its associates for the financial years
2021, 2022 and 2023 will not exceed US$4.08 million, US$4.90
million and US$5.88 million, respectively.
As Sinopharm is a substantial shareholder of a subsidiary of
the Company, it is a connected person of the Company and the
supply to and purchase from Sinopharm of products by the Group
constitutes continuing connected transactions of the Company.
6.
HBYS Brand License Royalty Agreement
Hutchison Chinese Medicine Holding Limited (“HCMHL”, a
subsidiary of the Company) entered into a brand license royalty
agreement (“HBYS Brand License Royalty Agreement”), pursuant
to which HCMHL will pay to Hutchison Whampoa Enterprises
Limited (“HWEL”, a subsidiary of CKHH) an annual fee of HK$12
million in consideration of the grant of the royalty-free right to
use the “Hutchison Whampoa” related trade marks and logos by
HWEL to Hutchison Whampoa Guangzhou Baiyunshan Chinese
Medicine Company Limited (“HBYS”) and certain of its subsidiaries,
which commenced on the completion date of sale of the entire
interest in HBYS by the Company (i.e. 28 September 2021) and
up to and including December 31, 2023. Subject to compliance
with the requirements of the Listing Rules or, alternatively, any
waivers obtained from strict compliance with such requirements,
upon expiration of the initial term or subsequent renewal term,
the agreement is automatically renewed for a successive period of
three years thereafter (or such other period permitted under the
Listing Rules).
The royalty payable by HCMHL under the HBYS Brand License
Royalty Agreement for each year ending December 31 for the
duration of the HBYS Brand License Royalty Agreement will be
HK$12 million. The aggregate royalty payable under the HBYS
Brand License Royalty Agreement (including any renewal thereof)
shall not be more than HK$120 million, even if the HBYS Brand
License Royalty Agreement is not terminated and continues to be
renewed after 10 years.
As HWEL is a subsidiary of CKHH, it is a connected person of
the Company by virtue of being an associate of a substantial
shareholder of the Company and the license granted under the
HBYS Brand License Royalty Agreement constitutes a continuing
connected transaction of the Company.
DIRECTORS’ REPORT The annual caps of the Continuing Connected Transactions in respect of the year ended December 31, 2021 and the corresponding aggregate transaction
amounts for the year are set out below:
Continuing Connected Transactions
(1) (a)
(b)
(2)
(3)
(4)
(5) (a)
(b)
(6)
Supply of products by the Group under the A.S. Watson Framework Connected
Transactions Agreement
Provision of marketing services by A.S. Watson Group under the A.S. Watson
Framework Connected Transactions Agreement
Product Labelling Services under A.S. Watson Framework Connected Transactions
Agreement
Framework Travel Services Agreement
Hain Products Supply Agreement
Supply of products under the Framework Sinopharm Products Supply and Purchase
Agreement
Purchase of products by the Group under the Framework Sinopharm Products Supply
and Purchase Agreement
HBYS Brand License Royalty Agreement
Aggregate amount
for year ended
December 31, 2021
Cap Amount
(US$ millions)
(US$ millions)
4.26
0.35
0.18
–
9.77
55.74
2.58
1.54
12.46
1.25
0.66
1.00
23.14
134.50
4.08
1.54
The internal audit of the Group has reviewed the Continuing Connected Transactions for the year ended December 31, 2021 and the relevant internal
control procedures in respect of the negotiation, review, approval, agreement management, reporting, consolidation and monitoring process of the
Continuing Connected Transactions, and is of the view that the Continuing Connected Transactions were conducted in accordance with the terms of
the relevant agreements (including the pricing policy/mechanism thereunder), and that the internal control procedures in respect of the Continuing
Connected Transactions are sound and effective.
All the Independent Non-executive Directors of the Company, having reviewed the Continuing Connected Transactions for the year ended December 31,
2021 and the findings provided by the Group’s internal audit, confirmed that such transactions had been entered into (a) in the ordinary and usual course
of business of the Group; (b) on normal commercial terms or better; and (c) according to the respective agreements governing them on terms that are fair
and reasonable and in the interests of the shareholders of the Company as a whole.
The Company has engaged its external auditor, PricewaterhouseCoopers, to report on the Continuing Connected Transactions for the year ended
December 31, 2021 in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or
Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the
Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. Based on the work performed, the external auditor of the
Company has confirmed in its letter to the Board that nothing has come to its attention which causes it to believe that:
(i)
the disclosed continuing connected transactions have not been approved by the Board;
(ii)
for transactions involving the provision of goods or services by the Group, they were not, in all material respects, in accordance with the pricing
policies of the Group;
(iii)
the transactions were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions;
(iv) with respect to the aggregate amount of each of the continuing connected transactions, the disclosed continuing connected transactions have
exceeded the annual cap as set by the Company.
Related party transactions of the Group during the year ended December 31, 2021 are described in note 24 to the financial statements. Except as
disclosed above, none of such related party transactions constitutes a non-exempted connected transaction under the HK Listing Rules.
HUTCHMED (China) Limited 2021 Annual Report 55
PERMITTED INDEMNITY PROVISIONS
The Articles of Association provide that the Directors shall be indemnified and secured harmless out of the assets and profits of the Company from and
against all actions, costs, charges, losses, damages and expenses which they shall or may incur or sustain by or by reason of any act done, concurred in or
omitted in or about the execution of their duty. Directors liability insurance is in place for the Directors of the Company and its subsidiaries in respect of
potential costs and liabilities arising from claims that may be brought against the Directors. The relevant provisions in the Articles of Association and the
Directors’ liability insurance were in force during the financial year ended December 31, 2021 and as of the date of this report.
DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT
POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES
Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures are set out in the section “Information on
Directors” on pages 47 to 48.
INTERESTS AND SHORT POSITIONS OF SHAREHOLDERS
DISCLOSEABLE UNDER THE SECURITIES AND FUTURES ORDINANCE
So far as the Directors and the chief executives of the Company are aware, as at December 31, 2021, other than the interests of the Directors and the chief
executives of the Company as disclosed in the section titled “Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures” under
“Information on Directors”, the following persons had interests or short positions in the shares or underlying shares of the Company which would fall
to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of
Hong Kong) (the “SFO”), or which were recorded in the register required to be kept by the Company under Section 336 of the SFO, or as otherwise notified
to the Company and The Stock Exchange of Hong Kong Limited (“HKEX”) under Part XV of the SFO:
Interests and short positions of substantial shareholders in the shares and underlying shares of the Company
Long positions and short positions in the shares of the Company
Names
CKHH(1)
Capacity
Number of Shares
Held/Interested
Approximate% of
Shareholding
Total
Interest of controlled corporations
332,574,650
332,574,650
CK Hutchison Global Investments Limited (“CKHGIL”)(1)
Interest of controlled corporations
332,574,650
332,574,650
Hutchison Whampoa (China) Limited (“HWCL”)(1)
Interest of controlled corporations
332,526,710
332,526,710
Hutchison Healthcare Holdings Limited (“HHHL”)(1)
Beneficial owner
332,478,770
332,478,770
The Capital Group Companies, Inc.(2)
Interest of controlled corporations
77,676,002
77,676,002
38.46%
38.46%
38.46%
38.46%
8.98%
JP Morgan Chase & Co.(3)
Interest of controlled corporations
Investment Manager
Person having a security interest in shares
Trustee
Approved lending agent
11,700,542 )
9,239,182(S) )
)
13,134,405 )
)
56,970 )
)
7,865 )
)
35,167,154 )
)
)
)
60,066,936
9,239,182 (S)
35,167,154
(Lending pool)
6.94%
1.06%
4.06%
56
DIRECTORS’ REPORT
Notes:
(1)
CKHH wholly owns CKHGIL, which holds more than one-third of the issued share capital of HWCL, which wholly owns HHHL. Accordingly, for the purpose of Part XV of
the SFO, HWCL is deemed to be interested in the shares HHHL holds and is deemed to be interested in the Company; CKHGIL is deemed to be interested in the shares
HWCL holds and is deemed to be interested in the Company; and CKHH is deemed to be interested in the shares CKHGIL holds and is deemed to be interested in the
Company.
(i)332,478,770 shares are held by HHHL; (ii) 2,397 American depositary shares (“ADSs”) are held by Hutchison Capital Holdings Limited (“HCHL”); (iii) 2,397 ADSs are
held by Genius Wisdom Limited (“GWL”); (iv) 7,191 ADSs will be transferred to HCHL upon vesting of the non-performance based Long Term Incentive Plan (“LTIP”) of
Mr To Chi Keung, Simon, subject to vesting conditions; and (v) 7,191 ADSs will be transferred to GWL upon vesting of the non-performance based LTIP of Ms Edith Shih,
subject to vesting conditions.
HHHL, HCHL and GWL are indirect wholly owned subsidiaries of CKHH. For the purposes of the SFO, CKHH is deemed to be interested in a total of 332,574,650 shares
held by HHHL, HCHL and GWL for the purpose of Part XV of the SFO.
(2)
(i) 49,441,485 shares are held by Capital Research and Management Company; (ii) 3,145,615 shares are held by Capital International Sarl; (iii) 23,785,782 shares are held
by Capital International, Inc.; (iv) 13,365 shares are held by Capital Bank and Trust Company; and (v) 1,289,755 shares are held by Capital Group Private Client Services,
Inc.
Capital Research and Management Company, Capital International Sarl, Capital International, Inc., Capital Bank and Trust Company and Capital Group Private Client
Services, Inc. are wholly owned by The Capital Group Companies, Inc. For the purposes of the SFO, The Capital Group Companies, Inc. is deemed to be interested in
an aggregated 77,676,002 shares. Among them, 67,130,085 shares are physically settled listed derivatives.
(3)
An aggregated 60,066,936 shares (long position), 9,239,182 shares (short position) and 35,167,154 shares (lending pool) of the Company are held by JPMorgan Chase &
Co. indirectly through its certain subsidiaries. Among them, 915,547 shares (long position) and 335,734 shares (short position) are cash settled unlisted derivatives.
Save as disclosed above, as at December 31, 2021, no other person (other than the Directors and chief executive of the Company) had any interest or
short position in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the
SFO, or as otherwise notified to the Company and the HKEX for the purpose of Part XV of the SFO.
EQUITY-LINKED AGREEMENTS
Details of the equity-linked agreements entered into during the year or subsisting at the end of the year are set out below:-
On July 2, 2020, the Company and General Atlantic entered into an ordinary shares subscription warrant which upon exercise entitles General Atlantic
to subscribe for 16,666,670 shares at an exercise price of US$6.00 per share. The warrant was exercisable during the period from July 2, 2020 to January 3,
2022. The warrant expired on January 4, 2022.
On April 14, 2021, the Company issued 16,393,445 ordinary shares to Pachytene Limited (an investment vehicle wholly-owned by Baring Private Equity
Asia Fund VII) for an aggregate price of US$100 million at the price equivalent to US$30.50 per ADS pursuant to a securities subscription agreement.
On June 30, 2021, the Company issued 104,000,000 ordinary shares at the price of HK$40.10 per ordinary share pursuant to the Global Offering and listing
of the ordinary shares of the Company on HKEX. Following the exercise of an over-allotment option granted by the Company in the context of the Global
Offering, the Company issued an additional 15,600,000 ordinary shares at the same price per ordinary share on July 15, 2021. Details of the Global Offering
and the over-allotment option are set out in the prospectus issued by the Company dated June 18, 2021.
HUTCHMED (China) Limited 2021 Annual Report 57
SHARE OPTION SCHEMES AND
DIRECTORS’ RIGHTS TO ACQUIRE
SHARES
(i)
Share option scheme adopted in 2015 by the
Company
To replace the share option scheme adopted on June 4, 2005 which
expired on June 3, 2016 and since this date no further options have
been granted under the 2005 Share Option Scheme (see further
details below), the Company conditionally adopted a share option
scheme on annual general meeting held on April 24, 2015 which
was amended on April 27, 2020 (the “2015 Share Option Scheme”).
Pursuant to the 2015 Share Option Scheme, the Board of Directors
of the Company may, at its discretion, offer any employees and
directors (including Executive and Non-executive Directors but
excluding Independent Non-executive Directors) of the Company,
holding companies of the Company and any of their subsidiaries
or affiliates, and subsidiaries or affiliates of the Company share
options to subscribe for shares of the Company. Among the Board,
only Executive Directors of the Company, Mr Christian Lawrence
Hogg, Mr Cheng Chig Fung, Johnny and Dr Weiguo Su, have been
granted share options under the 2015 Share Option Scheme.
A summary of the 2015 Share Option Scheme is as follows:
(1)
(2)
Purpose of the Scheme – the purpose of the 2015
Share Option Scheme is to provide the Company with a
flexible means of either retaining, incentivizing, rewarding,
remunerating, compensating and/or providing benefits to
2015 Eligible Persons (as defined below).
Scheme Administration – the Remuneration Committee of
the Company consists of Mr Paul Rutherford Carter,
Mr Graeme Allan Jack and Mr To Chi Keung, Simon, with Mr Paul
Rutherford Carter serving as chairman of the committee. The
Remuneration Committee is responsible for considering all
material elements of remuneration policy and recommends
to the Board the remuneration and incentives of the
Directors and key employees with reference to independent
remuneration research and professional advice. The
Remuneration Committee meets formally at least once each
year and otherwise as required and makes recommendations
to the Board of Directors on the framework for executive
remuneration and on proposals for the granting of share
options and other equity incentives. The Board is responsible
for implementing these recommendations and agreeing the
remuneration packages of individual Executive Directors.
No Director is permitted to participate in discussions or
decisions concerning his/her own remuneration. Directors
are also abstained from voting in respect of his/her own
58
(3)
(4)
(5)
proposed share awards/remuneration, such that no Director
is involved in determining his or her own share awards/
remuneration.
Eligible Person – share options may be granted to a “2015
Eligible Person”, being any person who is (or will be on and
following the date of offer of the relevant option) a
non-executive director (excluding any independent
non-executive directors) or an employee or a director
holding salaried office or employment under a contract
with the Company, its listed parent company and any of
its subsidiaries or affiliates, and any holding company,
subsidiaries or affiliates of the Company or other companies
which the Board determines will be subject to the 2015 Share
Option Scheme, who is notified by the Board that he or she
is an eligible person.
No Payment for the Option other than Exercise Price –
share option holders are not required to pay for the grant of
any share option other than the exercise price for exercising
the options.
No Holding Period but Vesting Schedule Applies – unless
otherwise determined by the Board and stated in the offer of
the grant of share options to a 2015 Eligible Person, there is
no minimum period required under the 2015 Share Option
Scheme for the holding of a share option but there are
vesting periods which apply to the share option before which
it cannot be exercised.
(6)
Exercise Price – subject to any adjustment according to the
rules of the 2015 Share Option Scheme, the exercise price
shall be, in respect of any share option, the 2015 Market
Value (as defined below) of the shares as at the offer date,
where “2015 Market Value” on any particular day means:
(a)
where the shares of the same class are admitted to
trading on any stock exchange, the higher of:
(i)
(ii)
the average of the closing prices of the shares
on the five dealing days immediately preceding
the offer date;
the closing price of the shares as stated on a
recognized stock exchange’s daily quotations
sheet of such shares on the offer date; and
(iii)
the nominal value of the shares; or
DIRECTORS’ REPORT (b) where the shares of the same class are not admitted to
(c)
trading on any recognized stock exchange, the value
of a share is determined in such manner as the Board
considers reasonable according to objective criteria.
(7)
Scheme Limit – the maximum number of shares which may
be allotted and issued pursuant to the 2015 Share Option
Scheme is subject to the following:
(a)
(b)
the total number of shares which may be issued upon
the exercise of all options to be granted under the
2015 Share Option Scheme must not in aggregate
exceed 4% of the shares in issue as at May 13, 2016,
being the date on which the 2015 Share Option
Scheme was approved by the shareholders of the
Company in a general meeting (the “Scheme Limit”).
On April 27, 2020, rules of the 2015 Share Option
Scheme was amended to increase the Scheme Limit
to 5% of the shares in issue as at the adoption date.
The Scheme Limit was also refreshed to 34,528,738
shares, representing about 5% of the shares in issue as
at April 27, 2020. Share options lapsed in accordance
with the terms of the 2015 Share Option Scheme will
not be counted for the purpose of calculating the
Scheme Limit;
the Board may refresh the Scheme Limit by reference
to the issued share capital of the Company then
prevailing with the approval of the shareholders of
its listed parent company, if required, under the HK
Listing Rules in a general meeting, provided that the
total number of the Company Shares which may
be issued upon the exercise of share options to be
granted under the 2015 Share Option Scheme and
any options under any other share option schemes
of the Company under the limit as refreshed shall not
exceed 10% of the shares in issue at the date on which
shareholders of the listed parent company approve
the refreshed limit (where applicable). Share options
previously granted under the 2015 Share Option
Scheme and any other share option schemes of the
Company (including those outstanding, cancelled,
lapsed in accordance with the terms of the relevant
scheme, or exercised options) will not be counted for
the purpose of calculating the limit as refreshed. As at
December 31, 2021, the total number of the Company
Shares available for issue under the 2015 Share
Option Scheme (including the share options granted
but yet to be exercised) was 50,059,198, representing
approximately 5.79% of the total number of shares in
issue;
(d)
share options may be granted to any 2015 Eligible
Person(s) specifically identified by the Board which
would cause the Scheme Limit (including, for the
avoidance of doubt, any such limit as refreshed under
paragraph (7)(b) above) to be exceeded, but only with
the approval of the shareholders of the Company in a
general meeting (and by the shareholders of the listed
parent company, if required under the HK Listing
Rules), and subject always to paragraphs (7)(d) and
(7)(e) below and restrictions on grant to key individuals
under the 2015 Share Option Scheme;
the Board shall not grant any share options (the
“Relevant Company Options”) to any 2015 Eligible
Person which, if exercised, would result in such person
becoming entitled to subscribe for such number of
shares as, when aggregated with the total number
of shares already issued or to be issued to him/her
under all share options (including both exercised and
outstanding share options) granted to him/her in the
12-month period up to, and including, the offer date
of the Relevant Company Options, exceeds 1% of the
shares in issue at such date; but notwithstanding the
aforesaid, the Board may grant the Relevant Company
Options to any 2015 Eligible Person(s) which would
cause the aforesaid limit to be exceeded, but only with
the approval of the shareholders of the listed parent
company in a general meeting (with such 2015 Eligible
Person and his/her associates abstaining from voting)
and subject to paragraph (7)(e) below; and
(e)
the total number of shares which may be issued upon
exercise of all outstanding share options granted
and not yet exercised under the 2015 Share Option
Scheme, and under any other share option scheme of
the Company must not exceed 10% of the shares in
issue from time to time.
Subject to and in accordance with the rules of the 2015 Share
Option Scheme, a share option may be exercised during a period
which is notified at the offer date of the share option, such period
will not exceed the period of 10 years from such offer date.
HUTCHMED (China) Limited 2021 Annual Report 59
Particulars of share options outstanding under the 2015 Share Option Scheme at the beginning and at the end of the year 2021 and share options
granted, exercised, cancelled or lapsed under the 2015 Share Option Scheme during 2021 were as follows:
Number of
share options
held as at
January 1,
2021
Granted
during the
year ended
December 31,
2021
Exercised
during the
year ended
December 31,
2021
Lapsed/
cancelled
during the
year ended
December 31,
2021
–
–
–
–
–
Name or
category of
participants
Director
Christian
Lawrence
HOGG (1)
CHENG Chig
Fung, Johnny
Date of grant
of share
options
Apr 28, 2020 (3)
Dec, 14 2020 (3)
Mar 26, 2021 (3)
Apr 28, 2020 (3)
Mar 26, 2021 (3)
1,291,700
(=258,340 ADS)
39,610
(=7,922 ADS)
–
–
–
868,900
(=173,780 ADS)
401,900
(=80,380 ADS)
–
–
240,500
(=48,100 ADS)
Weiguo SU
Jun 15, 2016 (2)
3,000,000
Mar 27, 2017 (3)
1,000,000
Mar 19, 2018 (3)
1,000,000
789,700
(=157,940 ADS)
18,960
(=3,792 ADS)
Apr 28, 2020 (3)
Dec 14, 2020 (3)
Mar 26, 2021 (3)
Dec 14, 2021 (3)
–
–
282,400
(=56,480 ADS)
24,930
(=4,986 ADS)
Employees in
aggregate
Jun 15, 2016 (2)
2,936,860
Apr 20, 2018 (3)
4,535,220
Jun 6, 2018 (3)
162,450
Aug 6, 2018 (3)
680,000
Oct 19, 2018 (3)
255,000
May 21, 2019 (3)
100,000
Oct 9, 2019 (3)
1,290,000
Dec 11, 2019 (3)
400,000
Apr 20, 2020 (3)
775,000
Apr 28, 2020 (3)
Aug 11, 2020 (3)
Dec 14, 2020 (3)
Mar 26, 2021 (3)
7,146,400
(=1,429,280 ADS)
745,000
(=149,000 ADS)
1,477,010
(=295,402 ADS)
－
Sep 1, 2021 (3)
Dec 14, 2021 (3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,888,100
(=1,377,620 ADS)
1,086,000
(=217,200 ADS)
784,010
(=156,802 ADS)
Number of
share options
held as at
December 31,
2021
1,291,700
(=258,340 ADS)
39,610
(=7,922 ADS)
868,900
(=173,780 ADS)
401,900
(=80,380 ADS)
240,500
(=48,100 ADS)
3,000,000
1,000,000
1,000,000
789,700
(=157,940 ADS)
18,960
(=3,792 ADS)
282,400
(=56,480 ADS)
24,930
(=4,986 ADS)
2,936,860
4,343,500
122,450
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(50,000)
630,000
–
–
–
–
255,000
100,000
1,240,000
400,000
–
–
–
–
–
–
–
–
–
–
–
–
–
(191,720)
(40,000)
–
–
–
(50,000)
–
(50,000)
(150,000)
575,000
(72,350)
(=14,470 ADS)
(203,550)
(=40,710 ADS)
6,870,500
(=1,374,100 ADS)
–
–
–
–
–
(280,000)
(=56,000 ADS)
(150,000)
(=30,000 ADS)
465,000
(=93,000 ADS)
1,327,010
(=265,402 ADS)
(496,500)
(=99,300 ADS)
6,391,600
(=1,278,320 ADS)
–
–
1,086,000
(=217,200 ADS)
784,010
(=156,802 ADS)
Exercise
period of
share options
Exercise
price of
share options
Price of share
prior to
the grant
date of
share options
prior to the
exercise date
of share
options
Apr 28, 2020
to Apr 27, 2030
Dec 14, 2020
to Dec 13, 2030
Mar 26, 2021
to Mar 25, 2031
Apr 28, 2020
to Apr 27, 2030
Mar 26, 2021
to Mar 25, 2031
June 15, 2016
to Dec 19, 2023
Mar 27, 2017
to Mar 26, 2027
Mar 19, 2018
to Mar 18, 2028
Apr 28, 2020
to Apr 27, 2030
Dec 14, 2020
to Dec 13, 2030
Mar 26, 2021
to Mar 25, 2031
Dec 14, 2021
to Dec 13, 2031
Jun 15, 2016
to Dec 19,.2023
Apr 20, 2018
to Apr 19, 2028
Jun 6, 2018
to June 5, 2028
Aug 6, 2018
to Aug 5, 2028
Oct 19, 2018
to Oct 18, 2028
May 21, 2019
to May 20, 2029
Oct 9, 2019
to Oct 8, 2029
Dec 11, 2019
to Dec 10, 2029
Apr 20, 2020
to Apr 19, 2030
Apr 28, 2020
to Apr 27, 2030
Aug 11, 2020
to Aug 10, 2030
Dec 14, 2020
to Dec 13, 2030
Mar 26, 2021
to Mar 25, 2031
Sep 1, 2021
to Aug 31, 2031
Dec 14, 2021
to Dec 13,.2031
US$22.090
per ADS
US$29.000
per ADS
US$27.940
per ADS
US$22.090
per ADS
US$27.940
per ADS
£1.970
per share
£3.105
per share
£4.974
per share
US$22.090
per ADS
US$29.000
per ADS
US$27.940
per ADS
US$35.210
per ADS
£1.970
per share
£4.645
per share
£4.166
per share
£4.860
per share
£4.610
per share
£4.220
per share
£2.978
per share
£3.592
per share
£3.340
per share
US$22.090
per ADS
US$32.820
per ADS
US$29.000
per ADS
US$27.940
per ADS
US$39.740
per ADS
US$35.210
per ADS
US$21.920
per ADS
US$28.160
per ADS
US$27.640
per ADS
US$21.920
per ADS
US$27.640
per ADS
(4)
£1.975
per share
(4)
£3.000
per share
(4)
£4.890
per share
US$21.920
per ADS
US$28.160
per ADS
US$27.640
per ADS
US$35.064
per ADS
(4)
£1.975
per share
(4)
£4.590
per share
(4)
£4.110
per share
(4)
£5.000
per share
(4)
£4.600
per share
(4)
£4.175
per share
£2.950
per share
£3.600
per share
£3.060
per share
US$21.920
per ADS
US$32.320
per ADS
US$28.160
per ADS
US$27.640
per ADS
US$37.564
per ADS
US$35.064
per ADS
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
£6.100 (5)
per share
£5.890 (5)
per share
N/A
N/A
N/A
£4.915 (5)
per share
N/A
£5.660 (5)
per share
US$35.283 (5)
per ADS
N/A
N/A
N/A
N/A
N/A
Total:
28,044,810
10,174,840
(404,070)
(1,330,050)
36,485,530
60
DIRECTORS’ REPORT
Effective from May 30, 2019, each ordinary share of US$1.00 each
of the Company was subdivided into 10 new ordinary shares of
US$0.10 each (the “Share Division”). Accordingly, adjustments have
been made to the number of share options by multiplying the
number by 10 and to the share price and exercise price by dividing
the price by 10 pursuant to the terms of the 2015 Share Option
Scheme.
The share options granted on or after April 28, 2020 were in the
form of ADS and the relevant exercise prices were stated in US
dollars per ADS. For disclosure purposes, these share options are
presented in the form of ordinary shares. Each ADS represents five
ordinary shares.
Notes:
(1)
(2)
(3)
(4)
(5)
Mr Christian Lawrence Hogg retired as Executive Director and Chief
Executive Officer on March 4, 2022.
The share options granted are exercisable subject to, amongst other
relevant vesting criteria, the vesting schedule of approximately 50%
on the day after the acceptance of the offer, approximately 25% on
December 20, 2016 and approximately 25% on December 20, 2017.
The share options granted are exercisable subject to, amongst other
relevant vesting criteria, the vesting schedule of 25% on each of the
first, second, third and fourth anniversaries of the date of grant of
share options.
The stated prices were the adjusted prices as a result of the Share
Subdivision. The prices prior to the adjustment were closing prices
of the shares quoted on AIM on the trading day immediately prior to
the respective dates of grant of share options.
The stated price was the weighted average closing price of the
ordinary shares/ADSs immediately before the date on which the
share options were exercised.
(ii) Share option scheme adopted in 2005 by the
Company – expired on June 3, 2016
(3)
The Company conditionally adopted a share option scheme on
June 4, 2005 which was amended on March 21, 2007 (the “2005
Share Option Scheme”). The 2005 Share Option Scheme had a term
of 10 years. It expired on June 3, 2016 and no further share option
can be granted. Pursuant to the 2005 Share Option Scheme, the
Board of Directors of the Company may, at its discretion, offer any
employees and directors (including Executive and Non-executive
Directors but excluding Independent Non-executive Directors)
of the Company, holding companies of the Company and any of
their subsidiaries or affiliates, and subsidiaries or affiliates of the
Company share options to subscribe for shares of the Company.
Among the Board, only Executive Directors of the Company,
Mr Christian Lawrence Hogg, Mr Cheng Chig Fung, Johnny and
Dr Weiguo Su, received share options under the 2005 Share Option
Scheme.
A summary of the 2005 Share Option Scheme is as follows:
(1)
(2)
Purpose of the Scheme – the purpose of the 2005
Share Option Scheme is to provide the Company with a
flexible means of either retaining, incentivizing, rewarding,
remunerating, compensating and/or providing benefits to
2005 Eligible Persons (as defined below).
Scheme Administration – the Remuneration Committee of
the Company consists of Mr Paul Rutherford Carter,
Mr Graeme Allan Jack and Simon Mr To Chi Keung, Simon,
with Mr Paul Rutherford Carter serving as chairman of the
committee. The Remuneration Committee is responsible
for considering all material elements of remuneration
policy and recommends to the Board the remuneration
and incentives of the Directors and key employees with
reference to independent remuneration research and
professional advice. The Remuneration Committee meets
formally at least once each year and otherwise as required
and makes recommendations to the Board of Directors
on the framework for executive remuneration and on
proposals for the granting of share options and other equity
incentives. The Board is responsible for implementing these
recommendations and agreeing the remuneration packages
of individual Executive Directors. No Director is permitted to
participate in discussions or decisions concerning his/her
own remuneration. Directors are also abstained from voting
in respect of his/her own proposed share awards, such that
no Director is involved in determining his or her own share
awards.
Eligible Person – share options may be granted to a “2005
Eligible Person”, being any person who is (or will be on and
following the date of offer of the relevant option) a
non-executive director (other than an independent
non-executive director) or an employee or a director
holding salaried office or employment under a contract
with the Company, its listed parent company and any
of its subsidiaries or affiliate, and any holding company,
subsidiaries or affiliates of the Company or other companies
which the Board determines will be subject to the 2005 Share
Option Scheme, who is notified by the Board that he or she
is an eligible person. Actual participation is at the discretion
of the Board.
(4)
No Payment for the Option other than Exercise Price –
share option holders are not required to pay for the grant of
any share option other than the exercise price for exercising
the options.
HUTCHMED (China) Limited 2021 Annual Report 61
(5)
No Holding Period but Vesting Schedule Applies – unless
otherwise determined by the Board and stated in the offer of
the grant of share options to a 2005 Eligible Person, there is
no minimum period required under the 2005 Share Option
Scheme for the holding of a share option before it can be
exercised but there are vesting period which apply to the
share option before which it cannot be exercised.
(6)
Exercise Price – subject to any adjustment according to the
rules of the 2005 Share Option Scheme, the exercise price
shall be:
(a)
(b)
in the case of the one-time initial grants of share
options by the Company under the 2005 Share Option
Scheme to founders and non-founders prior to the
Listing (as defined below), the price determined by
the Board and notified to the relevant share option
holder; and
in respect of any other share option, the 2005 Market
Value (as defined below) of the shares as at the offer
date, where “2005 Market Value” on any particular day
on or after the Listing means the higher of:
(i)
(ii)
the average of the closing prices of the shares
on the five dealing days immediately preceding
the offer date;
the closing price of the shares as stated on a
recognised stock exchange’s daily quotations
sheet of such shares on the offer date; and
(iii)
the nominal value of the shares.
(7)
Scheme Limit – the maximum number of the shares which
may be allotted and issued pursuant to the 2005 Share
Option Scheme is subject to the following:
(a)
the total number of the shares which may be issued
upon the exercise of all share options to be granted
under all share option schemes of the Company must
not in aggregate exceed 5% of the shares in issue on
the date on which the shares are listed for trading on
a recognised stock exchange (including the AIM) (the
“Listing”);
(b)
the Board may refresh and recalculate the limit in
paragraph (7)(a) above by reference to the issued
share capital of the Company then prevailing with
the approval of the shareholders of its listed parent
62
company, if required, under the HK Listing Rules in a
general meeting, provided that the total number of the
shares issued and issuable pursuant to the exercise
of share options under all share option schemes
of the Company may not exceed 10% of the issued
ordinary share capital on the date of the approval of
the refreshed limit. Share options previously granted
under the 2005 Share Option Scheme and any other
employee share schemes of the Company (including
those outstanding, cancelled, lapsed or exercised)
will not be counted for the purpose of calculating
the limit as refreshed. As at December 31, 2021, the
total number of shares available for issue under
the 2005 Share Option Scheme (including the share
options granted but yet to be exercised) was 705,060,
representing approximately 0.08% of the total number
of the shares in issue;
share options may be granted to any 2005 Eligible
Person(s) specifically identified by the Board in excess
of the limit, including the refreshed limit, under
paragraphs (7)(a) and (7)(b) above, with the approval
of the shareholders of the Company in a general
meeting and by the shareholders of the listed parent
company, if required under the HK Listing Rules, and
subject to paragraphs (7)(d) and (7)(e) below and
restrictions on grant to key individuals under the 2005
Share Option Scheme;
no 2005 Eligible Person may be granted a share
option if, as a result, the total number of the Company
Shares over which that 2005 Eligible Person holds
share options granted in the previous 12 months,
when added to the number of Shares, the subject of
the proposed grant, would exceed 1% of the issued
ordinary share capital of the Company on that date;
but notwithstanding the aforesaid, share options may
be granted to any 2005 Eligible Person(s) which would
cause the aforesaid limit to be exceeded, but only with
the approval of the shareholders of the listed parent
company in a general meeting (with such 2005 Eligible
Person and his/her associates abstaining from voting)
and subject to paragraph (7)(e) below; and
(c)
(d)
(e)
the total number of shares which may be issued upon
the exercise of all outstanding share options granted
and yet to be exercised under the 2005 Share Option
Scheme and under any other share option scheme of
the Company must not exceed 10% of the shares in
issue from time to time.
DIRECTORS’ REPORT Subject to and in accordance with the rules of the 2005 Share Option Scheme, a share option may be exercised during a period which is notified at
the offer date of the share option, such period will not exceed the period of 10 years from such offer date.
Particulars of share options outstanding under the 2005 Share Option Scheme at the beginning and at the end of the year 2021 and share options
granted, exercised, cancelled or lapsed under the 2005 Share Option Scheme during 2021 were as follows:
Number of
Lapsed/
Number of
share
Granted
Exercised
cancelled
options
during the
during the
during the
share
options
Category of
Date of grant of
January 1,
December 31,
December 31,
December 31,
December 31,
period of
price of share
grant date of
held as at
year ended
year ended
year ended
held as at
Exercise
Exercise
prior to the
participants
share options
Employees in
Jun 24, 2011 (1)
2021
400,000
aggregate
Dec 20, 2013 (1)
716,180
Total:
1,116,180
2021
2021
2021
2021
share options
options
share options
–
–
–
(400,000)
(11,120)
(411,120)
–
–
–
–
Jun 24, 2011
£0.4405
£0.4490
(2)
to Jun 23, 2021
per share
per share
705,060
Dec 20, 2013
£0.6100
£0.6130
(2)
to Dec 19, 2023
per share
per share
705,060
The Share Subdivision is also applicable to the 2005 Share Option Scheme.
Price of Share
prior to the
exercise
date of
share
options (3)
£4.2300
per share
£4.5000
per share
Notes:
(1)
(2)
The share options granted are exercisable subject to, amongst other relevant vesting criteria, the vesting schedule of 25% on each of the first, second, third and
fourth anniversaries of the date of grant of share options.
The stated price was the adjusted prices as a result of the Share Subdivision. The prices prior to the adjustment were closing prices of the shares quoted on
AIM on the trading day immediately prior to the respective dates of grant of share options.
(3)
The stated price was the weighted average closing price of the ordinary shares immediately before the date on which the share options were exercised.
As at December 31, 2021, the Company had 705,060 share options and 36,485,530 share options outstanding under the 2005 Share Option Scheme
and the 2015 Share Option Scheme, respectively.
The fair values of share options in the form of ADS granted during the period, determined using the Polynomial Model were as follows:
Value of each share option in the form of ADS
US$11.18
Significant inputs into the valuation model:
Exercise price
Share price at effective grant date
Expected volatility
Risk-free interest rate
Contractual life of share options
Expected dividend yield
US$29.78
US$29.53
41.14%
1.62%
10 years
0%
The volatility of the underlying stock during the life of the share options was estimated with reference to the historical volatility prior to the
issuance of share options. Changes in such subjective input assumptions could affect the fair value estimate.
HUTCHMED (China) Limited 2021 Annual Report 63
LONG TERM INCENTIVE PLAN
Conditional Right to receive Shares Bought on the Market by the LTIP Scheme Trustee – the Company grants awards under the LTIP which was
adopted on April 24, 2015, to participating directors or employees giving them a conditional right to receive ordinary shares of the Company or the
equivalent ADS (collectively the “Awarded Shares”) to be purchased by an independent third party trustee (the “Trustee”) in the market up to a cash
amount. Such awards are not satisfied out of new ordinary shares, as is the case with the share options.
Vesting of LTIP Awards – vesting will depend upon continued employment of the award holder with the Group and will otherwise be at the discretion
of the Board of Directors of the Company. Such awards can be either performance based awards or non-performance based awards. In relation to any
awards to the Independent Non-executive Directors, these are strictly non-performance based awards and typically vest 25% annually in equal amounts
over a four-year period.
Performance Based LTIP Awards – in relation to the salaried executive directors and employees, the Company grants performance based awards
which are subject to change based on annual performance targets which vary by award, and may include targets for shareholder returns, financings, free
cash flows, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. Upon determination of the annual performance
targets, the Company will pay a determined monetary amount, up to the maximum cash amount based on the actual achievement of the performance
target specified in the award, to the Trustee to purchase the Awarded Shares. These type of annual performance based awards typically vest 100% three
years after the date of grant.
Administration of the LTIP Scheme – the Remuneration Committee meets and make recommendations to the Board of Directors on proposals for
the granting of LTIP Awards. The Board of Directors is responsible for implementing these recommendations. No Director is permitted to participate in
discussions concerning his/her own LTIP Awards. Directors are also abstained from voting in respect of his/her own proposed LTIP Awards, such that no
Director is involved in determining his or her own share awards. Any shares bought to satisfy any LTIP Award are purchased by the Trustee of the LTIP
Scheme, Computershare Trustees (Jersey) Limited and such shares are held by the Trustee on behalf of the awardee until the awards have vested.
Summary of the Different types of LTIP Awards
LTIP Awardee – Eligibility
Based/Performance Based
held by Trustee until vested
Vesting Period/Schedule
Salaried Executive Directors (including Chief
Annual Performance Based Award,
Cash Amount determined based
100% vests around three
Executive Officer, Chief Financial Officer & Chief
tied to Annual Performance Targets
on achievement of Annual
years after the date of grant
LTIP Award – Non-performance
Shares Bought by Trustee and
Scientific Officer) & Employees
Performance Targets, used by
Trustee to buy shares in the
market
The Chairman, Non-executive Directors and
Non-performance Based Award
Cash Amount Award used by
25% of the Award vesting
Independent Non-executive Directors & Employees
Trustee to buy shares in the
annually over a four-year
market
period
64
DIRECTORS’ REPORT
(i) Grant of LTIP
On March 26, 2021, the Company granted performance based awards under the LTIP to three Executive Directors and 585 employees, giving a
conditional right to cash amounts which are used by the Trustee to purchase Awarded Shares in the Company, on market up to a maximum total
cash amount of US$57,311,165 depending upon the achievement of the performance targets in 2021. Details of the grants are as follows:
Name or category of participants of performance based LTIP awards
Executive Directors
Christian Lawrence HOGG (1)
CHENG Chig Fung, Johnny
Weiguo SU
Senior managers and executives in aggregate
Total:
Note:
Maximum amount per annum
for the LTIP period stipulated
in the LTIP awards
US$1,616,538
US$657,211
US$1,622,123
US$53,415,293
US$57,311,165
(1)
Mr Christian Lawrence Hogg retired as Executive Director and Chief Executive Officer of the Company on March 4, 2022.
Vesting will occur two business days after the date of announcement of the annual results for the financial year 2023.
On September 1, 2021, the Company granted:
(1)
(2)
non-performance based LTIP awards of US$503,077 to three employees. It is a one-off cash amount to be allocated to the grantees and
used by the Trustee to purchase Awarded Shares which will be subject to a vesting schedule of 25% per year over four years; and
performance based LTIP awards to 119 employees, giving a conditional right to cash amounts which are used by the Trustee to purchase
Awarded Shares in the Company, on market up to a maximum total cash amount of US$7,279,340 depending on the achievement of the
performance targets in 2021. Vesting will occur two business days after the date of announcement of the annual results for the financial year
2023.
HUTCHMED (China) Limited 2021 Annual Report 65
On October 20, 2021, the Company granted non-performance based LTIP awards of US$250,000 each to seven Directors. It is a one-off cash
amount to be allocated to the grantees and used by the Trustee to purchase Awarded Shares which will be subject to a vesting schedule of 25%
per year over four years. Details of the grants are as follows:
Name or category of participants of the non-performance based LTIP awards
Executive Director
TO Chi Keung, Simon
Non-executive Directors
Dan ELDAR
Edith SHIH
Independent Non-executive Directors
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Amount for the LTIP
period stipulated in the
LTIP awards
US$250,000 (1)
US$250,000
US$250,000 (2)
US$250,000
US$250,000
US$250,000
US$250,000
US$1,750,000
Total:
Notes:
(1)
(2)
Similar to the arrangement for his Director’s fees, this cash amount would be used by the Trustee to buy shares which will be held by the Trustee until the LTIP
concerned is vested, with 25% to be vested in each of the next four years, whereupon the shares will be received by or for the account of his employer, HWCL.
Similar to the arrangement for her Director’s fees, this cash amount would be used by the Trustee to buy shares which will be held by the Trustee until the
LTIP concerned is vested, with 25% to be vested in each of the next four years, whereupon the shares will be received by or for the account of her employer,
Hutchison International Limited (“HIL”).
On December 14, 2021, the Company granted non-performance based LTIP award of US$200,000 to two employees. It is a one-off cash amount to
be allocated to the grantees and used by the Trustee to purchase Awarded Shares, out of which US$100,000 awards will be vested one year after
grant and US$100,000 awards will be vested 25% per year over four years.
Any Awarded Shares purchased on behalf of a LTIP grantee are to be held by the Trustee until they are vested. Vesting will also depend upon the
continued employment of the award holder and will otherwise be at the discretion of the Board.
66
DIRECTORS’ REPORT
(ii) Vesting of LTIP
On March 9, 2021, performance based LTIP awards granted under the LTIP on March 15, 2017 in respect of the annual performance targets for the
financial year 2018 were vested. Details of the vesting are as follows:
Name or category of participants of the performance based LTIP awards
Number of ordinary shares
Number of ADS
Executive Director
Weiguo SU
Senior managers and executives in aggregate
Total:
–
143,510
143,510
2,656
3,339
5,995
On April 20, 2021, awards granted under the LTIP on April 20, 2020, which do not stipulate performance targets, were vested. Details of the vesting
are as follows:
Name or category of participants of the non-performance based LTIP awards
Number of ordinary shares
Number of ADS
Executive Director
TO Chi Keung, Simon
Non-executive Directors
Dan ELDAR
Edith SHIH
Independent Non-executive Directors
Paul Rutherford CARTER
Karen Jean FERRANTE
Graeme Allan JACK
MOK Shu Kam, Tony
Employees in aggregate
Total:
Notes:
(1)
(2)
–
–
–
–
–
–
–
16,015
16,015
2,397 (1)
2,397
2,397 (2)
2,037 (3)
2,397
2,397
2,397
–
16,419
Similar to the arrangement for his Director’s fees, this cash amount would be used by the Trustee to buy shares which will be held by the Trustee until the LTIP
concerned is vested, with 25% to be vested in each of the next four years, whereupon the shares will be received by or for the account of his employer, HWCL.
Similar to the arrangement for her Director’s fees, this cash amount would be used by the Trustee to buy shares which will be held by the Trustee until the LTIP
concerned is vested, with 25% to be vested in each of the next four years, whereupon the shares will be received by or for the account of her employer, HIL.
(3)
Mr Paul Rutherford Carter opted receiving 15% of the LTIP award in cash and therefore, on April 20, 2021, 2,037 ADSs together with US$7,500 cash were vested.
On October 10, 2021, 1,390 ADSs awards granted to an employee under the LTIP on October 10, 2019, which do not stipulate performance targets,
were vested.
MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of the businesses of the Company were entered into or
existed during the year.
HUTCHMED (China) Limited 2021 Annual Report 67
PURCHASE, SALE OR
REDEMPTION OF LISTED
SECURITIES
For the year ended December 31, 2021:
(a)
(b)
On April 14, 2021, the Company issued 16,393,445 ordinary shares,
equivalent to 3,278,689 ADSs, to Pachytene Limited (an investment
vehicle wholly-owned by Baring Private Equity Asia Fund VII) for
an aggregate price of US$100 million at the price equivalent to
US$30.50 per ADS pursuant to a securities subscription agreement.
On June 30, 2021, the Company issued 104,000,000 ordinary shares
at the price of HK$40.10 per ordinary share pursuant to the Global
Offering and listing of the ordinary shares of the Company on HKEX.
Following the exercise of an over-allotment option granted by the
Company in the context of the Global Offering, the Company issued
an additional 15,600,000 ordinary shares at the same price per
ordinary share on July 15, 2021. Details of the Global Offering and
the over-allotment option are set out in the prospectus issued by
the Company dated June 18, 2021.
During the year, the percentages of revenue attributable to the major
customers of the Group were as follows:
The largest customer
Five largest customers combined
Percentage of total
revenue of the Group
16%
53%
As at December 31, 2021, none of the Directors, their close associates or
any shareholders (which to the knowledge of Directors own more than 5%
of the issued share capital of the Company) had any interest in the major
customers of the Group.
SUFFICIENCY OF PUBLIC FLOAT
As at the date of this report, based on the information that is publicly
available to the Company and within the knowledge of the Directors of
the Company, the Company has maintained the prescribed public float
under the HK Listing Rules.
AUDITORS
Save as disclosed above, neither the Company nor any of its subsidiaries
has purchased, sold or redeemed any of the listed securities of the
Company during the year.
The financial statements have been audited by PricewaterhouseCoopers,
Certified Public Accountants, and PricewaterhouseCoopers Zhong Tian
LLP who will retire and, being eligible, offer themselves for re-appointment
at the 2022 AGM.
PRE-EMPTIVE RIGHTS
Under the Articles of Association of the Company, unless the Company
by special resolution directs otherwise, any new shares will be offered
to the existing shareholders pro rata to their holdings. In 2021 AGM, the
Company obtained approval from shareholders by passing of special
resolutions to disapply the pre-emption rights.
ANNUAL GENERAL MEETING
The AGM of the Company will be held on Wednesday, April 27, 2022 at
6:00 pm (Hong Kong time) at the Conference Room, 18th Floor, Hutchison
Telecom Tower, 99 Cheung Fai Road, Tsing Yi, Hong Kong. Details of the
business/resolutions proposed are set out in the Notice of the AGM.
MAJOR CUSTOMERS AND
SUPPLIERS
By Order of the Board
During the year, the percentage of purchase attributable to the five largest
suppliers of the Group combined was less than 30% of the total purchase
of the Group.
Edith Shih
Director and Company Secretary
March 3, 2022
68
DIRECTORS’ REPORT
THE BOARD
CORPORATE CULTURE
As a leading biopharmaceutical company, the Group instils a culture
of innovation that is driven by science, with the ambition to create
world-class cancer and immunological therapies, for the improvement
of the lives of patients. This includes its commitment to encouraging,
valuing and challenging every employee, so that the collective scientific
and commercial expertise of the Group better serves the broader
community. The Board, together with senior management, set the tone
and shapes and define the corporate culture and strategic direction,
which is underpinned by the core values of acting lawfully, ethically and
responsibly across all levels of the Group. The desired culture is developed
and reflected consistently in the operating practices and policies of the
Group, as well as its relations with stakeholders. Board oversight of the
culture of the organization encompasses a range of measures and tools,
including employee engagement, retention and training, robust financial
reporting, whistleblowing, data privacy and security and legal and
regulatory compliance (including compliance with the Code of Ethics and
other Group policies), as well as staff safety, wellbeing and support. Taking
into account the corporate culture in a range of contexts, the Board
considers that the culture, purpose, values and strategy of the Group are
aligned.
The Company strives to attain and maintain high standards of corporate
governance best suited to the needs and interests of the Company
and its subsidiaries (the “Group”) as it believes that effective corporate
governance framework is fundamental to promoting and safeguarding
interests of shareholders and other stakeholders and enhancing
shareholder value. Accordingly, the Company has adopted and applied
corporate governance principles and practices that emphasize a quality
board of Directors (the “Board”), effective risk management and internal
control systems, stringent disclosure practices, transparency and
accountability as well as effective communication and engagement with
shareholders and other stakeholders. It is, in addition, committed to
continuously enhancing these standards and practices and inculcating
a robust culture of compliance and ethical governance underlying the
business operations and practices across the Group.
Following the listing of the ordinary shares of the Company on The Stock
Exchange of Hong Kong Limited (“HKEX”) on June 30, 2021, the Board
has adopted the Hong Kong Corporate Governance Code (“HK CG Code”)
contained in Appendix 14 of the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the “Hong Kong Listing
Rules”) in replacement of the UK Corporate Governance Code and the
Company is in compliance with all code provisions of the HK CG Code.
Although the American depositary shares of the Company are listed on
NASDAQ Global Select Market (“Nasdaq”), being a foreign private issuer,
the Company is permitted to follow Cayman Islands law for certain
corporate governance practices. In addition, the Company is subject to
and complies with certain applicable requirements of the Sarbanes-Oxley
Act (the “SOX”). Prior to the listing of its ordinary shares on the HKEX, the
Company had adopted the principles of the UK Corporate Governance
Code applicable to companies listed on the premium segment of the
London Stock Exchange main market.
The corporate governance practices adopted by the Company are
discussed below.
70
CORPORATE GOVERNANCE REPORT CORPORATE STRATEGY
BOARD COMPOSITION
The primary objective of the Company is to become a fully integrated
global leader in the discovery, development and commercialization of
targeted therapies and immunotherapies for the treatment of cancer
and immunological diseases. The strategy of the Company is to leverage
the highly specialized expertise of the drug discovery division, known
as the Oncology/Immunology operations, to develop and expand the
drug candidate portfolio of the Group for the global market while also
building on the first-mover advantage in the development and launch of
novel cancer drugs in China. This is aligned with the Company’s culture of
innovation and high engagement and empowerment with a high focus on
reward and recognition. The Chairman’s Statement and the Operations
Review contain discussions and analyses of the Group’s opportunities,
performance and the basis on which the Group generates or preserves
value over the longer term and the basis on which the Group will execute
its strategy for delivering the objective of the Group. Further information
on the sustainability initiatives of the Group and its key relationships with
stakeholders can also be found in the standalone sustainability report of
the Group.
ROLE OF THE BOARD
The Board is accountable to shareholders for the long-term sustainable
success of the Company. It is responsible for shaping and overseeing
the corporate culture, setting and guiding the long-term strategic
objectives of the Company with appropriate focus on value creation and
risk management, directing, supervising and monitoring the managerial
performance and operating practices of the Group to ensure they align
with the desired culture. It also ensures ongoing effective communication
with shareholders and engagement with key stakeholders as it develops
the purpose and values of the Company. Directors are charged with the
task of promoting the long-term sustainable success of the Company and
making decisions in the best interests of the Company with due regard to
sustainability considerations.
The Board, led by the Chairman, Mr To Chi Keung, Simon, fosters and
oversees the culture, determines and monitors the Group’s long term
objectives and commercial strategies, annual operating and capital
expenditure budgets and business plans, evaluates the performance
of the Company, and supervises the management of the Company (the
“Management”). Management is responsible for the day-to-day operations
of the Group under the leadership of the Chief Executive Officer (the
“CEO”), and putting in place mechanisms for ensuring the desired culture
of the Company is understood and shared at all levels of the Group.
As of December 31, 2021 and up to the date of this report, the Board
comprised ten Directors, including the Chairman, CEO, Chief Financial
Officer (the “CFO”), Chief Scientific Officer, two Non-executive Directors
and four Independent Non-executive Directors (one of whom is the
Senior Independent Non-executive Director). The number of Independent
Non-executive Directors on the Board meets the one-third requirement
under the Hong Kong Listing Rules.
On March 4, 2022, Mr Christian Lawrence Hogg retired as Executive
Director and Chief Executive Officer. Dr Weiguo Su was appointed as Chief
Executive Officer and remains as the Chief Scientific Officer.
Biographical details of the Directors are set out in the “Information on
Directors” section on pages 42 to 45 and on the website of the Company
(www.hutch-med.com). A list setting out the names of the Directors and
their roles and functions is posted on the websites of the Company and
HKEX (www.hkexnews.hk).
CHAIRMAN AND CEO
The role of the Chairman is separate from that of the CEO. Such division of
responsibilities reinforces the independence and accountability of these
Directors.
The Chairman is responsible for the effective conduct of the Board,
ensuring that it as a whole plays an effective role in the development and
determination of the Group’s strategy and overall commercial objectives
and acts as the guardian of the Board’s decision-making processes. He
is responsible for setting the agenda for each Board meeting, taking into
account, where appropriate, matters proposed by Directors. He also
ensures that the Board receives accurate, timely and clear information
on the Group’s performance, issues, challenges and opportunities facing
the Group and matters reserved to it for decision. With the support of the
other Executive Directors and the Company Secretary, the Chairman seeks
to ensure that the Board complies with approved procedures, including
the schedule of matters and functions reserved to the Board for its
decision and the Terms of Reference of all Board Committees. The Board,
under the leadership of the Chairman, has adopted good corporate
governance practices and procedures and taken appropriate steps to
provide effective communication with shareholders, as outlined later in
this report.
The CEO is responsible for managing the businesses of the Group,
formulating and developing the Group’s strategy and overall commercial
objectives in close consultation with the Chairman and the Board. With
the executive management team of each core business division, the CEO
implements the decisions of the Board and its Committees. He maintains
an ongoing dialogue with the Chairman to keep him fully informed of
all major business development and issues. He is also responsible for
ensuring that the development needs of senior management reporting to
him are identified and met as well as leading the communication program
with shareholders.
HUTCHMED (China) Limited 2021 Annual Report 71
In addition to Board meetings, the Chairman also met with the
Independent Non-executive Directors without the presence of other
Directors, with full attendance. Such meetings provide an effective forum
for the Chairman to listen to the views of the Independent Non-executive
Directors including corporate governance improvement, effectiveness
of the Board, and any other issues they may wish to raise in the absence
of other Directors and senior management of the Company. The Senior
Independent Non-executive Director, Mr Paul Rutherford Carter, also
held a meeting with all Non-executive Directors without the presence of
the Chairman, with full attendance, for the appraisal of the Chairman’s
performance.
All Non-executive Directors are engaged on service contracts for an initial
term ending on December 31 of the year of appointment or until the
next following annual general meeting of the Company. Thereafter, such
contracts are automatically renewed for successive 12-month periods
unless terminated by written notice given by either party. The Chairman of
the Board is of the view that the performance of each of the Non-executive
Directors continues to be effective and they all demonstrate commitment
to their role as a Non-executive Director. Under the Articles of Association
of the Company, one-third of Directors are subject to re-election by
shareholders at annual general meetings (the “AGM”) and at least once
every three years on a rotation basis. A retiring Director is eligible for
re-election and re-election of retiring Directors at general meetings is dealt
with by separate individual resolutions. In the interests of good corporate
governance, the Directors and the Board have resolved that all Directors
will retire at the upcoming AGM of the Company and, being eligible, will
offer themselves for re-election by shareholders. Save as mentioned
herein, there are no existing or proposed service contracts between any
of the Directors and the Company which cannot be terminated by the
Company within 12 months and without payment of compensation.
Where vacancies arise at the Board, candidates are proposed and put
forward to the Board for consideration and approval, with the objective
of appointing to the Board individuals with expertise in the businesses
of the Group and leadership qualities to complement the capabilities of
the existing Directors thereby enabling the Company to retain as well as
improve its competitive position.
BOARD PROCESS
The Board meets regularly, and at least four times a year with dates of
regular meetings scheduled prior to the beginning of the year. Between
scheduled meetings, senior management of the Group provides to
Directors, on a regular basis, monthly updates and other information
with respect to the activities and development of the Group. Throughout
the year, in addition to Board meetings, Directors participate in the
deliberation and approval of routine and operational matters of the
Company by way of written resolutions with supporting explanatory
materials, supplemented by additional verbal and/or written information
from the Company Secretary or other executives as and when required.
Whenever warranted, additional Board meetings are held. Further,
Directors have full access to information on the Group and to the advice
and services of the Company Secretary. They also have full access to
independent professional advice at all times whenever deemed necessary
by the Directors and they are at liberty to propose appropriate matters for
inclusion in Board agendas.
With respect to regular meetings of the Board, Directors receive written
notice of the meetings generally about a month in advance and a draft
agenda for review and comment prior thereto. The full set of Board papers
is supplied no less than three days prior to the meetings. With respect to
other meetings, Directors are given as much notice as is reasonable and
practicable in the circumstances.
Except for those circumstances permitted by the Articles of Association
of the Company, a Director who has a material interest in any contract,
transaction, arrangement or any other kind of proposal put forward to the
Board for consideration abstains from voting on the relevant resolution
and such Director is not counted for quorum determination purposes.
In 2021, the Company held eight Board meetings with 100% attendance of
its members.
Board
Meetings
Attended/
Attendance
Eligible to
at 2021
attend
AGM
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Position
Chairman:
Executive Directors:
Non-executive Directors:
Independent Non-executive
Directors:
Name of
Director
To Chi Keung, Simon
Christian Lawrence Hogg Note
Cheng Chig Fung, Johnny
Weiguo Su
Dan Eldar
Edith Shih
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
Note: Retired on March 4, 2022
72
CORPORATE GOVERNANCE REPORT
To facilitate attendance and participation at the Board and other
Board committee meetings, the Company plans meeting schedules
for the year well in advance, with remote facilities for attendance also
available to all Directors. External independent professional advice is
also available to all Directors (including Independent Non-executive
Directors) whenever deemed necessary. The Board process, ranging
from agenda setting, provision of information and focus on constructive
debates and discussions, facilitates effective and active participation by
all independent Non-executive Directors, see “Board Process” on page 72
on this report.
The Independent Non-executive Directors have historically and
consistently demonstrated strong commitment, and the ability to devote
sufficient time to discharging their responsibilities at the Board. Their
commitment is also subject to self-confirmation each year.
TRAINING AND COMMITMENT
Upon appointment to the Board, a Director is provided with a package of
comprehensive orientation materials on the Group including information
on the Group, duties as a director and board committee member, as well
as internal governance and sustainability policies of the Group. These
orientation materials are presented to the Directors by senior executives
in the form of a detailed induction to the Group’s businesses, strategic
direction and governance practice.
The Company arranges and provides Continuous Professional
Development (“CPD”) training such as seminars, webcasts and relevant
reading materials to Directors to help them to keep abreast of current
trends and issues facing the Group, including the latest changes in the
commercial (including industry-specific and innovative changes), legal
and regulatory environment in which the Group conducts its businesses
and to refresh their knowledge and skills on the roles, functions and duties
as a listed company director. In addition, CPD training may take the form
of attendance at external forums or briefing sessions (including delivery of
speeches) on relevant topics. CPD training of approximately 18 hours had
been provided to Directors during the year.
BOARD PERFORMANCE
In 2021, the Company conducted a performance evaluation on the Board,
its Committees and the Chairman of each Committee. The evaluation
involved each Director completing a questionnaire, the findings of which
were then analyzed and reviewed by the Board. The objective of the
evaluation is to ensure that the Board, its Committees and the Chairman
of each Committee continue to act effectively in fulfilling the duties and
responsibilities expected of them. The performance criteria included
amongst others, the composition, expertise, leadership and processes
of the Board. The contribution and performance of the Chairman and
individual directors are taken into account in their re-appointment. The
Directors’ attendance, participation in and out of meetings, their skills set
and expertise are also reviewed. The Board considers the existing practice
as effective. The Board has reviewed and is satisfied that it has met its
performance objectives and each Director has contributed positively to
the overall effectiveness of the Board.
BOARD INDEPENDENCE
The Company recognizes that Board independence is key to good
corporate governance. As part of the established governance framework,
the Group has in place effective mechanisms that underpin a strong
independent Board and that independent views and input from Directors
are conveyed to the Board. The governance framework and mechanisms
are kept under regular review to align with international best practice,
ensuring their effectiveness.
The current composition of the Board (comprising more than one
third Independent Non-Executive Directors) and the Audit Committee
(comprising all Independent Non-executive Directors) comply with
the independence requirements under the Hong Kong Listing Rules.
The Nomination Committee and Remuneration Committee are both
chaired by an Independent Non-executive Director. The Company has
a vigorous selection, nomination and appointment/re-appointment
process for Directors (including Independent Non-executive Directors), see
“Nomination Process” on pages 85 to 86 of this report. The fees payable
to Independent Non-executive Directors (including the additional fees
to reflect membership or chairmanship of Board committees) are fixed
fees without a discretionary element. The LTIP awards to Independent
Non-executive Directors are non-performance based. As such, none of
the Independent Non-executive Directors receives remuneration based
on performance of the Group. The remuneration of Independent Non-
executive Directors is also subject to a regular review mechanism to
maintain competitiveness and commensurate with their responsibilities
and workload as well as compliance with regulatory requirements.
HUTCHMED (China) Limited 2021 Annual Report 73
The Directors are required to provide the Company with details of CPD training undertaken by them from time to time. The training records are
maintained by the Company Secretary and are made available for regular review by the Audit Committee. Based on the details so provided, the CPD
training undertaken by the Directors during the year is summarized as follows, representing an average of approximately 11 hours undertaken by each
Director during the year:
Legal and Regulatory
Sustainability Practices
Risk Management
Directors’ Duties
Corporate Governance/
Financial Reporting/
Group’s Businesses/
Areas
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Directors
Chairman:
To Chi Keung, Simon
Executive Directors:
Christian Lawrence Hogg Note
Cheng Chig Fung, Johnny
Weiguo Su
Non-executive Directors:
Dan Eldar
Edith Shih
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
Note: Retired on March 4, 2022
All Directors have confirmed that they have given sufficient time and attention to the affairs of the Group for the year. In addition, Directors have disclosed
to the Company in a timely manner their other commitments, such as directorships in other public listed companies and major appointments as well as
updated the Company on any subsequent changes.
SECURITIES TRANSACTIONS
The Board has adopted the Code on Dealings in Shares which is on terms no less exacting than the required standard set out in the Model Code for
Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Hong Kong Listing Rules as the protocol regulating Directors’ dealings
in securities of the Company. In summary, a Director who wishes to deal in the securities of the Company must notify the Chairman (or a Director
designated by the Board for such specific purpose) in writing prior to any dealings and obtain a dated written acknowledgement before any dealing.
Any clearance to deal granted in response to a Director’s request would be valid for no longer than five business days of clearance being received. After
dealings, the Director must submit a disclosure of interests filing with respect to the dealing, within one business day of transaction.
In response to specific enquiries made, all Directors have confirmed that they have complied with the required standards set out in such code regarding
their securities transactions throughout their tenure during the year ended December 31, 2021.
BOARD COMMITTEES
The Company has established five permanent board committees: Audit Committee, Nomination Committee, Remuneration Committee, Sustainability
Committee and Technical Committee, details of which are described later in this report. Other board committees are established by the Board as and
when warranted to take charge of specific tasks.
74
CORPORATE GOVERNANCE REPORT
COMPANY SECRETARY
The Company Secretary, Ms Edith Shih, is accountable to the Board
for ensuring that Board procedures are followed and Board activities
are efficiently and effectively conducted. These objectives are achieved
through adherence to proper Board processes and timely preparation of
and dissemination to Directors of comprehensive Board meeting papers.
Minutes of all meetings of the Board and Board Committees are prepared
and maintained by the Company Secretary to record in sufficient detail
the matters considered and decisions reached by the Board or Board
Committees, including any concerns raised or dissenting views voiced by
any Director. All draft and final minutes of Board meetings and meetings
of Board Committees are sent to Directors or Board Committee members
as appropriate for comments, approval and records. Board records are
available for inspection by any Director upon request.
The Company Secretary who works closely with the Board to formulate
the vision, values and strategy of the Company, take charge in developing
a robust compliance and ethical culture to meet both regulatory and
investor expectations, and to ensure the culture and the purpose, value
and strategy of the Group are aligned.
The Company Secretary plays a leading role in helping the Company
develop and maintain a sound and effective corporate governance
framework, in particular, a set of risk management and internal control
system to ensure that regulatory compliance, good corporate governance
practices and culture are upheld by the Company.
The Company Secretary is responsible for ensuring that the Board is
fully apprised of all legislative, regulatory, corporate governance and
ESG developments of relevance to the Group and that it takes these
developments into consideration when making decisions for the
Group. From time to time, she organizes seminars on specific topics of
importance and interest and disseminates reference materials to Directors
for their information.
The Company Secretary is also directly responsible for the Group’s
compliance with all obligations of the Hong Kong Listing Rules, AIM
Rules for Companies and applicable Nasdaq listing rules (collectively, the
“Rules”), including the preparation, publication and dispatch of annual
and interim reports within the time limits laid down in the Rules, the
timely dissemination to shareholders and the market of announcements,
press releases and information relating to the Group and assisting in the
notification of Directors’ dealings in securities of the Group.
Furthermore, the Company Secretary advises the Directors on related
party transactions, connected transactions, notifiable transactions and
price-sensitive/inside information, and Directors’ obligations for disclosure
of interests and dealings in the Company’s securities, to ensure that
the standards and disclosures requirements of the Rules are complied
with and, where required, reported in the annual and interim reports of
the Company. In relation to related party transactions and connected
transactions, detailed analysis is performed on all potential related party
transactions and connected transactions to ensure full compliance and
for Directors’ consideration.
The Company Secretary also serves as a crucial conduit of
communications internally and externally. The Company Secretary
facilitates information flow and communication among Directors and
also conveys the Board’s decisions to the Management from time to time
and ensures a good channel of communication with shareholders. She
also works with the Board and Management to assist in responding to
regulators in a timely manner.
The appointment and removal of the Company Secretary is subject to
Board approval. Whilst the Company Secretary reports to the Chairman,
all members of the Board have access to her advice and service. The
Company Secretary of the Company has day-to-day knowledge of the
Group’s affairs. She confirms that she has complied with all the required
qualifications, experience and training requirements under the Hong Kong
Listing Rules.
ACCOUNTABILITY AND AUDIT
FINANCIAL REPORTING
The annual and interim results of the Company are published in a timely
manner, within three months of the year end and two months of the
half-year end respectively.
The responsibility of Directors in relation to the consolidated financial
statements is set out below. This should be read in conjunction with, but
distinguished from, the Independent Auditor’s Report on pages 92 to 95
which acknowledges the reporting responsibility of the Group’s Auditor.
HUTCHMED (China) Limited 2021 Annual Report 75
ANNUAL REPORT AND CONSOLIDATED FINANCIAL
STATEMENTS
The Audit Committee held three meetings in 2021 with 100% attendance
of its members.
The Directors acknowledge their responsibility for the preparation of the
annual report and consolidated financial statements of the Company,
ensuring that the consolidated financial statements, taken as a whole, is
fair, balanced and understandable and provide the information necessary
for shareholders to assess the Company’s position, performance, business
model and strategy in accordance with the HK CG Code, Cayman Islands
Companies Law and the applicable accounting standards.
ACCOUNTING POLICIES
The Directors consider that in preparing the consolidated financial
statements, the Group has applied appropriate accounting policies that
are consistently adopted and made judgments and estimates that are
reasonable in accordance with the applicable accounting standards.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that the Group keeps
accounting records which disclose the financial position of the Group,
upon which the consolidated financial statements of the Group could be
prepared in accordance with the Group’s accounting policies.
SAFEGUARDING ASSETS
The Directors are responsible for taking all reasonable and necessary
steps to safeguard the assets of the Group and to prevent and detect
fraud and other irregularities within the Group.
GOING CONCERN
The Directors, having made appropriate inquiries, are of the view that the
Group has adequate resources to continue in operational existence for the
foreseeable future and that, for this reason, it is appropriate for the Group
to adopt the going concern basis in preparing the consolidated financial
statements.
AUDIT COMMITTEE
The Audit Committee comprises three Independent Non-executive
Directors who possess the relevant business and financial management
experience and skills to understand financial statements and monitor
the financial governance, internal controls and risk management of the
Company. It is chaired by Mr Graeme Allan Jack with Mr Paul Rutherford
Carter and Dr Karen Jean Ferrante as members. None of the Committee
Members are related to the Company’s external auditor.
Name of Member
Attended/Eligible to attend
Graeme Allan Jack (Chairman)
Paul Rutherford Carter
Karen Jean Ferrante
3/3
3/3
3/3
Under the Terms of Reference of the Audit Committee, the role of the Audit
Committee is to assist the Board in fulfilling its duties through the review
and supervision of the Company’s financial reporting, risk management
and internal control systems and to take on any other responsibility as
may be delegated by the Board from time to time. The Audit Committee
is responsible for monitoring the integrity of the Group’s interim and
annual results, and interim and annual consolidated financial statements,
reviewing the Group’s risk management and internal control systems as
well as overseeing the relationship between the Company and its external
auditors. The Audit Committee is also required to develop and review
the Company’s policies and practices on corporate governance including
compliance with statutory and Hong Kong Listing Rules requirements;
and review the scope, extent and effectiveness of the activities of the
Group’s internal audit function. The Committee is authorized to obtain, at
the Company’s expense, external legal or other professional advice on any
matters within its Terms of Reference.
Throughout 2021, the Audit Committee discharged the duties and
responsibilities under its terms of reference and the applicable corporate
governance code. The following paragraphs set out a summary of the
work performed by the Audit Committee during 2021 and 2022 (up to the
date of this report).
During 2021 and 2022 (up to the date of this report), the Audit Committee
met with the CFO and other senior management of the Company to review
the annual and interim results, the annual and interim reports and other
financial, internal control, corporate governance and risk management
matters of the Company. It received, considered and discussed the
reports and presentations of Management and the Group’s internal
auditor and external auditor, PricewaterhouseCoopers (“PwC”), with a
view to ensuring that the Group’s consolidated financial statements were
prepared in accordance with generally accepted accounting principles in
the United States. It also met with the Group’s principal external auditor,
PwC, to consider the reports of PwC on the scope, strategy, progress and
outcome of its independent review of the interim financial report and
annual audit of the consolidated financial statements. In addition, the
Audit Committee held private sessions with the external auditor, the CFO
and the internal auditor of CK Hutchison Holdings Limited (“CKHH”, being
the largest shareholder of the Company) separately without the presence
of Management.
76
CORPORATE GOVERNANCE REPORT
To assist the Board in assessing the overall governance, risk management
and internal control framework and maintaining effective risk
management and internal control systems, in 2021, the Audit Committee
also reviewed the process by which the Group evaluated its control
environment and managed significant risks (including sustainability risks).
It received and considered the risk management report, the composite
risk register, the risk heat map as well as the Management presentation
on their review with respect to the effectiveness of the risk management
and internal control systems of the Group. It also reviewed the adequacy
of resources, staff qualifications and experience, training programmes and
budget of the Group’s accounting, internal audit and financial reporting
functions.
In addition, the Audit Committee reviewed, in conjunction with the
internal auditor of CKHH, the 2021 work plans and resource requirements,
and deliberated on the reports regarding the effectiveness of risk
management and internal controls in the business operations of the
Group. Further, it also considered the reports from the Legal Department
on the Group’s material litigation proceedings and compliance status
on legal and regulatory requirements. These reviews and reports were
taken into consideration by the Audit Committee when it made its
recommendation to the Board for approval of the consolidated financial
statements. During 2021, the Audit Committee also received periodic
presentations on, and reviewed, the compliance status of the Group with
respect to the applicable corporate governance code as well as other
corporate governance topics including the Group’s policies and practices
on compliance with legal and regulatory requirements. It has also received
update reports on CPD training of Directors.
The Audit Committee also conducted a review of the implementation
and effectiveness of the Shareholders Communication Policy and having
reviewed the multiple channels of communication and engagement in
place (see “Relationship with Shareholders and Other Stakeholders”
on pages 89 to 90 of this report), it is satisfied that the Shareholders
Communication Policy has been properly implemented during 2021 and
is effective.
The Terms of Reference for the Audit Committee and the Complaints
Procedures adopted by the Board are published on the website of the
Company.
EXTERNAL AUDITOR
The Audit Committee reviews and monitors the external auditor’s
independence, objectivity and effectiveness of the audit process. Each
year, the Audit Committee receives a letter from the external auditor
confirming its independence and objectivity. It holds meetings with
representatives of the external auditor to consider the scope of its audit,
and approves its fees and the scope and appropriateness of non-audit
services, if any, to be provided by it. The Audit Committee also makes
recommendation to the Board on the appointment and retention of the
external auditor.
The Group’s policy regarding the engagement of its external auditor for
the various services listed below is as follows:
•
•
•
•
•
Audit services – include audit services provided in connection with
the audit of the consolidated financial statements. All such services
are to be provided by the external auditor.
Audit related services – include services that would normally be
provided by an external auditor but not generally included in the
audit fees, for example, audits of the Group’s pension plans, due
diligence and accounting advice related to mergers and acquisitions,
internal control reviews of systems and/or processes, and issuance of
special audit reports for tax or other purposes. The external auditor
is to be invited to undertake those services that it must, or is best
placed to, undertake in its capacity as an auditor.
Taxation related services – include all tax compliance and tax
planning services, except for those services which are provided
in connection with the audit. The Group uses the services of the
external auditor where it is best suited. All other significant taxation
related work is undertaken by other parties as appropriate.
Other services – include amongst others, risk management
diagnostics and assessments, and non-financial systems
consultations. The external auditor is also permitted to assist
Management and the internal auditor of CKHH with internal
investigations and fact-finding into alleged improprieties. These
services are subject to specific approval by the Audit Committee.
General consulting services – the external auditor is not eligible to
provide services involving general consulting work.
An analysis of the fees of PwC is shown in Item 16C of the Form 20-F. For
the year ended December 31, 2021, fees of US$5.0 million charged by PwC
in total were for both audit and non-audit services. The non-audit services,
which amounted to approximately US$0.4 million, were related to the
provision of tax advices. These non-audit services had been reviewed
prior to the engagement by the Audit Committee, which considered
such services not having an impairing effect on the independence of the
auditor.
AUDIT REPORT ON THE ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS
The consolidated financial statements of the Company and its subsidiary
companies for the year ended December 31, 2021 have been audited by
PwC in accordance with U.S. Generally Accepted Accounting Principles.
The unqualified auditor’s report is set out on pages 92 to 95. The
consolidated financial statements of the Company and its subsidiary
companies for the year ended December 31, 2021 have also been
reviewed by the Audit Committee.
HUTCHMED (China) Limited 2021 Annual Report 77
RISK MANAGEMENT, INTERNAL
CONTROL AND LEGAL &
REGULATORY COMPLIANCE
BOARD OVERSIGHT
The Board has overall responsibility for the Group’s systems of risk
management, internal control and legal and regulatory compliance.
In meeting its responsibility, with due regard to the Company’s risk
appetite, the Board evaluates and determines the nature and extent of
the risks (including sustainability risks) that the Company is willing to
accept in pursuit of its strategic and business objectives. In addition, the
Board inculcates risk culture across the business operations of the Group
and has put in place a comprehensive range of policies and systems,
including parameters of delegated authority, which provide a framework
for the identification, reporting and management of risks. It also reviews
and monitors the effectiveness of the systems of risk management and
internal control on an ongoing basis. Reporting and review activities
include review by the Executive Directors and the Board and approval of
detailed operational and financial reports, budgets and plans provided
by management of the business operations, review by the Board of actual
results against budget, review by the Audit Committee of the ongoing
work of the internal audit and risk management functions of CKHH, as well
as regular business reviews by the Executive Directors and the executive
management team of each core business division.
Whilst these procedures are designed to identify and manage risks
that could adversely impact the achievement of the Group’s business
objectives, they do not provide absolute assurance against material
mis-statement, errors, losses, fraud or non-compliance.
To ensure compliance with the requirements of section 404 of SOX, the
Company conducted a SOX compliance project, which assessed the
management of internal controls and procedures, and the evaluation
of the internal control systems relating to financial reporting of the
Company.
RISK MANAGEMENT
Risk management is integrated into the day-to-day operations of the
Group, and is a continuous and proactive process carried out at all
levels. Coupled with a strong internal control environment, the Group is
committed to effectively managing the risks it faces, be they strategic,
financial, operational or compliance, by adopting an Enterprise Risk
Management (ERM) framework based on the COSO (the Committee of
Sponsoring Organizations of the Treadway Commission) model.
The ERM framework facilitates a systematic approach in identifying,
assessing and managing risks within the Group. There are ongoing
dialogues between the Executive Directors and the management team of
each core business division to assess the plausible impact of current and
emerging risks and their mitigation measures so as to institute additional
controls and deploy appropriate insurance instruments, such as Directors’
and Officers’ Liability Insurance, in minimizing or eliminating potential
financial, compliance or other risks to the Group’s businesses.
The Group adopts a “top-down and bottom-up” approach with respect
to formal risk review and reporting. Such approach involves regular input
from each core business unit as well as discussions and reviews by the
Executive Directors. On a half-yearly basis, each core business unit is
responsible for formally identifying the significant risks their business
faces and considering the likelihood of occurrence and potential impact
to the business, whilst the Executive Directors provide input after taking
a holistic assessment of all the significant risks that the Group faces.
Relevant risk information including key mitigation measures and plans are
recorded in a risk register to facilitate the ongoing review and tracking of
progress.
The review of the risk management system is overseen by the Board
through the Audit Committee. The Audit Committee reviews the
composite Risk Register together with the related risk assessment report
every six months, and provides input as and where appropriate so as
to ensure the effectiveness of the Group’s risk management system.
The following table summarizes the principal risks of the Group and the
related mitigation actions.
78
CORPORATE GOVERNANCE REPORT RISK MANAGEMENT OVERVIEW
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Risks Related to the Financial Position and Need for Capital
Funding for product development
The research and development of drug candidates, as
• Active monitoring of available cash resources against
programs and commercialization
well as commercialization in the areas of manufacturing,
future cash requirements
efforts
marketing, sales and distribution of such drug candidates,
• Diversified sources of funding
requires significant expenditures. Failure to raise capital
on attractive terms may compromise the Group’s ability to
o Cash inflows from commercial operations
o Sharing of clinical development costs with and
execute its business plans.
receipt of milestone income from partners through
collaborations
o Ready access to capital markets as listed on AIM,
Nasdaq and HKEX
o Bank borrowing facilities
o Proceeds from private placements of shares
o Divestment of non-core business
Risks Related to Oncology/Immunology Operations and Development of the Group’s Drug Candidates
The Group’s future profitability
The Group does not expect to be significantly profitable
Regularly evaluating the research and development
is dependent on the successful
unless and until it successfully completes its clinical trials,
strategy of the Group in light of unmet medical needs.
development and commercialization
receives relevant regulatory approval and generates
Three oncology drugs, ELUNATE® in metastatic colorectal
of the drug candidates
substantial sales of approved innovative drugs in
cancer, SULANDA® in pancreatic and non-pancreatic
developments.
neuroendocrine tumors and ORPATHYS® in non-small cell
lung cancer with MET exon 14 skipping alterations, were
approved and launched
Competition in discovering,
The development and commercialization of new drugs
• Targeting potential markets with high unmet demands
developing and commercializing
is highly competitive. The competition from other
in drug discovery process
drugs
pharmaceutical companies with respect to current drug
• Formation of strategic partnerships and collaborations
candidates, as well as any future drug candidates, is always
with other companies
present given market dynamics.
• Expanding our clinical and regulatory operations
worldwide including the U.S. and Europe
Attract, retain and motivate key
Attracting, retaining and motivating key executives
executives and qualified personnel
and personnel is critical to an organization’s success,
• Building culture of innovation and high engagement
and empowerment with high focus on reward and
particularly in the innovative pharmaceutical industry.
recognition
The loss of key executives and personnel could impede
• Benchmarking salary and compensation structure
the achievement of research, development and
against peer groups
commercialization initiatives.
• Share-based compensation provided to incentivize key
management/talent
• Establishing key performance measurement and talent
development schemes
Commercial strategy for newly
Following the commercial launches of the Group’s pipeline
• Building a large-scale global production facility in
approved drug products
products, a comprehensive strategy is required to be
Shanghai
formulated to secure manufacturing and commercialization
capacity.
• Setting up commercial infrastructure to perform
commercialization activities of developed drug
products in China, the U.S., the EU and other markets
HUTCHMED (China) Limited 2021 Annual Report 79
RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
Risks Related to Sales of the Group’s Internally Developed Drugs and Other Drugs
Compliance with extensive regulatory
The regulatory framework in China governs and addresses
• Setting up compliance team and implementing internal
requirements for pharmaceutical
all aspects of operations within the pharmaceutical
policies and procedures to monitor compliance
companies in China
industry, including licensing and certification requirements,
• Benchmarking against regulatory reviews of industry
periodic renewal and reassessment processes, and
groups and best practices of peers
Product liability claims
registration of new drugs, interactions with healthcare
professionals and organizations among others. Violations
of such requirements may adversely affect the Group’s
businesses.
The Group’s businesses face an inherent risk of product
liability exposure related to sales of products or the
products licensed from third parties. If the Group cannot
successfully defend against product liability claims, if any,
product reputation and financial results could be materially
affected.
• Establishing measures to ensure product safety
Independent laboratory testing
o
o Compliance with relevant quality practices
o Sourcing from well-established suppliers
• Procuring product liability insurance
Risks Related to the Group’s Dependence on Third Parties
Relationships with collaboration
Poor relationships with collaboration partners could lead
• Establishing joint steering committees to make key
partners
to disagreement regarding clinical development and
decisions and resolve any differences
commercialization, and termination or expiration of the
• Ongoing dialogue and regular meetings at executive
collaboration. Any such matters would cause adverse
levels to facilitate strategic alignment and planning
impacts to business reputation and financial results.
Sourcing of materials for clinical trials
The development and commercialization of drug
• Active monitoring of the supply of materials and
and commercial products
candidates requires sufficient supplies (including Active
inventory levels
Pharmaceutical Ingredient (API)) for clinical testing and
• Sourcing from well-established clinical suppliers with
commercial demand. Development and commercialization
long-term relationships
could be interrupted if suppliers fail to provide a stable
•
Investing to build our in-house biologics and API
supply of necessary materials.
manufacturing facilities to meet our long-term
requirements
Compliance with clinical trial
The regulatory approval process for clinical trials may be
•
Implementation of measures to ensure compliance
regulatory requirements of
delayed or subject the Group to enforcement action in
o Sourcing from well-established clinical suppliers
collaboration with partner/clinical
cases where clinical research organizations or collaboration
o Maintaining relevant liability insurance
research organization
partners fail to comply with clinical trial regulations. Any
non-compliance may require clinical trials to be repeated
and delay regulatory approval.
Other Risks and Risks Related to Doing Business in China
The COVID-19 pandemic and other
As of the date of this annual report, the Group does not
• The COVID-19 outbreak continues to pose some
adverse public health developments
expect any material impact to its long-term activities. As
challenges to the Group’s operations in 2021 resulting
could materially and adversely affect
the situation evolves, the Group does not yet know the
from restrictions in travel
the Group’s business
full extent of potential delays or near-term impacts on
• The Group has been able to adapt and minimize the
the business, the clinical trials, the research programs,
effect across the businesses
healthcare systems or the global economy as a whole,
• The Group will continue to closely monitor the evolving
which could have a material adverse effect on the business,
situation
financial condition and results of operations and cash
flows.
80
CORPORATE GOVERNANCE REPORT RISK FACTOR
RISK DESCRIPTION
MANAGEMENT ACTIONS
National Reimbursement Drug List
China’s NRDL system is driving down the price of innovative
• Undertaking of holistic assessments to determine
(“NRDL”) pricing risk on innovative
drugs which affects the profitability of all biotech
whether to apply for inclusion in the NRDL or to pursue
products
companies. Inclusion into the NRDL will result in a higher
alternative commercial strategy by taking various
sales volume and sales growth as well as a reduction in the
factors into consideration, such as patient population
price.
size, patient out-of-pocket costs, etc
Uncertainties with respect to the
The implementation of laws and regulations in China may
• Close monitoring of the pharmaceutical regulatory
legal system and changes in laws and
be in part based on government policies and internal
environment in China
regulations in China
rules that are subject to the interpretation and discretion
• Benchmarking against regulatory reviews of industry
of different government agencies. Unexpected changes
groups and best practices of peers
to laws and regulations can materially affect business
operations and financial results.
Adverse information technology
Pharmaceutical companies which develop and
incidents
commercialize new drugs rely significantly on information
• Setting up of information technology systems security
subject to regular reviews internally and by external
technology for storing clinical and financial data.
experts
Information technology systems could be vulnerable
• Regular maintenance and upgrade of information
to damage from external or internal security incidents,
technology systems security
breakdowns, malicious intrusions and cybercrimes,
• Compliance with best-practice cybersecurity guidelines
which may cause significant interruptions or losses to the
published by the National Institute of Standards and
business.
Technology (NIST)
Foreign currency fluctuations
The value of the Renminbi against the U.S. dollar and
• Active cash management to mitigate foreign currency
other currencies may fluctuate and is affected by changes
exposure
in political and economic conditions. Appreciation or
o Active monitoring of China operations and its
depreciation in the value of the Renminbi relative to U.S.
funding requirements to plan remittances and
dollars would affect financial results reported in U.S. dollar
timely conversion to address exposure to currency
terms regardless of any underlying change in the business
exchange rate variations
or results of operations.
Compliance with personal information
The business is subject to personal information and data
• Establishing Information Security Policy and other
and data protection and privacy
protection and privacy laws at the local, state, national and
related policies and procedures on personal and
regulations
international levels where applicable. Legal requirements
customer data governance with relevant compliance
regarding personal information and data protection and
requirements
privacy continue to evolve and may result in ever-increasing
• Closely monitoring the development in the relevant
public security and escalating levels of enforcement action.
regulatory regime to ensure compliance with the
requirements
Risks Related to Intellectual Property
Protect product intellectual property
The discovery and development of innovative
• Active management and tracking of intellectual
rights
medicines require significant investment of resources. A
property rights
pharmaceutical company’s success depends in part on
• Frequent consultations with external counsel
its ability to protect such investments, products and drug
• Establishing protection mechanisms including
candidates from competition by establishing and enforcing
execution of confidentiality and non-competition
intellectual property rights. Failure could cause additional
agreements, registration of intellectual property rights
competition to harm the business.
and defense of any intellectual property related claims
Pages 7 to 61 of Form 20-F provide a further discussion of these and other important risk factors which could affect the Group’s financial condition or
results of operations that differ materially from expected or historical results.
HUTCHMED (China) Limited 2021 Annual Report 81
The Group’s internal audit activity continues to be outsourced to CKHH,
which appoints a General Manager with responsibility for the internal
audit to report directly to the Audit Committee. The Audit Committee
believes that outsourcing offers the Group access to the range of skills and
resources required and endorsed its continuing use. The Audit Committee
monitors and reviews the internal audit relationship with CKHH and
the procedures used, as described in further detail below, to ensure the
effectiveness of the internal audit process.
The General Manager of the internal audit function of CKHH, reporting
directly to the Audit Committee, provides independent assurance as to
the existence and effectiveness of the risk management activities and
controls in the Group’s business operations in various countries. Using
risk assessment methodology and taking into account the dynamics of
the Group’s activities, internal audit derives its yearly audit plan which
is reviewed by the Audit Committee, and reassessed during the year as
needed to ensure that adequate resources are deployed and the plan’s
objectives are met. Internal audit function of CKHH is responsible for
assessing the Group’s risk management and internal control systems,
formulating an impartial opinion on the systems, and reporting its findings
to the Audit Committee, the CEO, the CFO and the senior management
concerned as well as following up on all reports to ensure that all
issues have been satisfactorily resolved. In addition, a regular dialogue
is maintained with the external auditor so that both are aware of the
significant factors which may affect their respective scope of work.
Depending on the nature of business and risk exposure of individual
business units, the scope of work performed by the internal audit function
includes financial, IT and operations reviews, recurring and surprise
audits, fraud investigations and productivity efficiency reviews.
Reports from the external auditor on internal controls and relevant
financial reporting matters are presented to the General Manager of the
internal audit function of CKHH and, as appropriate, to the CFO. These
reports are reviewed and appropriate actions are taken.
The Board, through the Audit Committee, has monitored the Group’s risk
management and internal control systems for the year ended December
31, 2021 covering all material financial, operational and compliance
controls, has conducted a review of their effectiveness, and is satisfied
that such systems are effective and adequate. In addition, the Board,
through the Audit Committee, has reviewed and is satisfied with the
adequacy of resources, qualifications and experience of the staff of the
Group’s accounting and financial reporting and internal audit functions,
and their training programs and budget.
INTERNAL CONTROL ENVIRONMENT
Group structures covering all subsidiaries, associated companies and
joint ventures are maintained and updated on a timely and regular basis.
Executive Directors are appointed to the boards of all material operating
subsidiaries and associated companies for overseeing and monitoring
those companies, including attendance at board meetings, review and
approval of budgets and plans, and determination of business strategies
with associated risks identified and key business performance targets
set. The executive management team of each core business division is
accountable for the conduct and performance of each business in the
division within the agreed strategies, and similarly, management of each
business is accountable for its conduct and performance. The Executive
Directors monitor the performance and review the risk profiles of the
companies within the Group on an ongoing basis.
The internal control procedures of the Group include a comprehensive
system for reporting information to the executive management team of
each core business division and the Executive Directors.
Business plans and budgets are prepared annually by management of
individual businesses and subject to review and approval by both the
executive management team and Executive Directors as part of the
Group’s five-year corporate planning cycle. Reforecasts for the current year
are prepared on a quarterly basis, reviewed for variances to the budget
and for approval. When setting budgets and reforecasts, management
identifies, evaluates and reports on the likelihood and potential financial
impact of significant business risks.
Executive Directors review monthly management reports on the financial
results and key operating statistics of each business division and
discuss with the executive management team and senior management
of business operations to review these reports, business performance
against budgets, forecasts, significant business risk sensitivities and
strategies. In addition, financial controllers of the executive management
team of each core business division discuss with the representatives of
the Finance Department to review monthly performance against budget
and forecast, and to address accounting and finance related matters.
The Finance Department has established guidelines and procedures for
the approval and control of expenditures. Operating expenditures are
subject to overall budget control and are controlled within each business
with approval levels set by reference to the level of responsibility of each
executive and officer. Capital expenditures are subject to overall control
within the annual budget review and approval process, and more specific
control and approval prior to commitment by the Finance Department
or Executive Directors are required for unbudgeted expenditures and
material expenditures within the approved budget. Quarterly reports of
actual versus budgeted and approved expenditures are also reviewed.
82
CORPORATE GOVERNANCE REPORT LEGAL AND REGULATORY CONTROL COMPLIANCE
Complaints Procedures (Whistleblowing)
The Group is committed to ensuring its businesses are operated in
compliance with local and international laws, rules and regulations. The
Legal Department has the responsibility of safeguarding the legal interests
of the Group, including preparing, reviewing and approving all legal and
corporate secretarial documentation of Group companies, working in
conjunction with finance, tax, treasury, corporate secretarial and business
unit personnel on the review and co-ordination process, and advising
Management of legal and commercial issues of concern. In addition,
the Legal Department is also responsible for overseeing regulatory
compliance matters of all Group companies. It analyzes and monitors
the regulatory frameworks within which the Group operates, including
reviewing applicable laws and regulations and preparing and submitting
responses or filings to relevant regulatory and/or government authorities
on regulatory issues and consultations. In addition, the Legal Department
prepares and updates internal policies where necessary so as to
strengthen the internal controls and compliance procedures of the Group.
The Legal Department also determines and approves the engagement of
external legal advisors, ensuring the requisite professional standards are
adhered to as well as most cost effective services are rendered. Further,
the Legal Department organizes and holds from time to time continuing
education on legal and regulatory matters of relevance to the Group for
Directors and the business executives.
GOVERNANCE POLICIES
The Group places utmost importance on the ethical, personal and
professional standards of Directors and employees of the Group. The
Board is committed to upholding high standards of business integrity,
honesty and transparency in all its business dealings. The Group has
adopted and implemented a number of governance policies imposing
requirements on Directors and employees to conduct themselves in
compliance with applicable laws, rules and regulations. These policies are
reviewed from time to time to ensure their relevance and appropriateness
to the Group’s business, corporate strategy and stakeholder expectations.
Key governance policies and guidelines of the Group include:
Code of Ethics
The Code of Ethics of the Group sets the standards for employees as are
necessary to promote honest and ethical conduct, accurate and timely
disclosure in the reports and documents that the Group files or submits
to regulators, compliance with applicable laws and regulations, prompt
internal reporting of violations and accountability for compliance with
the Code of Ethics. Every employee is required to undertake to adhere
to the Code of Ethics, which includes provisions dealing with conflict of
interest, equal opportunities, diversity and a respectful workplace, health
and safety, protection and proper use of company assets, record keeping,
bribery and corruption, personal data protection and privacy as well
as reporting procedures for illegal and unethical behaviour. Employees
are required to report any non-compliance with the Code of Ethics in
accordance with the established reporting and escalation procedures.
In line with the commitment to achieve and maintain high standards
of openness, probity and accountability, the Company expects and
encourages employees of the Group and those who deal with the
Group (e.g. customers, suppliers, creditors and debtors) to report to
the Company, in confidence, any suspected impropriety, misconduct
or malpractice concerning the Group. In this regard, the Company has
adopted the Complaints Procedures, which are posted on the website
of the Group. The procedures aim to provide reporting channels and
guidance on reporting possible improprieties and reassurance to
whistleblowers of the protection that the Group will extend to them in
the formal system, including anonymity and legal protection against
unfair dismissal or victimization for any genuine reports made. The Board
delegated the authority to the Audit Committee which is responsible for
ensuring that proper arrangements are in place for fair and independent
investigation of any matters raised and appropriate follow-up actions are
taken.
Anti-Bribery and Anti-corruption Policy
In its business dealings, the Group does not tolerate any form of bribery,
whether direct or indirect, by, or of, its Directors, officers, employees,
agents or consultants or any persons or companies acting for it or on its
behalf. The Anti-Bribery and Anti-Corruption Policy, which outlines the
Group’s zero-tolerance stance against bribery and corruption, assists
employees in recognizing circumstance which may lead to or give the
appearance of being involved in corruption or unethical business conduct,
so as to avoid such conduct which is clearly prohibited, and to promptly
seek guidance where necessary. Each business unit is required to report
any actual or suspected incident of bribery, corruption, theft, fraud or
similar offences to the internal auditor of CKHH for independent analyses
and necessary follow up.
Shareholders Communication Policy
The Group is committed to enhancing long-term shareholder value
through regular communication with its shareholders, both individual and
institutional. To this end, the Group strives to ensure that all shareholders
have ready and timely access to all publicly available information of the
Group. The Shareholders Communication Policy sets out the framework
the Company has put in place to promote effective communication with
shareholders so as to enable them to engage actively with the Company
and exercise their rights as shareholders in an informed manner.
Policy on Handling of Confidential and Price-sensitive
Inside Information, and Securities Dealing
With a view to ensuring that inside information is identified, handled and
disseminated in compliance with the applicable rules and regulations,
and proper internal control procedures are in place to guard against
mishandling of inside information which may constitute insider dealing or
breach of any other statutory obligations, the Group has implemented the
Policy on Handling of Confidential and Price-sensitive Inside Information
and Securities Dealing. The policy also adopts additional precautions
HUTCHMED (China) Limited 2021 Annual Report 83
which should be taken by employees who are in possession of inside
information, including identification of project by code name and
communication of information for stated purpose and on a need-to-know
basis only. Whilst all employees are absolutely prohibited at all times from
dealing in the securities of the Company when they are in possession of
unpublished inside information, certain members of senior management
or staff are subject to specific additional compliance requirements as are
communicated to them individually from time to time (including but not
limited to obtaining written pre-clearance from designated members of
management prior to any dealing in any such securities is allowed).
Internal audit is responsible for assessing the risk management and
internal control systems of the Group, including reviewing the continuing
connected transactions of the Company (refer to pages 52 to 55 of this
annual report for more details), formulating an impartial opinion on the
systems, and reporting its findings to the Audit Committee, the Executive
Director and the executive management team concerned as well as
following up on the issues to ensure that they are satisfactorily resolved.
In addition, internal audit maintains a regular dialogue with the external
auditor so that the parties are aware of the significant factors which may
affect their respective scope of work.
Depending on the nature of business and risk exposure of individual
business units, the scope of work performed by internal audit includes
financial, IT, operations, business ethics, governance policy and regulatory
compliance reviews, recurring and surprise audits, as well as productivity
efficiency reviews.
Internal audit is also responsible for periodic fraud analyses and
independent investigations. In accordance with the Code of Ethics and
Anti-Bribery and Anti-corruption Policy of the Group, each business
unit is required to report in a timely manner to the Company any actual
or suspected bribery, fraudulent or suspicious activities. These cases,
together with those escalated through the Complaints Procedures, are
recorded in the Company’s centralized fraud incidents register under the
internal audit’s custody, and are independently assessed and investigated
as appropriate. Internal audit would promptly escalate any incidents of
material nature to the Chairman of the Audit Committee for his direction.
Also, a summary of the fraud incidents and relevant statistics (including
results of independent investigations and actions taken) is presented to
the Audit Committee on a quarterly basis.
Reports from the external auditor on internal controls and relevant
financial reporting matters are presented to internal audit and, as
appropriate, to the Chief Financial Officer. These reports are reviewed and
appropriate actions are taken.
The Board, through the Audit Committee, has received confirmation from
Management on the effectiveness of the risk management and internal
control systems of the Group for the year ended 31 December 2021. It
has also conducted a review of the effectiveness covering all material
controls, including financial, operational and compliance controls, and is
of the view that such systems are effective and adequate. In addition, the
Board, through the Audit Committee, has reviewed and is satisfied with
the adequacy of resources, staff qualifications and experience, training
programmes and budget of the Group’s accounting, internal audit and
financial reporting functions.
Policy on Personal Data Governance
The Group is also committed to the safeguard and protection of the
personal data of its customers and employees. Employees must only
collect and use personal data in accordance with applicable data
protection laws, as well as the Policy on Personal Data Governance and
the applicable local policies and procedures.
Information Security Policy
Employees must not disclose any confidential information of the Group,
its customers, suppliers, business partners or shareholders, except when
disclosure is authorized by the Group in accordance with the Information
Security Policy which defines the common policies for information
confidentiality, integrity and availability to be applied across the entire
Group.
Employees are required to make a self-declaration every year to confirm
that he/she has read, understood and will continue to comply with the
various Group policies.
Board Diversity Policy and Director Nomination Policy
The two Board policies, Board Diversity Policy and Director Nomination
Policy adopted by the Board in July 2014 and December 2020, respectively
were updated in December 2020 and June 2021. These two policies set
out the approach and procedures the Board adopts for the nomination
and selection of Directors as well as the approach to achieving diversity.
Further details of the policies are provided on page 85 Nomination
Process section of this report.
INTERNAL AUDIT
Internal audit, reporting directly to the Audit Committee, provides
independent assurance as to the existence and effectiveness of the risk
management and internal control systems in the business operations
of the Group. It has wide authority to access to documents, records,
properties and personnel of the Group. By applying risk assessment
methodology and considering the dynamics of the activities of the Group,
internal audit devises its three-year risk-based audit plan for the Audit
Committee’s review. The plan is subject to continuous reassessment
taking into account external and internal factors such as macro economic
and regulatory changes, business and operational changes, as well as
audit and fraud findings that may affect the risk profile of the Group
during the year.
84
CORPORATE GOVERNANCE REPORT NOMINATION OF DIRECTORS
NOMINATION COMMITTEE
The current Nomination Committee, chaired by Professor Mok Shu Kam, Tony, an Independent Non-executive Director and with the Chairman Mr To Chi
Keung, Simon and Independent Non-executive Director Mr Graeme Allan Jack as members, is in full compliance with the code provision of the HK CG
Code.
The responsibilities of the Nomination Committee are to review the structure, size, diversity profile and skills set of the Board against its needs and make
recommendations on the composition of the Board to achieve the Group corporate strategy as well as promote shareholder value. It identifies suitable
director and senior management candidates and selects or makes recommendations to the Board on the appointment or re-appointment of Directors,
succession planning for Directors and selection of individuals to be nominated as senior management. Furthermore, it also assesses the independence
of Independent Non-executive Directors having regard to the criteria under the Hong Kong Listing Rules and U.S. Nasdaq Listing Rules and reviews the
Director Nomination Policy and Board Diversity Policy periodically and makes recommendation on any proposed revisions to the Board.
NOMINATION PROCESS
The nomination process has been, and will continue to be, conducted in accordance with the Director Nomination Policy and Board Diversity Policy,
which are available on the website of the Company. The Board will from time to time review these policies and monitor their implementation to ensure
continued effectiveness and compliance with regulatory requirements and good corporate governance practices.
Pursuant to the Director Nomination Policy, the Nomination Committee, in determining the suitability of a candidate, will consider the potential
contributions a candidate can bring to the Board including the attributes complementary to the Board, the commitment, motivation and integrity of the
candidate, having due consideration of the benefits of a diversified Board.
Under the Board Diversity Policy, Board candidates are selected based on merit and the contribution such candidate can bring to the Board to
complement and expand the competencies, experience and perspectives of the Board as a whole, taking into account the corporate strategy of the
Group and the benefits of various aspects of diversity, including gender, age, culture, ethnicity, educational background, professional experience and
other factors that the Nomination Committee may consider relevant from time to time towards achieving a diversified Board.
The following chart shows the diversity profile of the Board as at December 31, 2021:
Board Composi(cid:21)on and Diversity
above 64 years old
(40%)
9 years or above
(40%)
64 years old or below
(60%)
1-
8 years
(60%)
Female
(20%)
Male
(80%)
10
9
8
7
6
5
4
3
2
1
0
Chinese
(50%)
Non-
Chinese
(50%)
Execu(cid:31)ve
Directors
(40%)
Non-
Execu(cid:31)ve
Directors
(20%)
Independent
Non-
execu(cid:31)ve
Directors
(40%)
Age
Years on Board
Gender
Ethnicity
Designa(cid:31)on
HUTCHMED (China) Limited 2021 Annual Report 85
Gender diversity of the Board stands at 20% (two out of ten), above
average amongst companies listed on HKEX. The Board places
tremendous emphasis on diversity (including gender diversity) across
all levels of the Group. Gender diversity of the workforce also stands
at a relatively high level (male represents 46% and female represents
54%). Further details on the gender ratio of the Group and initiatives
taken to improve gender diversity across senior management and the
wider workforce, together with relevant data, can be found in the 2021
Sustainability Report of the Group, which will be published in May 2022.
If the Board determines that an additional or replacement Director is
required, the Nomination Committee will deploy multiple channels for
identifying suitable director candidates, including referral from Directors,
shareholders, management, advisors of the Company and external
executive search firms. Where a retiring Director, being eligible, offers
himself/herself for re-election, the Nomination Committee will consider
and, if appropriate, recommend such retiring Director to stand for re-
election. A circular containing the requisite information on retiring
Directors who are standing for re-election will be sent to shareholders
prior to a general meeting in accordance with the Hong Kong Listing
Rules.
Shareholders of the Company may also nominate a person to stand for
election as a Director at a general meeting in accordance with the Articles
of Association of the Company and applicable laws and regulations. The
procedures for such proposal are posted on the website of the Company.
and the assessment of their independence with reference to the
independence criteria set out in Hong Kong Listing Rules and Nasdaq
Listing Rules. In particular, the Nomination Committee considered that
the Independent Non-Executive Directors continue to provide a balanced
and independent view to the Board and play a leading role in the Board
committees and bring independent and external dimension as well
as constructive and informed comments on issues of the Company’s
strategy, policy, performance, accountability, resources, key appointments
and standards of conduct. In addition, none of the Independent Non-
executive Directors have any involvement in the daily management of
the Company, or any financial or other interests or relationships in the
business of the Company or there exist any circumstances which would
materially interfere with their exercise of independent judgment. It also
discussed the succession planning for Directors and Senior Management.
In March 2022, the Nomination Committee reviewed again the structure,
skills set, expertise and competencies of the Board, affirmed the
independence of the Independent Non-executive Directors, deliberated
and selected Directors for retirement and re-election at the 2022 annual
general meeting and recommended to the Board for consideration. It
also reviewed the Board Diversity Policy and Director Nomination Policy
as well as their implementation during 2021. These are determined to be
effective.
REMUNERATION OF DIRECTORS
AND SENIOR MANAGEMENT
The Terms of Reference for the Nomination Committee adopted by the
Board are published on the website of the Company.
REMUNERATION COMMITTEE
The Nomination Committee held six meetings in 2021 with 100%
attendance of its members.
Name of Member
Mok Shu Kam, Tony (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
Attended/
Eligible to
attend
6/6
6/6
6/6
During 2021, the Nomination Committee reviewed the structure, size and
composition (including skills set, knowledge and experience) of the Board,
ensuring that it has a balanced composition of skills and experience
appropriate for the requirements of the businesses of the Group and that
appropriate individuals with relevant expertise and leadership qualities
are appointed to the Board to complement the capabilities of existing
Directors.
The Nomination Committee also assessed the independence of all the
Independent Non-executive Directors and considered all of them being
independent, having regard to their annual independence confirmation
The Remuneration Committee comprises three members and is chaired
by Mr Paul Rutherford Carter, an Independent Non-executive Director, with
the Chairman Mr To Chi Keung, Simon and Independent Non-executive
Director Mr Graeme Allan Jack, as members. The composition of the
Remuneration Committee meets the requirements of chairmanship and
independence under the Hong Kong Listing Rules. The Remuneration
Committee meets towards the end of each year to determine the
remuneration package of Executive Directors and senior management of
the Group and during the year to consider grants of share options and
long term incentive plan awards and other remuneration related matters.
Remuneration matters are also considered and approved by way of
written resolutions and where warranted, at additional meetings.
The Remuneration Committee held three meetings in 2021 with 100%
attendance.
Name of Member
Paul Rutherford Carter (Chairman)
Graeme Allan Jack
To Chi Keung, Simon
Attended/
Eligible to
attend
3/3
3/3
3/3
86
CORPORATE GOVERNANCE REPORT
The responsibilities of the Remuneration Committee are to assist the Board in achieving its objectives of attracting, retaining and motivating employees
of the highest caliber and experience needed to shape and execute strategy across the Group’s substantial, diverse and international business operations.
It assists the Group in the administration of a fair and transparent procedure for setting remuneration policies including assessing the performance of
Executive Directors and senior executives of the Group and determining their remuneration packages.
The Terms of Reference for the Remuneration Committee adopted by the Board are published on the website of the Company.
During the year, the Remuneration Committee reviewed background information on market data (including economic indicators, statistics and
the Remuneration Bulletin), headcount and staff costs. It also reviewed and approved the proposed 2022 directors’ fees, year-end bonus and 2022
remuneration package of Executive Directors and senior executives of the Company. No Director or any or his/her associates is involved in deciding his/
her own remuneration.
REMUNERATION POLICY
The remuneration of Mr Christian Lawrence Hogg, Mr Cheng Chig Fung, Johnny and Dr Weiguo Su (Executive Directors) and senior executives is
determined by the Remuneration Committee with reference to the expertise and experience of those individuals in the industry, the performance and
profitability of the Group and remuneration benchmarks from other local and international companies as well as prevailing market conditions. Senior
management also participates in bonus arrangements which are determined in accordance with the performance of the Group and of the individual.
The compensation of the Chairman, Mr To Chi Keung, Simon, the Non-executive Directors and the Independent Non-executive Directors of the Company
has been structured approximately as to one-third cash (in the form of fixed Directors’ fees) and two-thirds restricted share units bought in the market by
the trustee of the Long Term Incentive Plan (“LTIP”) (in the form of non-performance based LTIP awards) and they do not receive any performance related
remuneration from the Company (Please refer to the Directors’ Report for more information about Directors’ compensation). Such non-performance
based LTIP awards vest 25% annually over a four year period. All Directors’ compensation arrangements are approved by the Board of Directors with the
relevant Directors declaring their interest and abstaining from voting where it relates to their compensation. In addition, the Nomination Committee of
the Company assesses the independence of all the Independent Non-executive Directors every year having regard to the criteria under the HK CG Code.
Therefore, the current compensation arrangements will not compromise the independence of the Independent Non-executive Directors.
2021 REMUNERATION
Directors’ emoluments comprise payments to Directors from the Company and its subsidiaries. The emoluments of each of the Directors disclosed in the
below table exclude amounts received by certain Directors from the subsidiaries of the Company but which were not retained and were paid onward by
the respective Directors to a subsidiary of the Company or subsidiaries of CKHH. The amounts paid to each Director for 2021 are as below:
Name of Director
Salary and fees
Executive Directors:
To Chi Keung, Simon
Christian Lawrence Hogg (9)
Cheng Chig Fung, Johnny
Weiguo Su
Non-executive Directors:
Dan Eldar
Edith Shih
US$
85,000 (1) (6)
469,038 (2) (6)
390,412 (3)
470,065 (4)
70,000
74,301 (5) (6)
Independent Non-executive Directors:
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Mok Shu Kam, Tony
117,000
102,500
111,000
99,011
Bonus
US$
–
1,000,000
410,256
834,621
–
–
–
–
–
–
Benefits-in-
kind
US$
–
9,936
9,936
6,790
–
–
–
–
–
–
Taxable
benefits
US$
–
18,365
–
10,000
–
–
–
–
–
–
Pension
contributions
US$
–
30,250
27,903
34,946
–
–
–
–
–
–
Non-
Other
Performance
based LTIP(7)
US$
Share-based
compensation(8)
US$
91,572 (1)
–
–
–
91,572
91,572 (5)
91,572
91,572
91,572
91,572
–
2,245,625
733,119
1,934,678
–
–
–
–
–
–
Total
US$
176,572
3,773,214
1,571,626
3,291,100
161,572
165,873
208,572
194,072
202,572
190,583
Aggregate emoluments
1,988,327
2,244,877
26,662
28,365
93,099
641,004
4,913,442
9,935,756
HUTCHMED (China) Limited 2021 Annual Report 87
Notes:
(1)
Such Director’s fees and non-performance based LTIP were paid/to be
transferred to his employer, Hutchison Whampoa (China) Limited.
(2)
Emoluments paid include Director’s fees of US$77,151.
(3)
Emoluments paid include Director’s fees of US$72,151.
(4)
Emoluments paid include Director’s fees of US$75,000.
(5)
(6)
(7)
(8)
Such Director’s fees and non-performance based LTIP were paid/to be
transferred to her employer, Hutchison International Limited.
Director’s fees received from the subsidiaries of the Company during the
year he/she served as director that were paid to a subsidiary of the Company
or subsidiaries of CKHH are not included in the amounts above.
LTIP awards to the Chairman, Mr To Chi Keung, Simon, the Non-executive
Directors and the Independent Non-executive Directors of the Company are
in the form of non-performance based LTIP only. Amounts above reflect the
annual amortization of the fixed monetary amounts of the LTIP awards over
their vesting periods.
Other share based compensation to Mr Christian Lawrence Hogg,
Mr Cheng Chig Fung, Johnny and Dr Weiguo Su includes share options and
performance based LTIP awards granted to Executive Directors. Amounts
above reflect the annual amortization of the fixed or determinable monetary
amounts of the LTIP awards and the grant date fair value of the share
options over their vesting periods. For performance based LTIP awards,
the monetary amount of LTIP awards are estimated based on the expected
achievement of the performance targets. The fair value of share options
granted is estimated in accordance with the methodology disclosed on page
106 of this annual report. This methodology does not take into account
the actual share price at the date of exercise or whether any vested share
options would be exercised. The significant inputs to the valuation model
are disclosed on page 121 of this annual report and the details of the share
options granted are set out in the “Directors’ Report” section on pages 58 to
63.
(9)
Retired on March 4, 2022.
In 2021, the Remuneration Committee has reviewed the approach to
remuneration and reporting on executive remuneration in detail. Aimed
at attracting and retaining top talent, the Remuneration Committee
appointed an independent advisor, Aon Hewitt Consulting (Shanghai) Co.,
Ltd. (“Aon”) to conduct a compensation benchmarking research on peer
group U.S. and China biotech companies. Aon has no other connection
with the Company or individual Directors. The Remuneration Committee
comprehensively reviewed the Group’s compensation and share-based
incentives policies, performed benchmarking research on peer group
U.S. and China biotech companies and established an attractive policy
to ensure the Group is able to recruit and retain top talent. Vesting of
share-based awards under the policy is in line with that peer group. The
Committee takes seriously its responsibility to ensure that the executive
remuneration practices of the Group drive strong performance, are aligned
with the strategy and sustainability of the Group and are appropriate in
the context of the external regulatory environment and the expectations
of our stakeholders.
88
The Committee consulted with the Group’s largest shareholder when
developing its remuneration policy. In reviewing and setting remuneration,
including that of Executive Directors, the Committee receives updates on
investors’ views from time to time. These lines of communication ensure
that emerging best-practice principles are factored into the Committee’s
decision-making.
The remuneration paid to the members of senior management, including
salaries, pension contributions, performance related bonuses and share-
based compensation (the annual amortization of share options and LTIP
awards), by bands during the year (or for the period of employment in
2021) is set out below:
Remuneration Bands
Number of Individuals
US$200,000 to US$600,000
US$600,000 to US$1,000,000
US$1,000,000 to US$1,400,000
US$1,400,000 to US$1,800,000
1
2
3
2
TECHNICAL COMMITTEE
The Technical Committee was chaired by Dr Karen Jean Ferrante with
the Chairman Mr To Chi Keung, Simon, Mr Christian Lawrence Hogg
and Dr Weiguo Su, Executive Directors, Mr Paul Rutherford Carter and
Professor Mok Shu Kam, Tony, both Independent Non-executive Directors,
as members. The Committee considers from time to time matters relating
to the technical aspects of the business and research and development. It
also invites such executives as it thinks fit to attend meetings as and when
required.
The Terms of Reference for the Technical Committee adopted by the
Board are published on the website of the Company.
The Technical Committee held three meetings in 2021 with 94%
attendance. All members attended the Technical Committee meetings
held during 2021 except for one Independent Non-executive Director who
was not able to attend one of the meetings due to other prior business
commitment.
Name of Member
Karen Jean Ferrante (Chairman)
Paul Rutherford Carter
Christian Lawrence Hogg Note
Mok Shu Kam, Tony
Weiguo Su
To Chi Keung, Simon
Note: Retired on March 4, 2022
Attended/
Eligible to attend
3/3
2/3
3/3
3/3
3/3
3/3
CORPORATE GOVERNANCE REPORT
RELATIONSHIP WITH
SHAREHOLDERS AND OTHER
STAKEHOLDERS
The Group gives high priority to, and actively promotes investor relations
and constructive dialogue with the investment community throughout the
year. Through the CEO, the CFO, the Investor Relations Department and
the Corporate Secretarial team, in addition to corporate communication
of the Company, the Group engages with and responds to requests
for information and queries from the investment community including
shareholders, analysts and the media through regular briefing meetings,
webcasts, announcements, conference calls and presentations. In 2021,
over 100 investor interactions including virtual meetings, in-person
meetings and conference calls and correspondence were conducted.
The Shareholders Communication Policy, which is available on the
website of the Company, sets out the framework in place to promote
two-way communication with shareholders so as to enable them
to engage actively with the Company and exercise their rights as
shareholders in an informed matter. The Audit Committee is responsible
for regular review of the effectiveness and compliance with prevailing
regulatory and other requirements of the policy. In June 2021, the
Shareholders Communication Policy was updated to elaborate on the
multiple avenues available for shareholders to communicate with the
Company and vice versa. In March 2022, the Audit Committee reviewed
the policy again and considered that the implementation of the policy
effective during 2021, see “Audit Committee” on page 76 of this report.
The Board adopted a Dividend Policy for the Company. The Board intends
to retain all future earnings for use in the operation and expansion of
the business of the Company and does not have any present plan to pay
any dividends for the immediate future. The declaration and payment
of any dividends in the future will be determined by the Board, and will
be dependent on a number of factors, including the earnings, capital
requirements, overall financial condition, and contractual obligations of
the Company.
The Board is committed to providing clear and full information
on the Group to shareholders through the publication of notices,
announcements, circulars, interim and annual reports. The Memorandum
and Articles of Association of the Company is published on the websites of
the Company and HKEX. Moreover, additional information on the Group
is also available to shareholders and stakeholders on the website of the
Company.
AGM and other general meetings of the Company provide one of the
primary forums for communication with shareholders and for shareholder
participation. Such meetings provide shareholders with the opportunity
to share their views and to meet the Board and certain members of senior
management. Question and answer sessions at general meetings foster
constructive dialogues between shareholders of the Company, Board
members and management.
Shareholders are encouraged to participate at general meetings of the
Company physically, through electronic means, or by proxy if they are
unable to attend in person. Pursuant to the Articles of Association of
the Company, any one or more shareholders (or one shareholder which
is a recognized clearing house, or its nominee(s)) holding not less than
one-tenth of the paid up share capital of the Company, carrying the
right of voting at general meetings of the Company, have rights to call
for general meetings and to put forward agenda items for consideration
by shareholders, by depositing at the principal office of the Company
in Hong Kong a written requisition for such general meetings, signed by
the shareholders concerned together with the objects of the meeting.
The Board would within 21 days from the date of deposit of requisition
convene the meeting to be held within two months after the deposit of
such requisition.
All substantive resolutions at general meetings are decided on a poll
which is conducted by the Company Secretary and scrutinized by the
Share Registrars of the Company. The results of the poll are published on
the websites of the Company and applicable stock exchanges. In addition,
regular updated financial, business and other information on the Group
are made available to the shareholders and stakeholders on the website
of the Company.
The latest shareholders’ meeting of the Company was the 2021 annual
general meeting (the “2021 AGM”), which was held on April 28, 2021 as
a hybrid meeting at which shareholders attended both physically and
by electronic facilities respectively, and attended by all Directors and
its external auditor. The respective chairmen of the Board, the Audit
Committee, the Nomination Committee, the Remuneration Committee
and the Technical Committee were all present. Directors are requested
and encouraged to attend shareholders’ meetings.
HUTCHMED (China) Limited 2021 Annual Report 89
Separate resolutions were proposed at the 2021 AGM on each substantive issue and the percentage of votes cast in favor of such resolutions as disclosed
in the announcement of the Company dated April 28, 2021 are set out below:
Resolutions proposed at the 2021 AGM
Percentage of Votes
1
Adoption of the audited financial statements and the reports of the directors and independent auditor for the year ended
2(A)
2(B)
2(C)
2(D)
2(E)
2(F)
2(G)
2(H)
2(I)
2(J)
3
4
December 31, 2020.
Re-election of Mr To Chi Keung, Simon as a director.
Re-election of Mr Christian Lawrence Hogg as a director.
Re-election of Mr Cheng Chig Fung, Johnny as a director.
Re-election of Dr Weiguo Su as a director.
Re-election of Dr Dan Eldar as a director.
Re-election of Ms Edith Shih as a director.
Re-election of Mr Paul Rutherford Carter as a director.
Re-election of Dr Karen Jean Ferrante as a director.
Re-election of Mr Graeme Allan Jack as a director.
Re-election of Professor Mok Shu Kam, Tony as a director.
Re-appointment of PricewaterhouseCoopers as the auditor of the Company and authorization of Directors to fix the auditor’s
remuneration.
Ordinary Resolution No. 4(A):
Granting of a general mandate to the directors of the Company to issue additional shares.
Special Resolution No. 4(B):
Disapplication of pre-emption rights (general power).
Special Resolution No. 4(C):
Disapplication of pre-emption rights (in connection with an equity raise).
Ordinary Resolution No. 4(D):
Granting a general mandate to the directors of the Company to repurchase shares of the
Company.
5
Special Resolution:
Change of the English name of the Company to “HUTCHMED (China) Limited” and the
Chinese name of the Company to “ 和黃醫藥（中國）有限公司 ”.
91.60%
88.11%
99.67%
99.45%
99.59%
94.22%
94.21%
87.74%
89.99%
87.66%
94.13%
99.94%
99.63%
99.39%
83.29%
99.95%
99.99%
Accordingly, all resolutions put to shareholders at the 2021 AGM were passed. The results of the voting by poll were published on the websites of the
Company and applicable stock exchanges.
The Articles of Association of the Company was amended and approved by shareholders by special resolutions on May 29, 2019 and effective upon Hong
Kong listing on June 30, 2021.
Other corporate information relating to the Company is set out in the “Information for Shareholders” section of this annual report. This includes, among
others, dates for key corporate events for 2022 and public float capitalization as at December 31, 2021.
The Group values feedback from shareholders on its efforts to promote transparency and foster investor relationship. Comments and suggestions
to the Board or the Company are welcome and can be addressed to the Company Secretary by mail/e-mail or to the Company by e-mail at
info@hutch-med.com.
90
CORPORATE GOVERNANCE REPORT
During 2021, the Sustainability Committee reviewed the future
sustainability initiatives with respect to the employees, customers,
community and environment. It also received and recommended the
2020 Sustainability Report of the Company to the Board which was
subsequently approved by the Board.
A standalone Sustainability Report of the Company for 2021 will be
published to further discuss the sustainability mission and strategies,
management approach, progress, material quantitative data, as well as
policies and key initiatives of the Group.
By Order of the Board
Edith Shih
Director and Company Secretary
March 3, 2022
SUSTAINABILITY
SUSTAINABILITY GOVERNANCE & APPROACHES
The key sustainability mission of the Group is to create long-term value
for all stakeholders by aligning its corporate social responsibility and
sustainability objectives to the strategic development of its businesses.
The Group is committed to contributing to sustainable living by providing
connectivity and innovative services to its customers, while building
trust with all stakeholders by behaving ethically and responsibly. Its
sustainability governance structure is embedded at all levels of the
Group to provide a solid foundation for developing and delivering on its
commitment to sustainability.
The Sustainability Committee, chaired by Ms Edith Shih, Non-executive
Director and Company Secretary, with Mr Christian Lawrence Hogg and
Mr Cheng Chig Fung, Johnny, Executive Directors, and Professor Mok Shu
Kam, Tony, Independent Non-executive Director, as members, was formed
as a Board committee on July 28, 2021 to strengthen the Company’s
corporate governance and reporting framework. It advises the Board and
Management on and oversees the development and implementation of
corporate social responsibility and sustainability initiatives of the Group,
including reviewing related policies and practices as well as assessing
and making recommendations on matters pertaining to the sustainability
governance, strategies, planning and risk management of the Group.
The Sustainability Committee (established in July 2021) held one meeting
in 2021 with 100% attendance.
Name of Member
Edith Shih (Chairman)
Cheng Chig Fung, Johnny
Christian Lawrence Hogg Note
Mok Shu Kam, Tony
Note: Retired on March 4, 2022
Attended/
Eligible to attend
1/1
1/1
1/1
1/1
HUTCHMED (China) Limited 2021 Annual Report 91
Basis for Opinion
We conducted our audit in accordance with Hong Kong Standards on
Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Group in accordance with the HKICPA’s Code
of Ethics for Professional Accountants (“the Code”), and we have fulfilled
our other ethical responsibilities in accordance with the Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment,
were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
To the Shareholders of HUTCHMED (China) Limited
(incorporated in the Cayman Islands with limited liability)
Opinion
What we have audited
The consolidated financial statements of HUTCHMED (China) Limited
(formerly known as “Hutchison China MediTech Limited”) (the “Company”)
and its subsidiaries (the “Group”), which are set out on pages 97 to 150,
comprise:
the consolidated balance sheets as at 31 December 2021;
the consolidated statements of operations for the year then ended;
the consolidated statements of comprehensive loss for the year then
ended;
the consolidated statements of changes in shareholders’ equity for
the year then ended;
the consolidated statements of cash flows for the year then ended;
and
•
•
•
•
•
•
Our opinion
In our opinion, the consolidated financial statements give a true and fair
view of the consolidated financial position of the Group as at 31 December
2021, and of its consolidated financial performance and its consolidated
cash flows for the year then ended in accordance with accounting
principles generally accepted in the U.S. (“U.S. GAAP”) and have been
properly prepared in compliance with the disclosure requirements of the
Hong Kong Companies Ordinance.
92
the notes to the consolidated financial statements, which include
significant accounting policies and other explanatory information.
Key audit matter identified in our audit is related to the allowances for
credit losses on accounts receivable and other receivables (except for
prepayments).
INDEPENDENT AUDITOR’S REPORT Key Audit Matter
How our audit addressed the Key Audit Matter
Allowances for credit losses on accounts receivable and other
receivables (except for prepayments)
Refer to Notes 3, 6 and 7 to the consolidated financial statements.
We performed the following audit procedures on the allowance for
credit losses on accounts receivable and other receivables (except for
prepayments):
As described in Note 6 to the consolidated financial statements, as of
December 31, 2021, the gross balance of accounts receivable was US$83.6
million and an allowance for credit losses of less than US$0.1 million was
made. As described in Note 7 to the consolidated financial statements, as
of December 31, 2021, the gross balance of other receivables was US$81.0
million which consisted of the balance of prepayments of US$14.1 million,
and no allowance for credit losses was made. As described in Note 3 to the
consolidated financial statements, the allowances for credit losses were
made based on estimate of current expected credit losses to be incurred
over the expected life of the receivables.
There were significant estimates and judgments by management when
developing the current expected credit losses to be incurred over the
expected life of the receivables, which in turn led to a high degree of
auditor judgment and significant audit effort in evaluating the audit
evidence related to the accounts receivable and other receivables (except
for prepayments) portfolio groups and estimated loss rates used by
management.
We obtained an understanding of management’s assessment process of
allowances for credit losses on accounts receivable and other receivables
(except for prepayments) and internal controls and assessed the degree of
complexity, subjectivity and uncertainty related to the significant management
estimates and judgements used.
We evaluated and validated key internal controls relating to management’s
estimate of allowances for credit losses on accounts receivable and other
receivables (except for prepayments).
We evaluated the appropriateness of the model and methodology used by
management to develop the current expected credit losses.
We assessed the reasonableness of accounts receivable and other receivables
(except for prepayments) portfolio groups used by management by evaluating
the credit risk characteristics of these receivables.
We assessed the reasonableness of estimated loss rates used by management
by evaluating the historical default rates and application of forward-looking
information.
We tested the accuracy and completeness of the underlying data, including
historical collection records and aging of the receivables, on a sample basis, by
comparing selected items with relevant supporting documents, and tested the
mathematical accuracy of allowance for credit losses.
Based on the audit procedures performed, we found that the estimates used
and judgments made by management in developing the allowances for credit
losses on accounts receivable and other receivables (except for prepayments)
were supportable in light of available evidence.
Other Information
The directors of the Group are responsible for the other information. The other information comprises all of the information included in the annual report
other than the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
HUTCHMED (China) Limited 2021 Annual Report 93
•
•
•
•
•
Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the directors.
Conclude on the appropriateness of the directors' use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going
concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial
information of the entities or business activities within the Group to
express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters,
the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify
during our audit.
We also provide the directors with a statement that we have complied
with relevant ethical requirements regarding independence, and
to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where
applicable, actions taken to eliminate threats or safeguards applied.
Responsibilities of Directors for the Consolidated Financial
Statements
The directors of the Group are responsible for the preparation of the
consolidated financial statements that give a true and fair view in
accordance with U.S. GAAP and the disclosure requirements of the Hong
Kong Companies Ordinance, and for such internal control as the directors
determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, the directors are
responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
The directors are responsible for overseeing the Group’s financial
reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. We report our opinion solely to you, as a
body, and for no other purpose. We do not assume responsibility towards
or accept liability to any other person for the contents of this report.
Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with HKSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with HKSAs, we exercise professional
judgment and maintain professional scepticism throughout the audit. We
also:
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
•
94
INDEPENDENT AUDITOR’S REPORT From the matters communicated with the directors, we determine those
matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits
of such communication.
The engagement partner on the audit resulting in this independent
auditor’s report is Cheuk Chi Shing.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, March 3, 2022
HUTCHMED (China) Limited 2021 Annual Report 95
CONSOLIDATED FINANCIAL
STATEMENTS
HUTCHMED (CHINA) LIMITED
CONSOLIDATED BALANCE SHEETS
(IN US$’000, EXCEPT SHARE DATA)
Note
2021
2020
December 31,
Assets
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Other receivables, prepayments and deposits
Inventories
Total current assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Investments in equity investees
Other non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
Other payables, accruals and advance receipts
Bank borrowings
Income tax payable
Other current liabilities
Total current liabilities
Lease liabilities
Deferred tax liabilities
Long-term bank borrowings
Other non-current liabilities
Total liabilities
Commitments and contingencies
5
5
6
7
8
9
10
25(ii)
11
12
13
14
15
25(iii)
10
25(ii)
15
16
377,542
634,158
83,580
81,041
35,755
1,212,076
41,275
11,879
9,401
76,479
21,551
1,372,661
41,177
210,839
26,905
15,546
17,191
311,658
7,161
2,765
—
11,563
333,147
235,630
199,546
47,870
27,928
19,766
530,740
24,170
8,016
1,515
139,505
20,172
724,118
31,612
121,283
—
1,120
4,382
158,397
6,064
5,063
26,861
8,784
205,169
Company’s shareholders’ equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares
authorized; 864,530,850 and 727,722,215 shares issued at
December 31, 2021 and 2020 respectively
17
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive income
Total Company’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
86,453
1,505,196
(610,328)
5,572
986,893
52,621
1,039,514
1,372,661
72,772
822,458
(415,591)
4,477
484,116
34,833
518,949
724,118
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2021 Annual Report 97
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN US$’000, EXCEPT SHARE AND PER SHARE DATA)
Revenues
Goods —third parties
—related parties
Services —commercialization—third parties
—collaboration research and
development
—third parties
—research and development
Note
2021
2020
2019
Year Ended December 31,
24(i)
266,199
4,256
27,428
203,606
5,484
3,734
175,990
7,637
2,584
18,995
9,771
15,532
—related parties
24(i)
525
491
494
Other collaboration revenue
—royalties—third parties
—licensing—third parties
Total revenues
Operating expenses
Costs of goods—third parties
Costs of goods—related parties
Costs of services—commercialization —
third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other income/(expense)
Interest income
Other income
Interest expense
Other expense
Total other income/(expense)
Loss before income taxes and equity in
earnings of equity investees
Income tax expense
Equity in earnings of equity investees, net of tax
Net loss
Less: Net income attributable to non-controlling
interests
Net loss attributable to the Company
Losses per share attributable to the Company—
19
21
23
27
27
15,064
23,661
356,128
4,890
—
227,976
2,653
—
204,890
(229,448)
(3,114)
(178,828)
(3,671)
(152,729)
(5,494)
(25,672)
(299,086)
(37,827)
(89,298)
(684,445)
(328,317)
121,310
2,076
2,426
(592)
(12,643)
(8,733)
(6,020)
(174,776)
(11,334)
(50,015)
(424,644)
(196,668)
—
3,236
4,600
(787)
(115)
6,934
(1,929)
(138,190)
(13,724)
(39,210)
(351,276)
(146,386)
—
4,944
1,855
(1,030)
(488)
5,281
25(i)
11
(215,740)
(11,918)
60,617
(167,041)
(189,734)
(4,829)
79,046
(115,517)
(141,105)
(3,274)
40,700
(103,679)
(27,607)
(194,648)
(10,213)
(125,730)
(2,345)
(106,024)
basic and diluted (US$ per share)
26
(0.25)
(0.18)
(0.16)
Number of shares used in per share calculation—
basic and diluted
26
792,684,524
697,931,437
665,683,145
The accompanying notes are an integral part of these consolidated financial statements.
98
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN US$’000)
Net loss
Other comprehensive income/(loss)
Foreign currency translation gain/(loss)
Total comprehensive loss
Less: Comprehensive income attributable to
non-controlling interests
Total comprehensive loss attributable to the Company
Year Ended December 31,
2021
2020
(167,041)
(115,517)
2019
(103,679)
2,964
(164,077)
9,530
(105,987)
(4,331)
(108,010)
(28,029)
(192,106)
(11,413)
(117,400)
(1,620)
(109,630)
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2021 Annual Report 99
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN US$’000, EXCEPT SHARE DATA IN ’000)
Ordinary
Shares
Number
Ordinary
Shares
Value
Additional
Paid-in
Capital
As at January 1, 2019
666,577
66,658
505,585
Net (loss)/income
Issuances in relation to share option
exercises
Share-based compensation
Share options
Long-term incentive plan (“LTIP”)
LTIP—treasury shares acquired and
held by Trustee
Transfer between reserves
Foreign currency translation
adjustments
—
329
—
—
—
—
—
—
—
33
—
—
—
—
—
—
—
218
7,157
2,239
9,396
(346)
51
—
Accumulated
Losses
(183,659)
(106,024)
—
—
—
—
—
(51)
Accumulated
Other
Comprehensive
(Loss)/Income
Total
Company’s
Shareholders’
Equity
Non-
controlling
Interests
Total
Shareholders’
Equity
(243)
388,341
23,243
411,584
—
—
—
—
—
—
—
(106,024)
2,345
(103,679)
251
7,157
2,239
9,396
(346)
—
—
16
12
28
—
—
251
7,173
2,251
9,424
(346)
—
—
(3,606)
(3,606)
(725)
(4,331)
As at December 31, 2019
666,906
66,691
514,904
Net (loss)/income
—
—
—
(289,734)
(125,730)
Issuance in relation to public offering
23,669
2,366
115,975
Issuances in relation to private
investment in public equity
(“PIPE”)
Issuance costs
Issuances in relation to share option
exercises
Share-based compensation
Share options
LTIP
LTIP—treasury shares acquired and
held by Trustee
Dividends declared to non-controlling
shareholders of subsidiaries
Purchase of additional interests in a
subsidiary of an equity investee
(Note 11)
Transfer between reserves
Foreign currency translation
adjustments
36,667
3,667
—
480
—
—
—
—
—
—
—
—
—
48
—
—
—
—
—
—
—
—
196,333
(8,317)
545
8,727
7,203
15,930
(12,904)
—
(52)
44
—
As at December 31, 2020
727,722
72,772
822,458
Net (loss)/income
—
—
Issuance in relation to public offering
119,600
11,960
Issuance in relation to PIPE
16,393
1,639
Issuance costs
Issuances in relation to share option
exercises
Share-based compensation
Share options
LTIP
LTIP—treasury shares acquired and
held by Trustee
Dividends declared to non-controlling
shareholders of subsidiaries
Transfer between reserves
Divestment of an equity investee
(Note 23)
Foreign currency translation
adjustments
—
816
—
—
—
—
—
—
—
—
—
82
—
—
—
—
—
—
—
—
—
602,907
98,361
(29,806)
2,370
16,339
19,808
36,147
(27,309)
—
89
(21)
—
—
—
—
—
—
—
—
—
—
(83)
(44)
—
(415,591)
(194,648)
—
—
—
—
—
—
—
—
—
(89)
—
—
As at December 31, 2021
864,531
86,453
1,505,196
(610,328)
(3,849)
288,012
24,891
312,903
—
—
—
—
—
—
—
—
—
—
(4)
—
8,330
4,477
—
—
—
—
—
—
—
—
—
—
—
(125,730)
10,213
(115,517)
118,341
—
118,341
200,000
(8,317)
593
8,727
7,203
15,930
(12,904)
—
—
—
10
16
26
—
200,000
(8,317)
593
8,737
7,219
15,956
(12,904)
—
(1,462)
(1,462)
(139)
—
(35)
—
(174)
—
8,330
1,200
9,530
484,116
34,833
518,949
(194,648)
27,607
(167,041)
614,867
100,000
(29,806)
2,452
16,339
19,808
36,147
(27,309)
—
—
—
—
26
70
96
—
614,867
100,000
(29,806)
2,452
16,365
19,878
36,243
(27,309)
—
—
(9,894)
(9,894)
—
—
(1,447)
(1,468)
(443)
(1,911)
2,542
5,572
2,542
422
2,964
986,893
52,621
1,039,514
The accompanying notes are an integral part of these consolidated financial statements.
100
HUTCHMED (CHINA) LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN US$’000)
Net cash used in operating activities
Investing activities
Purchases of property, plant and equipment
Purchase of leasehold land
Refund/(payment) of leasehold land deposit
Deposits in short-term investments
Proceeds from short-term investments
Purchase of a warrant
Proceeds from divestment of an equity investee
Purchase of a subsidiary company
Cash acquired in purchase of a subsidiary company
Net cash (used in)/generated from investing activities
Financing activities
Proceeds from issuances of ordinary shares
Purchases of treasury shares
Dividends paid to non-controlling shareholders of
Year Ended December 31,
Note
28
2021
(204,223)
2020
(62,066)
2019
(80,912)
12
20
23
(16,401)
(355)
930
(1,355,976)
921,364
(15,000)
159,118
—
—
(7,949)
(11,631)
(2,326)
(732,908)
629,373
—
—
—
—
(306,320)
(125,441)
(8,565)
—
—
(478,140)
597,044
—
—
(8,080)
16,769
119,028
18(ii)
717,319
(27,309)
318,934
(12,904)
251
(346)
subsidiaries
(9,894)
(1,462)
(1,282)
Repayment of loan to a non-controlling shareholder of a
subsidiary
Proceeds from bank borrowings
Repayment of bank borrowings
Payment of issuance costs
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash
equivalents
Cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure for cash flow information
Cash paid for interest
Cash paid for tax, net of refunds
Supplemental disclosure for non-cash activities
Increase in accrued capital expenditures
Vesting of treasury shares for LTIP
25(iii)
18(ii)
(579)
—
—
(29,509)
650,028
139,485
—
—
—
(8,134)
296,434
108,927
—
26,807
(26,923)
—
(1,493)
36,623
2,427
141,912
5,546
114,473
(1,502)
35,121
235,630
377,542
121,157
235,630
86,036
121,157
425
5,014
8,607
1,450
815
5,940
298
4,828
917
3,249
1,068
944
The accompanying notes are an integral part of these consolidated financial statements.
HUTCHMED (China) Limited 2021 Annual Report 101
HUTCHMED (CHINA) LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Business
HUTCHMED (China) Limited (formerly known as “Hutchison China MediTech Limited”) (the “Company”)
and its subsidiaries (together the “Group”) are principally engaged in researching, developing, manufacturing
and marketing pharmaceutical products. The Group and its equity investees have research and development
facilities and manufacturing plants in the People’s Republic of China (the “PRC”) and sell their products mainly
in the PRC, including Hong Kong. In addition, the Group has established international operations in the United
States of America (the “U.S.”) and Europe.
The Company’s ordinary shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited
(“HKEX”) (listing completed in June 2021) and the AIM market of the London Stock Exchange, and its American
depositary shares (“ADS”) are traded on the Nasdaq Global Select Market.
Liquidity
As at December 31, 2021, the Group had accumulated losses of US$610,328,000 primarily due to its
spending in drug research and development activities. The Group regularly monitors current and expected
liquidity requirements to ensure that it maintains sufficient cash balances and adequate credit facilities to meet
its liquidity requirements in the short and long term. As at December 31, 2021, the Group had cash and cash
equivalents of US$377,542,000, short-term investments of US$634,158,000 and unutilized bank borrowing
facilities of US$157,430,000. Short-term investments comprised of bank deposits maturing over three months.
The Group’s operating plan includes the continued receipt of dividends from an equity investee. Dividends
received for the years ended December 31, 2021, 2020 and 2019 were US$49,872,000, US$86,708,000 and
US$28,135,000 respectively.
Based on the Group’s operating plan, the existing cash and cash equivalents, short-term investments and
unutilized bank borrowing facilities are considered to be sufficient to meet the cash requirements to fund planned
operations and other commitments for at least the next twelve months (the look-forward period used).
102
2. Particulars of Principal Subsidiaries and Equity Investees
Name
Subsidiaries
HUTCHMED Limited (formerly
known as “Hutchison MediPharma
Limited”)
Place of
establishment
and
operations
Equity interest attributable
to the Group
December 31,
2021
2020
Principal activities
PRC
99.75 % 99.75 % Research, development,
manufacture and
commercialization of
pharmaceutical products
HUTCHMED International
U.S.
99.75 % 99.75 % Provision of professional, scientific
Corporation (formerly known as
“Hutchison MediPharma
International Inc.”)
Hutchison Whampoa Sinopharm
Pharmaceuticals (Shanghai)
Company Limited (“HSPL”)
Hutchison Hain Organic (Hong
Kong) Limited (“HHOHK”)
(note (a))
and technical support services
PRC
50.87 % 50.87 % Provision of sales, distribution and
Hong
Kong
marketing services to
pharmaceutical manufacturers
50 %
50 % Wholesale and trading of
healthcare and consumer
products
100 % Manufacture and distribution of
healthcare products
Hutchison Healthcare Limited
PRC
100 %
HUTCHMED Science Nutrition
Limited (formerly known as
“Hutchison Consumer Products
Limited”)
Equity investees
Shanghai Hutchison
Pharmaceuticals Limited (“SHPL”)
Hutchison Whampoa Guangzhou
Baiyunshan Chinese Medicine
Company Limited (“HBYS”)
(note (b))
Notes:
Hong
Kong
100 %
100 % Wholesale and trading of
healthcare and consumer
products
PRC
50 %
50 % Manufacture and distribution of
PRC
— %
40 % Manufacture and distribution of
prescription drug products
over-the-counter drug products
(a) HHOHK is regarded as a subsidiary of the Company, as while both its shareholders have equal
representation at the board, in the event of a deadlock, the Group has a casting vote and is therefore able
to unilaterally control the financial and operating policies of HHOHK.
(b) On September 28, 2021, the Group completed a transaction to sell its entire investment in HBYS to a third
party (Note 23).
3. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements reflect the accounts of the Company and all of its
subsidiaries in which a controlling interest is maintained. All inter-company balances and transactions have
been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the U.S. (“U.S. GAAP”).
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
HUTCHMED (China) Limited 2021 Annual Report 103
Foreign Currency Translation
The Company’s presentation currency and functional currency is the U.S. dollar (“US$”). The financial
statements of its subsidiaries with a functional currency other than the US$ have been translated into the
Company’s presentation currency. All assets and liabilities of the subsidiaries are translated using year-end
exchange rates and revenues and expenses are translated at average exchange rates for the year. Translation
adjustments are reflected in accumulated other comprehensive (loss)/income in shareholders’ equity.
Net foreign currency exchange gains of US$1,671,000, US$3,265,000 and US$246,000 were recorded
in other income in the consolidated statements of operations for the years ended December 31, 2021, 2020 and
2019 respectively.
Foreign Currency Risk
The Group’s operating transactions and its assets and liabilities in the PRC are mainly denominated in
Renminbi (“RMB”), which is not freely convertible into foreign currencies. The Group’s cash and cash
equivalents denominated in RMB are subject to government controls. The value of the RMB is subject to
fluctuations from central government policy changes and international economic and political developments
that affect the supply and demand of RMB in the foreign exchange market. In the PRC, certain foreign exchange
transactions are required by law to be transacted only by authorized financial institutions at exchange rates set
by the People’s Bank of China (the “PBOC”). Remittances in currencies other than RMB by the Group in the
PRC must be processed through the PBOC or other PRC foreign exchange regulatory bodies which require
certain supporting documentation in order to complete the remittance.
Allowance for Current Expected Credit Losses and Concentration of Credit Risk
Financial instruments that potentially expose the Group to credit risk consist primarily of cash and cash
equivalents, short-term investments, and financial assets not carried at fair value including accounts receivable
and other receivables.
The Group recognizes an allowance for current expected credit losses on financial assets not carried
at fair value. Current expected credit losses are calculated over the expected life of the financial assets on an
individual or a portfolio basis considering information available about the counterparties’ credit situation and
collectability of the specific cash flows, including information about past events, current conditions and future
forecasts.
The Group has no significant concentration of credit risk. The Group places substantially all of its cash
and cash equivalents and short-term investments in major financial institutions, which management believes
are of high credit quality. The Group has a practice to limit the amount of credit exposure to any particular
financial institution. Additionally, the Group has policies in place to ensure that sales are made to customers
with an appropriate credit history and the Group performs periodic credit evaluations of its customers. Normally
the Group does not require collateral from trade debtors.
Cash and Cash Equivalents
The Group considers all highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Cash and cash equivalents consist primarily of cash on hand and bank deposits
and are stated at cost, which approximates fair value.
Short-term Investments
Short-term investments include deposits placed with banks with original maturities of more than three
months but less than one year.
104
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from customers based
on their outstanding invoices. The allowance for credit losses reflects the Group's current estimate of credit
losses expected to be incurred over the life of the receivables. The Group considers various factors in
establishing, monitoring, and adjusting its allowance for credit losses including the aging of the accounts and
aging trends, the historical level of charge-offs, and specific exposures related to particular customers. The
Group also monitors other risk factors and forward-looking information, such as country risk, when determining
credit limits for customers and establishing adequate allowances for credit losses. Accounts receivable are
written off after all reasonable means to collect the full amount (including litigation, where appropriate) have
been exhausted.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted
average cost method. The cost of finished goods comprises raw materials, direct labor, other direct costs and
related production overheads (based on normal operating capacity). Net realizable value is the estimated selling
price in the ordinary course of business, less applicable variable selling expenses. A provision for excess and
obsolete inventory will be made based primarily on forecasts of product demand and production requirements.
The excess balance determined by this analysis becomes the basis for excess inventory charge and the written-
down value of the inventory becomes its cost. Written-down inventory is not written up if market conditions
improve.
Property, Plant and Equipment
Property, plant and equipment consist of buildings, leasehold improvements, plant and equipment,
furniture and fixtures, other equipment and motor vehicles. Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated
useful lives of the depreciable assets.
Buildings
Plant and equipment
Furniture and fixtures, other equipment
20 years
5-10 years
and motor vehicles
Leasehold improvements
4-5 years
Shorter of (a) 5 years or (b) remaining term of lease
Additions and improvements that extend the useful life of an asset are capitalized. Repairs and
maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets
The Group evaluates the recoverability of long-lived assets in accordance with authoritative guidance
on accounting for the impairment or disposal of long-lived assets. The Group evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying value of these assets may
not be recoverable. If indicators of impairment exist, the first step of the impairment test is performed to assess
if the carrying value of the net assets exceeds the undiscounted cash flows of the assets. If yes, the second
step of the impairment test is performed in order to determine if the carrying value of the net assets exceeds
the fair value. If yes, impairment is recognized for the excess.
Investments in Equity Investees
Investments in equity investees over which the Group has significant influence are accounted for using
the equity method. The Group evaluates equity method investments for impairment when events or
circumstances suggest that their carrying amounts may not be recoverable. An impairment charge would be
recognized in earnings for a decline in value that is determined to be other-than-temporary after assessing the
severity and duration of the impairment and the likelihood of recovery before disposal. The investments are
recorded at fair value only if impairment is recognized.
Leasehold Land
Leasehold land represents fees paid to acquire the right to use the land on which various plants and
buildings are situated for a specified period of time from the date the respective right was granted and are stated
at cost less accumulated amortization and impairment loss, if any. Amortization is computed using the straight-
line basis over the lease period of 50 years.
HUTCHMED (China) Limited 2021 Annual Report 105
Goodwill
Goodwill represents the excess of the purchase price plus fair value of non-controlling interests over
the fair value of identifiable assets and liabilities acquired. Goodwill is not amortized, but is tested for impairment
at the reporting unit level on at least an annual basis or when an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its carrying amount. When performing
an evaluation of goodwill impairment, the Group has the option to first assess qualitative factors, such as
significant events and changes to expectations and activities that may have occurred since the last impairment
evaluation, to determine if it is more likely than not that goodwill might be impaired. If as a result of the qualitative
assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount,
the quantitative fair value test is performed to determine if the fair value of the reporting unit exceeds its carrying
value.
Other Intangible Assets
Other intangible assets with finite useful lives are carried at cost less accumulated amortization and
impairment loss, if any. Amortization is computed using the straight-line basis over the estimated useful lives of
the assets.
Borrowings
Borrowings are recognized initially at fair value, net of debt issuance costs incurred. Borrowings are
subsequently stated at amortized cost; any difference between the proceeds (net of debt issuance costs) and
the redemption value is recognized in the consolidated statements of operations over the period of the
borrowings using the effective interest method.
Ordinary Shares
The Company’s ordinary shares are stated at par value of US$0.10 per ordinary share. The difference
between the consideration received, net of issuance cost, and the par value is recorded in additional paid-in
capital.
Treasury Shares
The Group accounts for treasury shares under the cost method. The treasury shares are purchased for
the purpose of the LTIP and held by a trustee appointed by the Group (the “Trustee”) prior to vesting.
Share-Based Compensation
Share options
The Group recognizes share-based compensation expense on share options granted to employees
and directors based on their estimated grant date fair value using the Polynomial model. This Polynomial pricing
model uses various inputs to measure fair value, including the market value of the Company’s underlying
ordinary shares at the grant date, contractual terms, estimated volatility, risk-free interest rates and expected
dividend yields. The Group recognizes share-based compensation expense in the consolidated statements of
operations on a graded vesting basis over the requisite service period, and accounts for forfeitures as they
occur.
Share options are classified as equity-settled awards. Share-based compensation expense, when
recognized, is charged to the consolidated statements of operations with the corresponding entry to additional
paid-in capital.
LTIP
The Group recognizes the share-based compensation expense on the LTIP awards based on a fixed
or determinable monetary amount on a straight-line basis for each annual tranche awarded over the requisite
period. For LTIP awards with performance targets, prior to their determination date, the amount of LTIP awards
that is expected to vest takes into consideration the achievement of the performance conditions and the extent
to which the performance conditions are likely to be met. Performance conditions vary by awards, and may
include targets for shareholder returns, financings, free cash flows, revenues, net profit after taxes and the
achievement of clinical and regulatory milestones.
106
These LTIP awards are classified as liability-settled awards before the determination date (i.e. the date
when the achievement of any performance conditions are known), as they settle in a variable number of shares
based on a determinable monetary amount, which is determined upon the actual achievement of performance
targets. As the extent of achievement of the performance targets is uncertain prior to the determination date, a
probability based on management’s assessment of the achievement of the performance targets has been
assigned to calculate the amount to be recognized as an expense over the requisite period.
After the determination date or if the LTIP awards have no performance conditions, the LTIP awards
are classified as equity-settled awards. If the performance target is achieved, the Group will pay the determined
monetary amount to the Trustee to purchase ordinary shares of the Company or the equivalent ADS. Any
cumulative compensation expense previously recognized as a liability will be transferred to additional paid-in
capital, as an equity-settled award. If the performance target is not achieved, no ordinary shares or ADS of the
Company will be purchased and the amount previously recorded in the liability will be reversed and included in
the consolidated statements of operations.
Defined Contribution Plans
The Group’s subsidiaries in the PRC participate in a government-mandated multi-employer defined
contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to
employees. The relevant labor regulations require the Group’s subsidiaries in the PRC to pay the local labor
and social welfare authority’s monthly contributions at a stated contribution rate based on the monthly basic
compensation of qualified employees. The relevant local labor and social welfare authorities are responsible
for meeting all retirement benefits obligations and the Group’s subsidiaries in the PRC have no further
commitments beyond their monthly contributions. The contributions to the plan are expensed as incurred.
The Group also makes payments to other defined contribution plans for the benefit of employees
employed by subsidiaries outside the PRC. The defined contribution plans are generally funded by the relevant
companies and by payments from employees.
The Group’s contributions to defined contribution plans for the years ended December 31, 2021, 2020
and 2019 amounted to US$7,181,000, US$2,660,000 and US$3,479,000 respectively.
Revenue Recognition
Revenue is measured based on consideration specified in a contract with a customer, and excludes
any sales incentives and amounts collected on behalf of third parties. Taxes assessed by a governmental
authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are
collected by the Group from a customer, are also excluded from revenue. The Group recognizes revenue when
it satisfies a performance obligation by transferring control over a good, service or license to a customer.
(i)
Goods and services
The Group principally generates revenue from (1) sales of goods, which are the manufacture or
purchase and distribution of pharmaceutical products and other consumer health products, and (2) provision of
services, which are the provision of sales, distribution and marketing services to pharmaceutical manufacturers.
The Group evaluates whether it is the principal or agent for these contracts. Where the Group obtains control
of the goods for distribution, it is the principal (i.e. recognizes sales of goods on a gross basis). Where the Group
does not obtain control of the goods for distribution, it is the agent (i.e. recognizes provision of services on a net
basis). Control is primarily evidenced by taking physical possession and inventory risk of the goods.
Revenue from sales of goods is recognized when the customer takes possession of the goods. This
usually occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized
is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers
as direct discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using
the expected value method. Additionally, sales are generally made with a limited right of return under certain
conditions. Revenues are recorded net of provisions for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the
customer over time, which is based on the proportionate value of services rendered as determined under the
terms of the relevant contract. Additionally, when the amounts that can be invoiced correspond directly with the
value to the customer for performance completed to date, the Group recognizes revenue from provision of
services based on amounts that can be invoiced to the customer.
HUTCHMED (China) Limited 2021 Annual Report 107
Deferred revenue is recognized if consideration is received in advance of transferring control of the
goods or rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill
the customer, which is generally when the customer takes possession of the goods or services are rendered.
Payment terms differ by subsidiary and customer, but generally range from 45 to 180 days from the invoice
date.
(ii)
License and collaboration contracts
The Group’s Oncology/Immunology reportable segment includes revenue generated from license and
collaboration contracts, which generally contain multiple performance obligations including (1) the license to
the commercialization rights of a drug compound and (2) the research and development services for each
specified treatment indication, which are accounted for separately if they are distinct, i.e. if a product or service
is separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or
with other resources that are readily available to the customer.
The transaction price generally includes fixed and variable consideration in the form of upfront payment,
research and development cost reimbursements, contingent milestone payments and sales-based royalties.
Contingent milestone payments are not included in the transaction price until it becomes probable that a
significant reversal of revenue will not occur, which is generally when the specified milestone is achieved. The
allocation of the transaction price to each performance obligation is based on the relative standalone selling
prices of each performance obligation determined at the inception of the contract. The Group estimates the
standalone selling prices based on the income approach. Control of the license to the drug compounds transfers
at the inception date of the collaboration agreements and consequently, amounts allocated to this performance
obligation are generally recognized at a point in time. Conversely, research and development services for each
specified indication are performed over time and amounts allocated to these performance obligations are
generally recognized over time using cost inputs as a measure of progress. The Group has determined that
research and development expenses provide an appropriate depiction of measure of progress for the research
and development services. Changes to estimated cost inputs may result in a cumulative catch-up adjustment.
Royalty revenues are recognized as future sales occur as they meet the requirements for the sales-usage
based royalty exception.
Deferred revenue is recognized if allocated consideration is received in advance of the Group rendering
research and development services or earning royalties on future sales. Accounts receivable is recognized
based on the terms of the contract and when the Group has an unconditional right to bill the customer, which is
generally when research and development services are rendered.
Research and Development Expenses
Research and development expenses include the following: (i) research and development costs, which
are expensed as incurred; (ii) acquired in-process research and development (“IPR&D”) expenses, which
include the initial costs of externally developed IPR&D projects, acquired directly in a transaction other than a
business combination, that do not have an alternative future use; and (iii) milestone payment obligations for
externally developed IPR&D projects incurred prior to regulatory approval of the product in the in-licensed
territory, which are accrued when the event requiring payment of the milestone occurs (milestone payment
obligations incurred upon regulatory approval are recorded as other intangible assets).
Collaborative Arrangements
The Group enters into collaborative arrangements with collaboration partners that fall under the scope
of Accounting Standards Codification (“ASC”) 808, Collaborative Arrangements (“ASC 808”). The Group
records all expenditures for such collaborative arrangements in research and development expenses as
incurred, including payments to third party vendors and reimbursements to collaboration partners, if any.
Reimbursements from collaboration partners are recorded as reductions to research and development
expenses and accrued when they can be contractually claimed.
Government Grants
Grants from governments are recognized at their fair values. Government grants that are received in
advance are deferred and recognized in the consolidated statements of operations over the period necessary
to match them with the costs that they are intended to compensate. Government grants in relation to the
achievement of stages of research and development projects are recognized in the consolidated statements of
operations when amounts have been received and all attached conditions have been met. Non-refundable
grants received without any further obligations or conditions attached are recognized immediately in the
consolidated statements of operations.
108
Leases
In an operating lease, a lessee obtains control of only the use of the underlying asset, but not the
underlying asset itself. An operating lease is recognized as a right-of-use asset with a corresponding liability at
the date which the leased asset is available for use by the Group. The Group recognizes an obligation to make
lease payments equal to the present value of the lease payments over the lease term. The lease terms may
include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that
option.
Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii)
variable lease payments that depend on an index or a rate; and (iii) payments of penalties for terminating the
lease if the lease term reflects the lessee exercising that option, if any. Lease liabilities exclude the following
payments that are generally accounted for separately: (i) non-lease components, such as maintenance and
security service fees and value added tax, and (ii) any payments that a lessee makes before the lease
commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that
rate cannot be determined, the lessee’s incremental borrowing rate being the rate that the lessee would have
to pay to borrow the funds in its currency and jurisdiction necessary to obtain an asset of similar value, economic
environment and terms and conditions.
An asset representing the right to use the underlying asset during the lease term is recognized that
consists of the initial measurement of the operating lease liability, any lease payments made to the lessor at or
before the commencement date less any lease incentives received, any initial direct cost incurred by the Group
and any restoration costs.
After commencement of the operating lease, the Group recognizes lease expenses on a straight-line
basis over the lease term. The right-of-use asset is subsequently measured at cost less accumulated
amortization and any impairment provision. The amortization of the right-of-use asset represents the difference
between the straight-line lease expense and the accretion of interest on the lease liability each period. The
interest amount is used to accrete the lease liability and to amortize the right-of-use asset. There is no amount
recorded as interest expense.
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis
over the period of the leases.
Subleases of right-of-use assets are accounted for similar to other leases. As an intermediate lessor,
the Group separately accounts for the head-lease and sublease unless it is relieved of its primary obligation
under the head-lease. Sublease income is recorded on a gross basis separate from the head-lease expenses.
If the total remaining lease cost on the head-lease is more than the anticipated sublease income for the lease
term, this is an indicator that the carrying amount of the right-of-use asset associated with the head-lease may
not be recoverable, and the right-of-use asset will be assessed for impairment.
Income Taxes
The Group accounts for income taxes under the liability method. Under the liability method, deferred
income tax assets and liabilities are determined based on the differences between the financial reporting and
income tax bases of assets and liabilities and are measured using the income tax rates that will be in effect
when the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not
that some of the net deferred income tax asset will not be realized.
The Group accounts for an uncertain tax position in the consolidated financial statements only if it is
more likely than not that the position is sustainable based on its technical merits and consideration of the
relevant tax authority’s widely understood administrative practices and precedents. If the recognition threshold
is met, the Group records the largest amount of tax benefit that is greater than 50 percent likely to be realized
upon ultimate settlement.
The Group recognizes interest and penalties for income taxes, if any, under income tax payable on its
consolidated balance sheets and under other expenses in its consolidated statements of operations.
Losses per Share
Basic losses per share is computed by dividing net loss attributable to the Company by the weighted
average number of outstanding ordinary shares in issue during the year. Weighted average number of
outstanding ordinary shares in issue excludes treasury shares.
HUTCHMED (China) Limited 2021 Annual Report 109
Diluted losses per share is computed by dividing net loss attributable to the Company by the weighted
average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding
during the year. Dilutive ordinary share equivalents include ordinary shares and treasury shares issuable upon
the exercise or settlement of share-based awards or warrants issued by the Company using the treasury stock
method. The computation of diluted losses per share does not assume conversion, exercise, or contingent
issuance of securities that would have an anti-dilutive effect.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
executive officer who is the Group’s chief operating decision maker. The chief operating decision maker reviews
the Group’s internal reporting in order to assess performance and allocate resources.
Profit Appropriation and Statutory Reserves
The Group’s subsidiaries and equity investees established in the PRC are required to make
appropriations to certain non-distributable reserve funds.
In accordance with the relevant laws and regulations established in the PRC, the Company’s
subsidiaries registered as wholly-owned foreign enterprise have to make appropriations from their after-tax
profits (as determined under generally accepted accounting principles in the PRC (“PRC GAAP”)) to reserve
funds including general reserve fund, enterprise expansion fund and staff bonus and welfare fund. The
appropriation to the general reserve fund must be at least 10% of the after-tax profits calculated in accordance
with PRC GAAP. Appropriation is not required if the general reserve fund has reached 50% of the registered
capital of the company. Appropriations to the enterprise expansion fund and staff bonus and welfare fund are
made at the respective company’s discretion. For the Group's equity investees, the amount of appropriations to
these funds are made at the discretion of their respective boards.
In addition, Chinese domestic companies must make appropriations from their after-tax profits as
determined under PRC GAAP to non-distributable reserve funds including statutory surplus fund and
discretionary surplus fund. The appropriation to the statutory surplus fund must be 10% of the after-tax profits
as determined under PRC GAAP. Appropriation is not required if the statutory surplus fund has reached 50% of
the registered capital of the company. Appropriation to the discretionary surplus fund is made at the respective
company’s discretion.
The use of the general reserve fund, enterprise expansion fund, statutory surplus fund and discretionary
surplus fund is restricted to the offsetting of losses or increases to the registered capital of the respective
company. The staff bonus and welfare fund is a liability in nature and is restricted to fund payments of special
bonus to employees and for the collective welfare of employees. All these reserves are not permitted to be
transferred to the company as cash dividends, loans or advances, nor can they be distributed except under
liquidation.
4. Fair Value Disclosures
The following table presents the Group’s financial instruments by level within the fair value hierarchy under
ASC 820, Fair Value Measurement:
As at December 31, 2021
Cash and cash equivalents
Short-term investments
Warrant (Note 20)
As at December 31, 2020
Cash and cash equivalents
Short-term investments
Fair Value Measurement Using
Level 1
Level 2
Level 3
Total
(in US$’000)
377,542
634,158
—
235,630
199,546
—
—
2,452
—
—
—
—
—
—
—
377,542
634,158
2,452
235,630
199,546
Accounts receivable, other receivables, accounts payable and other payables are carried at cost, which
approximates fair value due to the short-term nature of these financial instruments, and are therefore excluded
from the above table. Bank borrowings are floating rate instruments and carried at amortized cost, which
approximates their fair values, and are therefore excluded from the above table.
110
5. Cash and Cash Equivalents and Short-term Investments
Cash and Cash Equivalents
Cash at bank and on hand
Bank deposits maturing in three months or less
Short-term Investments
Bank deposits maturing over three months (note)
December 31,
2021
2020
(in US$’000)
104,620
272,922
377,542
634,158
1,011,700
87,828
147,802
235,630
199,546
435,176
Note: The maturities for short-term investment ranged from 91 to 180 days for the year ended December 31,
2021 and 2020.
Certain cash and bank balances denominated in RMB, US$ and UK Pound Sterling (“£”) were deposited
with banks in the PRC. The conversion of these balances into foreign currencies is subject to the rules and
regulations of foreign exchange control promulgated by the PRC government. Cash and cash equivalents and
short-term investments were denominated in the following currencies:
US$
RMB
Hong Kong dollar (“HK$”)
£
Euro
December 31,
2021
2020
(in US$’000)
895,935
53,455
60,535
1,090
685
1,011,700
352,162
64,870
16,880
954
310
435,176
6. Accounts Receivable
Accounts receivable from contracts with customers consisted of the following:
Accounts receivable—third parties
Accounts receivable—related parties (Note 24(ii))
Allowance for credit losses
Accounts receivable, net
December 31,
2021
2020
(in US$’000)
82,434
1,166
(20)
83,580
46,743
1,222
(95)
47,870
Substantially all accounts receivable are denominated in RMB, US$ and HK$ and are due within one year
from the end of the reporting periods. The carrying values of accounts receivable approximate their fair values
due to their short-term maturities.
An aging analysis for accounts receivable—third parties based on the relevant invoice dates is as follows:
Not later than 3 months
Between 3 months to 6 months
Between 6 months to 1 year
Later than 1 year
Account receivable—third parties
December 31,
2021
2020
(in US$’000)
78,288
2,867
78
1,201
82,434
42,434
3,118
23
1,168
46,743
HUTCHMED (China) Limited 2021 Annual Report 111
Movements on the allowance for credit losses:
As at January 1
Increase in allowance for credit losses
Decrease in allowance due to subsequent collection
Exchange difference
As at December 31
2021
2020
2019
95
16
(92)
1
20
(in US$’000)
16
95
(18)
2
95
41
16
(41)
—
16
7. Other receivables, prepayments and deposits
Other receivables, prepayments and deposits consisted of the following:
Dividend receivables (Note 23)
Value-added tax receivables
Prepayments
Deposits
Amounts due from related parties (Note 24(ii))
Leasehold land deposit (Note 12)
Others
December 31,
2021
2020
(in US$’000)
46,387
16,616
14,128
1,255
1,149
—
1,506
81,041
—
14,957
7,038
905
1,142
930
2,956
27,928
No allowance for credit losses have been made for other receivables, prepayments and deposits for the
year ended December 31, 2021 and 2020.
8. Inventories
Inventories, net of provision for excess and obsolete inventories, consisted of the following:
Raw materials
Finished goods
December 31,
2021
2020
(in US$’000)
15,837
19,918
35,755
4,502
15,264
19,766
112
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Buildings
Leasehold
improvements
Plant and
equipment
Furniture
and fixtures,
other
equipment
and motor
vehicles
Construction
in progress
Total
(in US$’000)
2,372
—
—
—
60
16,346
452
(275)
916
389
5,643
24
(19)
197
142
23,040
3,189
(705)
1,849
584
3,050
19,669
—
(2,962)
213
50,451
23,334
(999)
—
1,388
2,432
17,828
5,987
27,957
19,970
74,174
1,626
120
—
42
8,652
2,904
(223)
238
1,747
574
(18)
49
14,256
3,244
(688)
376
—
—
—
—
26,281
6,842
(929)
705
1,788
11,571
2,352
17,188
—
32,899
644
6,257
3,635
10,769
19,970
41,275
Buildings
Leasehold
improvements
Plant and
equipment
Furniture
and fixtures,
other
equipment
and motor
vehicles
Construction
in progress
Total
(in US$’000)
2,212
—
—
—
160
17,022
269
(3,103)
1,014
1,144
4,474
59
(3)
789
324
19,571
2,993
(1,846)
913
1,409
928
4,571
—
(2,716)
267
44,207
7,892
(4,952)
—
3,304
2,372
16,346
5,643
23,040
3,050
50,451
1,406
112
—
108
8,304
2,701
(3,051)
698
1,155
484
(1)
109
12,487
2,646
(1,815)
938
—
—
—
—
23,352
5,943
(4,867)
1,853
1,626
8,652
1,747
14,256
—
26,281
746
7,694
3,896
8,784
3,050
24,170
Cost
As at January 1, 2021
Additions
Disposals
Transfers
Exchange differences
As at December 31,
2021
Accumulated depreciation
As at January 1, 2021
Depreciation
Disposals
Exchange differences
As at December 31,
2021
Net book value
As at December 31,
2021
Cost
As at January 1, 2020
Additions
Disposals
Transfers
Exchange differences
As at December 31,
2020
Accumulated depreciation
As at January 1, 2020
Depreciation
Disposals
Exchange differences
As at December 31,
2020
Net book value
As at December 31,
2020
HUTCHMED (China) Limited 2021 Annual Report 113
10. Leases
Leases consisted of the following:
Right-of-use assets
Offices (note)
Factories
Warehouse
Others
Total right-of-use assets
Lease liabilities—current
Lease liabilities—non-current
Total lease liabilities
December 31,
2021
2020
(in US$’000)
10,605
702
281
291
11,879
4,917
7,161
12,078
6,789
945
197
85
8,016
2,785
6,064
8,849
Note: Includes US$1.4 million right-of-use asset for corporate offices in Hong Kong that is leased through May
2024 in which the contract has a termination option with 1-month advance notice. The termination option was
not recognized as part of the right-of-use asset and lease liability as it is uncertain that the Group will exercise
such option.
Lease activities are summarized as follows:
Lease expenses:
Short-term leases with lease terms equal or less than 12 months
Leases with lease terms greater than 12 months
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from obtaining right-of-use
assets
Non-cash: Lease liabilities changed in relation to modifications and
terminations
Year Ended December 31,
2021
2020
(in US$’000)
106
4,306
4,412
4,954
7,665
(33)
323
3,400
3,723
3,340
3,098
2,259
Lease contracts are typically within a period of 1 to 8 years. The weighted average remaining lease term
and the weighted average discount rate as at December 31, 2021 was 3.38 years and 3.33% respectively. The
weighted average remaining lease term and the weighted average discount rate as at December 31, 2020 was
3.72 years and 3.87% respectively.
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Between 4 to 5 years
Later than 5 years
Total lease payments
Less: Discount factor
Total lease liabilities
114
December 31,
2021
(in US$’000)
5,216
3,376
1,882
679
680
795
12,628
(550)
12,078
11. Investments in Equity Investees
Investments in equity investees consisted of the following:
SHPL
HBYS (note)
Other
December 31,
2021
2020
(in US$’000)
75,999
—
480
76,479
79,408
59,712
385
139,505
Note: On September 28, 2021, the Group completed a transaction to sell its entire investment in HBYS to a third
party (Note 23). The Group has accounted for the investment in HBYS under the equity method up to September
28, 2021.
The equity investees are private companies and there are no quoted market prices available for their shares.
Summarized financial information for the significant equity investees SHPL and HBYS, both under Other
Ventures segment, is as follows:
(i) Summarized balance sheets
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interests
SHPL
HBYS
December 31,
2021
2020
2021
2020
(in US$’000)
190,260
91,605
(128,993)
(7,131)
145,741
—
145,741
175,965
93,361
(109,873)
(6,739)
152,714
—
152,714
—
—
—
—
—
—
—
177,888
95,731
(137,179)
(16,034)
120,406
(982)
119,424
(ii) Summarized statements of operations
Revenue
Gross profit
Interest income
Finance cost
Profit before taxation
Income tax expense (note (c))
Net income
Non-controlling interests
Net income attributable to the
shareholders of equity
investee
SHPL
HBYS(note (a))
2021
2020
Year Ended December 31,
2021(note (b))
2019
(in US$’000)
2020
2019
332,648
255,089
1,216
—
105,325
(15,896)
89,429
—
276,354
204,191
975
—
77,837
(10,833)
67,004
—
272,082
194,769
582
—
72,324
(11,015)
61,309
—
209,528
111,066
205
—
36,715
(4,840)
31,875
(36)
232,368 215,403
116,804 115,124
160
(16)
22,926
(3,634)
19,292
505
271
(5)
107,715
(16,494)
91,221
62
89,429
67,004
61,309
31,839
91,283
19,797
HUTCHMED (China) Limited 2021 Annual Report 115
Notes:
(a) In June 2020, HBYS entered into an agreement with the government to return the land use right for a plot
of land in Guangzhou to the government (the “Land Compensation Agreement”) for cash consideration
which aggregated to RMB679.5 million (approximately US$103.1 million). In November 2020, HBYS
completed all material obligations as stipulated in the Land Compensation Agreement and recognized land
compensation of RMB569.2 million (approximately US$86.1 million). In June 2021, HBYS received a
completion confirmation from the government and became entitled to an additional land compensation
bonus of RMB110.3 million (approximately US$17.0 million). HBYS recorded a gain before tax of RMB106.8
million (approximately US$16.4 million) after deducting costs of RMB3.5 million (approximately US$0.6
million).
(b) The summarized statement of operations for HBYS for the year ended December 31, 2021 includes the
period when HBYS was the Group’s equity investee from January 1, 2021 to September 28, 2021, the
completion date of the divestment.
(c) The main entities within each of the SHPL and HBYS groups have been granted the High and New
Technology Enterprise (“HNTE”) status (the latest renewal of this status covers the years from 2020 to
2022). These entities were eligible to use a preferential income tax rate of 15% for the year ended December
31, 2021 on this basis.
For the years ended December 31, 2021, 2020 and 2019, other equity investees had net income of
approximately US$41,000, net losses of approximately US$194,000 and net income of approximately
US$294,000 respectively.
(iii) Reconciliation of summarized financial information
Reconciliation of the summarized financial information presented to the carrying amount of investments in
equity investees is as follows:
2021
SHPL
2020
2019
2021
(in US$’000)
HBYS
2020
2019
Opening net assets after non-controlling
interests as at January 1
152,714 146,759 131,778 119,424 44,541 121,984
Impact of change in accounting policy
(ASC 842—Leases)
—
—
(2)
—
—
(19)
Net income attributable to the shareholders
of equity investee
89,429
67,004
61,309
31,839 91,283
19,797
Purchase of additional interests in a
subsidiary of an equity investee (note)
Dividends declared
Other comprehensive income/(loss)
Closing net assets after non-controlling
interests as at December 31
Group’s share of net assets
Divestment (Note 23)
Goodwill
Carrying amount of investments as at
—
(99,744)
3,342
—
(72,179)
11,130
—
—
(347)
(41,654) (106,159) (20,756)
4,703
(4,672)
1,387
—
(93,957)
(3,264)
145,741 152,714 146,759
73,380
—
2,846
76,357
—
3,051
72,871
—
3,128
46,491 119,424
23,246 59,712
—
(23,246)
—
—
44,541
22,271
—
—
December 31
75,999
79,408
76,226
— 59,712
22,271
Note: During the year ended December 31, 2020, HBYS acquired an additional 30% interest in a subsidiary and
after the acquisition, it became a wholly owned subsidiary of HBYS.
SHPL had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
116
December 31, 2021
(in US$’000)
155
12. Other Non-Current Assets
Leasehold land (note)
Goodwill
Warrant (Note 20)
Leasehold land deposit (note)
Long term prepayment
Other intangible asset
Deferred issuance cost
December 31,
2021
2020
(in US$’000)
13,169
3,380
2,452
1,436
951
163
—
21,551
13,121
3,307
—
1,396
950
227
1,171
20,172
Note: In December 2020, HUTCHMED Limited acquired a land use right in Shanghai for consideration of
US$12.0 million. In addition, a leasehold land deposit amounting to US$2.3 million was required to be paid to
the government which is refundable upon reaching specific milestones for the construction of a manufacturing
plant on the land. US$0.9 million was returned in January 2021 (Note 7) and US$1.4 million was included in
other non-current assets based on the expected timing of the specific milestones.
13. Accounts Payable
Accounts payable—third parties
Accounts payable—non-controlling shareholders of
subsidiaries (Note 24(iv))
December 31,
2021
2020
(in US$’000)
39,115
2,062
41,177
26,756
4,856
31,612
Substantially all accounts payable are denominated in RMB and US$ and due within one year from the end
of the reporting period. The carrying values of accounts payable approximate their fair values due to their short-
term maturities.
An aging analysis based on the relevant invoice dates is as follows:
Not later than 3 months
Between 3 months to 6 months
Between 6 months to 1 year
Later than 1 year
December 31,
2021
2020
(in US$’000)
35,615
3,705
588
1,269
41,177
26,270
3,364
782
1,196
31,612
HUTCHMED (China) Limited 2021 Annual Report 117
14. Other Payables, Accruals and Advance Receipts
Other payables, accruals and advance receipts consisted of the following:
Accrued research and development expenses
Accrued salaries and benefits
Accrued administrative and other general expenses
Accrued capital expenditures
Accrued selling and marketing expenses
Deposits
Amounts due to related parties (Note 24(ii))
Deferred government grants
Others
15. Bank Borrowings
Bank borrowings consisted of the following:
Current
Non-current
December 31,
2021
2020
(in US$’000)
116,134
41,786
15,836
11,343
8,412
2,111
1,915
314
12,988
210,839
72,697
21,982
10,319
2,736
5,747
1,408
401
374
5,619
121,283
December 31,
2021
2020
(in US$’000)
26,905
—
—
26,861
The weighted average interest rate for outstanding bank borrowings for the years ended December 31, 2021
and 2020 was 1.08% per annum and 1.89% per annum respectively. The carrying amounts of the Group’s
outstanding bank borrowings were denominated in HK$.
(i) 3-year revolving loan facility and 3-year term loan and revolving loan facilities
In November 2018, the Group through its subsidiary, renewed a 3-year revolving loan facility with a bank in
the amount of HK$234,000,000 (US$30,000,000) with an interest rate at the Hong Kong Interbank Offered Rate
(“HIBOR”) plus 0.85% per annum. This credit facility is guaranteed by the Company. No amount had been
drawn from the revolving loan facility and it expired in November 2021.
In May 2019, the Group through its subsidiary, entered into a separate facility agreement with the bank for
the provision of additional unsecured credit facilities in the aggregate amount of HK$400,000,000
(US$51,282,000). The 3-year credit facilities include (i) a HK$210,000,000 (US$26,923,000) term loan facility
and (ii) a HK$190,000,000 (US$24,359,000) revolving loan facility, both with an interest rate at HIBOR plus
0.85% per annum, and an upfront fee of HK$819,000 (US$105,000) on the term loan. These credit facilities are
guaranteed by the Company. The term loan was drawn in October 2019 and is due in May 2022. No amount
has been drawn from the revolving loan facility.
118
(ii) 2-year revolving loan facilities
In August 2018, the Group through its subsidiary, entered into two separate facility agreements with banks
for the provision of unsecured credit facilities in the aggregate amount of HK$507,000,000 (US$65,000,000).
The first credit facility was a HK$351,000,000 (US$45,000,000) revolving loan facility, with a term of 2 years and
an interest rate at HIBOR plus 1.35% per annum. The second credit facility was a HK$156,000,000
(US$20,000,000) revolving loan facility, with a term of 2 years and an interest rate at HIBOR plus 1.35% per
annum. These credit facilities were guaranteed by the Company. No amount has been drawn from either of the
revolving loan facilities. Both loan facilities expired in August 2020.
In August 2020, the Group through its subsidiary, entered into a 2-year revolving loan facility with a bank in
the amount of HK$117,000,000 (US$15,000,000) with an interest rate at HIBOR plus 4.5% per annum. This
credit facility is guaranteed by the Company. As at December 31, 2021 and 2020, no amount has been drawn
from the revolving loan facility.
(iii) 10-year fixed asset loan facility
In October 2021, a subsidiary entered into a 10-year fixed asset loan facility agreement with a bank for the
provision of a secured credit facility in the amount of RMB754,880,000 (US$118,071,000) with an annual interest
rate at the 5-year China Loan Prime Rate less 0.65%. This credit facility is guaranteed by the immediate holding
company of the subsidiary and secured by the underlying leasehold land and buildings. As at December 31,
2021, no amount has been drawn from the fixed asset loan facility.
The Group’s bank borrowings are repayable as from the dates indicated as follows:
Not later than 1 year
Between 1 to 2 years
December 31,
2021
2020
(in US$’000)
26,923
—
26,923
—
26,923
26,923
As at December 31, 2021 and 2020, the Group had unutilized bank borrowing facilities of US$157,430,000
and US$69,359,000 respectively.
16. Commitments and Contingencies
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
The Group does not have any other significant commitments or contingencies.
December 31, 2021
(in US$’000)
44,204
HUTCHMED (China) Limited 2021 Annual Report 119
17. Ordinary Shares
As at December 31, 2021, the Company is authorized to issue 1,500,000,000 ordinary shares.
On January 27, 2020, the Company issued 22,000,000 ordinary shares in the form of 4,400,000 ADS for
gross proceeds of US$110.0 million. On February 10, 2020, the Company issued an additional 1,668,315 ordinary
shares in the form of 333,663 ADS for gross proceeds of US$8.3 million. Issuance costs totaled US$8.0 million.
On July 2, 2020 and July 3, 2020, the Company issued (1) aggregate 20,000,000 ordinary shares and (2)
warrants to a third party for gross proceeds of US$100.0 million through a PIPE. The warrants allowed the third
party to purchase up to 16,666,670 ordinary shares of the Company within 18 months of the issuance date for
an exercise price of US$6.00 per ordinary share, which have since expired. Issuance costs totaled US$0.2
million.
On November 26, 2020, the Company issued 16,666,670 ordinary shares to a third party for gross proceeds
of US$100.0 million through a PIPE. Issuance costs totaled US$0.1 million.
On April 14, 2021, the Company issued 16,393,445 ordinary shares to a third party for gross proceeds of
US$100.0 million through a PIPE. Issuance costs totaled US$0.1 million.
On June 30, 2021 and July 15, 2021, the Company issued an aggregate of 119,600,000 ordinary shares in a
public offering on the HKEX with over-allotment option exercised in full for aggregate gross proceeds of
US$614.9 million. Issuance costs totaled US$29.7 million.
Each ordinary share is entitled to one vote. The holders of ordinary shares are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of Directors of the Company.
18. Share-based Compensation
(i) Share-based Compensation of the Company
The Company conditionally adopted a share option scheme on June 4, 2005 (as amended on March 21,
2007) and such scheme has a term of 10 years. It expired in 2016 and no further share options can be granted.
Another share option scheme was conditionally adopted on April 24, 2015 (the “Hutchmed Share Option
Scheme”). Pursuant to the Hutchmed Share Option Scheme, the Board of Directors of the Company may, at its
discretion, offer any employees and directors (including Executive and Non-executive Directors but excluding
Independent Non-executive Directors) of the Company, holding companies of the Company and any of their
subsidiaries or affiliates, and subsidiaries or affiliates of the Company share options to subscribe for shares of
the Company.
As at December 31, 2021, the aggregate number of shares issuable under the Hutchmed Share Option
Scheme was 50,059,198 ordinary shares and the aggregate number of shares issuable under the prior share
option scheme which expired in 2016 was 705,060 ordinary shares. The Company will issue new shares to
satisfy share option exercises. Additionally, the number of shares authorized but unissued was 635,469,150
ordinary shares.
Share options granted are generally subject to a four-year vesting schedule, depending on the nature and
the purpose of the grant. Share options subject to the four-year vesting schedule, in general, vest 25% upon
the first anniversary of the vesting commencement date as defined in the grant letter, and 25% every subsequent
year. However, certain share option grants may have a different vesting schedule as approved by the Board of
Directors of the Company. No outstanding share options will be exercisable or subject to vesting after the expiry
of a maximum of eight to ten years from the date of grant.
120
A summary of the Company’s share option activity and related information is as follows:
Outstanding at January 1, 2019
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2019
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2020
Granted
Exercised
Cancelled
Expired
Outstanding at December 31, 2021
Vested and exercisable at December
31, 2020
Vested and exercisable at December
31, 2021
Number of
share options
18,554,850
2,315,000
(329,000)
(1,012,110)
(96,180)
19,432,560
15,437,080
(480,780)
(4,486,200)
(741,670)
29,160,990
10,174,840
(815,190)
(1,287,650)
(42,400)
37,190,590
11,529,280
16,077,770
Weighted
average
exercise price
in US$ per share
4.57
4.12
0.76
6.33
6.51
4.48
4.66
1.23
5.02
6.46
4.49
5.96
3.01
5.50
5.52
4.88
3.74
4.24
Weighted
average
remaining
contractual life
(years)
7.35
Aggregate
intrinsic
value
(in US$’000)
19,277
6.67
24,316
7.21
53,990
7.04
82,377
4.57
29,433
4.91
46,491
In estimating the fair value of share options granted, the following assumptions were used in the Polynomial
model for awards granted in the periods indicated:
Weighted average grant date fair value of share options (in US$ per
share)
Significant inputs into the valuation model (weighted average):
Exercise price (in US$ per share)
Share price at effective date of grant (in US$ per share)
Expected volatility (note (a))
Risk-free interest rate (note (b))
Contractual life of share options (in years)
Expected dividend yield (note (c))
Notes:
Year Ended December 31,
2021
2.24
2020
1.76
5.96
5.91
41.1%
1.62%
10
0%
4.66
4.66
42.6%
0.59%
10
0%
2019
1.33
4.12
3.98
38.4%
0.56%
10
0%
(a) The Company calculated its expected volatility with reference to the historical volatility prior to the issuances
of share options.
(b) For share options exercisable into ordinary shares, the risk-free interest rates reference the sovereign yield
of the United Kingdom because the Company’s ordinary shares are currently listed on AIM and
denominated in £. For share options exercisable into ADS, the risk-free interest rates reference the U.S.
Treasury yield curves because the Company’s ADS are currently listed on the NASDAQ and denominated
in US$.
(c) The Company has not declared or paid any dividends and does not currently expect to do so prior to the
exercise of the granted share options, and therefore uses an expected dividend yield of zero in the
Polynomial model.
HUTCHMED (China) Limited 2021 Annual Report 121
The Company will issue new shares to satisfy share option exercises. The following table summarizes the
Company’s share option exercises:
Cash received from share option exercises
Total intrinsic value of share option exercises
Year Ended December 31,
2021
2020
2019
2,452
2,999
(in US$’000)
593
2,475
251
1,189
The Group recognizes compensation expense on a graded vesting approach over the requisite service
period. The following table presents share-based compensation expense included in the Group’s consolidated
statements of operations:
Research and development expenses
Selling and administrative expenses
Cost of revenues
Year Ended December 31,
2021
2020
2019
8,460
7,783
122
16,365
(in US$’000)
4,061
4,586
90
8,737
6,634
539
—
7,173
As at December 31, 2021, the total unrecognized compensation cost was US$23,051,000, and will be
recognized on a graded vesting approach over the weighted average remaining service period of 3.04 years.
(ii)
LTIP
The Company grants awards under the LTIP to participating directors and employees, giving them a
conditional right to receive ordinary shares of the Company or the equivalent ADS (collectively the “Awarded
Shares”) to be purchased by the Trustee up to a cash amount. Vesting will depend upon continued employment
of the award holder with the Group and will otherwise be at the discretion of the Board of Directors of the
Company. Additionally, some awards are subject to change based on annual performance targets prior to their
determination date.
LTIP awards prior to the determination date
Performance targets vary by award, and may include targets for shareholder returns, financings, free cash
flows, revenues, net profit after taxes and the achievement of clinical and regulatory milestones. As the extent
of achievement of the performance targets is uncertain prior to the determination date, a probability based on
management’s assessment on the achievement of the performance target has been assigned to calculate the
amount to be recognized as an expense over the requisite period with a corresponding entry to liability.
LTIP awards after the determination date
Upon the determination date, the Company will pay a determined monetary amount, up to the maximum
cash amount based on the actual achievement of the performance target specified in the award, to the Trustee
to purchase the Awarded Shares. Any cumulative compensation expense previously recognized as a liability
will be transferred to additional paid-in capital, as an equity-settled award. If the performance target is not
achieved, no Awarded Shares of the Company will be purchased and the amount previously recorded in the
liability will be reversed through share-based compensation expense.
122
Granted awards under the LTIP are as follows:
Grant date
August 5, 2019
October 10, 2019
April 20, 2020
April 20, 2020
April 20, 2020
April 20, 2020
August 12, 2020
August 12, 2020
March 26, 2021
September 1, 2021
September 1, 2021
October 20, 2021
December 14, 2021
December 14, 2021
Notes:
Maximum cash amount
(in US$ millions)
0.7
0.1
5.3
37.4
1.9
0.2
2.1
0.3
57.3
7.3
0.5
1.7
0.1
0.1
Covered
financial years
2019
note (b)
2019
2020
note (b)
note (c)
2020
note (b)
2021
2021
note (b)
note (b)
note (b)
note (c)
Performance target
determination date
note (a)
note (b)
note (d)
note (a)
note (b)
note (c)
note (a)
note (b)
note (a)
note (a)
note (b)
note (b)
note (b)
note (c)
(a) The annual performance target determination date is the date of the announcement of the Group’s annual
results for the covered financial year and vesting occurs two business days after the announcement of the
Group’s annual results for the financial year falling two years after the covered financial year to which the
LTIP award relates.
(b) This award does not stipulate performance targets and is subject to a vesting schedule of 25% on each of
the first, second, third and fourth anniversaries of the date of grant.
(c) This award does not stipulate performance targets and will be vested on the first anniversary of the date of
grant.
(d) This award does not stipulate performance targets and vesting occurs two business days after the
announcement of the Group’s annual results for the financial year falling two years after the covered
financial year to which the LTIP award relates.
The Trustee has been set up solely for the purpose of purchasing and holding the Awarded Shares during
the vesting period on behalf of the Company using funds provided by the Company. On the determination date,
if any, the Company will determine the cash amount, based on the actual achievement of each annual
performance target, for the Trustee to purchase the Awarded Shares. The Awarded Shares will then be held by
the Trustee until they are vested.
HUTCHMED (China) Limited 2021 Annual Report 123
The Trustee’s assets include treasury shares and funds for additional treasury shares, trustee fees and
expenses. The number of treasury shares (in the form of ordinary shares or ADS of the Company) held by the
Trustee were as follows:
As at January 1, 2019
Purchased
Vested
As at December 31, 2019
Purchased
Vested
As at December 31, 2020
Purchased
Vested
As at December 31, 2021
Number of
treasury shares
1,121,030
60,430
(240,150)
941,310
3,281,920
(712,555)
3,510,675
4,907,045
(278,545)
8,139,175
Cost
(in US$’000)
6,677
346
(944)
6,079
12,904
(4,828)
14,155
27,309
(1,450)
40,014
Based on the estimated achievement of performance conditions for 2021 financial year LTIP awards, the
determined monetary amount was US$52,056,000 which is recognized to share-based compensation expense
over the requisite vesting period to March 2024.
For the years ended December 31, 2021, 2020 and 2019, US$6,618,000, US$7,038,000 and US$262,000
of the LTIP awards were forfeited respectively based on the determined or estimated monetary amount as at
the forfeiture date.
The following table presents the share-based compensation expenses recognized under the LTIP awards:
Research and development expenses
Selling and administrative expenses
Cost of revenues
Recorded with a corresponding credit to:
Liability
Additional paid-in capital
Year Ended December 31,
2021
2020
2019
16,880
8,451
294
25,625
14,263
11,362
25,625
(in US$’000)
7,252
3,552
101
10,905
7,778
3,127
10,905
2,640
1,779
—
4,419
2,694
1,725
4,419
For the years ended December 31, 2021, 2020 and 2019, US$8,516,000, US$4,092,000 and US$526,000
were reclassified from liability to additional paid-in capital respectively upon LTIP awards reaching the
determination date. As at December 31, 2021 and 2020, US$12,836,000 and US$7,089,000 were recorded as
liabilities respectively for LTIP awards prior to the determination date.
As at December 31, 2021, the total unrecognized compensation cost was approximately US$53,152,000,
which considers expected performance targets and the amounts expected to vest, and will be recognized over
the requisite periods.
124
19. Revenues
The following table presents disaggregated revenue, with sales of goods recognized at a point-in-time and
provision of services recognized over time:
Goods—Marketed Products
Goods—Distribution
Services—Commercialization—Marketed
Products
—Collaboration Research and
Development
—Research and Development
Royalties
Licensing
Third parties
Related parties (Note 24(i))
Goods—Marketed Products
Goods—Distribution
Services—Commercialization—Marketed
Products
—Collaboration Research and
Development
—Research and Development
Royalties
Third parties
Related parties (Note 24(i))
Goods—Marketed Products
Goods—Distribution
Services—Commercialization
—Collaboration Research and
Development
—Research and Development
Royalties
Third parties
Related parties (Note 24(i))
Year Ended December 31, 2021
Oncology/
Immunology
33,937
—
27,428
18,995
525
15,064
23,661
119,610
119,085
525
119,610
Other Ventures
Total
(in US$’000)
—
236,518
—
33,937
236,518
27,428
—
18,995
—
—
—
236,518
232,262
4,256
236,518
525
15,064
23,661
356,128
351,347
4,781
356,128
Year Ended December 31, 2020
Oncology/
Immunology
11,329
—
3,734
9,771
491
4,890
30,215
29,724
491
30,215
Other Ventures
Total
(in US$’000)
—
197,761
—
11,329
197,761
3,734
—
9,771
—
—
197,761
192,277
5,484
197,761
491
4,890
227,976
222,001
5,975
227,976
Year Ended December 31, 2019
Oncology/
Immunology
Other Ventures
Total
(in US$’000)
8,113
—
—
15,532
494
2,653
26,792
26,298
494
26,792
—
175,514
2,584
—
—
—
178,098
170,461
7,637
178,098
8,113
175,514
2,584
15,532
494
2,653
204,890
196,759
8,131
204,890
HUTCHMED (China) Limited 2021 Annual Report 125
The following table presents liability balances from contracts with customers:
Deferred revenue
Current—Oncology/Immunology segment (note (a))
Current—Other Ventures segment (note (b))
Non-current—Oncology/Immunology segment (note (a))
Total deferred revenue (note (c) and (d))
Notes:
December 31,
2021
2020
(in US$’000)
11,078
1,196
12,274
878
13,152
1,450
147
1,597
484
2,081
(a) Oncology/Immunology segment deferred revenue relates to invoiced amounts for royalties which the
customer has not yet completed the in-market sale, unamortized upfront and milestone payments and
advance consideration received for cost reimbursements which are attributed to research and development
services that have not yet been rendered as at the reporting date.
(b) Other Ventures segment deferred revenue relates to payments in advance from customers for goods that
have not been transferred and services that have not been rendered to the customer as at the reporting
date.
(c) Estimated deferred revenue to be recognized over time as from the date indicated is as follows:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
December 31,
2021
2020
(in US$’000)
12,274
476
255
147
13,152
1,597
211
205
68
2,081
(d) As at January 1, 2021, deferred revenue was US$2.1 million, of which US$0.7 million was recognized during
the year ended December 31, 2021.
License and collaboration agreement with Eli Lilly
On October 8, 2013, the Group entered into a licensing, co-development and commercialization agreement
in China with Eli Lilly and Company (“Lilly”) relating to Elunate (“Lilly Agreement”), also known as fruquintinib,
a targeted oncology therapy for the treatment of various types of solid tumors. Under the terms of the Lilly
Agreement, the Group is entitled to receive a series of payments up to US$86.5 million, including upfront
payments and development and regulatory approval milestones. Development costs after the first development
milestone are shared between the Group and Lilly. Elunate was successfully commercialized in China in
November 2018, and the Group receives tiered royalties in the range of 15% to 20% on all sales in China.
In December 2018, the Group entered into various amendments to the Lilly Agreement (the “2018
Amendment”). Under the terms of the 2018 Amendment, the Group is entitled to determine and conduct future
life cycle indications (“LCI”) development of Elunate in China beyond the three initial indications specified in the
Lilly Agreement and will be responsible for all associated development costs. In return, the Group will receive
additional regulatory approval milestones of US$20 million for each LCI approved, for up to three LCI or US$60
million in aggregate, and will increase tiered royalties to a range of 15% to 29% on all Elunate sales in China
upon the commercial launch of the first LCI. Additionally, through the 2018 Amendment, Lilly has provided
consent, and freedom to operate, for the Group to enter into joint development collaborations with certain third-
party pharmaceutical companies to explore combination treatments of Elunate and various immunotherapy
agents. The 2018 Amendment also provided the Group rights to promote Elunate in provinces that represent
30% to 40% of the sales of Elunate in China upon the occurrence of certain commercial milestones by Lilly.
Such rights were further amended below.
126
In July 2020, the Group entered into an amendment to the Lilly Agreement (the “2020 Amendment”) relating
to the expansion of the Group’s role in the commercialization of Elunate across all of China. Under the terms of
the 2020 Amendment, the Group is responsible for providing promotion and marketing services, including the
development and execution of all on-the-ground medical detailing, promotion and local and regional marketing
activities, in return for service fees on sales of Elunate made by Lilly. In October 2020, the Group commenced
such promotion and marketing services. In addition, development and regulatory approval milestones for an
initial indication under the Lilly Agreement were increased by US$10 million in lieu of cost reimbursement.
Upfront and cumulative milestone payments according to the Lilly Agreement received up to December 31,
2021 are summarized as follows:
Upfront payment
Development milestone payments achieved
(in US$’000)
6,500
40,000
The Lilly Agreement has the following performance obligations: (1) the license for the commercialization
rights to Elunate and (2) the research and development services for the specified indications. The transaction
price includes the upfront payment, research and development cost reimbursements, milestone payments and
sales-based royalties. Milestone payments were not included in the transaction price until it became probable
that a significant reversal of revenue would not occur, which is generally when the specified milestone is
achieved. The allocation of the transaction price to each performance obligation was based on the relative
standalone selling prices of each performance obligation determined at the inception of the contract. Based on
this estimation, proportionate amounts of transaction price to be allocated to the license to Elunate and the
research and development services were 90% and 10% respectively. Control of the license to Elunate
transferred at the inception date of the agreement and consequently, amounts allocated to this performance
obligation were recognized at inception. Conversely, research and development services for each specified
indication are performed over time and amounts allocated are recognized over time using the prior and
estimated future development costs for Elunate as a measure of progress. Royalties are recognized as future
sales occur as they meet the requirements for the sales-usage based royalty exception.
The 2018 Amendment is a separate contract as it added distinct research and development services for the
LCIs to the Lilly Agreement. The 2020 Amendment related to the promotion and marketing services is a
separate contract as it added distinct services to the Lilly Agreement. Such promotion and marketing services
are recognized over time based on amounts that can be invoiced to Lilly. The 2020 Amendment related to the
additional development and regulatory approval milestone amounts is a modification as it only affected the
transaction price of research and development services for a specific indication under the Lilly Agreement, and
therefore, such additional milestone amounts will be included in the transaction price accounted under the Lilly
Agreement once the specified milestones are achieved.
Revenue recognized under the Lilly Agreement and subsequent amendments is as follows:
Goods—Marketed Products
Services—Commercialization—Marketed Products
—Collaboration Research and Development
Royalties
Year Ended December 31,
2021
2020
2019
15,792
27,428
4,491
10,292
58,003
(in US$’000)
11,329
3,734
1,991
4,890
21,944
8,113
—
4,005
2,653
14,771
HUTCHMED (China) Limited 2021 Annual Report 127
License and collaboration agreement with AstraZeneca
On December 21, 2011, the Group and AstraZeneca AB (publ) (“AZ”) entered into a global licensing, co-
development, and commercialization agreement for Orpathys (“AZ Agreement”), also known as savolitinib, a
novel targeted therapy and a highly selective inhibitor of the c-Met receptor tyrosine kinase for the treatment of
cancer. Under the terms of the AZ Agreement, the Group is entitled to receive a series of payments up to US$140
million, including upfront payments and development and first-sale milestones. Additionally, the AZ Agreement
contains possible significant future commercial sale milestones. Development costs for Orpathys in China will
be shared between the Group and AZ, with the Group continuing to lead the development in China. AZ will lead
and pay for the development of Orpathys for the rest of the world. Orpathys was successfully commercialized
in China in July 2021, and the Group receives fixed royalties of 30% based on all sales in China. Should
Orpathys be successfully commercialized outside China, the Group would receive tiered royalties from 9% to
13% on all sales outside of China.
In August 2016 (as amended in December 2020), the Group entered into an amendment to the AZ
Agreement whereby the Group shall pay the first approximately US$50 million of phase III clinical trial costs
related to developing Orpathys for renal cell carcinoma (“RCC”), and remaining costs will be shared between
the Group and AZ. Subject to approval of Orpathys in RCC, the Group would receive additional tiered royalties
on all sales outside of China, with the incremental royalty rates determined based on actual sharing of
development costs. In November 2021, the Group entered into an additional amendment which revised the
sharing between the Group and AZ of development costs for Orpathys in China for non-small cell lung cancer,
as well as adding potential development milestones.
Upfront and cumulative milestone payments according to the AZ Agreement received up to December 31,
2021 are summarized as follows:
Upfront payment
Development milestone payments achieved
First-sale milestone payment achieved
(in US$’000)
20,000
25,000
25,000
The AZ Agreement has the following performance obligations: (1) the license for the commercialization
rights to Orpathys and (2) the research and development services for the specified indications. The transaction
price includes the upfront payment, research and development cost reimbursements, milestone payments and
sales-based royalties. Milestone payments were not included in the transaction price until it became probable
that a significant reversal of revenue would not occur, which is generally when the specified milestone is
achieved. The allocation of the transaction price to each performance obligation was based on the relative
standalone selling prices of each performance obligation determined at the inception of the contract. Based on
this estimation, proportionate amounts of transaction price to be allocated to the license to Orpathys and the
research and development services were 95% and 5% respectively. Control of the license to Orpathys
transferred at the inception date of the agreement and consequently, amounts allocated to this performance
obligation were recognized at inception. Conversely, research and development services for each specified
indication are performed over time and amounts allocated are recognized over time using the prior and
estimated future development costs for Orpathys as a measure of progress.
Revenue recognized under the AZ Agreement and subsequent amendments is as follows:
Goods—Marketed Products
Services—Collaboration Research and Development
Royalties
Licensing
Year Ended December 31,
2021
2020
2019
6,509
14,113
4,772
23,661
49,055
(in US$’000)
—
7,780
—
—
7,780
—
11,527
—
—
11,527
128
20. In-Licensing arrangement
On August 7, 2021, the Group and Epizyme, Inc. (“Epizyme”) entered into a license agreement (the “In-
license Agreement”) for tazemetostat, a novel inhibitor of EZH2 that is approved by the U.S. Food and Drug
Administration for the treatment of certain patients with epithelioid sarcoma and follicular lymphoma. The Group
will be responsible for the development and commercialization of tazemetostat in the PRC, Hong Kong, Macau
and Taiwan (the “Territory”) and also holds rights to manufacture tazemetostat for the Territory. The Group also
received a 4-year warrant, exercisable up to August 7, 2025, to purchase up to 5,653,000 shares of Epizyme
common stock for an exercise price of US$11.50 per share.
Under the terms of the In-license Agreement and warrant, the Group paid Epizyme a US$25 million upfront
payment and is obligated for a series of success-based payments up to US$110 million in development and
regulatory milestones and up to US$175 million in sales milestones. Success-based payments are recognized
when the related milestone is achieved. After tazemetostat is commercialized in the Territory, the Group will
incur tiered royalties based on net sales. As at December 31, 2021, no amounts of development and regulatory
milestones, sales milestones or royalties had been paid.
The US$25 million upfront payment was first allocated to the warrant for its initial fair value of US$15 million,
and the remainder was allocated to the rights to tazemetostat which were expensed to research and
development expense as in-process research and development.
The warrant was recorded as a financial asset at fair value with changes to fair value recognized to the
consolidated statements of operations. As at December 31, 2021, the warrant had not been exercised. For the
year ended December 31, 2021, a fair value loss of US$12.5 million was recognized to other expenses in the
consolidated statements of operations. In estimating the fair value of the warrant, the following assumptions
were used in the Black Scholes model for the dates indicated:
Fair value of the warrant (in US$’000)
Significant inputs into the valuation model:
Exercise price (in US$ per share)
Share price (in US$ per share)
Expected volatility (note (a))
Risk-free interest rate (note (b))
Remaining contractual life of the warrant (in years)
Expected dividend yield (note (c))
Notes:
August 7,
2021
15,000
December 31,
2021
2,452
11.50
6.47
74.48%
0.59%
4.00
0%
11.50
2.50
72.03%
1.05%
3.60
0%
(a) Expected volatility references the historical volatility for the remaining contractual life of the warrant.
(b) The risk-free interest rates reference the U.S. Treasury yield curves because Epizyme’s common stock is
currently listed on the NASDAQ and denominated in US$.
(c) Epizyme has not declared or paid any dividends and the Group does not currently expect it to do so within
the remaining contractual life of the warrant.
HUTCHMED (China) Limited 2021 Annual Report 129
21. Research and Development Expenses
Research and development expenses are summarized as follows:
Clinical trial related costs
Personnel compensation and related costs
Other research and development expenses
Year Ended December 31,
2021
2020
2019
190,051
91,639
17,396
299,086
(in US$’000)
105,869
63,542
5,365
174,776
87,777
46,246
4,167
138,190
The Group has entered into multiple collaborative arrangements under ASC 808 to evaluate the
combination of the Group’s drug compounds with the collaboration partners’ drug compounds. For the years
ended December 31, 2021, 2020 and 2019, the Group has incurred research and development expenses of
US$18,408,000, US$8,291,000 and US$2,921,000 respectively, related to such collaborative arrangements.
22. Government Grants
Government grants in the Oncology/Immunology segment are primarily given in support of R&D activities
and are conditional upon i) the Group spending a predetermined amount, regardless of success or failure of the
research and development projects and/or ii) the achievement of certain stages of research and development
projects being approved by the relevant PRC government authority. They are refundable to the government if
the conditions, if any, are not met. Government grants in the Other Ventures segment are primarily given to
promote local initiatives. These government grants may be subject to ongoing reporting and monitoring by the
government over the period of the grant.
Government grants, which are deferred and recognized in the consolidated statements of operations over
the period necessary to match them with the costs that they are intended to compensate, are recognized in
other payable, accruals and advance receipts (Note 14) and other non-current liabilities. For the years ended
December 31, 2021, 2020 and 2019, the Group received government grants of US$9,095,000, US$4,724,000
and US$8,742,000 respectively.
Government grants were recognized as reductions in the consolidated statements of operations as follows:
Research and development expenses
Other income
Year Ended December 31,
2021
2020
2019
15,515
318
15,833
(in US$’000)
1,607
539
2,146
6,133
780
6,913
130
23. Gain on divestment of an equity investee
In March 2021, the Group entered into a sale and purchase agreement (the “SPA”) with a third party to sell
its entire investment in HBYS with closing subject to regulatory approval in the PRC. On September 28, 2021,
the Group completed the divestment, for cash consideration of US$159.1 million.
On May 13, 2021 and September 23, 2021, HBYS had declared dividends to shareholders of US$46.5 million
and US$59.7 million respectively which were related to prior year undistributed profits and distributions of a
land bonus payment. Based on the SPA, the Group is entitled to a portion of such dividends and the third party
will settle these amounts, net of taxes, after HBYS completes the distribution. As at December 31, 2021, US$46.4
million of dividends receivable, net of taxes, from the third party was recorded in other receivables (Note 7).
In addition, the Group and Hutchison Whampoa Enterprises Limited, an affiliate of CK Hutchison Holdings
Limited (“CK Hutchison”), entered into a license agreement on June 15, 2021, conditional upon the completion
of the divestment, to grant a continuing right to use the “Hutchison Whampoa” brand by HBYS, and the Group
agrees to pay HK$12 million (approximately US$1.5 million) per year with aggregate amounts not to exceed
HK$120 million (approximately US$15.4 million). On September 28, 2021, the Group recorded the present value
of future branding liability payments of US$12.7 million. As at December 31, 2021, US$1.5 million and US$9.8
million were included in amounts due to related parties (Note 24(ii)) and other non-current liabilities respectively.
The gain on divestment of an equity investee was recognized in the consolidated statements of operations
as follows:
Proceeds
Dividend receivables–third party (Note 7)
Less: Group’s share of net assets of HBYS (Note 11(iii))
Dividend receivables–HBYS
Withholding tax liability on dividend receivables–HBYS
Branding liability
Accumulated other comprehensive income and reserves
Transaction costs and others
Gain on divestment of an equity investee
Less: Capital gain tax
Less: Gain on divestment of an equity investee attributable to non-controlling
interests
Gain on divestment of an equity investee attributable to the Group
Year Ended December 31,
2021
(in US$’000)
159,118
46,387
205,505
(23,246)
(52,887)
2,644
(12,721)
1,911
104
121,310
(14,373)
(24,010)
82,927
HUTCHMED (China) Limited 2021 Annual Report 131
24. Significant Transactions with Related Parties and Non-Controlling Shareholders of
Subsidiaries
The Group has the following significant transactions with related parties and non-controlling shareholders
of subsidiaries, which were carried out in the normal course of business at terms determined and agreed by the
relevant parties:
(i) Transactions with related parties:
Sales to:
Indirect subsidiaries of CK Hutchison
4,256
5,484
7,637
Revenue from research and development services from:
Year Ended December 31,
2021
2020
2019
(in US$’000)
An equity investee
Purchases from:
Equity investees
Rendering of marketing services from:
Indirect subsidiaries of CK Hutchison
An equity investee
Rendering of management services from:
An indirect subsidiary of CK Hutchison
Entered brand license agreement with:
525
491
494
3,770
3,347
2,465
350
—
350
332
—
332
971
955
430
2,682
3,112
931
—
An indirect subsidiary of CK Hutchison (note (a))
12,721
—
(ii) Balances with related parties included in:
Accounts receivable—related parties
Indirect subsidiaries of CK Hutchison (note (b))
Other receivables, prepayments and deposits
Equity investees (note (b))
Other payables, accruals and advance receipts
Indirect subsidiaries of CK Hutchison (note (c) and (e))
Other non-current liabilities
An equity investee (note (d))
An indirect subsidiary of CK Hutchison (note (e))
December 31,
2021
2020
(in US$’000)
1,166
1,222
1,149
1,142
1,915
736
9,766
10,502
401
950
—
950
132
Notes:
(a) The branding rights for HBYS from an indirect subsidiary of CK Hutchison was recognized in the
consolidated statements of operations through the gain on divestment of an equity investee (Note 23). For
the year ended December 31, 2021, actual cash paid was US$1,538,000.
(b) Balances with related parties are unsecured, repayable on demand and interest-free. The carrying values
of balances with related parties approximate their fair values due to their short-term maturities.
(c) Amounts due to indirect subsidiaries of CK Hutchison are unsecured, repayable on demand and interest-
bearing if not settled within one month.
(d) Other deferred income represents amounts recognized from granting of promotion and marketing rights.
(e) As at December 31, 2021, branding liability payable of approximately US$1,538,000 and US$9,766,000 were
included in amounts due to related parties under other payables, accruals and advance receipts and other
non-current liabilities respectively (Note 23).
(iii) Transactions with non-controlling shareholders of subsidiaries:
Sales
Purchases
Dividends declared
Year Ended December 31,
2021
2020
2019
41,974
10,660
9,894
(in US$’000)
36,500
13,936
1,462
27,343
13,380
—
(iv) Balances with non-controlling shareholders of subsidiaries included in:
Accounts receivable
Accounts payable
Other non-current liabilities
Loan
December 31,
2021
2020
(in US$’000)
8,436
2,062
6,184
4,856
—
579
HUTCHMED (China) Limited 2021 Annual Report 133
25. Income Taxes
(i) Income tax expense
Current tax
HK (note (a))
PRC (note (b) and (c))
U.S. and others (note (d))
Total current tax
Deferred income tax (benefits)/expense
Income tax expense
Notes:
Year Ended December 31,
2021
2020
2019
(in US$’000)
310
15,909
417
16,636
(4,718)
11,918
457
872
219
1,548
3,281
4,829
321
708
636
1,665
1,609
3,274
(a) The Company, three subsidiaries incorporated in the British Virgin Islands and its Hong Kong subsidiaries
are subject to Hong Kong profits tax. Under the Hong Kong two-tiered profits tax rates regime, the first
HK$2.0 million (US$0.3 million) of assessable profits of qualifying corporations will be taxed at 8.25%, with
the remaining assessable profits taxed at 16.5%. Hong Kong profits tax has been provided for at the relevant
rates on the estimated assessable profits less estimated available tax losses, if any, of these entities as
applicable.
(b) Taxation in the PRC has been provided for at the applicable rate on the estimated assessable profits less
estimated available tax losses, if any, in each entity. Under the PRC Enterprise Income Tax Law (the “EIT
Law”), the standard enterprise income tax rate is 25%. In addition, the EIT Law provides for a preferential
tax rate of 15% for companies which qualify as HNTE. HUTCHMED Limited and its wholly-owned subsidiary
HUTCHMED (Suzhou) Limited (formerly known as “Hutchison MediPharma (Suzhou) Limited”) qualify as a
HNTE up to December 31, 2022 and 2023 respectively.
Pursuant to the EIT law, a 10% withholding tax is levied on dividends paid by PRC companies to their foreign
investors. A lower withholding tax rate of 5% is applicable under the China-HK Tax Arrangement if direct
foreign investors with at least 25% equity interest in the PRC companies are Hong Kong tax residents, and
meet the conditions or requirements pursuant to the relevant PRC tax regulations regarding beneficial
ownership. Since the equity holders of the equity investees of the Company are Hong Kong incorporated
companies and Hong Kong tax residents, and meet the aforesaid conditions or requirements, the Company
has used 5% to provide for deferred tax liabilities on retained earnings which are anticipated to be
distributed. As at December 31, 2021, 2020 and 2019, the amounts accrued in deferred tax liabilities relating
to withholding tax on dividends were determined on the basis that 100% of the distributable reserves of the
equity investees operating in the PRC will be distributed as dividends.
Pursuant to PRC Bulletin on Issues of Enterprise Income Tax and Indirect Transfers of Assets by Non-PRC
Resident Enterprises, an indirect transfer of a PRC resident enterprise by a non-PRC resident enterprise,
via the transfer of an offshore intermediate holding company, shall be subject to PRC withholding tax under
certain conditions.
(c) Current tax in the PRC for the year ended December 31, 2021 includes US$14.4 million arising from the
indirect disposal of HBYS (Note 23), calculated at 10% of the excess of the disposal proceeds over the cost
of acquiring the equity investment in HBYS.
(d) The Company’s subsidiary in the U.S. with operations primarily in New Jersey and New York states is
subject to U.S. taxes, primarily federal and state taxes, which have been provided for at approximately 21%
(federal) and 0% to 11.5% (state tax) on the estimated assessable profit over the reporting years. Certain
income receivable by the Company is subject to U.S. withholding tax of 30%. Two of the Group’s
subsidiaries are subject to corporate tax in the UK and EU countries at 19% and 20% to 25%, respectively,
on the estimated assessable profits in relation to their presence in these countries.
134
The reconciliation of the Group’s reported income tax expense to the theoretical tax amount that would
arise using the tax rates of the Company against the Group’s loss before income taxes and equity in earnings
of equity investees is as follows:
Loss before income taxes and equity in earnings of equity
investees
Tax calculated at the statutory tax rate of the Company
Tax effects of:
Different tax rates applicable in different jurisdictions
Tax valuation allowance
Preferential tax rate difference
Preferential tax deduction and credits
Expenses not deductible for tax purposes
Utilization of previously unrecognized tax losses
Withholding tax on undistributed earnings of PRC entities
Others
Income tax expense
(ii) Deferred tax assets and liabilities
Year Ended December 31,
2021
2020
2019
(in US$’000)
(215,740)
(35,597)
(189,734)
(31,306)
(141,105)
(23,282)
136
63,975
(148)
(29,838)
8,684
(186)
3,153
1,739
11,918
4,025
46,321
(154)
(18,814)
3,476
(114)
3,962
(2,567)
4,829
2,027
25,498
(177)
(5,444)
4,098
(285)
1,894
(1,055)
3,274
The significant components of deferred tax assets and liabilities are as follows:
Deferred tax assets
Cumulative tax losses
Others
Total deferred tax assets
Less: Valuation allowance
Deferred tax assets
Deferred tax liabilities
Undistributed earnings from PRC entities
Others
Deferred tax liabilities
December 31,
2021
2020
(in US$’000)
186,832
12,269
199,101
(189,700)
9,401
117,064
6,829
123,893
(122,378)
1,515
2,720
45
2,765
4,994
69
5,063
The movements in deferred tax assets and liabilities are as follows:
As at January 1
Utilization of previously recognized withholding tax on
2021
2020
2019
(in US$’000)
(3,548)
(2,343)
(4,256)
undistributed earnings
5,148
2,323
3,390
(Charged)/Credited to the consolidated statements of
operations
Withholding tax on undistributed earnings of PRC entities
Deferred tax on amortization of intangible assets
Deferred tax on temporary differences, tax loss carried
forward and research tax credits
Divestment of an equity investee
Exchange differences
As at December 31
(3,153)
19
7,852
370
(52)
6,636
(3,962)
18
663
—
(247)
(3,548)
(1,894)
18
267
—
132
(2,343)
HUTCHMED (China) Limited 2021 Annual Report 135
The deferred tax assets and liabilities are offset when there is a legally enforceable right to set off and when
the deferred income taxes relate to the same fiscal authority.
The cumulative tax losses can be carried forward against future taxable income and will expire in the
following years:
No expiry date
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
December 31,
2021
2020
(in US$’000)
60,450
200
—
4,099
39,321
52,452
67,217
117,376
191,554
265,696
432,278
1,230,643
53,940
195
—
3,998
38,357
51,034
66,555
114,490
186,844
259,163
—
774,576
The Company believes that it is more likely than not that future operations outside the U.S. will not generate
sufficient taxable income to realize the benefit of the deferred tax assets. Certain of the Company’s subsidiaries
have had sustained tax losses, which will expire within five years if not utilized in the case of PRC subsidiaries
(ten years for HNTEs), and which will not be utilized in the case of Hong Kong subsidiaries as they do not
generate taxable profits. Accordingly, a valuation allowance has been recorded against the relevant deferred
tax assets arising from the tax losses.
A U.S. subsidiary of the Company has approximately US$2.0 million and US$0.6 million U.S. Federal and
New Jersey state research tax credits which will expire between 2039 and 2041 (Federal) and 2026 and 2028
(New Jersey) respectively, if not utilized.
The table below summarizes changes in the deferred tax valuation allowance:
As at January 1
Charged to consolidated statements of operations
Utilization of previously unrecognized tax losses
Write-off of tax losses
Others
Exchange differences
As at December 31
2021
2020
2019
122,378
63,975
(186)
—
(9)
3,542
189,700
(in US$’000)
69,399
46,321
(114)
—
—
6,772
122,378
49,021
25,498
(285)
(3,142)
—
(1,693)
69,399
As at December 31, 2021, 2020 and 2019, the Group did not have any material unrecognized uncertain tax
positions.
136
(iii) Income tax payable
As at January 1
Current tax
Withholding tax upon dividend declaration from PRC
entities (note (a))
Tax paid (note (b))
Reclassification from non-current withholding tax
Reclassification to prepaid tax
Divestment of an equity investee (Note 23)
Exchange difference
As at December 31
Notes:
2021
2020
2019
(in US$’000)
1,120
16,636
5,148
(5,014)
—
25
(2,644)
275
15,546
1,828
1,548
2,323
(5,940)
812
485
—
64
1,120
555
1,665
2,581
(2,970)
—
—
—
(3)
1,828
(a) The amount for 2019 excludes a non-current withholding tax of US$0.8 million which is included under other
non-current liabilities.
(b) The amount for 2020 is net of the PRC Enterprise Income Tax (“EIT”) refund of US$0.4 million received by
HSPL. The amount for 2019 excludes the PRC EIT of US$0.3 million prepaid by HSPL which is included
under other receivables, prepayments and deposits.
26. Losses Per Share
(i) Basic losses per share
Basic losses per share is calculated by dividing the net loss attributable to the Company by the weighted
average number of outstanding ordinary shares in issue during the year. Treasury shares held by the Trustee
are excluded from the weighted average number of outstanding ordinary shares in issue for purposes of
calculating basic losses per share.
2021
Year Ended December 31,
2020
2019
Weighted average number of outstanding ordinary shares in
issue
Net loss attributable to the Company (US$’000)
Losses per share attributable to the Company (US$ per
792,684,524 697,931,437 665,683,145
(106,024)
(194,648)
(125,730)
share)
(0.25)
(0.18)
(0.16)
(ii) Diluted losses per share
Diluted losses per share is calculated by dividing net loss attributable to the Company by the weighted
average number of outstanding ordinary shares in issue and dilutive ordinary share equivalents outstanding
during the year. Dilutive ordinary share equivalents include shares issuable upon the exercise or settlement of
share options, LTIP awards and warrants issued by the Company using the treasury stock method.
For the years ended December 31, 2021, 2020 and 2019, the share options, LTIP awards and warrants
issued by the Company were not included in the calculation of diluted losses per share because of their anti-
dilutive effect. Therefore, diluted losses per share were equal to basic losses per share for the years ended
December 31, 2021, 2020 and 2019.
HUTCHMED (China) Limited 2021 Annual Report 137
27. Segment Reporting
The Group’s operating segments are as follows:
(i) Oncology/Immunology: focuses on discovering, developing, and commercializing targeted therapies and
immunotherapies for the treatment of cancer and immunological diseases. Oncology/Immunology is further
segregated into two core business areas:
(a) R&D: comprises research and development activities covering drug discovery, development,
manufacturing and regulatory functions as well as administrative activities to support research and
development operations; and
(b) Marketed Products: comprises the sales, marketing, manufacture and distribution of drug developed
from research and development activities.
(ii) Other Ventures: comprises other commercial businesses which include the sales, marketing, manufacture
and distribution of other prescription drugs and consumer health products.
The performance of the reportable segments is assessed based on segment operating (loss)/profit.
The segment information is as follows:
Year Ended December 31, 2021
Oncology/Immunology
R&D
U.S. and
Others
—
3
—
PRC
43,181
809
20
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
43,181
812
76,429
—
119,610
812
236,518
282
—
982
356,128
2,076
20
—
20
60,597
—
60,617
(143,876)
—
(159,770)
—
(303,646)
—
6,178
—
(297,468) 185,240
—
—
(42,303)
(592)
(154,531)
(592)
22
7,160
7,182
(1,320)
5,862
(14,573)
(3,207)
(11,918)
(143,528)
(152,235)
(295,763)
4,032
(291,731) 142,890
(45,807)
(194,648)
(6,436)
(197)
(6,633)
—
(6,633)
(318)
(239)
(7,190)
25,295
4,321
29,616
—
29,616
1,056
327
30,999
Revenue from
external customers
Interest income
Equity in earnings of
equity investees,
net of tax
Segment operating
(loss)/profit
Interest expense
Income tax
credit/(expense)
Net (loss)/income
attributable to the
Company
Depreciation/
amortization
Additions to non-
current assets
(other than
financial
instruments and
deferred tax
assets)
138
Oncology/Immunology
December 31, 2021
R&D
U.S. and
Others
PRC
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
Total assets
Property, plant and
equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible
asset
Investments in equity
investees
166,802
19,870
186,672
35,978
222,650
225,898
924,113
1,372,661
38,049
4,798
13,169
—
—
480
1,862
3,768
—
—
—
—
39,911
8,566
13,169
—
—
480
—
—
—
—
—
—
39,911
8,566
13,169
—
746
1,827
—
3,380
—
163
480
75,999
618
1,486
—
—
—
—
41,275
11,879
13,169
3,380
163
76,479
Year Ended December 31, 2020
Oncology/Immunology
R&D
U.S. and
Others
—
—
—
PRC
10,262
461
(97)
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
10,262
461
19,953
—
30,215
461
197,761
167
—
2,608
227,976
3,236
(97)
—
(97)
79,143
—
79,046
Revenue from
external customers
Interest income
Equity in earnings of
equity investees,
net of tax
Segment operating
(loss)/profit
Interest expense
Income tax
(119,740)
—
(63,482)
—
(183,222)
—
7,607
—
(175,615)
83,888
—
(18,174)
(787)
(109,901)
(787)
(824)
(4,078)
(4,829)
—
73
(expense)/credit
(402)
642
240
(167)
Net (loss)/income
attributable to the
Company
Depreciation/
amortization
Additions to non-
current assets
(other than
financial
instruments and
deferred tax
assets)
(120,096)
(62,683)
(182,779)
7,282
(175,497)
72,785
(23,018)
(125,730)
(5,458)
(119)
(5,577)
—
(5,577)
(292)
(192)
(6,061)
22,574
754
23,328
—
23,328
817
1,090
25,235
HUTCHMED (China) Limited 2021 Annual Report 139
Oncology/Immunology
December 31, 2020
R&D
U.S. and
Others
PRC
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
Total assets
Property, plant and
equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible
asset
Investments in equity
investees
127,637
9,957
137,594
5,728
143,322
231,234
349,562
724,118
22,554
2,782
13,121
—
—
385
454
1,375
—
—
—
—
23,008
4,157
13,121
—
—
385
—
—
—
—
—
—
23,008
4,157
13,121
—
688
2,582
—
3,307
—
227
385
139,120
474
1,277
—
—
—
—
24,170
8,016
13,121
3,307
227
139,505
Year Ended December 31, 2019
Oncology/Immunology
R&D
U.S. and
Others
—
—
—
PRC
16,026
322
147
Marketed
Products
Other
Ventures
Subtotal
PRC
Subtotal
PRC
Unallocated
Total
(in US$’000)
16,026
322
10,766
—
26,792
322
178,098
109
—
4,513
204,890
4,944
147
—
147
40,553
—
40,700
(111,518)
—
(63)
(21,785)
—
(197)
(133,303)
—
(260)
5,887
—
—
(127,416)
—
(260)
45,255
—
(939)
(17,214)
(1,030)
(2,075)
(99,375)
(1,030)
(3,274)
(111,308)
(21,926)
(133,234)
5,872
(127,362)
41,488
(20,150)
(106,024)
(4,448)
(62)
(4,510)
—
(4,510)
(264)
(168)
(4,942)
8,602
1,308
9,910
—
9,910
2,772
148
12,830
Revenue from
external customers
Interest income
Equity in earnings of
equity investees,
net of tax
Segment operating
(loss)/profit
Interest expense
Income tax expense
Net (loss)/income
attributable to the
Company
Depreciation/
amortization
Additions to non-
current assets
(other than
financial
instruments and
deferred tax
assets)
Revenue from external customers is after elimination of inter-segment sales. Sales between segments are
carried out at mutually agreed terms. The amount eliminated attributable to sales between PRC and U.S. and
others under Oncology/Immunology segment was US$46,891,000, US$19,230,000 and US$8,406,000 for the
years ended December 31, 2021, 2020, and 2019 respectively.
There were three customers with aggregate revenue of US$147,111,000, which accounted for over 10% of
the Group’s revenue for the year ended December 31, 2021. There were two customers with aggregate revenue
of US$62,493,000, which accounted for over 10% of the Group’s revenue for the year ended December 31,
2020. There was one customer with revenue of US$27,343,000, which accounted for over 10% of the Group’s
revenue for the year ended December 31, 2019.
Unallocated expenses mainly represent corporate expenses which include corporate employee benefit
expenses and the relevant share-based compensation expenses. Unallocated assets mainly comprise cash
and cash equivalents and short-term investments.
140
A reconciliation of segment operating loss to net loss is as follows:
Segment operating loss
Interest expense
Income tax expense
Net loss
2021
Year Ended December 31,
2020
2019
(154,531)
(592)
(11,918)
(167,041)
(in US$’000)
(109,901)
(787)
(4,829)
(115,517)
(99,375)
(1,030)
(3,274)
(103,679)
28. Note to Consolidated Statements of Cash Flows
Reconciliation of net loss for the year to net cash used in operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in
operating activities
Amortization of finance costs
Depreciation and amortization
Gain from purchase of a subsidiary
Loss on disposals of property, plant and equipment
Provision for excess and obsolete inventories
Provision for credit losses
Share-based compensation expense—share options
Share-based compensation expense—LTIP
Equity in earnings of equity investees, net of tax
Dividends received from SHPL and HBYS
Changes in right-of-use assets
Fair value loss on Warrant
Gain from disposal of HBYS
Unrealized currency translation (gain)/loss
Changes in income tax balances
Changes in working capital
Accounts receivable
Other receivables, prepayments and deposits
Inventories
Accounts payable
Other payables, accruals and advance receipts
Lease liabilities
Deferred revenue
Other
Total changes in working capital
Net cash used in operating activities
2021
Year Ended December 31,
2020
(in US$’000)
2019
(167,041)
(115,517)
(103,679)
44
7,190
—
70
(23)
(76)
16,365
25,625
(60,617)
49,872
(3,727)
12,548
(121,310)
(2,505)
6,904
(35,634)
(5,758)
(16,002)
9,565
66,224
3,079
11,071
(87)
32,458
(204,223)
43
6,061
—
85
65
77
8,737
10,905
(79,046)
86,708
(2,197)
—
—
(6,149)
(1,111)
(4,693)
(9,602)
(3,623)
7,651
37,472
2,258
(158)
(32)
29,273
(62,066)
195
4,942
(17)
17
316
(25)
7,173
4,419
(40,700)
28,135
224
—
—
1,679
304
(271)
(2,734)
(4,215)
(1,664)
25,953
(101)
(709)
(154)
16,105
(80,912)
HUTCHMED (China) Limited 2021 Annual Report 141
29. Litigation
From time to time, the Group may become involved in litigation relating to claims arising from the ordinary
course of business. The Group believes that there are currently no claims or actions pending against the Group,
the ultimate disposition of which could have a material adverse effect on the Group’s results of operations,
financial position or cash flows. However, litigation is subject to inherent uncertainties and the Group’s view of
these matters may change in the future. When an unfavorable outcome occurs, there exists the possibility of a
material adverse impact on the Group’s financial position and results of operations for the periods in which the
unfavorable outcome occurs, and potentially in future periods.
On May 17, 2019, Luye Pharma Hong Kong Ltd. (“Luye”) issued a notice to the Group purporting to terminate
a distribution agreement that granted the Group exclusive commercial rights to Seroquel in the PRC for failure
to meet a pre-specified target. The Group disagrees with this assertion and believes that Luye have no basis
for termination. As a result, the Group commenced legal proceedings in 2019 in order to seek damages. On
October 21, 2021 (and further updated in December 2021), the Group was awarded an amount of RMB253.2
million (equivalent to US$39.6 million) with interest of 5.5% per annum from the date of the award until payment
and recovery of costs of US$2.2 million (“Award”). Luye is still pursuing further legal proceedings and no Award
amounts have been received as at the issuance date of these consolidated financial statements. Hence no
Award amounts have been recognized and no adjustment has been made to Seroquel-related balances as at
December 31, 2021. Such Seroquel-related balances include accounts receivable, long-term prepayment,
accounts payable and other payables of US$1.2 million, US$0.7 million, US$1.0 million and US$1.3 million
respectively.
30. Restricted Net Assets
Relevant PRC laws and regulations permit payments of dividends by the Company’s subsidiaries in the
PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards
and regulations. In addition, the Company’s subsidiaries in the PRC are required to make certain appropriations
of net after-tax profits or increases in net assets to the statutory surplus fund prior to payment of any dividends.
In addition, registered share capital and capital reserve accounts are restricted from withdrawal in the PRC, up
to the amount of net assets held in each subsidiary. As a result of these and other restrictions under PRC laws
and regulations, the Company’s subsidiaries in the PRC are restricted in their ability to transfer their net assets
to the Group in terms of cash dividends, loans or advances, with restricted portions amounting to US$0.1 million
and US$0.2 million as at December 31, 2021 and 2020 respectively, which excludes the Company’s subsidiaries
with a shareholders’ deficit. Even though the Group currently does not require any such dividends, loans or
advances from the PRC subsidiaries, for working capital and other funding purposes, the Group may in the
future require additional cash resources from the Company’s subsidiaries in the PRC due to changes in
business conditions, to fund future acquisitions and development, or merely to declare and pay dividends to
make distributions to shareholders.
In addition, the Group has certain investments in equity investees in the PRC, where the Group’s equity in
undistributed earnings amounted to US$54.4 million and US$99.9 million as at December 31, 2021 and 2020
respectively.
142
31. Additional Information: Company Balance Sheets (Parent Company Only)
Assets
Current assets
Cash and cash equivalents
Short-term investments
Other receivables, prepayments and deposits
Total current assets
Investments in subsidiaries
Deferred issuance costs
Total assets
Liabilities and shareholders’ equity
Current liabilities
Other payables, accruals and advance receipts
Income tax payable
Total current liabilities
Other non-current liabilities
Total liabilities
Commitments and contingencies
Company’s shareholders’ equity
Ordinary shares; $0.10 par value; 1,500,000,000 shares authorized;
864,530,850 and 727,722,215 shares issued at December 31, 2021
and 2020 respectively
Additional paid-in capital
Accumulated losses
Accumulated other comprehensive income
Total Company’s shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
Note
2021
2020
(in US$’000)
979
55,128
934
57,041
972,831
—
1,029,872
42,952
16
42,968
11
42,979
21
—
1,120
1,141
506,150
1,171
508,462
24,253
93
24,346
—
24,346
86,453
1,505,196
(610,328)
5,572
986,893
1,029,872
72,772
822,458
(415,591)
4,477
484,116
508,462
16
17
32. Subsequent Events
The Group evaluated subsequent events through March 3, 2022, which is the date when the consolidated
financial statements were issued.
In February 2022, a US$15 million milestone payment was triggered and receivable in relation to the
initiation of the Phase III study for the primary indication non-small cell lung cancer pursuant to the AZ
Agreement.
33. Dividends
No dividend has been paid or declared by the Company since its incorporation.
HUTCHMED (China) Limited 2021 Annual Report 143
34. Directors’ Remuneration
Directors’ remuneration disclosed pursuant to the Listing Rules, Section 383(1)(a), (b), (c) and (f) of the
Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of
Directors) Regulation, is as follows:
Fees:
Other remuneration
Salaries, allowances and benefits in kind
Pension contributions
Performance related bonuses
Share-based compensation expenses (note)
2021
Year Ended December 31,
2020
(in US$’000)
848
883
2019
1,160
93
2,245
5,553
9,051
9,934
1,093
89
2,005
3,336
6,523
7,371
848
1,001
79
2,042
1,911
5,033
5,881
Note: During the years ended December 31, 2021, 2020 and 2019, certain directors were granted share options
and LTIP awards in respect of their services to the Group, under the share option schemes and LTIP of the
Company, further details of which are set out in Note 18. The share-based compensation expenses were
recognized in the consolidated statements of operations during the years ended December 31, 2021, 2020 and
2019.
(i)
Independent non-executive directors
The fees paid to independent non-executive directors were as follows:
2021
Year Ended December 31,
2020
(in US$’000)
117
103
104
84
408
117
103
111
99
430
2019
117
103
104
84
408
Paul Carter
Karen Ferrante
Graeme Jack
Tony Mok
The share-based compensation expenses of the independent non-executive directors were as follows:
Paul Carter
Karen Ferrante
Graeme Jack
Tony Mok
2021
2019
Year Ended December 31,
2020
(in US$’000)
73
73
73
73
292
91
91
91
91
364
—
—
—
—
—
There were no other remunerations payable to independent non-executive directors during the years ended
December 31, 2021, 2020 and 2019.
144
(ii)
Executive directors and non-executive directors
Executive directors
Simon To
Christian Hogg
Johnny Cheng
Wei-guo Su
Non-executive directors
Dan Eldar
Edith Shih
Executive directors
Simon To
Christian Hogg
Johnny Cheng
Wei-guo Su
Non-executive directors
Dan Eldar
Edith Shih
Executive directors
Simon To
Christian Hogg
Johnny Cheng
Wei-guo Su
Non-executive directors
Dan Eldar
Edith Shih
Year Ended December 31, 2021
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
Share-based
compensation
Total
85
77
72
75
309
70
74
144
453
—
420
328
412
1,160
—
—
—
1,160
(in US$’000)
—
30
28
35
93
—
—
—
93
—
1,000
410
835
2,245
—
—
—
2,245
92
2,246
733
1,934
5,005
92
92
184
5,189
177
3,773
1,571
3,291
8,812
162
166
328
9,140
Year Ended December 31, 2020
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
Share-based
compensation
Total
(in US$’000)
—
30
27
32
89
—
—
—
89
—
897
372
736
2,005
—
—
—
2,005
—
411
320
362
1,093
—
—
—
1,093
73
1,012
341
1,472
2,898
73
73
146
3,044
153
2,425
1,130
2,677
6,385
143
143
286
6,671
80
75
70
75
300
70
70
140
440
Year Ended December 31, 2019
Salaries,
allowances and
benefits in kind
Pension
contributions
Performance
related
bonuses
Fees
Share-based
compensation
Total
(in US$’000)
—
29
26
24
79
—
—
—
79
—
936
365
741
2,042
—
—
—
2,042
—
401
309
291
1,001
—
—
—
1,001
—
399
155
1,357
1,911
—
—
—
1,911
80
1,840
925
2,488
5,333
70
70
140
5,473
80
75
70
75
300
70
70
140
440
HUTCHMED (China) Limited 2021 Annual Report 145
35. Five Highest-Paid Employees
The five highest-paid employees during years ended December 31, 2021, 2020 and 2019 included the
following number of directors and non-directors:
Directors
Non-directors
Year Ended December 31,
2020
2019
2021
3
2
5
3
2
5
3
2
5
Details of the remuneration for the years ended December 31, 2021, 2020 and 2019 of the five highest-paid
employees who are non-directors (the “Non-director Individuals”) were as follows:
Salaries, allowances and benefits in kind
Pension contributions
Performance related bonuses
Share-based compensation expenses (note)
2021
Year Ended December 31,
2020
(in US$’000)
715
48
735
1,104
2,602
859
52
802
1,465
3,178
2019
643
36
511
953
2,143
Note: During the years ended December 31, 2021, 2020 and 2019, the Non-director Individuals were granted
share options and LTIP awards in respect of their services to the Group, under the share option schemes and
LTIP of the Company, further details of which are set out in Note 18. The share-based compensation expenses
were recognized in the consolidated statements of operations during the years ended December 31, 2021, 2020
and 2019.
The number of Non-director Individuals whose remuneration fell within the following bands is as follows:
HK$7,500,000 to HK$8,000,000
HK$9,000,000 to HK$9,500,000
HK$10,000,000 to HK$10,500,000
HK$12,000,000 to HK$12,500,000
HK$12,500,000 to HK$13,000,000
Year Ended December 31,
2020
2019
2021
—
—
—
1
1
2
—
—
2
—
—
2
1
1
—
—
—
2
During the years ended December 31, 2021, 2020 and 2019, no remuneration was paid by the Group to any
directors or Non-director Individuals as an inducement to join the Group or as compensation for loss of office.
Additionally, none of the directors or Non-director Individuals have waived any remuneration during the years
ended December 31, 2021, 2020 and 2019.
146
36. Reconciliation between U.S. GAAP and International Financial Reporting
Standards
These consolidated financial statements are prepared in accordance with U.S. GAAP, which differ in certain
respects from International Financial Reporting Standards (“IFRS”). The effects of material differences
prepared under U.S. GAAP and IFRS are as follows:
(i) Reconciliation of consolidated statements of operations
Year Ended December 31, 2021
IFRS adjustments
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
Capitalization
of rights
(note (c))
Divestment
of an equity
investee
(note (d))
Amounts
under IFRS
(229,448)
40
(in US$’000)
—
—
—
(229,408)
(299,086)
(37,827)
(89,298)
(684,445)
23
53
161
277
—
—
(163)
(163)
11,111
—
—
11,111
—
—
—
(287,952)
(37,774)
(89,300)
—
(673,220)
121,310
(592)
(12,643)
—
(400)
9
—
—
—
(8,733)
(391)
—
—
—
—
—
11,266 132,576
(992)
(12,634)
—
—
—
(9,124)
(215,740)
(11,918)
(114)
—
(163)
—
11,111
—
11,266
370
(193,640)
(11,548)
60,617
(167,041)
(1)
(115)
—
(163)
—
11,111
(11,636)
—
48,980
(156,208)
(27,607)
(2)
—
(27)
—
(27,636)
Costs of goods—third parties
Research and development
expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an
equity investee
Interest expense
Other expense
Total other
income/(expense)
Loss before income taxes
and equity in earnings of
equity investees
Income tax expense
Equity in earnings of equity
investees, net of tax
Net loss
Less: Net income attributable
to non-controlling interests
Net loss attributable to the
Company
(194,648)
(117)
(163)
11,084
—
(183,844)
HUTCHMED (China) Limited 2021 Annual Report 147
Year Ended December 31, 2020
IFRS adjustments
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
Capitalization
of rights
(note (c))
Divestment
of an equity
investee
(note (d))
Amounts
under IFRS
Costs of goods—third parties
Research and development
expenses
Selling expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other
income/(expense)
Loss before income taxes
and equity in earnings of
equity investees
Equity in earnings of equity
investees, net of tax
Net loss
Less: Net income attributable
to non-controlling interests
Net loss attributable to the
Company
(178,828)
29
(in US$’000)
—
(174,776)
(11,334)
(50,015)
(424,644)
(787)
(115)
18
51
132
230
(237)
15
—
—
860
860
—
—
6,934
(222)
—
(189,734)
79,046
(115,517)
(10,213)
(125,730)
8
4
12
17
29
860
—
860
—
860
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(178,799)
—
—
—
(174,758)
(11,283)
(49,023)
— (423,554)
(1,024)
—
(100)
—
—
6,712
— (188,866)
—
79,050
— (114,645)
—
(10,196)
—
(124,841)
Year Ended December 31, 2019
IFRS adjustments
Amounts as
reported under
U.S. GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
Capitalization
of rights
(note (c))
(in US$’000)
Divestment
of an equity
investee
(note (d))
Amounts
under IFRS
Research and development
expenses
Administrative expenses
Total operating expenses
Interest expense
Other expense
Total other
income/(expense)
Loss before income taxes
and equity in earnings of
equity investees
Equity in earnings of equity
investees, net of tax
Net loss
Less: Net income attributable
to non-controlling interests
Net loss attributable to the
Company
(138,190)
(39,210)
(351,276)
(1,030)
(488)
31
192
223
(275)
92
—
—
—
—
—
5,281
(183)
—
(141,105)
40,700
(103,679)
(2,345)
(106,024)
40
(5)
35
15
50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(138,159)
(39,018)
— (351,053)
(1,305)
—
(396)
—
—
5,098
— (141,065)
—
40,695
— (103,644)
—
(2,330)
— (105,974)
148
(ii) Reconciliation of consolidated balance sheets
December 31, 2021
IFRS adjustments
Amounts as
reported
under U.S.
GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
11,879
(257)
—
Capitalization
of rights
(note (c))
(in US$’000)
—
Right-of-use assets
Investments in equity
investees
Other non-current assets
76,479
21,551
(24)
—
Total assets
1,372,661
(281)
Other payables, accruals
and advance receipts
Total current liabilities
Total liabilities
210,839
311,658
333,147
—
—
—
—
—
—
—
—
—
Divestment
of an equity
investee
(note (d))
LTIP
classification
(note (e))
Amounts
under IFRS
—
—
—
—
—
11,622
76,455
32,847
—
—
— 1,383,676
—
11,296
11,296
—
—
—
—
—
—
(12,836)
198,003
(12,836)
(12,836)
298,822
320,311
Additional paid-in capital 1,505,196
Accumulated losses
Accumulated other
(610,328)
—
(233)
(697)
697
—
11,084
comprehensive income
5,572
(7)
—
185
Total Company’s
shareholders’ equity
Non-controlling interests
Total shareholders’
equity
986,893
52,621
(240)
(41)
—
—
11,269
27
1,039,514
(281)
—
11,296
—
—
—
—
—
—
12,836 1,517,335
(598,780)
—
—
5,750
12,836 1,010,758
52,607
—
12,836 1,063,365
December 31, 2020
IFRS adjustments
Amounts as
reported
under U.S.
GAAP
Lease
amortization
(note (a))
Issuance
costs
(note (b))
8,016
(140)
—
Capitalization
of rights
(note (c))
(in US$’000)
—
Divestment
of an equity
investee
(note (d))
LTIP
classification
(note (e))
Amounts
under IFRS
Right-of-use assets
Investments in equity
investees
Other non-current assets
Total assets
Other payables, accruals
and advance receipts
Total current liabilities
Total liabilities
Additional paid-in capital
Accumulated losses
Accumulated other
139,505
20,172
724,118
121,283
158,397
205,169
(22)
—
(162)
—
860
860
—
—
—
—
—
—
822,458
(415,591)
—
(116)
—
860
comprehensive income
4,477
(4)
—
Total Company’s
shareholders’ equity
Non-controlling interests
Total shareholders’
equity
484,116
34,833
(120)
(42)
860
—
518,949
(162)
860
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,876
—
—
—
139,483
21,032
724,816
—
—
—
(7,089)
114,194
(7,089)
(7,089)
151,308
198,080
—
—
—
—
—
—
7,089
—
829,547
(414,847)
—
4,473
7,089
—
491,945
34,791
7,089
526,736
HUTCHMED (China) Limited 2021 Annual Report 149
Notes:
(a)
Lease amortization
Under U.S. GAAP, for operating leases, the amortization of right-of-use assets and the interest expense
element of lease liabilities are recorded together as lease expenses, which results in a straight-line recognition
effect in the consolidated statements of operations.
Under IFRS, all leases are accounted for like finance leases where right-of-use assets are generally
depreciated on a straight-line basis while lease liabilities are measured under the effective interest method,
which results in higher expenses at the beginning of the lease term and lower expenses near the end of the
lease term.
(b)
Issuance costs
Under U.S. GAAP and IFRS, there are differences in the criteria for capitalization of issuance costs
incurred in the offering of equity securities.
(c)
Capitalization of development and commercial rights
Under U.S. GAAP, the acquired development and commercial rights do not meet the capitalization
criteria as further development is needed as of the acquisition date and there is no alternative future use. Such
rights are considered as in-process research and development and were expensed to research and
development expense.
Under IFRS, the acquired development and commercial rights were capitalized to intangible assets.
The recognition criterion is always assumed to be met as the price already reflects the probability that future
economic benefits will flow to the Group.
(d)
Divestment of HBYS
Under U.S. GAAP, an equity method investment to be divested that does not qualify for discontinued
operations reporting would not qualify for held-for-sale classification. The investment in HBYS was not
presented as a discontinued operation or as an asset classified as held-for-sale after the signing of the SPA in
March 2021 and therefore, it was accounted for under the equity method until closing on September 28, 2021.
Under IFRS, an equity method investment may be classified as held-for-sale even if the discontinued
operations criteria are not met. The investment in HBYS was not presented as a discontinued operation but was
classified as held-for-sale and therefore equity method accounting was discontinued in March 2021 on the initial
classification as held-for-sale. Accordingly, the reconciliation includes a classification difference in the
consolidated statement of operations between gain on divestment of an equity investee, equity earnings of
equity investees, net of tax and income tax expense.
(e)
LTIP classification
Under U.S. GAAP, LTIP awards with performance conditions are classified as liability-settled awards
prior to the determination date as they settle in a variable number of shares based on a determinable monetary
amount, which is determined upon the actual achievement of performance targets. After the determination date,
the LTIP awards are reclassified as equity-settled awards.
Under IFRS, LTIP awards are classified as equity-settled awards, both prior to and after the
determination date, as they are ultimately settled in ordinary shares or the equivalent ADS of the Company
instead of cash.
150
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 001-37710
HUTCHMED (CHINA) LIMITED
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
48th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
+852 2121 8200
(Address of principal executive offices)
Christian Lawrence Hogg
Chief Executive Officer
Level 18, The Metropolis Tower
10 Metropolis Drive
Hunghom, Kowloon
Hong Kong
Telephone: +852 2121 8200
Facsimile: +852 2121 8281
(Name, telephone, email and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
American depositary shares, each representing five ordinary shares,
par value $0.10 per share
Ordinary shares, par value $0.10 per share*
Ordinary shares, par value $0.10 per share
Ordinary shares, par value $0.10 per share
*Not for trading, but only in connection with the listing of American depositary shares on the Nasdaq Global Select Market
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
None
(Title of Class)
Trading Symbol(s)
HCM
0013
HCM
Name of each exchange on which registered
Nasdaq Global Select Market
Nasdaq Global Select Market*
The Stock Exchange of Hong Kong Limited
The AIM Market of the London Stock Exchange
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report:
864,530,850 ordinary shares were issued and outstanding as of December 31, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Note
Yes No
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepare or issued its audit report.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP
International Financial Reporting Standards as issued
by the International Accounting Standards Board
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Item 17 Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☒ No
Yes No
HUTCHMED (China) Limited
Table of Contents
Introduction
Cautionary Statement Regarding Forward-Looking Statements
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Offer Statistics and Expected Timetable
Item 3.
Key Information
Item 4.
Information on the Company
Item 4A. Unresolved Staff Comments
Item 5.
Operating and Financial Review and Prospects
Item 6.
Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8.
Financial Information
Item 9.
The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use Of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Experts
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards For Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change In Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspection
PART III
Item 17.
Financial Statements
Item 18.
Financial Statements
Item 19. Exhibits
SIGNATURES
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5
7
7
7
7
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165
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214
214
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225
227
227
227
228
228
229
229
229
230
230
230
231
231
231
231
231
231
232
234
INTRODUCTION
This annual report on Form 20-F contains our audited consolidated statements of operations data for the years ended December 31,
2021, 2020 and 2019 and our audited consolidated balance sheet data as of December 31, 2021 and 2020. Our consolidated financial
statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
This annual report also includes audited consolidated income statement data for the years ended December 31, 2021, 2020 and 2019
and the audited consolidated statements of financial position data as of December 31, 2021 and 2020 for our non-consolidated joint
venture, Shanghai Hutchison Pharmaceuticals, and audited consolidated income statement data for the period from January 1, 2021 to
September 28, 2021 and the years ended December 31, 2020 and 2019 and the audited consolidated statements of financial position data
as of September 28, 2021 and December 31, 2020 of Hutchison Baiyunshan when it was our non-consolidated joint venture. On
September 28, 2021, we completed the disposal of our entire interest in Hutchison Baiyunshan, which was our non-core and over-the-
counter drug joint venture business. The financial statements of each of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan
have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting
Standard Board, or IASB.
Unless the context requires otherwise, references herein to the “company,” “HUTCHMED,” “we,” “us” and “our” refer to
HUTCHMED (China) Limited (formerly Hutchison China MediTech Limited) and its consolidated subsidiaries and joint ventures.
Unless otherwise indicated, references in this annual report to:
Conventions Used in this Annual Report
“ADRs” are to the American depositary receipts, which evidence our ADSs;
“ADSs” are to our American depositary shares, each of which represents five ordinary shares;
“China” or “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Taiwan and
the special administrative regions of Hong Kong and Macau;
“CK Hutchison” are to CK Hutchison Holdings Limited, a company incorporated in the Cayman Islands and listed on The
Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange, and the ultimate parent company of our largest
shareholder, Hutchison Healthcare Holdings Limited;
“E.U.” are to the European Union;
“Guangzhou Baiyunshan” are to Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited, a leading China-based
pharmaceutical company listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange;
“Hain Celestial” are to The Hain Celestial Group, Inc., a Nasdaq-listed, natural and organic food and personal care products
company;
“HK$” or “HK dollar” are to the legal currency of the Hong Kong Special Administrative Region;
“Hutchison Baiyunshan” are to Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, which was
our non-consolidated joint venture with Guangzhou Baiyunshan in which we indirectly held a 50% interest through a holding
company until our disposal of such interest on September 28, 2021 (this interest was previously held through a holding company
in which we have a 80% interest);
“HUTCHMED Science Nutrition” (formerly Hutchison Consumer Products Limited) are to HUTCHMED Science Nutrition
Limited, our wholly owned subsidiary;
“Hutchison Hain Organic” are to Hutchison Hain Organic Holdings Limited, our joint venture with Hain Celestial in which we
have a 50% interest;
3
“Hutchison Healthcare” are to Hutchison Healthcare Limited, our wholly owned subsidiary;
“HUTCHMED Limited” (formerly Hutchison MediPharma Limited), our subsidiary through which we operate our
Oncology/Immunology operations in which we have a 99.8% interest;
“HUTCHMED Holdings” are to HUTCHMED Holdings Limited (formerly Hutchison MediPharma Holdings Limited), our
subsidiary in which we have a 99.8% interest and which is the indirect holding company of HUTCHMED Limited;
“Hutchison Sinopharm” are to Hutchison Whampoa Sinopharm Pharmaceuticals (Shanghai) Company Limited, our joint
venture with Sinopharm in which we have a 50.9% interest;
“ordinary shares” or “shares” are to our ordinary shares, par value $0.10 per share;
“RMB” or “renminbi” are to the legal currency of the PRC;
“SEHK” are to The Stock Exchange of Hong Kong;
“Shanghai Hutchison Pharmaceuticals” are to Shanghai Hutchison Pharmaceuticals Limited, our non-consolidated joint venture
with Shanghai Pharmaceuticals in which we have a 50% interest;
“Shanghai Pharmaceuticals” are to Shanghai Pharmaceuticals Holding Co., Ltd., a leading pharmaceutical company in China
listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange;
“Sinopharm” are to Sinopharm Group Co. Ltd., a leading distributor of pharmaceutical and healthcare products and a leading
supply chain service provider in China listed on the Hong Kong Stock Exchange;
“U.S.” or “United States” are to the United States of America;
“$” or “U.S. dollars” are to the legal currency of the United States; and
“£” or “pound sterling” are to the legal currency of the United Kingdom.
References in this annual report to our “Oncology/Immunology” operations are to all activities related to oncology/immunology,
including sales, marketing, manufacturing and research and development with respect to our drugs and drug candidates, and references
to our “Other Ventures” are to all of our other businesses.
Our reporting currency is the U.S. dollar. In addition, this annual report also contains translations of certain foreign currency
amounts into dollars for the convenience of the reader. Unless otherwise stated, all translations of pound sterling into U.S. dollars were
made at £1.00 to $1.33, all translations of RMB into U.S. dollars were made at RMB6.39 to $1.00 and all translations of HK dollars into
U.S. dollars were made at HK$7.80 to $1.00, which are the exchange rates used in our audited consolidated financial statements as of
December 31, 2021. We make no representation that the pound sterling, HK dollar or U.S. dollar amounts referred to in this annual
report could have been or could be converted into U.S. dollars, pounds sterling or HK dollars, as the case may be, at any particular rate
or at all.
Trademarks and Service Marks
We own or have been licensed rights to trademarks, service marks and trade names for use in connection with the operation of our
business, including, but not limited to, the trademarks “Hutchison”, “Chi-Med”, “Hutchison China MediTech”, “HUTCHMED”,
“Elunate”, “Sulanda”, “Orpathys”, “Tazverik” and the logos used by HUTCHMED Limited. All other trademarks, service marks or
trade names appearing in this annual report that are not identified as marks owned by us are the property of their respective owners.
Solely for convenience, the trademarks, service marks and trade names referred to in this annual report are listed without the ®, ™
and (sm) symbols, but we will assert, to the fullest extent under applicable law, our applicable rights in these trademarks, service marks
and trade names.
4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements made under the “safe harbor” provisions of the U.S. Private Securities
Litigation Reform Act of 1995. These statements relate to future events or to our future financial performance and involve known and
unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words
“anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,”
“objective,” “plan,” “potential,” “predict,” “project,” “positioned,” “seek,” “should,” “target,” “will,” “would,” or the negative of these
terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain these identifying words. These forward-looking statements are based on current expectations, estimates, forecasts and
projections about our business and the industry in which we operate and management’s beliefs and assumptions, are not guarantees of
future performance or development and involve known and unknown risks, uncertainties and other factors. These forward-looking
statements include statements regarding:
the initiation, timing, progress and results of our or our collaboration partners’ pre-clinical and clinical studies, and our research
and development programs;
our or our collaboration partners’ ability to advance our drug candidates into, and/or successfully complete, clinical studies;
the timing of regulatory filings and the likelihood of favorable regulatory outcomes and approvals;
regulatory developments in China, the United States and other countries;
the expansion of our oncology drug sales team to support the marketing and sales of our approved drug candidates and the
ability of this team to effectively develop and execute promotional and marketing activities;
the timing, progress and results of our commercial launches, the rate and degree of market acceptance and potential market for
any of our approved drug candidates;
the pricing and reimbursement of our and our joint ventures’ products and our approved drug candidates;
our ability to contract on commercially reasonable terms with contract research organizations, or CROs, third-party suppliers
and manufacturers;
the scope of protection we are able to establish and maintain for intellectual property rights covering our or our joint ventures’
products and our drug candidates;
the ability of third parties with whom we contract to successfully conduct, supervise and monitor clinical studies for our drug
candidates;
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
our ability to obtain additional funding for our operations;
the potential benefits of our collaborations and our ability to enter into future collaboration arrangements;
the ability and willingness of our collaborators to actively pursue development activities under our collaboration agreements;
our receipt of milestone or royalty payments, service payments and manufacturing costs pursuant to our strategic alliances with
AstraZeneca AB (publ), or AstraZeneca, and Lilly (Shanghai) Management Company Limited, or Eli Lilly;
our financial performance;
5
our ability to attract and retain key scientific and management personnel;
our relationship with our joint venture and collaboration partners;
developments relating to our competitors and our industry, including competing drug products;
changes in our tax status or the tax laws in the jurisdictions that we operate;
developments in our business strategies and business plans; and
the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity, and any recurrence of the COVID-
19 pandemic, the duration and scope of related government orders and restrictions and the extent of the impact of the COVID-
19 pandemic on the global economy.
Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking
statements we make. As a result, any or all of our forward-looking statements in this annual report may turn out to be inaccurate. We
have included important factors in the cautionary statements included in this annual report on Form 20-F, particularly in the section of
this annual report on Form 20-F titled “Risk Factors,” that we believe could cause actual results or events to differ materially from the
forward-looking statements that we make. We may not actually achieve the plans, intentions or expectations disclosed in our
forward-looking statements, and you should not place undue reliance on our forward-looking statements. Moreover, we operate in a
highly competitive and rapidly changing environment in which new risks often emerge. It is not possible for our management to predict
all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements we may make.
You should read this annual report and the documents that we reference herein and have filed as exhibits hereto completely and
with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements
contained herein are made as of the date of the filing of this annual report, and we do not assume any obligation to update any
forward-looking statements except as required by applicable law.
In addition, this annual report contains statistical data and estimates that we have obtained from industry publications and reports
generated by third-party market research firms. Although we believe that the publications, reports and surveys are reliable, we have not
independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue
weight to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those
discussed above.
6
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Reserved.
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
HUTCHMED (China) Limited is a Cayman Islands holding company which conducts its operations in China through its PRC
subsidiaries (our corporate group does not include any variable interest entities). We face various legal and operational risks and
uncertainties as a company with substantial operations in China. The PRC government has significant authority to exert influence on
the ability of a company with substantial operations in China, like us, to conduct its business, accept foreign investments or be listed on
a U.S. stock exchange. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory
actions, cybersecurity and data privacy, as well as the lack of inspection from the U.S. Public Company Accounting Oversight Board,
or PCAOB, on our auditors. The PRC government may also intervene with or influence our operations as the government deems
appropriate to further regulatory, political and societal goals. The PRC government publishes from time to time new policies that can
significantly affect our industry in which we operate and we cannot rule out the possibility that it will in the future further release
regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Any
such action, once taken by the PRC government, could cause the value of our ADSs and ordinary shares to significantly decline or in
extreme cases, become worthless.
You should carefully consider all of the information in this annual report before making an investment in the ADSs. Below please
find a summary of the principal risks and uncertainties we face, organized under relevant headings. In particular, as we are a China-
based company incorporated in the Cayman Islands, you should pay special attention to subsections headed “Item 3. Key Information-
3.D. Risk Factors-Other Risks and Risks Related to Doing Business in China.”
The following summarizes some, but not all, of the risks provided below. Please carefully consider all of the information discussed
in this Item 3.D. “Risk Factors” in this annual report for a more thorough description of these and other risks.
Risks Relating to Our Financial Position and Need for Capital
Risks relating to our need for additional funding
Risks relating to our existing and future indebtedness
Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates
Risks relating to our approach to the discovery and development of drug candidates and the lengthy, expensive and uncertain
clinical development process
7
Risks relating to expediting regulatory review, obtaining and maintaining regulatory approval and ongoing regulatory review
for our drug candidates
Risks relating to the commercialization of our drug candidates
Risks relating to undesirable side effects of our drug candidates
Risks relating to competition in discovering, developing and commercializing drugs
Risks relating to our collaboration partners with respect to clinical trials, marketing and distribution
Risks relating to the expansion of our international operations
Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs
Risks relating to obtaining and maintaining permits and licenses for our and our joint ventures’ pharmaceutical operations in
China
Risks relating to leveraging our Other Ventures’ prescription drug business to commercialize our internally developed drug
candidates
Risks relating to competition in selling our approved, internally developed drugs and drugs of our Other Ventures
Risks relating to maintaining and enhancing the brand recognition of our drugs
Risks relating to the availability of reimbursement of our drugs, the lack of which could diminish our sales or profitability
Risks relating to counterfeit products in China
Risks relating to rapid changes in the pharmaceutical industry rendering our products obsolete
Risks relating to cultivating or sourcing raw materials
Risks relating to adverse publicity of us, our joint ventures or our products
Risks Relating to Our Dependence on Third Parties
Risks relating to disagreements with current or future collaboration partners which we rely on for certain drug development
activities including the conducting of clinical trials
Risks relating to relying on third party suppliers for the active pharmaceutical ingredients in our drug candidate and drug
products
Risks relating to our collaboration partners or our CROs’ failure to comply with regulatory requirements pertaining to clinical
trials
Risks relating to our collaboration partners, principal investigators, CROs and other third-party contractors and consultants
engaging in misconduct or other improper activities
Risks relating to relying on third parties to construct our new manufacturing facility in Shanghai
Risks relating to relying on distributors for logistics and distributions services
8
Risks relating to the availability of benefits currently enjoyed by virtue of our association with CK Hutchison
Other Risks and Risks Relating to Doing Business in China
Risks relating to COVID-19
Risks relating to compliance with privacy laws, information security policies and contractual obligations related to data privacy
and security and any information technology or data security failures
Risks relating to product liability claims or lawsuits
Risks relating to liabilities under anti-corruption laws, environmental, health and safety laws and laws relating to equity
incentive plans
Risks relating to uncertainties with respect to the PRC legal system, China’s currency exchange limits and PRC government
tax incentives or treatment
Risks Relating to Intellectual Property
Risks relating to our, our joint ventures and our collaboration partners’ abilities to protect and enforce intellectual property
rights and maintain confidentiality of trade secrets
Risks relating to infringing upon third parties’ intellectual property rights
Risks Relating to our ADSs
Risks relating to being delisted from the Nasdaq if the PCAOB continues to be unable to inspect our independent registered
public accounting firm
Risks relating to our largest shareholder which may limit the ability of other shareholders to influence corporate matters
You should carefully consider the following risk factors in addition to the other information set forth in this annual report. If any of
the following risks were actually to occur, our company’s business, financial condition and results of operations prospects could be
adversely affected and the value of our ADSs would likely suffer.
9
Risks Relating to Our Financial Position and Need for Capital
We may need substantial additional funding for our product development programs and commercialization efforts. If we are unable
to raise capital on acceptable terms when needed, we could incur losses and be forced to delay, reduce or eliminate such efforts.
We expect our expenses to increase significantly in connection with our ongoing activities, particularly as we or our collaboration
We expect our expenses to increase significantly in connection with our ongoing activities, particularly as we or our collaboration
partners advance the clinical development of our clinical drug candidates which are currently in active or completed clinical studies in
partners advance the clinical development of our clinical drug candidates which are currently in active or completed clinical studies in
various countries. We will incur significant expenses as we continue research and development and initiate additional clinical trials of,
various countries. We will incur significant expenses as we continue research and development and initiate additional clinical trials of,
and seek regulatory approval for, these and other future drug candidates. In addition, we have incurred and expect to continue to incur
and seek regulatory approval for, these and other future drug candidates. In addition, we have incurred and expect to continue to incur
significant commercialization expenses related to product manufacturing, marketing, sales and distribution in China and the United States
significant commercialization expenses related to product manufacturing, marketing, sales and distribution in China and the United
for Sulanda (surufatinib), our unpartnered drug product approved in China in December 2020, and any of our other unpartnered drug
States for Sulanda (surufatinib), our unpartnered drug product approved in China in December 2020, and any of our other unpartnered
candidates that may be approved in the future. In particular, the costs that may be required for the manufacture of any drug candidate
drug candidates that may be approved in the future. In particular, the costs that may be required for the manufacture of any drug candidate
that receives regulatory approval may be substantial as we may have to modify or increase the production capacity at our current
that receives regulatory approval may be substantial as we may have to modify or increase the production capacity at our current
manufacturing facilities or contract with third-party manufacturers. We may also incur expenses as we create additional infrastructure,
manufacturing facilities or contract with third-party manufacturers. We may also incur expenses as we create additional infrastructure,
such as our new manufacturing facility under construction in Shanghai, and expand our U.S.-based clinical and commercial team to
such as our new manufacturing facility under construction in Shanghai, and expand our U.S.-based clinical and commercial team to
support our operations at our U.S. subsidiaries, HUTCHMED International Corporation (formerly Hutchison MediPharma International
support our operations at our U.S. subsidiaries, HUTCHMED International Corporation (formerly Hutchison MediPharma International
Inc. and Hutchison MediPharma (US) Inc.) and HUTCHMED US Corporation. Accordingly, we may need to obtain substantial funding
Inc. and Hutchison MediPharma (US), Inc.) and HUTCHMED US Corporation. Accordingly, we may need to obtain substantial funding
in connection with our continuing operations through public or private equity offerings, debt financings, collaborations or licensing
in connection with our continuing operations through public or private equity offerings, debt financings, collaborations or licensing
arrangements or other sources. If we are unable to raise capital when needed or on attractive terms, we could incur losses and be forced
arrangements or other sources. If we are unable to raise capital when needed or on attractive terms, we could incur losses and be forced
to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
Our net cash used in operating activities was $80.9 million, $62.1 million and $204.2 million for the years ended December 31,
2019, 2020 and 2021, respectively. We believe, however, that our expected cash flow from operations, including dividends from our
Other Ventures and milestone and other payments from our collaboration partners, our cash and cash equivalents and short-term
investments as well as our unutilized bank facilities as of December 31, 2021, will enable us to fund our operating expenses, debt service
and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be
wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements will depend on many
factors, including:
the number and development requirements of the drug candidates we pursue;
the scope, progress, timing, results and costs of researching and developing our drug candidates, and conducting pre-clinical
and clinical trials;
the cost, timing and outcome of regulatory review of our drug candidates;
the cost and timing of commercialization activities, including product manufacturing, marketing, sales and distribution, for our
drug candidates for which we have received regulatory approval;
the amount and timing of any milestone or royalty payments, service payments and reimbursement of manufacturing costs from
our collaboration partners, with whom we cooperate with respect to the development and potential commercialization of certain
of our drug candidates;
the cash received from commercial sales of drug candidates for which we have received regulatory approval;
our ability to establish and maintain strategic partnerships, collaboration, licensing or other arrangements and the financial
terms of such agreements;
the cost, timing and outcome of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual
property rights and defending any intellectual property-related claims;
our headcount growth and associated costs, particularly as we expand our clinical and commercialization activities in the United
States and Europe; and
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the costs of operating as a public company listed in Hong Kong, the United States and United Kingdom.
Identifying potential drug candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and
uncertain process that may take years to complete, and our commercial revenue will be derived from sales of products that will not be
commercially available unless and until we receive regulatory approval. We may never generate the necessary data or results required
for certain drug candidates to obtain regulatory approval, and even if approved, they may not achieve commercial success. Accordingly,
we will need to continue to rely on financing to achieve our business objectives. Adequate financing may not be available to us on
acceptable terms, or at all.
Raising capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to technologies or
drug candidates.
We expect to finance our cash needs in part through cash flow from our operations, including dividends from our Other Ventures,
and we may also rely on raising capital through a combination of public or private equity offerings, debt financings and/or license and
development agreements with collaboration partners. In addition, we may seek capital due to favorable market conditions or strategic
considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise capital
through the sale of equity or convertible debt securities (including potential further listings on other stock exchanges), the ownership
interest of our shareholders may be materially diluted, and the terms of such securities could include liquidation or other preferences
that adversely affect the rights of our existing shareholders. Debt financing and preferred equity financing, if available, may involve
agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making
capital expenditures or declaring dividends. Additional debt financing would also result in increased fixed payment obligations.
In addition, if we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates
or grant licenses on terms that may not be favorable to us. We may also lose control of the development of drug candidates, such as the
pace and scope of clinical trials, as a result of such third-party arrangements. If we are unable to raise funds through equity or debt
financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Our existing and any future indebtedness could adversely affect our ability to operate our business.
Our outstanding indebtedness combined with current and future financial obligations and contractual commitments, including any
additional indebtedness beyond our current facilities with HSBC, Deutsche Bank AG and Bank of China could have significant adverse
consequences, including:
requiring us to dedicate a portion of our cash resources to the payment of interest and principal, and prepayment and repayment
fees and penalties, thereby reducing money available to fund working capital, capital expenditures, product development and
other general corporate purposes;
increasing our vulnerability to adverse changes in general economic, industry and market conditions;
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or
equity financing;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and short-term
investments. Nevertheless, we may not have sufficient funds, and may be unable to arrange for financing, to pay the amounts due under
our existing debt. Failure to make payments or comply with other covenants under our existing debt instruments could result in an event
of default and acceleration of amounts due.
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We have historically incurred significant net operating cash outflows, and may continue to experience net cash outflow from
operating activities.
Investment in biopharmaceutical drug development is highly speculative. It entails substantial upfront expenditures and significant
risk that a drug candidate might fail to gain regulatory approval or become commercially viable. We continue to incur significant
expenses related to our ongoing operations. For a detailed discussion of our net cash used in operating activities, see Item 5.B. “Operating
and Financial Review and Prospects”, “Liquidity and Capital Resources.” We expect to incur significant expenses, particularly research
and development expenses, for the foreseeable future as we expand our development of, and seek regulatory approvals for, our drug
candidates. Typically, it takes many years to develop one new drug from the drug discovery stage to the time it is available for treating
patients. Our ability to improve our cash flow depends on a number of variables, including the number and scope of our drug
development programs and the associated costs of those programs, the cost of commercializing any approved products, our ability to
generate revenues and the timing and amount of milestones and other payments we make or receive through arrangements with third
parties. Our failure to generate positive cash flow from operations may adversely affect our ability to raise capital, maintain our research
and development efforts, expand our business or continue our operations. There is no assurance that we will be able to generate sufficient
net cash inflows from operating activities, which could have adverse effects on our long-term viability.
We face risks with our short-term investments and in collecting our accounts receivables.
Our short-term investments are bank deposits with maturities of more than three months but less than one year. Our short-term
investments were $199.5 million and $634.2 million as of December 31, 2020 and 2021, respectively, and are placed with major financial
institutions. These investments may earn yields substantially lower than expected. Failure to realize the benefits we expected from these
investments may materially and adversely affect our business and financial results. To date, we have experienced no loss or lack of
access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash
equivalents will not be impacted by adverse conditions in the financial and credit markets.
Our accounts receivable balance, net of allowance for credit losses, totaled $47.9 million and $83.6 million as of December 31,
2020 and 2021, respectively. We have policies and procedures in place to ensure that sales are made to customers with an appropriate
credit history. We perform periodic credit evaluations of our customers and monitor risk factors and forward-looking information, such
as country risk, when determining credit limits for customers. However, there can be no assurance such policies and procedures will
effectively limit our credit risk and enable us to avoid losses, which could adversely affect our financial condition and results of
operations. In addition, amounts due to us are not covered by collateral or credit insurance. If we fail to collect all or part of such accounts
receivable in a timely manner, or at all, our financial condition may be materially and adversely affected.
Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates
Historically, our in-house research and development division, which is included in our Oncology/Immunology operations, has not
generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization
of our drug candidates.
To date, fruquintinib, surufatinib and savolitinib (marketed as Elunate, Sulanda and Orpathys, respectively) are our only drug
candidates that have been approved for sale. We do not expect our Oncology/Immunology operations to be significantly profitable
unless and until we generate substantial revenues from Elunate, Sulanda and Orpathys and can successfully commercialize our other
drug products. We expect to incur significant sales and marketing costs as we prepare to commercialize our drug candidates.
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Successful commercialization of our drug candidates is subject to many risks. Elunate is marketed in collaboration with our partner,
Eli Lilly. Beginning in October 2020, we assumed responsibility for the development and execution of all on-the-ground medical
detailing, promotion and local and regional marketing activities for Elunate in China. Sulanda is marketed by us without the support of
a collaboration partner. Orpathys is marketed in collaboration with our partner, AstraZeneca. Elunate, Sulanda and Orpathys are the first
innovative oncology drugs we, as an organization, have commercialized, and there is no guarantee that we will be able to successfully
commercialize them or any of our other drug candidates for their approved indications. There are numerous examples of failures to meet
expectations of market potential, including by pharmaceutical companies with more experience and resources than us. There are many
factors that could cause the commercialization of Elunate, Sulanda, Orpathys or our other drug products to be unsuccessful, including a
number of factors that are outside our control. In the case of Elunate, for example, the third-line metastatic colorectal cancer, or mCRC,
patient population in China may be smaller than we estimate or physicians may be unwilling to prescribe, or patients may be unwilling
to take, Elunate for a variety of reasons. Additionally, any negative development for fruquintinib, surufatinib or savolitinib in clinical
development in additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results
and potential of Elunate, Sulanda or Orpathys in China and globally. Thus, significant uncertainty remains regarding the commercial
potential of Elunate, Sulanda and Orpathys.
We may not achieve profitability after generating revenues from Elunate, Sulanda and/or Orpathys or our other drug candidates, if
ever. If the commercialization of Elunate, Sulanda, Orpathys and/or our other drug candidates is unsuccessful or perceived as
disappointing, our stock price could decline significantly and the long-term success of the product and our company could be harmed.
All of our drug candidates, other than fruquintinib, surufatinib and savolitinib for approved indications in China, are still in
development. If we are unable to obtain regulatory approval and ultimately commercialize our drug candidates, or if we experience
significant delays in doing so, our business will be materially harmed.
All of our drug candidates are still in development, including fruquintinib, surufatinib and savolitinib which have been approved in
China for the treatment of third-line mCRC, non-pancreatic neuroendocrine tumors (NETs) and advanced pancreatic NETs, and non-
small cell lung cancer, or NSCLC, respectively, but are still in development in the United States and other jurisdictions for these and
other indications.
Although we receive certain payments from our collaboration partners, including upfront payments and payments for achieving
certain development, regulatory or commercial milestones, for certain of our drug candidates, our ability to generate revenue from our
drug candidates is dependent on their receipt of regulatory approval for and successful commercialization of such products, which may
never occur. Each of our drug candidates in development will require additional pre-clinical and/or clinical trials, regulatory approval
in multiple jurisdictions, manufacturing supply, substantial investment and significant marketing efforts before we generate any revenue
from product sales. The success of our drug candidates will depend on several factors, including the following:
successful completion of pre-clinical and/or clinical trials;
successful enrollment in, and completion of, clinical trials;
receipt of regulatory approvals from applicable regulatory authorities for planned clinical trials, future clinical trials, drug
registrations or post-approval trials;
successful completion of all safety studies required to obtain regulatory approval and/or fulfillment of post-approval
requirements in the United States, China and other jurisdictions for our drug candidates;
adapting our commercial manufacturing capabilities to the specifications for our drug candidates for clinical supply and
commercial manufacturing;
obtaining and maintaining patent and trade secret protection or regulatory exclusivity for our drug candidates;
launching commercial sales of our drug candidates, if and when approved, whether alone or in collaboration with others;
acceptance of the drug candidates, if and when approved, by patients, the medical community and third-party payors;
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effectively competing with other therapies;
obtaining and maintaining healthcare coverage and adequate reimbursement;
enforcing and defending intellectual property rights and claims; and
maintaining a continued acceptable safety profile of the drug candidates following approval.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to successfully commercialize our drug candidates, which would materially harm our business.
Our primary approach to the discovery and development of drug candidates focuses on the inhibition of kinases, some of which are
unproven.
A primary focus of our research and development efforts is on identifying kinase targets for which drug compounds previously
developed by others affecting those targets have been unsuccessful due to limited selectivity, off-target toxicity and other problems. We
then work to engineer drug candidates which have the potential to have superior efficacy, safety and other features as compared to such
prior drug compounds. We also focus on developing drug compounds with the potential to be global best-in-class/next-generation
therapies for validated kinase targets.
Even if we are able to develop compounds that successfully target the relevant kinases in pre-clinical studies, we may not succeed
in demonstrating safety and efficacy of the drug candidates in clinical trials. Even if we are able to demonstrate safety and efficacy of
compounds in certain indications in certain jurisdictions, we may not succeed in demonstrating the same in other indications or same
indications in other jurisdictions. As a result, our efforts may not result in the discovery or development of drugs that are commercially
viable or are superior to existing drugs or other therapies on the market. While the results of pre-clinical studies, early-stage clinical
trials as well as clinical trials in certain indications have suggested that certain of our drug candidates may successfully inhibit kinases
and may have significant utility in several cancer indications, potentially in combination with other cancer drugs, chemotherapy and
immunotherapies, we have not yet demonstrated efficacy and safety for many of our drug candidates in later stage clinical trials.
We may expend our limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates
or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we must limit our research programs to specific drug candidates that
we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other drug candidates or for other
indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on
viable commercial drugs or profitable market opportunities. In addition, if we do not accurately evaluate the commercial potential or
target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing
or other royalty arrangements when it would have been more advantageous for us to retain sole development and commercialization
rights to such drug candidate.
The regulatory approval processes of the U.S. Food and Drug Administration, or FDA, National Medical Products Administration
of China, or NMPA, and comparable authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately
unable to obtain regulatory approval for our drug candidates, our ability to generate revenue will be materially impaired.
Our drug candidates and the activities associated with their development and commercialization, including their design, testing,
manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, distribution, import and export,
are subject to comprehensive regulation by the FDA, NMPA and other regulatory agencies in the United States and China and by
comparable regulatory authorities in other countries. Securing regulatory approval requires the submission of extensive pre-clinical and
clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the drug
candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the drug manufacturing
process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our drug candidates may not be effective,
may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that
may preclude our obtaining regulatory approval or prevent or limit commercial use.
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The process of obtaining regulatory approvals in the United States, China and other countries is expensive, may take many years if
additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including
the type, complexity and novelty of the drug candidates involved. Changes in regulatory approval policies during the development
period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted New Drug
Application, or NDA, pre-market approval or equivalent application types, may cause delays in the approval or rejection of an
application. The FDA, NMPA and comparable regulatory authorities in other countries have substantial discretion in the approval
process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional
pre-clinical, clinical or other studies. Our drug candidates could be delayed in receiving, or fail to receive, regulatory approval for many
reasons, including the following:
the FDA, NMPA or comparable regulatory authorities may disagree with the number, design, size, conduct or implementation
of our clinical trials;
we may be unable to demonstrate to the satisfaction of the FDA, NMPA or comparable regulatory authorities that a drug
candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA, NMPA or comparable
regulatory authorities for approval;
we may be unable to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks;
the FDA, NMPA or comparable regulatory authorities may disagree with our interpretation of data from pre-clinical studies or
clinical trials;
the data collected from clinical trials of our drug candidates may not be sufficient to support the submission of an NDA or other
submission or to obtain regulatory approval in the United States or elsewhere;
the FDA, NMPA or comparable regulatory authorities may fail to approve the manufacturing processes for our clinical and
commercial supplies;
the approval policies or regulations of the FDA, NMPA or comparable regulatory authorities may significantly change in a
manner rendering our clinical data insufficient for approval;
the FDA, NMPA or comparable regulatory authority may prioritize treatments for emerging health crises, such as COVID-19,
resulting in delays for our drug candidates;
the FDA, NMPA or comparable regulatory authorities may restrict the use of our products to a narrow population; and
our collaboration partners or CROs that are retained to conduct the clinical trials of our drug candidates may take actions that
materially and adversely impact the clinical trials.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our drug candidates for fewer or more
limited indications than we request, may not approve the price we intend to charge for our drugs, may grant approval contingent on the
performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling
claims necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could
materially harm the commercial prospects for our drug candidates.
Furthermore, even though the NMPA has granted approval for fruquintinib and surufatinib for use in third-line mCRC and NET
patients, respectively, and approval for savolitinib for lung cancer with Met exon 14 skipping alterations, we are still subject to
substantial, ongoing regulatory requirements. See “—Even if we receive regulatory approval for our drug candidates, we are subject to
ongoing obligations and continued regulatory review, which may result in significant additional expense.”
15
If the FDA, NMPA or another regulatory agency revokes its approval of, or if safety, efficacy, manufacturing or supply issues arise
with, any therapeutic that we use in combination with our drug candidates, we may be unable to market such drug candidate or may
experience significant regulatory delays or supply shortages, and our business could be materially harmed.
We are currently developing combination therapies using our savolitinib, fruquintinib, surufatinib and other drug candidates with
various immunotherapies, targeted therapies and/or other therapies. For example, we are currently developing savolitinib in combination
with immunotherapy (Imfinzi) and targeted therapy (Tagrisso). However, we did not develop and we do not manufacture or sell Imfinzi,
Tagrisso or any other therapeutic we use in combination with our drug candidates. We may also seek to develop our drug candidates in
combination with other therapeutics in the future.
If the FDA, NMPA or another regulatory agency revokes its approval, or does not grant approval, of any of these and other
therapeutics we use in combination with our drug candidates, we will not be able to market our drug candidates in combination with
such therapeutics. If safety or efficacy issues arise with these or other therapeutics that we seek to combine with our drug candidates in
the future, we may experience significant regulatory delays, and we may be required to redesign or terminate the applicable clinical
trials. In addition, if manufacturing or other issues result in a supply shortage of these or any other combination therapeutics, we may
not be able to complete clinical development of savolitinib, fruquintinib, surufatinib and/or any other of our drug candidates on our
current timeline or at all.
Even if one or more of our drug candidates were to receive regulatory approval for use in combination with a therapeutic, we would
continue to be subject to the risk that the FDA, NMPA or another regulatory agency could revoke its approval of the combination
therapeutic, or that safety, efficacy, manufacturing or supply issues could arise with one of these combination therapeutics. This could
result in Orpathys, Elunate, Sulanda or one of our other products being removed from the market or being less successful commercially.
We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more
successfully than we do.
The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug
candidates, and will face competition with respect to any drug candidates that we may seek to develop or commercialize in the future,
from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a
number of large pharmaceutical and biotechnology companies that currently market drugs or are pursuing the development of therapies
in the field of kinase inhibition for cancer and other diseases. Some of these competitive drugs and therapies are based on scientific
approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Potential competitors
also include academic institutions, government agencies and other public and private research organizations that conduct research, seek
patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
Specifically, there are a large number of companies developing or marketing treatments for cancer and immunological diseases,
including many major pharmaceutical and biotechnology companies.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater
financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and
diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or
early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
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Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize drugs that are safer,
more effective, have fewer or less severe side effects, are more convenient or are less expensive than any drugs that we or our
collaborators may develop. Our competitors also may obtain FDA, NMPA or other regulatory approval for their drugs more rapidly than
we may obtain approval for ours, which could result in our competitors establishing a strong market position before we or our
collaborators are able to enter the market. The key competitive factors affecting the success of all of our drug candidates, if approved,
are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from
government and other third-party payors.
Clinical development involves a lengthy and expensive process with an uncertain outcome.
There is a risk of failure for each of our drug candidates. It is difficult to predict when or if any of our drug candidates will prove
effective and safe in humans or will receive regulatory approval. Before obtaining regulatory approval from regulatory authorities for
the sale of any drug candidate, we or our collaboration partners must complete pre-clinical studies and then conduct extensive clinical
trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and
implement and can take many years to complete. The outcomes of pre-clinical development testing and early clinical trials may not be
predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover,
pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their
drug candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain regulatory approval
of their drug candidates. Our current or future clinical trials may not be successful.
Commencing each of our clinical trials is subject to finalizing the trial design based on ongoing discussions with the FDA, NMPA
or other regulatory authorities. The FDA, NMPA and other regulatory authorities could change their position on the acceptability of our
trial designs or clinical endpoints, which could require us to complete additional clinical trials or impose approval conditions that we do
not currently expect. Successful completion of our clinical trials is a prerequisite to submitting an NDA or analogous filing to the FDA,
NMPA or other regulatory authorities for each drug candidate and, consequently, the ultimate approval and commercial marketing of
our drug candidates. We do not know whether any of our clinical trials will begin or be completed on schedule, if at all.
We and our collaboration partners may incur additional costs or experience delays in completing our pre-clinical or clinical trials,
or ultimately be unable to complete the development and commercialization of our drug candidates.
We and our collaboration partners, including AstraZeneca, Eli Lilly, BeiGene Ltd., or BeiGene, Inmagene Biopharmaceuticals Co.
Ltd., or Inmagene, Innovent Biologics (Suzhou) Co., Inc., or Innovent, Genor Biopharma Co. Ltd., or Genor, Shanghai Junshi
Biosciences Co. Ltd., or Junshi and Epizyme, Inc., or Epizyme, may experience delays in completing our pre-clinical or clinical trials,
and numerous unforeseen events could arise during, or as a result of, future clinical trials, which could delay or prevent us from receiving
regulatory approval, including:
regulators, institutional review boards, or IRBs, ethics committees or the China Human Genetic Resources Administration
Office may not authorize us or our investigators to commence or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or we may fail to reach, agreement on acceptable terms with prospective trial sites and
prospective CROs, who conduct clinical trials on behalf of us and our collaboration partners, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and trial sites;
clinical trials may produce negative or inconclusive results, and we or our collaboration partners may decide, or regulators may
require us or them, to conduct additional clinical trials or we may decide to abandon drug development programs;
the number of patients required for clinical trials of our drug candidates may be larger than we anticipate, enrollment in these
clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for
post-treatment follow-up at a higher rate than we anticipate;
third-party contractors used in our clinical trials may fail to comply with regulatory requirements or meet their contractual
obligations in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may
require that we or our collaboration partners add new clinical trial sites or investigators;
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we or our collaboration partners may elect to, or regulators, IRBs or ethics committees may require that we or our investigators,
suspend or terminate clinical research for various reasons, including non-compliance with regulatory requirements or a finding
that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our drug candidates may be greater than we anticipate;
the supply or quality of our drug candidates, companion diagnostics, if any, or other materials necessary to conduct clinical
trials of our drug candidates may be insufficient or inadequate; and
our drug candidates may have undesirable side effects or unexpected characteristics, causing us or our investigators, regulators,
IRBs or ethics committees to suspend or terminate the trials, or reports may arise from pre-clinical or clinical testing of other
cancer therapies that raise safety or efficacy concerns about our drug candidates.
We could encounter regulatory delays if a clinical trial is suspended or terminated by us or our collaboration partners, by, as
applicable, the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, which is an
independent group of experts that is formed to monitor clinical trials while ongoing, or by the FDA, NMPA or other regulatory
authorities. Such authorities may impose a suspension or termination due to a number of factors, including: a failure to conduct the
clinical trial in accordance with regulatory requirements or the applicable clinical protocols, inspection of the clinical trial operations or
trial site by the FDA, NMPA or other regulatory authorities that results in the imposition of a clinical hold, unforeseen safety issues or
adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions
or lack of adequate funding to continue the clinical trial. Many of the factors that cause a delay in the commencement or completion of
clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates. Further, the FDA, NMPA or other
regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the
requirements for approval even after it has reviewed and commented on the design for our clinical trials.
If we or our collaboration partners are required to conduct additional clinical trials or other testing of our drug candidates beyond
those that are currently contemplated, if we or our collaboration partners are unable to successfully complete clinical trials of our drug
candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety
concerns, we may:
be delayed in obtaining regulatory approval for our drug candidates;
not obtain regulatory approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
be subject to post-marketing testing requirements; or
have the drug removed from the market after obtaining regulatory approval.
Our drug development costs will also increase if we experience delays in testing or regulatory approvals. We do not know whether
any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant
pre-clinical study or clinical trial delays also could allow our competitors to bring products to market before we do and impair our ability
to successfully commercialize our drug candidates and may harm our business and results of operations. Any delays in our clinical
development programs may harm our business, financial condition and prospects significantly.
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If we or our collaboration partners experience delays or difficulties in the enrollment of patients in clinical trials, the progress of
such clinical trials and our receipt of necessary regulatory approvals could be delayed or prevented.
We or our collaboration partners may not be able to initiate or continue clinical trials for our drug candidates if we or our
collaboration partners are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by
the FDA, NMPA or similar regulatory authorities. In particular, we and our collaboration partners have designed many of our clinical
trials, and expect to design future trials, to include some patients with the applicable genomic alteration that causes the disease with a
view to assessing possible early evidence of potential therapeutic effect. Genomically defined diseases, however, may have relatively
low prevalence, and it may be difficult to identify patients with the applicable genomic alteration. In addition, for many of our trials, we
focus on enrolling patients who have failed their first or second-line treatments, which limits the total size of the patient population
available for such trials. The inability to enroll a sufficient number of patients with the applicable genomic alteration or that meet other
applicable criteria for our clinical trials would result in significant delays and could require us or our collaboration partners to abandon
one or more clinical trials altogether.
In addition, some of our competitors have ongoing clinical trials for drug candidates that treat the same indications as our drug
candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’
drug candidates.
Patient enrollment may be affected by other factors including:
the severity of the disease under investigation;
the total size and nature of the relevant patient population;
the design and eligibility criteria for the clinical trial in question;
the availability of an appropriate genomic screening test/companion diagnostic;
the perceived risks and benefits of the drug candidate under study;
the efforts to facilitate timely enrollment in clinical trials;
the patient referral practices of physicians;
the availability of competing therapies which are undergoing clinical trials;
the ability to monitor patients adequately during and after treatment;
the proximity and availability of clinical trial sites for prospective patients ; and
the impact of the COVID-19 pandemic, including but not limited to the duration and scope of related government orders and
restrictions.
Enrollment delays in our clinical trials may result in increased development costs for our drug candidates, which could cause the
value of our company to decline and limit our ability to obtain financing.
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Our drug candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial
profile of an approved label, or result in significant negative consequences following regulatory approval, if any.
Undesirable side effects caused by our drug candidates could cause us or our collaboration partners to interrupt, delay or halt clinical
trials or could cause regulatory authorities to interrupt, delay or halt our clinical trials and could result in a more restrictive label or the
delay or denial of regulatory approval by the FDA, NMPA or other regulatory authorities. In particular, as is the case with all oncology
drugs, it is likely that there may be side effects, for example, hand-foot syndrome, associated with the use of certain of our drug
candidates. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. In such an
event, our trials could be suspended or terminated and the FDA, NMPA or comparable regulatory authorities could order us to cease
further development of or deny approval of our drug candidates for some or all targeted indications. The drug-related side effects could
affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of
these occurrences may harm our business, financial condition and prospects significantly.
Further, our drug candidates could cause undesirable side effects related to off-target toxicity. Many of the currently approved
tyrosine kinase inhibitors or TKIs have been associated with off-target toxicities because they affect multiple kinases. While we believe
that the kinase selectivity of our drug candidates has the potential to significantly improve the unfavorable adverse off-target toxicity
issues, if patients were to experience off-target toxicity, we may not be able to achieve an effective dosage level, receive approval to
market, or achieve the commercial success we anticipate with respect to any of our drug candidates, which could prevent us from ever
generating revenue or achieving profitability. Many compounds that initially showed promise in early-stage testing for treating cancer
have later been found to cause side effects that prevented further development of the compound.
Clinical trials assess a sample of the potential patient population. With a limited number of patients and duration of exposure, rare
and severe side effects of our drug candidates may only be uncovered with a significantly larger number of patients exposed to the drug
candidate. If our drug candidates receive regulatory approval and we or others identify undesirable side effects caused by such drug
candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result,
including:
regulatory authorities may withdraw or limit their approval of such drug candidates;
regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contra-indication;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
we may be required to change the way such drug candidates are distributed or administered, conduct additional clinical trials
or change the labeling of the drug candidates;
regulatory authorities may require a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could
include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools;
we may be subject to regulatory investigations and government enforcement actions;
we may decide to remove such drug candidates from the marketplace;
we could be sued and held liable for injury caused to individuals exposed to or taking our drug candidates; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected drug candidates and could
substantially increase the costs of commercializing our drug candidates, if approved, and significantly impact our ability to successfully
commercialize our drug candidates and generate revenue.
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We and our collaboration partners have conducted and intend to conduct additional clinical trials for certain of our drug candidates
at sites outside the United States, and the FDA may not accept data from trials conducted in such locations or may require additional
U.S.-based trials.
We and our collaboration partners have conducted, currently are conducting and intend in the future to conduct, clinical trials
outside the United States, particularly in China where our Oncology/Immunology operations are headquartered as well as in other
jurisdictions such as Australia, Japan, South Korea, the U.K, and various European countries.
Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to
certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted by qualified investigators
in accordance with current good clinical practices, or GCPs, including review and approval by an independent ethics committee and
receipt of informed consent from trial patients. The trial population must also adequately represent the U.S. population, and the data
must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the
patient population for any clinical trial conducted outside of the United States must be representative of the population for which we
intend to seek approval in the United States. In addition, while these clinical trials are subject to applicable local laws, FDA acceptance
of the data will be dependent upon its determination that the trials also comply with all applicable U.S. laws and regulations. There can
be no assurance that the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data
from our clinical trials conducted outside the United States, it would likely result in the need for additional clinical trials, which would
be costly and time-consuming and delay or permanently halt our ability to develop and market these or other drug candidates in the
United States.
In addition, there are risks inherent in conducting clinical trials in jurisdictions outside the United States including:
regulatory and administrative requirements of the jurisdiction where the trial is conducted that could burden or limit our ability
to conduct our clinical trials;
foreign exchange fluctuations;
manufacturing, customs, shipment and storage requirements;
cultural differences in medical practice and clinical research; and
the risk that patient populations in such trials are not considered representative as compared to patient populations in the United
States and other markets.
If we are unable to obtain and/or maintain priority review by the NMPA, fast track designation by the FDA, or another expedited
registration pathway for our drug candidates, the time and cost we incur to obtain regulatory approvals may increase. Even if we
receive such approvals, they may not lead to a faster development, review or approval process.
Under the Opinions on Priority Review and Approval for Encouraging Drug Innovation, the NMPA may grant priority review
approval to (i) certain drugs with distinctive clinical value, including innovative drugs not sold within or outside China, (ii) new drugs
with clinical treatment advantages for AIDS and other rare diseases, and (iii) drugs which have been concurrently filed with the
competent drug approval authorities in the United States or E.U. for marketing authorization and passed such authorities’ onsite
inspections and are manufactured using the same production line in China. Priority review provides a fast track process for drug
registration. We have received priority review status for a number of our drug candidates, including for example fruquintinib for the
treatment of advanced colorectal cancer, or CRC, savolitinib for the treatment of NSCLC and surufatinib for the treatment of advanced
NET. We anticipate that we may seek priority review for certain of our other drug candidates in the future.
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In the United States, if a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the
potential to address unmet medical needs for this condition, we may apply for fast track designation by the FDA. The FDA has broad
discretion whether or not to grant this designation, so even if we believe a particular drug candidate is eligible for this designation, we
cannot be sure that the FDA would decide to grant it. We have sought and will likely continue to seek fast track designation for some
of our drug candidates. For example, in April 2020, the FDA granted fast track designation to surufatinib for both the non-pancreatic
and pancreatic neuroendocrine tumor development programs. Even if we receive fast track designation for a drug candidate, we may
not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw
fast track designation if it believes that the designation is no longer supported by data from our clinical development program.
A failure to obtain and/or maintain priority review, fast track designation or any other form of expedited development, review or
approval for our drug candidates would result in a longer time period to commercialization of such drug candidate, could increase the
cost of development of such drug candidate and could harm our competitive position in the marketplace. In addition, even if we obtain
priority review, there is no guarantee that we will experience a faster review or approval compared to non-accelerated registration
pathways or that a drug candidate will ultimately be approved for sale.
Although we have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we
may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity.
Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition,
which is generally defined as affecting fewer than 200,000 individuals in the United States. We have obtained orphan drug designation
from the FDA for surufatinib for the treatment of pancreatic NETs. Generally, if a drug with an orphan drug designation subsequently
receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a seven-year period
of marketing exclusivity, which precludes the FDA from approving another marketing application for the same molecule for the same
indication for that time period. We can provide no assurance that another drug will not receive marketing approval prior to our product
candidates. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if
the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In
addition, even after a drug is granted orphan exclusivity and approved, the FDA can subsequently approve another drug for the same
condition before the expiration of the seven-year exclusivity period if the FDA concludes that the later drug is clinically superior in that
it is shown to be safer, more effective or makes a major contribution to patient care.
Even if we receive regulatory approval for our drug candidates, we are subject to ongoing obligations and continued regulatory
review, which may result in significant additional expense.
If the FDA, NMPA or a comparable regulatory authority approves any of our drug candidates, we will continue to be subject to
extensive and ongoing regulatory requirements. For example, even though the NMPA has granted approval of fruquintinib, the
manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping
for fruquintinib continue to be subject to the NMPA’s oversight. These requirements include submissions of safety and other
post-marketing information and reports, registration, as well as continued compliance with current good manufacturing processes.
Any regulatory approvals that we receive for our drug candidates may also be subject to limitations on the approved indicated uses
for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing
testing, including post-approval testing, sometimes referred to as Phase IV clinical trials, and surveillance to monitor the safety and
efficacy of the drug. In addition, regulatory policies may change or additional government regulations may be enacted that could prevent,
limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the
adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any regulatory approval
that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
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We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with any of
our drugs that receive regulatory approval.
Once a drug is approved by the FDA, NMPA or a comparable regulatory authority for marketing, it is possible that there could be
a subsequent discovery of previously unknown problems with the drug, including problems with third-party manufacturers or
manufacturing processes, or failure to comply with regulatory requirements. If any of the foregoing occurs with respect to our drug
products, it may result in, among other things:
restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or drug recalls;
fines, warning letters or holds on clinical trials;
refusal by the FDA, NMPA or comparable regulatory authority to approve pending applications or supplements to approved
applications filed by us, or suspension or revocation of drug license approvals;
drug seizure or detention, or refusal to permit the import or export of drugs; and
injunctions or the imposition of civil or criminal penalties.
Any government investigation of alleged violations of law could require us to expend significant time and resources and could
generate negative publicity. If we or our collaborators are not able to maintain regulatory compliance, regulatory approval that has been
obtained may be lost and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial
condition and results of operations.
The incidence and prevalence for target patient populations of our drug candidates are based on estimates and third-party sources.
If the market opportunities for our drug candidates are smaller than we estimate or if any approval that we obtain is based on a
narrower definition of the patient population, our revenue and ability to achieve profitability will be adversely affected, possibly
materially.
Periodically, we make estimates regarding the incidence and prevalence of target patient populations for particular diseases based
on various third-party sources and internally generated analysis and use such estimates in making decisions regarding our drug
development strategy, including determining indications on which to focus in pre-clinical or clinical trials.
These estimates may be inaccurate or based on imprecise data. For example, the total addressable market opportunity will depend
on, among other things, their acceptance by the medical community and patient access, drug pricing and reimbursement. The number
of patients in the addressable markets may turn out to be lower than expected, patients may not be otherwise amenable to treatment with
our drugs, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results
of operations and our business.
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the expertise of the members of our research and development team, as well as the other principal
members of our management, including Christian Lawrence Hogg, our Chief Executive Officer and director, and Weiguo Su, Ph.D.,
our Chief Scientific Officer and director. Although we have entered into employment agreements with our executive officers, each of
them may terminate their employment with us at any time with three months’ prior written notice. We do not maintain “key person”
insurance for any of our executives or other employees.
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Recruiting and retaining qualified management, scientific, clinical, manufacturing and sales and marketing personnel will also be
critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our
research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy.
Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the
limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory
approval of and commercialize drugs. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain
or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology
companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and
research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientific personnel.
We have expanded our footprint and operations in the United States, and we intend to expand our international operations further
in the future, but we may not achieve the results that we expect.
In early 2018, we opened our first office in the United States. While we have been involved in clinical and non-clinical development
in North America and Europe for over a decade, the activities conducted by our U.S. office will significantly broaden and scale our non-
Asian clinical development and international operations. We have significantly expanded, and intend to continue to expand, our U.S.
clinical team to support our increasing clinical activities in the United States, Europe, Japan and Australia. In preparation for a potential
approval of Sulanda in the United States in 2022, we have built a team of more than 30 personnel covering supply chain, market access,
marketing, sales and commercial operation activities. Conducting our business in multiple countries subjects us to a variety of risks and
complexities that may materially and adversely affect our business, results of operations, financial condition and growth prospects,
including, among other things:
the increased complexity and costs inherent in managing international operations;
diverse regulatory, financial and legal requirements, and any future changes to such requirements, in one or more countries
where we are located or do business;
country-specific tax, labor and employment laws and regulations;
applicable trade laws, tariffs, export quotas, custom duties or other trade restrictions and any changes to them;
challenges inherent in efficiently managing employees in diverse geographies, including the need to adapt systems, policies,
benefits and compliance programs to differing labor and other regulations;
changes in currency rates; and
regulations relating to data security and the unauthorized use of, or access to, commercial and personal information.
As a result of our growth, our business and corporate structure has become more complex. There can be no assurance that we will
effectively manage the increased complexity without experiencing operating inefficiencies or control deficiencies. Significant
management time and effort is required to effectively manage the increased complexity of our company, and our failure to successfully
do so could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
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We may be restricted from transferring our scientific data abroad.
On March 17, 2018, the General Office of the State Council promulgated the Measures for the Management of Scientific Data, or
the Scientific Data Measures, which provides a broad definition of scientific data and relevant rules for the management of scientific
data. According to the Scientific Data Measures, enterprises in China must seek governmental approval before any scientific data
involving a state secret may be transferred abroad or to foreign parties. Further, any researcher conducting research funded at least in
part by the Chinese government is required to submit relevant scientific data for management by the entity to which such researcher is
affiliated before such data may be published in any foreign academic journal. Given that the term state secret is not clearly defined in
the Scientific Data Measures, if and to the extent our research and development of drug candidates will be subject to the Scientific Data
Measures and any subsequent laws as required by the relevant government authorities, we cannot assure you that we can always obtain
relevant approvals for sending scientific data (such as the results of our pre-clinical studies or clinical trials conducted within China)
abroad or to our foreign partners in China. The PRC Personal Information Protection Law, effective November 2021, provides that
where a personal information processor needs to provide personal information outside the territory of the PRC due to business or other
needs, it shall meet any of the following conditions: (i) it shall pass the security evaluation organized by the Cyberspace Administration
of China (“CAC”) in accordance with the provisions of Article 40 thereof, (ii) it shall have been certified by a specialized agency for
protection of personal information in accordance with the provisions of the CAC, (iii) it shall enter into a contract with the overseas
recipient under the standard contract formulated by the CAC, specifying the rights and obligations of both parties, or (iv) it shall meet
other conditions prescribed by laws, administrative regulations or the CAC. If we are unable to obtain necessary approvals or meet the
necessary requirements in a timely manner, or at all, our research and development of drug candidates may be hindered, which may
materially and adversely affect our business, results of operations, financial conditions and prospects. If the relevant government
authorities consider the transmission of our scientific data to be in violation of the requirements under the Scientific Data Measures, we
may be subject to fines and other administrative penalties imposed by those government authorities.
If we expand our existing compassionate-use program or participate in additional compassionate-use programs, discrepancies
among the regulations in different countries may lead to increased risk of adverse drug reactions and serious adverse events arising
from the use of our drug candidates.
Compassionate-use programs are regulatory programs that facilitate access to investigational drugs for the treatment of patients
with serious or immediately life-threatening diseases or conditions that lack therapeutic alternatives. Currently, there is no unified
approach or standard practice to regulate compassionate-use programs or access to investigational drugs across countries. In China, the
PRC Drug Administration Law provides that drugs in clinical trials intended for the treatment of serious life-threatening diseases without
existing effective treatments may, upon review and informed consent, be administered to patients with the same conditions within the
institution conducting the clinical trials, provided that such drugs may be beneficial as indicated by medical observation and such practice
is in conformity with ethical principles. In the United States, compassionate-use programs are limited to patients who have a life-
threatening disease or serious disease or condition, who may gain access to an investigational medical product for treatment outside of
clinical trials when no comparable or satisfactory alternative therapy options are available. Additionally, the U.S. Right to Try Act
provides a separate pathway for patients with a life-threatening disease or condition who have exhausted all other treatment options and
who are unable to participate in clinical trials to access investigational drugs that have passed Phase I clinical trials under a more
expedited process.
The regulatory discrepancy for compassionate-use programs among countries may lead to uneven patient entry criteria and protocols
for compassionate use programs. This may create increased risk of serious adverse events because of enrolled patients’ advanced disease
or comorbidities. In addition, because the products in compassionate-use programs are investigational drugs, many of which are still in
experimental stages, patients in compassionate-use program may exhibit adverse drug reactions from using these products. We currently
have named patient programs in Hong Kong for compassionate use of fruquintinib and surufatinib and an expanded access program in
the United States for compassionate use of surufatinib. Although we have enrolled a limited number of patients in each of our current
programs, we may be subject to the risk of enrolled patients exhibiting adverse drug reactions or serious adverse events being produced
from the use of our drug products, particularly if we expand such programs or establish or participate in additional compassionate-use
programs. Such occurrences can potentially lead to clinical holds of our ongoing clinical trials or complicate the determination of the
safety profile of a drug candidate under regulatory review for commercial marketing, or expose us to tort liability.
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Risks Relating to Sales of Our Internally Developed Drugs and Other Drugs
Pharmaceutical companies in China are required to comply with extensive regulations and hold a number of permits and licenses
to carry on their business. Our and our joint ventures’ ability to obtain and maintain these regulatory approvals is uncertain, and
future government regulation may impose additional burdens on our operations.
The pharmaceutical industry in China is subject to extensive government regulation and supervision. The regulatory framework
addresses all aspects of operations in the pharmaceutical industry, including approval, production, distribution, advertising, licensing
and certification requirements and procedures, periodic renewal and reassessment processes, registration of new drugs and
environmental protection. Violation of applicable laws and regulations may materially and adversely affect our business. In order to
manufacture and distribute pharmaceutical products in China, we and our joint ventures are required to, among other things:
obtain a pharmaceutical manufacturing permit for each production facility from the NMPA;
obtain a drug registration certificate, which includes a drug approval number, from the NMPA for each drug manufactured by
us;
obtain a pharmaceutical distribution permit from the NMPA; and
renew the pharmaceutical manufacturing permits, the pharmaceutical distribution permits, drug registration certificates, among
other requirements.
If we or our joint ventures are unable to obtain or renew such permits or any other permits or licenses required for our or their
operations, we will not be able to engage in the manufacture and distribution of our products and our business may be adversely affected.
The regulatory framework regarding the pharmaceutical industry in China is subject to change and amendment from time to time.
Any such change or amendment could materially and adversely impact our business, financial condition and results of operations. The
PRC government has introduced various reforms to the Chinese healthcare system in recent years and may continue to do so, with an
overall objective to expand basic medical insurance coverage and improve the quality and reliability of healthcare services. Specific
upcoming regulatory and policy changes remain uncertain. The implementing measures to be issued may not be sufficiently effective to
achieve the stated goals and, as a result, we may not be able to benefit from such reform to the level we expect, if at all. Moreover, the
reform could give rise to regulatory developments, such as more burdensome administrative procedures, which may have an adverse
effect on our business and prospects.
For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview—
Regulation—Government Regulation of Pharmaceutical Product Development and Approval,” “Business Overview—Regulation—
Coverage and Reimbursement” and “Business Overview—Regulation—Other Healthcare Laws.”
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As a significant portion of the operations of our Other Ventures is conducted through joint ventures, we are dependent on the success
of our joint ventures, our receipt of dividends or other payments from our joint ventures for cash to fund our operations, and our
investments in our joint ventures are subject to liquidity risk.
We are party to a joint venture agreement with Shanghai Pharmaceuticals, relating to our non-consolidated joint venture namely,
Shanghai Hutchison Pharmaceuticals, which forms part of the operations of our Other Ventures. Our equity in earnings of such non-
consolidated joint venture, net of tax, was $30.7 million, $33.5 million and $44.7 million for the years ended December 31, 2019, 2020
and 2021, respectively, as recorded in our consolidated financial statements. As such, our results of operations and financial performance
have been, and will continue to be, affected by the financial performance of such joint venture as well as any other equity investees we
have or may have in the future. We may also be required to recognize an impairment charge in our consolidated financial statements if
there is a decline in the fair market value of our investments in such businesses below their carrying amounts for whatever reason that
is determined to be other-than-temporary. Furthermore, we have consolidated joint ventures with each of Sinopharm and Hain Celestial
which accounted for substantially all of our Other Ventures’ consolidated revenue for the years ended December 31, 2019, 2020 and
2021.
As a result, our ability to fund our operations and pay our expenses or to make future dividend payments, if any, is largely dependent
on the earnings of our joint ventures and the payment of those earnings to us in the form of dividends. Payments to us by our joint
ventures will be contingent upon our joint ventures’ earnings and other business considerations and may be subject to statutory or
contractual restrictions. Each joint venture’s ability to distribute dividends to us is subject to approval by their respective boards of
directors, which in the case of Shanghai Hutchison Pharmaceuticals is comprised of an equal number of representatives from each party.
Furthermore, our ability to promptly sell one or more of our interests in our joint ventures in response to changing corporate strategy or
economic, financial and investment conditions is limited. The market for such investments can be affected by various factors, such as
general economic and market conditions, availability of financing, interest rates and investor demand, many of which are beyond our
control. If we determine to sell any of our joint venture investments, we cannot predict if we will be successful or whether any price or
other terms offered by a prospective purchaser would be acceptable to us.
Operationally, our joint venture partners have certain responsibilities and/or certain rights to exercise control or influence over
operations and decision-making under the joint venture arrangements. Therefore, the success of our joint ventures depends on the efforts
and abilities of our joint venture parties. For example, we appoint the general managers of Hutchison Sinopharm and Shanghai Hutchison
Pharmaceuticals pursuant to the respective joint venture agreements governing these entities and therefore oversee the day-to-day
management of these joint ventures. However, we still rely on our joint venture partners Sinopharm and Shanghai Pharmaceuticals to
provide certain distribution and logistics services. See “—Risks Relating to Our Dependence on Third Parties—Joint ventures form an
important part of our Other Ventures, and our ability to manage and develop the businesses conducted by these joint ventures depends
in part on our relationship with our joint venture partners” for more information.
We may not be successful in building a commercial sales team to successfully manufacture, sell and market our approved drugs,
and we may not be able to generate any revenue from such products.
We have leveraged our experience operating our prescription drugs business to commercialize certain of our approved, internally
developed drug candidates in China. We must adapt our know-how to build a specific oncology and/or immunology focused sales and
marketing team. As of December 31, 2021, we had an oncology commercial team with about 630 staff in China and about 30 staff in
the United States to support the commercialization of Elunate, Sulanda, Orpathys and our other drug candidates, if approved. There are
risks involved in establishing an in-house oncology commercial team. For example, recruiting and/or training a sales force to detail our
approved drug candidates is time consuming and could delay any drug launch. Factors that may inhibit our efforts to commercialize our
drug candidates include:
our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
our inability to effectively manage the expansion of our operations and train additional qualified personnel in the relevant areas
of oncology and/or immunology;
the inability of our sales personnel to obtain access to physicians or educate adequate numbers of physicians who then prescribe
any future drugs; and
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the lack of complementary drugs to be offered by our sales personnel, which may put us at a competitive disadvantage relative
to companies with more extensive product lines.
In such case, our business, results of operations, financial condition and prospects will be materially and adversely affected.
We face substantial competition in selling our approved, internally developed drugs and the drugs of our Other Ventures.
The marketed drugs developed and sold by our Oncology/Immunology operations and the prescription drugs business which is part
of our Other Ventures’ operations face substantial competition in the pharmaceutical industry in China, which is characterized by a
number of established, large pharmaceutical companies, as well as smaller emerging pharmaceutical companies, engaged in the
development, production, marketing or sales of prescription drugs, in particular cardiovascular drugs. The identities of the key
competitors with respect to drugs sold by our Oncology/Immunology and Other Ventures operations vary by product and, in certain
cases, competitors have greater financial resources than us and may elect to focus these resources on developing, importing or in-
licensing and marketing products in the PRC that are substitutes for our products and may have broader sales and marketing
infrastructure with which to do so.
Such drugs may compete against products that have lower prices, superior performance, greater ease of administration or other
advantages compared to our products. In some circumstances, price competition may drive our competitors to conduct illegal
manufacturing processes to lower their manufacturing costs. Increased competition may result in price reductions, reduced margins and
loss of market share, whether achieved by either legal or illegal means, any of which could materially and adversely affect our profit
margins. We and our joint ventures may not be able to compete effectively against current and future competitors.
If we are not able to maintain and enhance brand recognition of our drugs to maintain a competitive advantage, our reputation,
business and operating results may be harmed.
We believe that market awareness of our products sold through our Oncology/Immunology and Other Ventures operations, which
include our joint ventures’ branded products, such as Shang Yao, and the brands of third-party products which are distributed through
our joint ventures, has contributed significantly to our success. We also believe that maintaining and enhancing such brands is critical
to maintaining our competitive advantage. Although the sales and marketing staff of such businesses will continue to further promote
such brands to remain competitive, they may not be successful. If we or our joint ventures are unable to further enhance brand
recognition and increase awareness of such products, or are compelled to incur excessive marketing and promotion expenses in order to
maintain brand awareness, our business and results of operations may be materially and adversely affected. Furthermore, our results of
operations could be adversely affected if the Shang Yao brand, or the brands of any other products, or our reputation, are impaired by
certain actions taken by our joint venture partners, distributors, competitors or relevant regulatory authorities.
Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures
operations or our drug candidates in China, the United States or other countries, which could diminish our sales or affect our
profitability.
The regulations that govern pricing and reimbursement for pharmaceuticals vary widely from country to country. Some countries
require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after regulatory
approval is granted. In some foreign markets, pharmaceutical pricing remains subject to continuing governmental control even after
initial approval is granted. Furthermore, once marketed and sold, government authorities and third-party payors, such as private health
insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. Adverse
pricing reimbursement levels may hinder market acceptance of our drug candidates or other products sold by us.
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In China, for example, the Ministry of Human Resources and Social Security of the PRC or provincial or local human resources
and social security authorities, together with other government authorities, review the inclusion or removal of drugs from the Medicines
Catalogue for the National Basic Medical Insurance, Labor Injury Insurance and Childbirth System in China, or the National
Reimbursement Drug List, or NRDL, or provincial or local medical insurance catalogues for the National Medical Insurance Program,
and the category under which a drug will be classified, both of which affect the amounts reimbursable to program participants for their
purchases of those medicines. These determinations are made based on a number of factors, including price and efficacy. Depending on
the category under which a drug is classified in the provincial medicine catalogue, a National Medical Insurance Program participant
residing in that province can be reimbursed for the full cost of Category A medicine and for the majority of the cost of a Category B
medicine. In some instances, if the price range designated by the local or provincial government decreases, it may adversely affect our
business and could reduce our total revenue, and if our revenue falls below production costs, we may stop manufacturing certain
products. In November 2019 and January 2022, Elunate and Sulanda were added to China’s NRDL as a Category B medicine,
respectively.
In addition, in order to access certain local or provincial-level markets, our joint ventures are periodically required to enter into
competitive bidding processes for She Xiang Bao Xin (the best-selling product of our Shanghai Hutchison Pharmaceuticals joint venture)
and other products with a pre-defined price range. The competitive bidding in effect sets price ceilings for those products, thereby
limiting our profitability.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs which may
affect reimbursement rates of our drug candidates if approved. For example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act, was passed, which substantially
changed the way health care is financed by both governmental and private insurers. The Affordable Care Act, among other things,
established a new Medicare Part D coverage gap discount program, in which, effective 2019, manufacturers must agree to offer 70%
point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a
condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been
proposed and adopted in the United States since the Affordable Care Act was enacted.
Modifications to or repeal of all or certain provisions of the Affordable Care Act had been expected based on statements made by
former President Trump and certain members of Congress. However, President Biden has indicated that his healthcare policy will build
on the Affordable Care Act and that his administration will prioritize comprehensive drug pricing reform. We cannot predict the ultimate
content, timing or effect of any changes to the Affordable Care Act or other federal and state reform efforts. Several U.S. states have
also enacted laws to control drug pricing or require manufacturers to disclose information about drug pricing. There is no assurance that
federal or state health care reform will not adversely affect our future business and financial results. We expect that additional U.S. state
and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional
pricing pressures. We expect that the pharmaceutical industry will experience pricing pressures due to the increasing influence of
managed care (and related implementation of managed care strategies to control utilization), consolidation in drug distribution industry,
additional federal and state legislative and regulatory proposals to regulate pricing of drugs, limit coverage of drugs or reduce
reimbursement for drugs, public scrutiny and recent regulatory initiatives to control the price of pharmaceuticals through government
negotiations of drug prices in Medicare Part D and, eventually Medicare Part B, and importation of cheaper products from abroad.
Moreover, eligibility for reimbursement in the United States does not imply that any drug will be paid for in all cases or at a rate
that covers our costs, including research, development, manufacture, sale and distribution. Interim U.S. reimbursement levels for new
drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary
according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower
cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory
discounts or rebates required by U.S. government healthcare programs or private payors and by any future relaxation of laws that
presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors
in the United States often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our
inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved
drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize
drugs and our overall financial condition.
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Sales of our generic prescription drugs sold through our Other Ventures rely on the ability to win tender bids for the medicine
purchases of hospitals in China.
Our prescription drugs business markets to hospitals in China that may make bulk purchases of a medicine only if that medicine is
selected under a government-administered tender process that was initiated in 2018 and aimed at driving consolidation in the fragmented
generic prescription drug market in China. Pursuant to this process, major cities bulk-buy certain generic drugs together, forcing
companies to bid for contracts and driving down prices. The process was later expanded nationwide to cover more cities and drugs. This
process, which only applies to generic prescription drugs, may reduce our Other Ventures’ product portfolio as some of our third-party
generic drug partners may fail to win bids.
Periodically, a bidding process is organized on a provincial or municipal basis. Whether a drug manufacturer is invited to participate
in the tender depends on the level of interest that hospitals have in purchasing this drug. The interest of a hospital in a medicine is
evidenced by:
the inclusion of this medicine on the hospital’s formulary, which establishes the scope of drug physicians at this hospital may
prescribe to their patients, and
the willingness of physicians at this hospital to prescribe a particular drug to their patients.
We believe that effective marketing efforts are critical in making and keeping hospitals interested in purchasing the prescription
drugs sold through our Other Ventures so that we and our joint ventures are invited to submit the products to the tender. Even if we and
our joint ventures are invited to do so, competitors may be able to substantially reduce the price of their products or services. If
competitors are able to offer lower prices, our and our joint ventures’ ability to win tender bids during the hospital tender process will
be materially affected, and could reduce our total revenue or decrease our profit.
Counterfeit products could negatively impact our revenue, brand reputation, business and results of operations.
Our products are subject to competition from counterfeit products, especially counterfeit pharmaceuticals which are manufactured
without proper licenses or approvals and are fraudulently mislabeled with respect to their content and/or manufacturer. Counterfeiters
may illegally manufacture and market products under our or our joint venture’s brand names, the brand names of the third-party products
we or they sell, or those of our or their competitors. Counterfeit pharmaceuticals are generally sold at lower prices than the authentic
products due to their low production costs, and in some cases are very similar in appearance to the authentic products. Counterfeit
pharmaceuticals may or may not have the same chemical content as their authentic counterparts. If counterfeit pharmaceuticals illegally
sold under our or our joint ventures’ brand names or the brand names of third-party products we or they sell result in adverse side effects
to consumers, we or our joint ventures may be associated with any negative publicity resulting from such incidents. In addition,
consumers may buy counterfeit pharmaceuticals that are in direct competition with products sold through our Oncology/Immunology
and Other Ventures operations, which could have an adverse impact on our revenue, business and results of operations. The proliferation
of counterfeit pharmaceuticals in China and globally may grow in the future. Any such increase in the sales and production of counterfeit
pharmaceuticals in China, or the technological capabilities of the counterfeiters, could negatively impact our revenue, brand reputation,
business and results of operations.
Rapid changes in the pharmaceutical industry may render our Other Ventures’ products or our internally developed drugs and drug
candidates obsolete.
Future technological improvements by our competitors and continual product developments in the pharmaceutical market may
render our and our joint ventures’ existing products, our or their third-party licensed products or our drug candidates obsolete or affect
our viability and competitiveness. Therefore, our future success will largely depend on our and our joint ventures’ ability to:
improve existing products;
develop innovative drug candidates;
diversify the product and drug candidate portfolio;
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license diverse third-party products; and
develop new and competitively priced products which meet the requirements of the constantly changing market.
If we or our joint ventures fail to respond to this environment by improving our existing products, licensing new third-party products
or developing new drug candidates in a timely fashion, or if such new or improved products do not achieve adequate market acceptance,
our business and profitability may be materially and adversely affected.
Certain of our joint ventures’ principal products involve the cultivation or sourcing of key raw materials including botanical
products, and any quality control or supply failure or price fluctuations could adversely affect our ability to manufacture our products
and/or could materially and adversely affect our operating results.
The key raw materials used in the manufacturing process of certain of our joint ventures’ principal products are medicinal herbs
whose properties are related to the regions and climatic conditions in which they are grown. Access to quality raw materials and products
necessary for the manufacture of our products is not guaranteed. We rely on materials sourced from third-party growers and suppliers.
The availability, quality and prices of these raw materials are dependent on and closely affected by weather conditions and other seasonal
factors which have an impact on the yields of the harvests each year. The quality, in some instances, also depends on the operations of
third-party growers or suppliers. There is a risk that such growers or suppliers sell or attempt to sell us or our joint ventures raw materials
which are not authentic. If there is any supply interruption for an indeterminate period of time, our joint ventures may not be able to
identify and obtain alternative supplies that comply with our quality standards in a timely manner. Any supply disruption could adversely
affect our ability to satisfy demand for our products, and materially and adversely affect our product sales and operating results.
Moreover, any use by us or our joint ventures of unauthentic materials illegally sold to us by third-party growers or suppliers in our or
our joint ventures’ products may result in adverse side effects to the consumers, negative publicity, or product liability claims against
us or our joint ventures, any of which may materially and adversely affect our operating results.
The prices of necessary raw materials and products may be subject to price fluctuations according to market conditions, and any
sudden increases in demand in the case of a widespread illness such as COVID-19, SARS, MERS or avian flu may impact the costs of
production. Raw material price fluctuations could increase the cost to manufacture our products and adversely affect our operating
results.
Adverse publicity associated with our company, our joint ventures or our or their products or third-party licensed products or similar
products manufactured by our competitors could have a material adverse effect on our results of operations.
Sales of our and our joint ventures’ products are highly dependent upon market perceptions of the safety and quality of such
products, including proprietary products and third-party products we and they distribute. Concerns over the safety of biopharmaceutical
products manufactured in China could have an adverse effect on the reputation of our industry and the sale of such products, including
products manufactured or distributed by us and our joint ventures.
We and our joint ventures could be adversely affected if any of our or our joint ventures’ products, third-party licensed products or
any similar products manufactured by other companies prove to be, or are alleged to be, harmful to patients. Any negative publicity
associated with severe adverse reactions or other adverse effects resulting from patients’ use or misuse of our and our joint ventures’
products or any similar products manufactured by other companies could also have a material adverse impact on our results of operations.
We and our joint ventures have not, to date, experienced any significant quality control or safety problems. If in the future we or our
joint ventures become involved in incidents of the type described above, such problems could severely and adversely impact our financial
position and reputation.
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We are dependent on our joint ventures’ production facilities in Shanghai, China, our manufacturing facility in Suzhou, China and
third-party manufacturing facilities for the manufacture of the principal products of our joint ventures and our own drug candidates
and products.
The principal products sold by our Other Ventures are mainly produced or expected to be produced at our joint ventures’
manufacturing facilities in Shanghai, China. Our commercial supplies of Elunate and Sulanda sold by our Oncology/Immunology
operations are manufactured at our manufacturing facility in Suzhou, China. We outsourced the manufacturing of active pharmaceutical
ingredients and finished product of Orpathys to a third-party manufacturer based in Shanghai, China. Until construction of our new
manufacturing facility in Shanghai is completed and it receives the requisite government approvals, we have no back-up manufacturing
facility for fruquintinib and surufatinib, and our ability to produce such drugs will be negatively impacted if we experience any
significant production problems at our Suzhou facility. A significant disruption at our, our joint ventures’ and/or our contract
manufacturer’s facilities, even on a short-term basis, could impair our and/or our joint ventures’ ability to timely produce and ship
products, which could have a material adverse effect on our business, financial position and results of operations.
Our, our joint ventures’ and our contract manufacturer’s manufacturing operations are vulnerable to interruption and damage from
natural and other types of disasters, including earthquake, fire, floods, environmental accidents, power loss, communications failures
and similar events. If any disaster were to occur, our ability to operate our, our joint ventures’ or our contract manufacturer’s business
at these facilities would be materially impaired. In addition, the nature of our production and research activities could cause significant
delays in our programs and make it difficult for us to recover from a disaster or switch to other contract manufacturers. We and our joint
ventures maintain insurance for business interruptions to cover some of our potential losses; however, such disasters could still disrupt
our operations and thereby result in substantial costs and diversion of resources.
In addition, our, our joint ventures’ and our contract manufacturer’s production process requires a continuous supply of electricity.
We and they have encountered power shortages historically due to restricted power supply to industrial users during summers when the
usage of electricity is high and supply is limited or as a result of damage to the electricity supply network. Because the duration of those
power shortages was brief, they had no material impact on our or their operations. Interruptions of electricity supply could result in
lengthy production shutdowns, increased costs associated with restarting production and the loss of production in progress. Any major
suspension or termination of electricity or other unexpected business interruptions could have a material adverse impact on our business,
financial condition and results of operations.
We may engage in strategic transactions, including acquisitions, investments, joint ventures or divestitures that may have an adverse
effect on our business. If we engage in a strategic transaction, there is no assurance that the transaction will be consummated.
We may pursue transactions as part of our business strategy, including continuing to actively evaluate non-core assets divestment
opportunities. For instance, on March 24, 2021, we entered into a sale and purchase agreement with GL Mountrose Investment Two
Limited, a company controlled and managed by GL Capital Group, to sell our entire investment in Hutchison Baiyunshan. The sale was
completed on September 28, 2021. We are also considering divesting other non-core businesses in our Other Ventures segment,
including Shanghai Hutchison Pharmaceuticals. For more information, please refer to Item 4.A. “History and Development of the
Company”, “Disposal of Hutchison Baiyunshan.”
Acquisitions and investments involve numerous risks such as difficulties in finding suitable partners or acquisition candidates,
difficulties in obtaining financing on favorable terms, if at all, the assumption of certain known and unknown liabilities of acquired
companies and difficulties in integrating operations, services, products and personnel. Divestitures also involve numerous risks. Any
divestiture could result in a dilutive impact to our future earnings and significant write-offs, including those related to goodwill and
other intangible assets, which could have a material adverse effect on our results of operations and financial condition. Divestitures
could involve additional risks, including difficulties in the separation of operations, services, products and personnel, the diversion of
management’s attention from other business concerns, the disruption of our business and the potential loss of key employees.
We may not complete strategic transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the
expected benefits of any transaction. We may not be successful in managing these or any other significant risks that we encounter if we
engage in a strategic transaction. If we are not successful in managing the risks, uncertainties and potential disruptions, a strategic
transaction could have a negative impact on our business, results of operations or financial position.
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Risks Relating to Our Dependence on Third Parties
Disagreements or disputes with our current or future collaboration partners, the amendment of any collaboration agreement or the
termination of any collaboration arrangement, could cause delays in our product development and materially and adversely affect
our business.
Our collaborations, including those with our oncology drug partners AstraZeneca and Eli Lilly and our in-licensing arrangement
with Epizyme, and any future collaborations that we enter into may not be successful. Disagreements or disputes between parties to a
collaboration arrangement regarding issues such as clinical development and commercialization, intellectual property ownership and
transfer, clinical supply of drug candidates or products, cost allocation and other matters can lead to delays in the development process
or commercializing the applicable drug candidate and, in some cases, termination of the collaboration arrangement. In addition, we or
our partners may seek to amend the terms of one or more our collaboration agreements to adjust, among other things, the respective
roles of our company and our collaboration partners as circumstances change. Our interests may not always be aligned with those of our
collaboration partners, for instance, we are much smaller than our collaboration partners and because they or their affiliates may sell
competing products. This may result in potential conflicts between our collaborators and us on matters that we may not be able to resolve
on favorable terms or at all.
Collaborations with pharmaceutical or biotechnology companies and other third parties, including our existing agreements with
AstraZeneca and Eli Lilly, are often terminable by the other party for any reason with certain advance notice. Any such termination or
expiration would adversely affect us financially and could harm our business reputation. For instance, in the event one of the strategic
alliances with a current collaborator is terminated, we may require significant time and resources to secure a new collaboration partner,
if we are able to secure such an arrangement at all. As noted in the following risk factor, establishing new collaboration arrangements
can be challenging and time-consuming. The loss of existing or future collaboration arrangements would not only delay or potentially
terminate the possible development or commercialization of products we may derive from our technologies, but it may also delay or
terminate our ability to test specific target candidates.
We rely on our collaborations with third parties for certain of our drug development activities, and, if we are unable to establish new
collaborations when desired on commercially attractive terms or at all, we may have to alter our development and commercialization
plans.
Certain of our drug development programs and the potential commercialization of certain drug candidates rely on collaborations,
such as savolitinib with AstraZeneca and fruquintinib with Eli Lilly. In addition, we recently entered into collaborations with BeiGene,
Inmagene and Epizyme in 2020, 2021 and 2021, respectively. In the future, we may decide to collaborate with additional pharmaceutical
and biotechnology companies for the development and potential commercialization of our other drug candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration
will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the
proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results
of clinical trials, the likelihood of approval by the FDA, NMPA or similar regulatory authorities outside the United States and China,
the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug candidate to
patients, the potential of competing drugs, the existence of uncertainty with respect to our ownership of technology, which can exist if
there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The
collaborator may also consider alternative drug candidates or technologies for similar indications that may be available to collaborate
on and whether such collaboration could be more attractive than the one with us for our drug candidate. The terms of any additional
collaboration or other arrangements that we may establish may not be favorable to us.
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a
significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of
potential future collaborators.
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We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do
so, we may have to curtail the development of the drug candidate for which we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we
elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional
capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further
develop our drug candidates or bring them to market and generate drug revenue.
The third-party vendors upon whom we rely for the supply of the active pharmaceutical ingredients used in some of our drug
candidates and drug products are our sole source of supply, and the loss of any of these suppliers could significantly harm our
business.
The active pharmaceutical ingredients used in some of our drug candidates and products are supplied to us from third-party vendors.
Our ability to successfully develop our drug candidates, and to supply our commercial drugs in quantities sufficient to meet the market
demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in accordance with regulatory
requirements and in sufficient quantities for commercialization and clinical testing. We currently obtain active pharmaceutical
ingredients for each of our drug candidates from a limited number of suppliers. For example, a single supplier based in Shanghai
manufactures and provides us active pharmaceutical ingredient for savolitinib. In the event any of our current suppliers of such active
pharmaceutical ingredient cease operations for any reason, it may lead to an interruption in our production and supply of the product.
For all of our drug candidates and products, we aim to identify and qualify a manufacturer to provide such active pharmaceutical
ingredient prior to submission of an NDA to the FDA and/or NMPA. We are not certain, however, that our current supply arrangements
will be able to meet our demand, either because of the nature of our agreements with third party suppliers, our limited experience with
third party suppliers or our relative importance as a customer to those suppliers. It may be difficult for us to assess third party vendors’
ability to timely meet our demand in the future based on past performance. While our suppliers have generally met our demand on a
timely basis in the past, they may subordinate our needs in the future to their other customers.
Establishing additional or replacement suppliers for the active pharmaceutical ingredients used in our drug candidates and products,
if required, may not be accomplished quickly. If we are able to find a replacement supplier, such alternative arrangements would need
to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate
inventory of the active pharmaceutical ingredients used in our drug candidates and products, any interruption or delay in the supply of
components or materials, or our inability to obtain such active pharmaceutical ingredient from alternate sources at acceptable prices in
a timely manner could impede, delay, limit or prevent our development and commercialization efforts, which could harm our business,
results of operations, financial condition and prospects.
We and our collaborators rely, and expect to continue to rely, on third parties to conduct certain of our clinical trials for our drug
candidates. If these third parties do not successfully carry out their contractual duties, comply with regulatory requirements or meet
expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business
could be harmed.
We do not have the ability to independently conduct large-scale clinical trials. We and our collaboration partners rely, and expect
to continue to rely, on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct
or otherwise support certain clinical trials for our drug candidates. Nevertheless, we and our collaboration partners (as applicable) will
be responsible for ensuring that each clinical trial is conducted in accordance with the applicable protocol, legal and regulatory
requirements and scientific standards, and reliance on CROs will not relieve us of our regulatory responsibilities. For any violations of
laws and regulations during the conduct of clinical trials for our drug candidates, we could be subject to warning letters or enforcement
action that may include civil penalties up to and including criminal prosecution.
Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials.
As a result, many important aspects of our development programs, including their conduct and timing, are outside of our direct control.
Our reliance on third parties to conduct clinical trials results in less control over the management of data developed through clinical
trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging,
potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:
have staffing difficulties;
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fail to comply with contractual obligations;
experience regulatory compliance issues;
undergo changes in priorities or become financially distressed; or
form relationships with other entities, some of which may be our competitors.
These factors may materially and adversely affect the willingness or ability of third parties to conduct our and our collaboration
partners’ clinical trials and may subject us or them to unexpected cost increases that are beyond our or their control.
If any of our and our collaboration partners’ relationships with these third-party CROs terminate, we or they may not be able to
enter into arrangements with alternative CROs on reasonable terms or at all. If CROs do not successfully carry out their contractual
duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain
is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials
such CROs are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or
successfully commercialize our drug candidates. As a result, we believe that our financial results and the commercial prospects for our
drug candidates in the subject indication would be harmed, our costs could increase and our ability to generate revenue could be delayed.
We, our collaboration partners or our CROs may fail to comply with the regulatory requirements pertaining to clinical trials, which
could result in fines, adverse publicity and civil or criminal sanctions.
We, our collaboration partners and our CROs are required to comply with regulations for conducting, monitoring, recording and
reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients
are adequately informed of the potential risks of participating in clinical trials and their rights are protected. These regulations are
enforced by the FDA, the NMPA and comparable foreign regulatory authorities for any drugs in clinical development. In the United
States, the FDA regulates GCP through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we, our
collaboration partners or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities may require additional clinical trials before approving the marketing
applications for the relevant drug candidate. We cannot assure you that, upon inspection, the FDA or other applicable regulatory
authority will determine that any of the future clinical trials for our drug candidates will comply with GCPs. In addition, clinical trials
must be conducted with drug candidates produced under applicable manufacturing regulations. Our failure or the failure of our
collaboration partners or CROs to comply with these regulations may require us or them to repeat clinical trials, which would delay the
regulatory approval process and could also subject us to enforcement action. We are also required to register applicable clinical trials
and post certain results of completed clinical trials on a U.S. government-sponsored database, ClinicalTrials.gov, within certain
timeframes. Failure to do so can result in fines, adverse publicity and civil sanctions.
Our collaboration partners, principal investigators, CROs and other third-party contractor and consultants may engage in
misconduct or other improper activities.
We are exposed to the risk that collaboration partners, principal investigators, CROs and other third-party contractor and consultants
may engage in fraudulent or other illegal activity with respect to our business. Their misconduct could include intentional, reckless
and/or negligent conduct or unauthorized activity that violates NMPA, FDA or other regulations, including but not limited to those laws
requiring the reporting of true, complete and accurate information. In addition, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive
practices. These laws and regulations may restrict or prohibit a wide range of insurance, pricing, discounting, marketing and promotion,
sales commission, customer incentive programs and other business arrangements. We may not be able to identify and deter such
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in
compliance with such laws or regulations. If any such actions are instituted against us, our collaboration partners, principal investigators,
CROs and other third-party contractor and consultants, and we and/or such other parties are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and
administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profits and future earnings and
disruption of our operations.
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Joint ventures form an important part of our Other Ventures, and our ability to manage and develop the businesses conducted by
these joint ventures depends in part on our relationship with our joint venture partners.
We are party to joint venture agreements with each of Shanghai Pharmaceuticals, Sinopharm and Hain Celestial, which together
form a major portion of our Other Ventures. Under these arrangements, our joint venture partners have certain operational
responsibilities and/or certain rights to exercise control or influence over operations and decision-making.
Our equity interests in these operating companies do not provide us with the unilateral ability to control actions which require
shareholder approval. In addition, under the joint venture contracts for these entities, the consent of the directors nominated by our joint
venture partners is required for the passing of resolutions in relation to certain matters concerning the operations of these companies. As
a result, although we participate in the management and nominate the management and run the day-to-day operations of our joint
ventures, Hutchison Sinopharm, Hutchison Hain Organic and Shanghai Hutchison Pharmaceuticals, we may not be able to secure the
consent of our joint venture partners to pursue activities or strategic objectives that are beneficial to or that facilitate our overall business
strategies. Furthermore, disagreements or disputes which arise between us and our joint venture partners may potentially require legal
action to resolve and hinder the smooth operation of our Other Ventures or adversely affect our financial condition, results of operations
and prospects.
We are relying on third parties to construct our new manufacturing facility in Shanghai. Any delays in completing and receiving
regulatory approvals for our new Shanghai facility, or any disruptions to the third parties’ performance of their obligations, could
reduce or restrict our production capacity for the drug candidates used in our clinical trials or our commercial supply for any drug
candidates which are approved.
We are contracting with third parties to construct our new manufacturing facility in Shanghai. The new facility is expected to be a
55,000 square meter large-scale facility with a production capacity estimated to be five times that of our existing manufacturing plant
in Suzhou. The first phase will be primarily for small molecule production, with production capacity expected to be able to produce
250 million tablets and capsules per year. The second phase is expected to include expansion into large molecule production. Third
parties will be responsible for the construction of the buildings, including the production lines and other production facilities within such
buildings.
We cannot assure you that we will not experience any disruptions to the third parties’ performance of their obligations, and there
could be delays in completing and receiving regulatory approvals for our new manufacturing facility. If the construction of our
manufacturing facility or our production lines encounter unanticipated delays or incur additional expenses than expected, if regulatory
evaluation and/or approval of our new manufacturing facility is delayed, or if our third party contracts are terminated or adversely
affected, our manufacturing capacity of our drug candidates may be limited, which would delay or limit our development and
commercialization activities and our opportunities for growth. Cost overruns associated with constructing or maintaining our Shanghai
facility could also require us to raise additional funds from other sources. Any disruption that impedes our ability to manufacture our
drug candidates in a timely manner could materially adversely affect our business, financial condition, results of operations and
prospects.
We and our joint ventures rely on our distributors for logistics and distribution services.
We and our joint ventures rely on distributors to perform certain operational activities, including invoicing, logistics and delivery
of the products we and they market to the end customers. Because we and our joint ventures rely on third-party distributors, we have
less control than if we handled distribution logistics directly and can be adversely impacted by the actions of our distributors. Any
disruption of our distribution network, including failure to renew existing distribution agreements with desired distributors, could
negatively affect our ability to effectively sell our products and materially and adversely affect the business, financial condition and
results of operations of us and our joint ventures.
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There is no assurance that the benefits currently enjoyed by virtue of our association with CK Hutchison will continue to be available.
Historically, we have relied on the reputation and experience of, and support provided by, our founding shareholder, a wholly owned
subsidiary of CK Hutchison, to advance our joint ventures and collaborations in China and elsewhere. CK Hutchison is interested in
approximately 38.46% of our total outstanding share capital as of March 1, 2022. We believe that CK Hutchison group’s reputation in
China has given us an advantage in negotiating collaborations and obtaining opportunities.
We also benefit from sharing certain services with the CK Hutchison group including, among others, legal and regulatory services,
company secretarial support services, tax and internal audit services, participation in the CK Hutchison group’s pension, medical and
insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits
and staff training services, company functions and activities and operation advisory and support services. We pay a management fee to
an affiliate of CK Hutchison for the provision of such services. In each of the years ended December 31, 2019, 2020 and 2021, we paid
a management fee of approximately $0.9 million, $1.0 million and $1.0 million respectively. In addition, we benefit from the fact that
two retail chains affiliated with the CK Hutchison group, PARKnSHOP and Watsons, sell certain of our Other Ventures’ products in
their stores throughout Hong Kong and in other Asian countries. For the years ended December 31, 2019, 2020 and 2021, sales of our
products to members of the CK Hutchison group amounted to $7.6 million, $5.5 million and $4.3 million, respectively.
Our business also depends on certain intellectual property rights licensed to us by the CK Hutchison group. See “—Risks Relating
to Intellectual Property—We and our joint ventures are dependent on trademark and other intellectual property rights licensed from
others. If we lose our licenses for any of our products, we or our joint ventures may not be able to continue developing such products or
may be required to change the way we market such products” for more information on risks associated with such intellectual property
licensed to us.
There can be no assurance the CK Hutchison group will continue to provide the same benefits or support that they have provided
to our business historically. Such benefit or support may no longer be available to us, in particular, if CK Hutchison’s ownership interest
in our company significantly decreases in the future.
Other Risks and Risks Relating to Doing Business in China
The COVID-19 pandemic and other adverse public health developments could materially and adversely affect our business.
In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was reported and has since spread around the world.
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. In response to the pandemic, many
governments around the world have implemented a variety of measures to reduce the spread of COVID-19, including travel restrictions
and bans, instructions to residents to practice social distancing, quarantine advisories, shelter-in-place orders and required closures of
non-essential businesses. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and
created significant volatility and disruption of financial markets.
The continued COVID-19 pandemic and other adverse public health developments could adversely impact our operations, given
the impact they may have on the manufacturing and supply chain, our sales and marketing and clinical trial operations and those of our
collaboration partners, and the ability to advance our research and development activities and pursue development of any of our drug
candidates, each of which could have an adverse impact on our business and our financial results. For instance, our clinical studies have
encountered some limitations to patient visits for screening, treatment and clinical assessment, and our prescription drug sales teams
have seen some short-term limitations on conducting normal operations. Although COVID-19 did not impact our research, our clinical
studies or commercial activities in any material manner in 2021, certain regulatory inspections of our manufacturing facilities in China
by the U.S. FDA have, however, been postponed due to travel restrictions. We will continue to closely work with regulators and monitor
the evolving situation. The ultimate impact of the current COVID-19 pandemic, or any other adverse public health development, is
highly uncertain and will depend on future developments that cannot be predicted with confidence, such as the duration of the outbreak
and the effectiveness of actions to contain and treat COVID-19. Although we do not expect any material impact on our long-term
activity, we do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs,
healthcare systems or the global economy as a whole, which could have a material adverse effect on our business, financial condition
and results of operations and cash flows.
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We are subject to stringent privacy laws, information security policies and contractual obligations related to data privacy and security,
and we may be exposed to risks related to our management of the medical data of subjects enrolled in our clinical trials and other
personal or sensitive information.
We routinely receive, collect, generate, store, process, transmit and maintain medical data, treatment records and other personal
details of the subjects enrolled in our clinical trials, along with other personal or sensitive information. As such, we are subject to the
relevant local, state, national and international data protection and privacy laws, directives regulations, and standards that apply to the
collection, use, retention, protection, disclosure, transfer and other processing of personal data in the various jurisdictions in which we
operate and conduct our clinical trials. We are also subject to contractual obligations regarding the processing of personal data. Legal
requirements regarding data protection and privacy continue to evolve and may result in ever-increasing public scrutiny and escalating
levels of enforcement and sanctions and increased costs of compliance. Failure to comply with any of these laws could result in
enforcement action against us, including investigations, civil and criminal enforcement action, fines, imprisonment of company officers
and public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill, any
of which could have a material adverse effect on our business, financial condition, results of operations or prospects.
Data protection and privacy laws and regulations generally require clinical trial sponsors and operators and their personnel to protect
the privacy of their enrolled subjects and prohibit unauthorized disclosure of personal information. We have established procedures to
protect the confidentiality of medical records and personal data of subjects enrolled in our clinical trials. Access to clinical trial data has
been strictly limited to authorized personnel only according to the relevant rules and regulations. External parties involved in clinical
trials are also required to comply with all relevant data protection and confidentiality requirements. Data are to be used only for the
intended use, as agreed by the patients and consistent with the patients’ informed consent form. While we have adopted security policies
and measures to protect our proprietary data and patients’ privacy, personal patient information could be subject to leaks caused by
hacking activities, human error, employee misconduct or negligence or system breakdown. We also cooperate with third parties
including collaboration partners, principal investigators, hospitals, CROs and other third-party contractor and consultants for our clinical
trials and operations. Any leakage or abuse of patient data by our third-party partners may be perceived by the patients as a result of our
failure. Furthermore, any change in applicable laws and regulations could affect our ability to use medical data and subject us to liability
for the use of such data for previously permitted purposes. Any failure or perceived failure by us to prevent information security breaches
or to comply with privacy policies or privacy-related legal obligations, or any compromise of information security that results in the
unauthorized release or transfer of personally identifiable information or other patient data, could cause our customers to lose trust in us
and could expose us to legal claims.
There are numerous U.S. federal and state laws and regulations relating to the privacy and security of personal information. In
particular, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended,
establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as
“protected health information”), require the implementation of administrative, physical and technological safeguards to protect the
privacy of protected health information and ensure the confidentiality, integrity and availability of electronic protected health
information, and create breach reporting obligations in cases of certain unauthorized uses or disclosures. Determining whether protected
health information has been handled in compliance with applicable privacy standards and our contractual obligations can require
complex factual and statistical analyses and may be subject to changing interpretations. Although we take measures to protect sensitive
data from unauthorized access, use or disclosure, and whenever possible contractually require third-party partners to do the same, our
information technology and infrastructure and those of our third-party partners may be vulnerable to attacks by hackers or viruses or
breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could
compromise those networks and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed,
lost or stolen. Any such access, breach, or other loss of information relating to our information technology and infrastructure or that of
our third-party partners may subject us to liability including legal claims or proceedings and liability under federal or state laws that
protect the privacy of personal information, such as HIPAA, the Health Information Technology for Economic and Clinical Health
(“HITECH”) Act, and regulatory penalties. If we or a third-party partner suffers a breach, we may need to send breach notifications to
affected individuals and, if 500 or more individuals were affected, also notify the Secretary of the Department of Health and Human
Services. Breach notifications may separately be required under applicable state breach notification laws, which may include
notifications to affected individuals, and for extensive breaches, to the media, credit reporting agencies, and/or State Attorneys General.
Such notices could harm our reputation and our ability to compete and could potentially attract enforcement scrutiny from governmental
authorities.
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Regulatory authorities in China have implemented and are considering a number of legislative and regulatory proposals concerning
data protection. The PRC Cyber Security Law, which became effective in June 2017, created China’s first national-level data protection
for “network operators,” which may include all organizations in China that provide services over the internet or another information
network. The PRC Data Security Law, which took effect in September 2021, provides for a security review procedure for the data
activities that may affect national security. The PRC Personal Information Protection Law, which took effect from November 2021,
provides the circumstances under which a personal information processor could process personal information and the requirements for
such circumstances. The PRC Personal Information Protection Law clarifies the scope of application, the definition of personal
information and sensitive personal information, the legal basis of personal information processing and the basic requirements of notice
and consent. The Measures for Cybersecurity Review, which took effect on February 15, 2022, provides that critical information
infrastructure operators that purchase network products and services and online platform operators engaging in data processing activities
that affect or may affect national security shall be subject to the cybersecurity review. The Measures for Cybersecurity Review further
elaborates the factors to be considered when assessing the national security risks of the relevant activities, including, among others: (i)
the risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, and illegally used or
transferred out of the country, and (ii) the risk of critical information infrastructure, core data, important data, or a large amount of
personal information being affected, controlled, or maliciously used by foreign governments after listing. Drafts of some of these
measures have now been published, including the Data Security Management Measures (Draft for Comments) published in May 2019,
the Measures on Security Assessment for Individual Information Cross-border Transfer (Draft for Comments) in June 2019, and the
Measures on Security Assessment of Cross-border Data Transfer (Draft for Comments) in October 2021, which may, upon enactment,
require security review before transferring human health-related data out of China. In addition, certain industry-specific laws and
regulations affect the collection and transfer of personal data in China. For example, the Regulations of the PRC on the Administration
of Human Genetic Resources, or HGR Regulations, which became effective and implemented on July 1, 2019, stipulates that use of
Chinese human genetic resources, or HGR, for the purposes of carrying out collaborative international scientific research shall be
approved by the administrative department of science and technology under the State Council, with which the two parties shall file the
type, quantity and usage of the human genetic resources, to be used before clinical trials. However, no approval is required for
“international collaboration in clinical trials” that do not involve the export of HGR materials; the two parties to the international
collaboration shall file the type, quantity and usage of the HGR to be used with the administrative department of science and technology
under the State Council before clinical trials. The PRC Biosecurity Law, which took effect on April 15, 2021, stipulates that foreign
organizations and individuals, as well as institutions they establish or are the actual controllers of, must not collect or preserve HGR
within the territory of China and must not provide China’s HGR to overseas. It is possible that these laws may be interpreted and applied
in a manner that is inconsistent with our practices, potentially resulting in confiscation of HGR samples and associated data and
administrative fines, penalties and negative publicity.
Our clinical trial programs may implicate European data privacy laws, including the General Data Protection Regulation, or the
GDPR, and local laws further implementing or supplementing the GDPR. The GDPR implements more stringent operational
requirements for processors and controllers of personal data including requirements for such companies to be able to ensure and be able
to demonstrate compliance with the GDPR. If our or our third-party partners’ privacy or data security measures fail to comply with the
GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we
use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial
year, whichever is higher. In addition to statutory enforcement, non-compliance can lead to compensation claims by affected individuals,
negative publicity and a potential loss of business. We are also subject to European laws on personal data export, as we may transfer
personal data from the E.U. (or U.K.) to other jurisdictions which are not considered by the European Commission to offer “adequate”
protection of personal data (such as Hong Kong or the United States). Following the Schrems II decision of the European Court of
Justice in 2020, there has been intensified focus on exports of personal data which do not meet the high standards of protection expected
by the E.U. Certain supervisory authorities in the E.U. have now begun to take enforcement action in this area, ordering restrictions on
certain transfers of personal data to third countries such as the United States. These changes could require us to make operational changes
and could increase costs and may lead to governmental enforcement actions, litigation, fines and penalties or adverse publicity that could
have an adverse effect on our business.
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Complying with all applicable laws, regulations, standards and obligations relating to data privacy, security, and transfers may
cause us to incur substantial operational costs or require us to modify our data processing practices and processes. Non-compliance
could result in proceedings against us by data protection authorities, governmental entities or others, including class action privacy
litigation in certain jurisdictions, which would subject us to significant fines, penalties, judgments and negative publicity. In addition, if
our practices are not consistent or viewed as not consistent with legal and regulatory requirements, including changes in laws, regulations
and standards or new interpretations or applications of existing laws, regulations and standards, we may become subject to audits,
inquiries, whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions
and reputational damage. Any of the foregoing could have a material adverse effect on our competitive position, business, financial
conditions, results of operations and prospects.
Product liability claims or lawsuits could cause us, our collaborators or our joint ventures to incur substantial liabilities.
We, our collaborators and our joint ventures face an inherent risk of product liability exposure related to the use of our drug
candidates in clinical trials, sales of our or our joint ventures’ products or the products we or they license from third parties. If we, our
collaborators and our joint ventures cannot successfully defend against claims that the use of such drug candidates in our clinical trials
or any products sold by us or our joint ventures, including fruquintinib, surufatinib, savolitinib and/or any of our drug candidates which
receive regulatory approval, caused injuries, we, our collaborators and our joint ventures could incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result in:
decreased demand for our and our joint ventures’ products;
significant negative media attention and reputational damage;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any drug candidates that we may develop.
Our principal insurance policies cover product liability for fruquintinib, surufatinib, savolitinib, certain prescription drugs and health
supplements, property loss due to accidents or natural disasters and adverse events in clinical trials. Existing PRC laws and regulations
do not require us, our collaborators or our joint ventures to have, nor do we or they, maintain liability insurance to cover product liability
claims except with respect to fruquintinib, surufatinib, savolitinib, certain prescription drugs and health supplements, and liability with
respect to our oncology and immunology clinical trials. Any litigation might, result in substantial costs and diversion of resources. While
we maintain liability insurance for clinical trials and products, this insurance may not fully cover our potential liabilities. Inability to
obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent
or inhibit the commercialization of products that we or our collaborators develop.
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We and our joint ventures may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act, or FCPA, U.S. healthcare
fraud and abuse laws, the Bribery Act 2010 of the United Kingdom, or U.K. Bribery Act, and Chinese anti-corruption laws, and any
determination that we have violated these laws could have a material adverse effect on our business or our reputation.
In the day-to-day conduct of our business, we and our joint ventures are in frequent contact with persons who may be considered
government officials under applicable anti-corruption, anti-bribery and anti-kickback laws, which include doctors at public hospitals in
China and elsewhere. Therefore, we and our joint ventures are subject to risk of violations under the FCPA, the U.K. Bribery Act, and
other laws in the countries where we do business. We and our joint ventures have operations in China, agreements with third parties in
China, and we and our joint ventures make most of our sales in China. The PRC laws and regulations also strictly prohibit bribery of
government officials. Our and our joint ventures’ activities in China create the risk of unauthorized payments or offers of payments by
the directors, employees, representatives, distributors, consultants or agents of our company or our joint ventures, even though they may
not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our and our joint ventures’
employees and third parties. We have implemented and adopted policies designed by the R&D-based Pharmaceutical Association
Committee, an industry association representing approximately 40 global biopharmaceutical companies, to ensure compliance by us and
our joint ventures and our and their directors, officers, employees, representatives, distributors, consultants and agents with the anti-
corruption laws and regulations. We cannot assure you, however, that our existing safeguards are sufficient or that our or our joint
ventures’ directors, officers, employees, representatives, distributors, consultants and agents have not engaged and will not engage in
conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage
in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable
for such conduct. Violations of the FCPA, the U.K. Bribery Act or Chinese anti-corruption laws may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could have a material adverse effect on our business, reputation, financial
condition, cash flows and results of operations.
If we begin to commercialize products in the United States and secure governmental reimbursement of our products, we also will
be subject to the risk of violating U.S. federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and the
False Claims Act. These laws broadly prohibit providing or receiving kickbacks in connection with government-reimbursed healthcare
items or services, as well submitting or causing the submission of false or fraudulent claims to government healthcare programs.
Violations of these laws may result in severe criminal or civil sanctions and other administrative sanctions, which could have a material
adverse effect on our business, reputation, financial condition, cash flows and results of operations.
Ensuring that our and our joint ventures’ future business arrangements with third parties comply with applicable laws could also
involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current
or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or our
joint ventures’ operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment
and exclusion from government funded healthcare programs, any of which could substantially disrupt our operations. If the physicians,
hospitals or other providers or entities with whom we and our joint ventures do business are found not to be in compliance with applicable
laws, they may also be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
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If we or our joint ventures fail to comply with environmental, health and safety laws and regulations, we or they could become subject
to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We and our joint ventures are subject to numerous environmental, health and safety laws and regulations, including those governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve
the use of hazardous and flammable materials, including chemical materials. Our operations also produce hazardous waste products.
We and our joint ventures are therefore subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste
and solid waste during our manufacturing processes. We and our joint ventures are required to establish and maintain facilities to dispose
of waste and report the volume of waste to the relevant government authorities, which conduct scheduled or unscheduled inspections of
our facilities and treatment of such discharge. We and our joint ventures may not at all times comply fully with environmental
regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits,
shutdown of our facilities and obligation to take corrective measures. We and our joint ventures generally contract with third parties for
the disposal of these materials and waste. We and our joint ventures cannot eliminate the risk of contamination or injury from these
materials. In the event of contamination or injury resulting from the use of hazardous materials, we and/or our joint ventures could be
held liable for any resulting damages, and any liability could exceed our resources. We and/or our joint ventures also could incur
significant costs associated with civil or criminal fines and penalties.
Although we and our joint ventures maintain workers’ compensation insurance to cover costs and expenses incurred due to
on-the-job injuries to our employees and third-party liability insurance for injuries caused by unexpected seepage, pollution or
contamination, this insurance may not provide adequate coverage against potential liabilities. Furthermore, the PRC government may
take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If
there is any unanticipated change in the environmental regulations, we and our joint ventures may need to incur substantial capital
expenditures to install, replace, upgrade or supplement our equipment or make operational changes to limit any adverse impact or
potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs
become prohibitively expensive, we may be forced to cease certain aspects of our or our joint ventures’ business operations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology,
including any cybersecurity incidents, could harm our ability to operate our business effectively.
We are heavily dependent on critical, complex and interdependent information technology systems, including internet-based
systems, to support our business processes. Our information technology system security is continuously reviewed, maintained and
upgraded in response to possible security breach incidents. Despite the implementation of these measures, our information technology
systems and those of third parties with which we contract are vulnerable to damage from external or internal security incidents,
breakdowns, malicious intrusions, cybercrimes, including State-sponsored cybercrimes, malware, misplaced or lost data, programming
or human errors or other similar events. System failures, accidents or security breaches could cause interruptions in our operations and
could result in inappropriately accessed, tampered with, modified or stolen scientific data or a material disruption of our clinical activities
and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. Such event could significantly
harm our Oncology/Immunology operations, including resulting in the loss of clinical trial data which could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Such events could also lead to the loss
of important information such as trade secrets or other intellectual property and could accelerate the development or manufacturing of
competing products by third parties. To the extent that any disruption or security breach were to result in a loss of, or damage to, our
data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our research and
development programs and the development of our drug candidates could be delayed.
We have granted, and may continue to grant, options, long-term incentive scheme (“LTIP”) awards and other types of awards under
our Option Schemes, our LTIP and the HUTCHMED Holdings Option Schemes, or collectively the Schemes, which may result in
increased share-based compensation expenses and give rise to potential employment related disputes.
We and HUTCHMED Holdings have adopted the Schemes for the purpose of granting share-based compensation awards to certain
management, Directors, employees and other eligible grantees as a means to retain, incentivize, reward, remunerate, compensate and/or
provide benefits to eligible grantees. We recognized share-based compensation expenses of $11.6 million, $19.6 million and $42.0
million for the years ended December 31, 2019, 2020 and 2021, respectively, in our consolidated financial statements in accordance
with U.S. GAAP.
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We believe the granting of share-based compensation is of significant importance to our ability to attract and retain key personnel
and employees, and we will continue to grant share-based compensation in the future. As a result, our expenses associated with share-
based compensation may increase, which may have an adverse effect on our results of operations. We may re-evaluate the vesting
schedules, exercise price or other key terms applicable to the grants under our currently effective Schemes from time to time, which
may result in a substantial change in our share-based compensation expenses in the reporting periods. In addition, we could in the future
become involved in disputes or legal proceedings with our employees or former employees on employment related matters (including
disputes on the entitlement of options, awards and other share-based compensation or in connection with the employees’ incentive or
compensation arrangements). If such disputes or legal proceedings arise, there can be no assurance that we will prevail in them, and in
any event defending against these disputes or legal proceedings could cause us to incur legal and other costs. Any adverse outcome of
these disputes or legal proceedings could have a material adverse effect on our reputation, business and results of operations.
For more information on the Schemes, please refer to Item 6.B. “Directors, Senior Management and Employees,” “Compensation,”
“Equity Compensation Schemes and Other Benefit Plans.”
The PRC’s economic, political and social conditions, as well as governmental policies, could affect the business environment and
financial markets in China, our ability to operate our business, our liquidity and our access to capital.
Substantially all of our and our joint ventures’ business operations are conducted in China. Accordingly, our results of operations,
financial condition and prospects are subject to economic, political and legal developments in China to a significant degree. China’s
economy differs from the economies of developed countries in many respects, including with respect to the amount of government
involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has
experienced significant growth in the past 30 years, growth has been uneven across different regions and among various economic
sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation
of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us or our joint ventures. For
example, our financial condition and results of operations may be adversely affected by government control over capital investments or
changes in tax regulations that are applicable to us or our joint ventures. More generally, if the business environment in China deteriorates
from the perspective of domestic or international investors, our or our joint ventures’ business in China may also be adversely affected.
Uncertainties with respect to the PRC legal system and changes in laws, regulations and policies in China could materially and
adversely affect us.
We conduct a substantial portion of our business through our subsidiaries and joint ventures in China. PRC laws and regulations
govern our and their operations in China. Our subsidiaries and joint ventures are generally subject to laws and regulations applicable to
foreign investments in China, which may not sufficiently cover all of the aspects of our or their economic activities in China. In
particular, some laws, particularly with respect to drug price reimbursement, are relatively new, and because of the limited volume of
published judicial decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations are uncertain.
Furthermore, recent regulatory reform in the China pharmaceutical industry will limit the number of distributors allowed between a
manufacturer and each hospital to one, which may limit the rate of sales growth of Hutchison Sinopharm in future periods. In addition,
the implementation of laws and regulations may be in part based on government policies and internal rules that are subject to the
interpretation and discretion of different government agencies (some of which are not published on a timely basis or at all) that may
have a retroactive effect. As a result, we may not be aware of our, our collaboration partners’ or our joint ventures’ violation of these
policies and rules until sometime after the violation. In addition, any litigation in China, regardless of outcome, may be protracted and
result in substantial costs and diversion of resources and management attention.
For further information regarding government regulation in China and other jurisdictions, see Item 4.B. “Business Overview—
Regulation—Government Regulation of Pharmaceutical Product Development and Approval—PRC Regulation of Pharmaceutical
Product Development and Approval,” “Business Overview—Regulation—Coverage and Reimbursement—PRC Coverage and
Reimbursement” and “Business Overview—Regulation—Other Healthcare Laws—Other PRC Healthcare Laws.”
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Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.
Substantially all of our revenue is denominated in renminbi, which currently is not a freely convertible currency. A portion of our
revenue may be converted into other currencies to meet our foreign currency obligations, including, among others, payments of dividends
declared, if any, in respect of our ordinary shares or ADSs. Under China’s existing foreign exchange regulations, our subsidiaries and
joint ventures are able to pay dividends in foreign currencies or convert renminbi into other currencies for use in operations without
prior approval from the PRC State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural
requirements. However, we cannot assure you that the PRC government will not take future measures to restrict access to foreign
currencies for current account transactions.
Our PRC subsidiaries’ and joint ventures’ ability to obtain foreign exchange is subject to significant foreign exchange controls and,
in the case of amounts under the capital account, requires the approval of and/or registration with PRC government authorities, including
the SAFE. In particular, if we finance our PRC subsidiaries or joint ventures by means of foreign debt from us or other foreign lenders,
the amount is not allowed to exceed either the cross-border financing risk weighted balance calculated based on a formula by the PBOC
or the difference between the amount of total investment and the amount of the registered capital. Further, such loans must be filed with
and registered with the SAFE or their local branches and the National Development and Reform Commission (if applicable). If we
finance our PRC subsidiaries or joint ventures by means of additional capital contributions, the amount of these capital contributions
must first be filed with the relevant government approval authority. These limitations could affect the ability of our PRC subsidiaries
and joint ventures to obtain foreign exchange through debt or equity financing.
Our business benefits from certain PRC government tax incentives. Any changes to, or our PRC subsidiaries/joint ventures failing
to continuously meet the criteria for these incentives could have a material adverse effect on our operating results by significantly
increasing our tax expenses.
Certain of our PRC subsidiaries and a joint venture have been granted High and New Technology Enterprise, or HNTE, status by
the relevant PRC authorities. This status allows the relevant enterprise to enjoy a reduced Enterprise Income Tax, or EIT, rate at 15%
on its taxable profits. For the duration of its HNTE grant, the relevant PRC enterprise must continue to meet the relevant HNTE criteria
or else the 25% standard EIT rate will be applied from the beginning of the calendar year when the enterprise fails to meet the relevant
criteria. If the rules for such incentives are amended, it would be uncertain whether any criteria as amended can be met, in which case
the higher EIT rate may apply resulting in increased tax burden which will impact our business, financial condition, results of operations
and growth prospects.
We may be treated as a resident enterprise for PRC Tax purposes under China’s Enterprise Income Tax Law and Implementation
Rules, or the EIT Law, and our global income may therefore be subject to PRC income tax.
China’s EIT Law defines the term “de facto management bodies” as “bodies that substantially carry out comprehensive management
and control on the business operation, employees, accounts and assets of enterprises.” Under the EIT Law, an enterprise incorporated
outside of China whose “de facto management bodies” are located in China is considered a “resident enterprise” and will be subject to
a uniform 25% EIT rate on its global income. On April 22, 2009, China’s State Administration of Taxation, or the SAT, in the Notice
Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis
of De Facto Management Bodies, or Circular 82, further specified certain criteria for the determination of what constitutes “de facto
management bodies.” If all of these criteria are met, the relevant foreign enterprise may be regarded to have its “de facto management
bodies” located in China and therefore be considered a resident enterprise in China. These criteria include: (i) the enterprise’s day-to-day
operational management is primarily exercised in China; decisions relating to the enterprise’s financial and human resource matters are
made or subject to approval by organizations or personnel in China; (ii) the enterprise’s primary assets, accounting books and records,
company seals, and board and shareholders’ meeting minutes are located or maintained in China; and (iii) 50% or more of voting board
members or senior executives of the enterprise habitually reside in China. Although Circular 82 only applies to foreign enterprises that
are majority-owned and controlled by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the
determining criteria set forth in Circular 82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises
are PRC tax residents, regardless of whether they are majority-owned and controlled by PRC enterprises.
Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside
of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination
by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.”
44
If we are treated as a PRC tax resident, dividends distributed by us to our non-PRC shareholders and ADS holders or any gains
realized by non-PRC shareholders and ADS holders from the transfer of our shares or ADSs may be subject to PRC tax.
Under the EIT Law, dividends payable by a PRC enterprise to its foreign investor who is a non-PRC resident enterprise, as well as
gains on transfers of shares of a PRC enterprise by such a foreign investor will generally be subject to a 10% withholding tax, unless
such non-PRC resident enterprise’s jurisdiction of tax residency has an applicable tax treaty with the PRC that provides for an exemption
or a reduced rate of withholding tax.
If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any dividends payable
by us to our non-PRC resident enterprise shareholders or ADS holders, as well as gains realized by such investors from the transfer of
our shares or ADSs may be subject to a 10% withholding tax, unless an exemption or reduced rate is available under an applicable tax
treaty. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual
shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual
shareholders. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of
up to 20% unless a reduced rate is available under an applicable tax treaty. If dividends payable to our non-PRC resident shareholders,
or gains from the transfer of our shares or ADSs by such shareholders are subject to PRC tax, the value of your investment in our shares
or ADSs may decline significantly.
There is uncertainty regarding the PRC withholding tax rate that will be applied to distributions from our PRC subsidiaries and joint
ventures to their respective Hong Kong immediate holding companies, which could have a negative impact on our business.
The EIT Law provides that a withholding tax at the rate of 10% is applicable to dividends payable by a PRC resident enterprise to
investors who are “non-resident enterprises” (i.e., that do not have an establishment or place of business in the PRC or that have such
establishment or place of business but the relevant dividend is not effectively connected with the establishment or place of business).
However, pursuant to Article 10.2(1), or the Article, of the Arrangement between the Mainland of China and the Hong Kong Special
Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or
the Arrangement, withholding tax at a reduced rate of 5% may be applicable to dividends payable by PRC resident enterprises to
beneficial owners of the dividends that are Hong Kong tax residents if certain requirements are met. There is uncertainty regarding
whether the PRC tax authorities will consider us to be eligible to the reduced tax rate. If the Article is deemed not to apply to dividends
payable by our PRC subsidiaries and joint ventures to their respective Hong Kong immediate holding companies that are ultimately
owned by us, the withholding tax rate applicable to us will be the statutory rate of 10% instead of 5% which may potentially impact our
business, financial condition, results of operations and growth prospects.
We may be treated as a resident enterprise for U.K. corporate tax purposes, and our global income may therefore be subject to U.K.
corporation tax.
U.K. resident companies are taxable in the United Kingdom on their worldwide profits. A company incorporated outside of the
United Kingdom would be regarded as a resident if its central management and control resides in the United Kingdom. The place of
central management and control generally means the place where the high-level strategic decisions of a company are made.
We are an investment holding company incorporated in the Cayman Islands and are admitted to trading on the AIM market of the
London Stock Exchange or the AIM market. Our central management and control resides in Hong Kong, and therefore we believe that
we are not a U.K. resident for corporate tax purposes. However, the tax resident status of a non-resident entity could be challenged by
the U.K. tax authorities.
If the U.K. tax authorities determine that we are a U.K. tax resident, our profits will be subject to U.K. Corporation Tax rate at 19%,
subject to the potential availability of certain exemptions related to dividend income and capital gains. This may have a material adverse
effect on our financial condition and results of operations.
45
Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants
or us to fines and other legal or administrative sanctions, which could adversely affect our business, financial condition and results
of operations.
In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, PRC residents who
are granted shares or share options by a company listed on an overseas stock market under its employee share option or share incentive
plan are required to register with the SAFE or its local counterparts by following certain procedures. We and our employees who are
PRC residents and individual beneficial owners who have been granted shares or share options have been subject to these rules due to
our listing on the AIM market, Nasdaq and SEHK. We have registered the option schemes and the share incentive plan and will continue
to assist our employees to register their share options or shares. However, any failure of our PRC individual beneficial owners and
holders of share options or shares to comply with the SAFE registration requirements in the future may subject them to fines and legal
sanctions and may, in rare instances, limit the ability of our PRC subsidiaries to distribute dividends to us.
In addition, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees
working in the PRC who exercise share options, or whose restricted shares vest, will be subject to PRC individual income tax. The PRC
subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with
relevant tax authorities and to withhold individual income tax of those employees related to their share options or restricted shares.
Although the PRC subsidiaries currently withhold individual income tax from the PRC employees in connection with their exercise of
share options, if they fail to report and pay the tax withheld according to relevant laws, rules and regulations, the PRC subsidiaries may
face sanctions imposed by the tax authorities or other PRC government authorities.
We may be involved in litigation, legal disputes, claims or administrative proceedings which could be costly and time-consuming to
resolve.
We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business or pursuant
to governmental or regulatory enforcement activity. Any litigation or proceeding to which we become a party might result in substantial
costs and divert management’s attention and resources. Furthermore, any litigation, legal disputes, claims or administrative proceedings
which are initially not of material importance may escalate and become important to us due to a variety of factors, such as changes in
the facts and circumstances of the cases, the likelihood of loss, the monetary amount at stake and the parties involved. Our insurance
might not cover claims brought against us, provide sufficient payments to financially cover all of the costs to resolve such claims or
continue to be available on terms acceptable to us.
The political relationships between China and other countries may affect our business operations.
We conduct our business primarily through our subsidiaries and joint ventures in China, but we also have significant clinical
operations in the United States and other foreign jurisdictions. As a result, China’s political relationships with the United States and
other jurisdictions may affect our business operations. There can be no assurance that our clinical trial participants or customers will not
alter their perception of us or their preferences as a result of adverse changes to the state of political relationships between China and
the relevant foreign jurisdictions. Any tensions and political concerns between China and the relevant foreign jurisdictions may adversely
affect our business, financial condition, results of operations, cash flows and prospects.
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Risks Relating to Intellectual Property
If we, our joint ventures or our collaboration partners are unable to protect our or their products and drug candidates through
intellectual property rights, our competitors may compete directly against us or them.
Our success depends, in part, on our, our joint venture partners’ and our collaboration partners’ ability to protect our and our joint
ventures’ and our collaboration partners’ products and drug candidates from competition by establishing, maintaining and enforcing our
or their intellectual property rights. We, our joint ventures and our collaboration partners seek to protect the products and technology
that we and they consider commercially important by filing PRC and international patent applications, relying on trade secrets or
pharmaceutical regulatory protection or employing a combination of these methods. As of December 31, 2021, we had 270 issued
patents, including 21 Chinese patents, 24 U.S. patents and 14 European patents, 184 patent applications pending in the above major
market jurisdictions, and 13 pending Patent Cooperation Treaty, or PCT, patent applications relating to the drug candidates of our
Oncology/Immunology operations. For more details, see Item 4.B. “Business Overview—Patents and Other Intellectual Property.”
Patents may become invalid and patent applications may not be granted for a number of reasons, including known or unknown prior art,
deficiencies in the patent application or the lack of originality of the technology. In addition, the PRC and the United States have
adopted the “first-to-file” system under which whoever first files an invention patent application will be awarded the patent. Under the
first-to-file system, third parties may be granted a patent relating to a technology which we invented. Furthermore, the terms of patents
are finite. The patents we hold and patents to be issued from our currently pending patent applications generally have a twenty-year
protection period starting from the date of application.
We, our joint ventures and/or our collaboration partners may become involved in patent litigation against third parties to enforce
our or their patent rights, to invalidate patents held by such third parties, or to defend against such claims. A court may refuse to stop
the other party from using the technology at issue on the grounds that our or our joint ventures’ patents do not cover the third-party
technology in question. Further, such third parties could counterclaim that we or our joint ventures infringe their intellectual property or
that a patent we, our joint ventures or our collaboration partners have asserted against them is invalid or unenforceable. In patent
litigation, defendant counterclaims challenging the validity, enforceability or scope of asserted patents are commonplace. In addition,
third parties may initiate legal proceedings against us or our intellectual property to assert such challenges to our intellectual property
rights.
The outcome of any such proceeding is generally unpredictable. Grounds for a validity challenge could be an alleged failure to meet
any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Patents may be unenforceable if
someone connected with prosecution of the patent withheld relevant information or made a misleading statement during prosecution. It
is possible that prior art of which we, our joint ventures or our collaboration partners and the patent examiner were unaware during
prosecution exists, which could render our or their patents invalid. Moreover, it is also possible that prior art may exist that we, our joint
ventures or our collaboration partners are aware of but do not believe is relevant to our or their current or future patents, but that could
nevertheless be determined to render our patents invalid. The cost to us or our joint ventures of any patent litigation or similar proceeding
could be substantial, and it may consume significant management time. We and our joint ventures do not maintain insurance to cover
intellectual property infringement.
An adverse result in any litigation proceeding could put one or more of our or our joint ventures’ patents at risk of being invalidated
or interpreted narrowly. If a defendant were to prevail on a legal assertion of invalidity or unenforceability of our patents covering one
of our or our joint ventures’ products or our drug candidates, we could lose at least part, and perhaps all, of the patent protection covering
such product or drug candidate. Competing drugs may also be sold in other countries in which our or our joint ventures’ patent coverage
might not exist or be as strong. If we lose a foreign patent lawsuit, alleging our or our joint ventures’ infringement of a competitor’s
patents, we could be prevented from marketing our drugs in one or more foreign countries. Any of these outcomes would have a
materially adverse effect on our business.
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Intellectual property and confidentiality legal regimes in China may not afford protection to the same extent as in the United States
or other countries. Implementation and enforcement of PRC intellectual property laws may be deficient and ineffective. Policing
unauthorized use of proprietary technology is difficult and expensive, and we or our joint ventures may need to resort to litigation to
enforce or defend patents issued to us or them or to determine the enforceability, scope and validity of our proprietary rights or those of
others. The experience and capabilities of PRC courts in handling intellectual property litigation varies, and outcomes are unpredictable.
Further, such litigation may require a significant expenditure of cash and may divert management’s attention from our or our joint
ventures’ operations, which could harm our business, financial condition and results of operations. An adverse determination in any
such litigation could materially impair our or our joint ventures’ intellectual property rights and may harm our business, prospects and
reputation.
Developments in patent law could have a negative impact on our business.
From time to time, authorities in the United States, China and other government authorities may change the standards of
patentability, and any such changes could have a negative impact on our business.
For example, in the United States, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law
in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system
to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed
during the examination process. As a result of these changes, patent law in the United States may favor larger and more established
companies that have greater resources to devote to patent application filing and prosecution. The U.S. Patent and Trademark Office, or
USPTO, has developed regulations and procedures to govern the full implementation of the America Invents Act, and many of the
substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions became effective
on March 16, 2013. Substantive changes to patent law associated with the America Invents Act, including continually developing case
law, may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact
the America Invents Act will have on the cost of prosecuting our or our joint ventures’ patent applications and our or their ability to
obtain patents based on our or our joint ventures’ discoveries and to enforce or defend any patents that may issue from our or their patent
applications, all of which could have a material adverse effect on our business.
If we are unable to maintain the confidentiality of our and our joint ventures’ trade secrets, the business and competitive position of
ourselves and our joint ventures may be harmed.
In addition to the protection afforded by patents and the PRC’s State Secret certification, we and our joint ventures rely upon
unpatented trade secret protection, unpatented know-how and continuing technological innovation to develop and maintain our
competitive position. We seek to protect our and our joint ventures’ proprietary technology and processes, in part, by entering into
confidentiality agreements with our and their collaborators, scientific advisors, employees and consultants, and invention assignment
agreements with our and their consultants and employees. We and our joint ventures may not be able to prevent the unauthorized
disclosure or use of our or their technical know-how or other trade secrets by the parties to these agreements, however, despite the
existence generally of confidentiality agreements and other contractual restrictions. If any of the collaborators, scientific advisors,
employees and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we and our
joint ventures may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Enforcing
a claim that a third-party illegally obtained and is using our or our joint ventures’ trade secrets, like patent litigation, is expensive and
time consuming, and the outcome is unpredictable. In addition, courts in China and other jurisdictions outside the United States are
sometimes less prepared or willing to protect trade secrets.
Our and our joint ventures’ trade secrets could otherwise become known or be independently discovered by our or their competitors.
For example, competitors could purchase our drugs and attempt to replicate some or all of the competitive advantages we derive from
our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own
competitive technologies that fall outside of our intellectual property rights. If any of our or our joint ventures’ trade secrets were to be
lawfully obtained or independently developed by a competitor, we and our joint ventures would have no right to prevent them, or others
to whom they communicate it, from using that technology or information to compete against us or our joint ventures. If our or our joint
ventures’ trade secrets are unable to adequately protect our business against competitors’ drugs, our competitive position could be
adversely affected, as could our business.
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We and our joint ventures are dependent on trademark and other intellectual property rights licensed from others. If we lose our
licenses for any of our products, we or our joint ventures may not be able to continue developing such products or may be required
to change the way we market such products.
We and our joint ventures are parties to licenses that give us or them rights to third-party intellectual property that are necessary or
useful for our or our joint ventures’ businesses. In particular, the “Hutchison,” “Chi-Med”, “Hutchison China MediTech” and
“HUTCHMED” brands, among others, have been licensed to us by Hutchison Whampoa Enterprises Limited, an affiliate of our largest
shareholder, Hutchison Healthcare Holdings Limited. Hutchison Whampoa Enterprises Limited grants us a royalty-free, worldwide
license to such brands. For more details, please see “Item 7. Major Shareholders and Related Party Transactions—Related Party
Transactions—Relationship with CK Hutchison—Intellectual property licensed by the CK Hutchison group.” Under the terms of our
brand license agreement, Hutchison Whampoa Enterprises Limited has the right to terminate the license if, among other things, we
commit a material breach of the agreement, or within any twelve-month period the aggregate direct or indirect shareholding in our
company held by CK Hutchison is reduced to less than 35%, 30% or 20%. Furthermore, the trademarks of Elunate and Orpathys are
licensed to us in China by our collaboration partner Eli Lilly and AstraZeneca, respectively.
In some cases, our licensors have retained the right to prosecute and defend intellectual property rights licensed to us or our joint
ventures. We depend in part on the ability of our licensors to obtain, maintain and enforce intellectual property protection for such
licensed intellectual property. Such licensors may not successfully maintain their intellectual property, may determine not to pursue
litigation against other companies that are infringing on such intellectual property, or may pursue litigation less aggressively than we or
our joint ventures would. Without protection for the intellectual property we or our joint ventures license, other companies might be
able to offer substantially identical products or branding, which could adversely affect our competitive business position and harm our
business prospects.
If our or our joint ventures’ products or drug candidates infringe the intellectual property rights of third parties, we and they may
incur substantial liabilities, and we and they may be unable to sell these products.
Our commercial success depends significantly on our and our joint ventures’ ability to operate without infringing the patents and
other proprietary rights of third parties. In the PRC, invention patent applications are generally maintained in confidence until their
publication 18 months from the filing date. The publication of discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made and invention patent applications are filed. Even after
reasonable investigation, we may not know with certainty whether any third-party may have filed a patent application without our
knowledge while we or our joint ventures are still developing or producing that product. While the success of pending patent applications
and applicability of any of them to our or our joint ventures’ programs are uncertain, if asserted against us or them, we could incur
substantial costs and we or they may have to:
obtain licenses, which may not be available on commercially reasonable terms, if at all;
redesign products or processes to avoid infringement; and
stop producing products using the patents held by others, which could cause us or them to lose the use of one or more of our or
their products.
To date, we and our joint ventures have not received any material claims of infringement by any third parties. If a third-party claims
that we or our joint ventures infringe its proprietary rights, any of the following may occur:
we or our joint ventures may have to defend litigation or administrative proceedings that may be costly whether we or they win
or lose, and which could result in a substantial diversion of management resources;
we or our joint ventures may become liable for substantial damages for past infringement if a court decides that our technology
infringes a third-party’s intellectual property rights;
a court may prohibit us or our joint ventures from producing and selling our or their product(s) without a license from the
holder of the intellectual property rights, which may not be available on commercially acceptable terms, if at all; and
49
we or our joint ventures may have to reformulate product(s) so that it does not infringe the intellectual property rights of others,
which may not be possible or could be very expensive and time consuming.
Any costs incurred in connection with such events or the inability to sell our or our joint ventures’ products may have a material
adverse effect on our business and results of operations.
We, our joint ventures and our collaboration partners may not be able to effectively enforce our intellectual property rights
throughout the world.
Filing, prosecuting and defending patents on our or our joint venture’s products or drug candidates in all countries throughout the
world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing
countries. Moreover, our, our joint ventures’ or our collaboration partners’ ability to protect and enforce our or their intellectual property
rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, the patent laws of some
foreign countries do not afford intellectual property protection to the same extent as the laws of the United States. Many companies have
encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal
systems of some countries, particularly developing countries, may not favor the enforcement of patents and other intellectual property
rights. This could make it difficult for us or our joint ventures to stop the infringement of our or their patents or the misappropriation of
our or their other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent
owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our or our joint
ventures’ inventions throughout the world. Competitors may use our or our joint ventures’ technologies in jurisdictions where we or
they have not obtained patent protection to develop their own drugs and, further, may export otherwise infringing drugs to territories
where we or our joint ventures have patent protection, if our, our joint ventures’ or our collaboration partners’ ability to enforce our or
their patents to stop infringing activities is inadequate. These drugs may compete with our drug candidates, and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing.
Proceedings to enforce our or our joint ventures’ patent rights in foreign jurisdictions, whether or not successful, could result in
substantial costs and divert our or their efforts and resources from other aspects of our and their businesses. While we intend to protect
our intellectual property rights in the major markets for our drug candidates, we cannot ensure that we will be able to initiate or maintain
similar efforts in all jurisdictions in which we may wish to market our drug candidates. Furthermore, as AstraZeneca is responsible for
enforcing our intellectual property rights with respect to savolitinib on our behalf, we may be unable to ensure that such rights are
enforced or maintained in all jurisdictions. Accordingly, our efforts to protect the intellectual property rights of our drug candidates in
such countries may be inadequate.
We and our joint ventures may be subject to damages resulting from claims that we or they, or our or their employees, have wrongfully
used or disclosed alleged trade secrets of competitors or are in breach of non-competition or non-solicitation agreements with
competitors.
We and our joint ventures could in the future be subject to claims that we or they, or our or their employees, have inadvertently or
otherwise used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although we try
to ensure that our and our joint ventures’ employees and consultants do not improperly use the intellectual property, proprietary
information, know-how or trade secrets of others in their work for us or our joint ventures, we or our joint ventures may in the future be
subject to claims that we or they caused an employee to breach the terms of his or her non-competition or non-solicitation agreement,
or that we, our joint ventures, or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other
proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if we and
our joint ventures are successful in defending against these claims, litigation could result in substantial costs and could be a distraction
to management. If our or our joint ventures’ defenses to these claims fail, in addition to requiring us and them to pay monetary damages,
a court could prohibit us or our joint ventures from using technologies or features that are essential to our or their products or our drug
candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information
of the former employers. An inability to incorporate such technologies or features would have a material adverse effect on our business,
and may prevent us from successfully commercializing our drug candidates. In addition, we or our joint ventures may lose valuable
intellectual property rights or personnel as a result of such claims. Moreover, any such litigation or the threat thereof may adversely
affect our or our joint ventures’ ability to hire employees or contract with independent sales representatives. A loss of key personnel or
their work product could hamper or prevent our ability to commercialize our drug candidates, which would have an adverse effect on
our business, results of operations and financial condition.
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Patent terms may be inadequate to protect the competitive position of our drug candidates for an adequate amount of time, and the
absence of patent linkage, patent term extension and data and market exclusivity for NMPA-approved pharmaceutical products
could increase the risk of early generic competition for our drug candidates in China.
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, generally referred to as the Hatch-
Waxman Amendments, and similar legislation in the E.U. and certain other countries, provides the opportunity for limited patent term
extension. The Hatch-Waxman Amendments permit a patent-term extension of up to five years to reflect patent term lost during certain
portions of product development and the FDA regulatory review process. However, a patent term extension cannot extend the remaining
term of a patent beyond a total of 14 years from the date of drug approval; only one patent may be extended and only those claims
covering the approved drug, a method for using it, or a method for manufacturing it may be extended. The application for the extension
must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which
approval is sought can only be extended in connection with one of the approvals. Depending upon the timing, duration and specifics of
any FDA marketing approval process for any drug candidates we may develop, one or more of our U.S. patents may be eligible for
limited patent term extension under the Hatch-Waxman Amendments. However, we may not be granted an extension because of, for
example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable
deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the
applicable period or the scope of patent protection afforded could be less than we request. In addition, to the extent we wish to pursue
patent term extension based on a patent that we in-license from a third party, we would need the cooperation of that third party. If we
fail to obtain patent term extensions or if the term of any such extension is less than we request, our competitors may obtain approval of
competing products following our patent expiration, and thus our revenue could be reduced. Further, if this occurs, our competitors may
take advantage of our investment in development and trials by referencing our clinical and pre-clinical data and launch their product
earlier than might otherwise be expected, and our competitive position, business, financial condition, results of operations and prospects
could be materially adversely affected.
The Hatch-Waxman Amendments also include a process for patent linkage, pursuant to which the FDA will stay approval of certain
follow-on applications during the pendency of litigation between the follow-on applicant and the patent holder or licensee, generally for
a period of 30 months. Moreover, the Hatch-Waxman Amendments provide for statutory exclusivities that can prevent submission or
approval of certain follow-on marketing applications. For example, federal law provides a five-year period of exclusivity within the
United States to the first applicant to obtain approval of a new chemical entity and three years of exclusivity protecting certain
innovations to previously approved active ingredients where the applicant was required to conduct new clinical investigations to obtain
approval for the modification. Similarly, the U.S. Orphan Drug Act provides seven years of market exclusivity for certain drugs to treat
rare diseases, where the FDA designates the drug candidate as an orphan drug and the drug is approved for the designated orphan
indication. See “Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—Although we
have obtained orphan drug designation for surufatinib for the treatment of pancreatic NETs in the United States, we may not be able to
obtain or maintain the benefits associated with orphan drug status, including market exclusivity.”
Chinese regulators have set forth a framework for integrating patent linkage and data exclusivity into the China regulatory regime,
as well as for establishing a pilot program for patent term extension. To be implemented, this framework will require adoption of
regulations. On October 17, 2020, the Standing Committee of the National People’s Congress published the Patent Law of PRC
(Amended in 2020), which came into effect on June 1, 2021, or the Amended Patent Law. The Amended Patent Law provides that,
among other things, the owner of the patent for an innovative new drug that has been granted the marketing authorization in China is
entitled to request the Patent Administration Department under the State Council to grant a patent term extension of up to five years, in
order to compensate the time required for the regulatory approval for the commercialization of such innovative new drug, provided that
the patent term of such innovative new drug shall not exceed a total of 14 years. Furthermore, the PRC government entered into the
Economic and Trade Agreement Between the Government of the People’s Republic of China and the Government of the United States
of America with the U.S. government in January 2020 which provides that the owner of the patent for an innovative new drug that has
been granted the marketing authorization in China is entitled to request a patent term extension of up to five years, provided that the
patent term of such innovative new drug shall not exceed a total of 14 years from the date of marketing approval in China. If we are
unable to obtain patent term extension, or the term of any such extension is less than that we request, our competitors or other third
parties may obtain approval of competing products following our patent expiration. Any of the foregoing could have a material adverse
effect on our competitive position, business, financial condition, results of operations and prospects.
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Risks Relating to Our ADSs
The Public Company Accounting Oversight Board, or the PCAOB, is currently unable to inspect our auditor in relation to their
audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives
our investors with the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report,
as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting
Oversight Board, or the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to
assess its compliance with the applicable professional standards. Since our auditor is located in China, a jurisdiction where the PCAOB
has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the
PCAOB.
This lack of the PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of
our independent registered public accounting firm. As a result, we and investors in our ordinary shares are deprived of the benefits of
such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate
the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to
auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our stock to
lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
Our ADSs may be delisted and our ADSs and shares prohibited from trading in the over-the-counter market under the Holding
Foreign Companies Accountable Act, or the HFCAA, if the PCAOB is unable to inspect or fully investigate auditors located in
China. On December 16, 2021, PCAOB issued the HFCAA Determination Report, according to which our auditor is subject to the
determinations that the PCAOB is unable to inspect or investigate completely. Under the current law, delisting and prohibition from
over-the-counter trading in the U.S. could take place in 2024. If this happens there is no certainty that we will be able to list our ADS
or shares on a non-U.S. exchange or that a market for our shares will develop outside of the U.S. The delisting of our ADSs, or the
threat of their being delisted, may materially and adversely affect the value of your investment.
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national
law, in particular China’s, the Holding Foreign Companies Accountable Act, or the HFCAA has been signed into law on December 18,
2020. The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has
not been subject to inspection for the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADS
from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. Accordingly, under the current
law this could happen in 2024.
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On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA (the “Final Amendments”). The
Final Amendments include requirements to disclose information, including the auditor name and location, the percentage of shares of
the issuer owned by governmental entities, whether governmental entities in the applicable foreign jurisdiction with respect to the auditor
has a controlling financial interest with respect to the issuer, the name of each official of the Chinese Communist Party who is a member
of the board of the issuer, and whether the articles of incorporation of the issuer contains any charter of the Chinese Communist Party.
The Final Amendments also establish procedures the SEC will follow in identifying issuers and prohibiting trading by certain issuers
under the HFCAA.
On December 16, 2021, PCAOB issued the HFCAA Determination Report, according to which our auditor is subject to the
determinations that the PCAOB is unable to inspect or investigate completely.
The HFCAA or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected
issuers, including us, and the market price of the ADSs could be adversely affected. Additionally, whether the PCAOB will be able to
conduct inspections of our auditor before the issuance of our financial statements on Form 20-F for the year ending December 31, 2023
which is due by April 30, 2024, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If
we are unable to meet the PCAOB inspection requirement in time, we could be delisted from the Nasdaq Stock Market and our ADSs
will not be permitted for trading “over-the-counter” either. Such a delisting would substantially impair your ability to sell or purchase
our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of
our ADSs. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would
have a material adverse impact on our business, financial condition, and prospects.
The potential enactment of the Accelerating Holding Foreign Companies Accountable Act would decrease the number of non-
inspection years from three years to two, thus reducing the time period before our ADSs may be prohibited from over-the-counter
trading or delisted. If this bill were enacted, our ADS could be delisted from the exchange and prohibited from over-the-counter
trading in the United States. in 2023.
On June 22, 2021, the U.S. Senate passed a bill known as the Accelerating Holding Foreign Companies Accountable Act, or the
HFCAA, to amend Section 104(i) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)) to prohibit securities of any registrant from
being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is
not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as currently enacted in the HFCAA.
On February 4, 2022, the U.S. House of Representatives passed the America Competes Act of 2022 which includes the exact same
amendments as the bill passed by the Senate. The America Competes Act however includes a broader range of legislation not related to
the HFCAA in response to the U.S. Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives
and U.S. Senate will need to agree on amendments to these respective bills to align the legislation and pass their amended bills before
the president of the United States can sign into law. It is unclear when the U.S. Senate and U.S. House of Representatives will resolve
the differences in the U.S. Innovation and Competition Act and the America Competes Act of 2022 bills currently passed, or when the
U.S. President will sign on the bill to make the amendment into law, or at all.
In the case that the bill becomes the law, it will reduce the time period before our ADSs could be delisted from the exchange and
prohibited from over-the-counter trading in the U.S. from 2024 to 2023.
The listings of our shares in multiple venues may adversely affect the liquidity and value of them.
Our ADSs continue to be listed on Nasdaq, and our shares continue to be admitted to trading on the AIM. Our shares were listed
on the SEHK in June 2021. The listing of the shares on the AIM and the SEHK, and the ADSs on Nasdaq, may reduce the liquidity of
these securities in one or each of these markets and may adversely affect the development of an active trading market for the shares in
each of these markets. The price of the shares could also be adversely affected by trading on Nasdaq. Similarly, the price of the ADSs
could also be adversely affected by trading on the AIM and the SEHK. We may also seek further listings on other stock exchanges such
as the Shanghai Stock Exchange, which could further affect the liquidity and value of the shares and the ADSs. Furthermore, the shares
trade on the SEHK largely in electronic book-entry form. However, the ADSs are backed by physical ordinary share certificates, and
the depositary for our ADS program is unable to accept book-entry interests into its custody in order to issue ADSs. As a result, if a
holder of the shares wishes to deposit the shares into the ADS program and hold ADSs for trading on Nasdaq or vice versa, the issuance
and cancellation process may be longer than if the depositary could accept such book-entry interests.
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Our largest shareholder owns a significant percentage of our ordinary shares, which may limit the ability of other shareholders to
influence corporate matters.
As of March 1, 2022, Hutchison Healthcare Holdings Limited owned approximately 38.46% of our ordinary shares. Accordingly,
Hutchison Healthcare Holdings Limited can influence the outcome of any corporate transaction or other matter submitted to shareholders
for approval and the interests of Hutchison Healthcare Holdings Limited may differ from the interests of our other shareholders. Under
our Articles of Association, certain matters, such as amendments to our amended and restated Memorandum and Articles of Association,
require the approval of not less than three-fourths of votes cast by such shareholders as, being entitled so to do, vote in person (or, in the
case of such shareholders as are corporations, by their respective duly authorized representative) or by proxy. Therefore, Hutchison
Healthcare Holdings Limited’s approval will be required to achieve any such threshold. In addition, Hutchison Healthcare Holdings
Limited has and will continue to have a significant influence over the management and the strategic direction of our company.
Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity or equity-linked securities in the
public market could cause the price of our ADSs to decline significantly.
Sales of our ADSs, ordinary shares or other equity or equity-linked securities in the public market, or the perception that these sales
could occur, could cause the market price of our ADSs to decline significantly. All of our ordinary shares represented by ADSs are
freely transferable by persons other than our affiliates without restriction or additional registration under the Securities Act of 1933, or
the Securities Act. The ordinary shares held by our affiliates are also available for sale, subject to volume and other restrictions as
applicable under Rules 144 and 701 under the Securities Act, under sales plans adopted pursuant to Rule 10b5-1 or otherwise.
We have filed with the SEC registration statements on Form F-3, commonly referred to as a “shelf registration,” that permit us to
sell any number of ADSs in a registered offering at our discretion. We have completed registered offerings raising aggregate gross
proceeds of approximately $537.9 million under such shelf registration statements. Furthermore, our largest shareholder has completed
registered secondary offerings raising aggregate gross proceeds of approximately $310.4 million for it as a selling shareholder under a
shelf registration statement. In addition, we completed our initial public offering in Hong Kong and global offering of our ordinary
shares in 2021, raising aggregate gross proceeds of approximately $614.9 million, including $80.2 million through the fulfillment of the
over-allotment. We may decide to conduct future offerings from time to time, and such sales could cause the price of our ADSs to
decline significantly.
In connection with the issuance of ordinary shares in private placements in 2020 and 2021, we agreed to provide three shareholders
Form F-3 registration rights. Registration of the ordinary shares held by such shareholders may result in these shares becoming freely
tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these shares, or the
perception that such sales could occur, could cause the price of our ADSs to decline. In addition, any changes in the investment strategies
or philosophies of our major shareholders may lead to the sale of our ADSs and other securities, which could cause the price of our
ADSs to decline.
We may be at a risk of securities litigation.
Historically, securities litigation, particularly class action lawsuits brought in the United States, have often been brought against a
company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and
biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in
substantial costs and a diversion of management’s attention and resources, which could harm our business.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our business,
the price of our ADSs could decline.
The trading market for our ADSs will rely in part on the research and reports that industry or financial analysts publish about us or
our business. We may not be able to maintain continuous research coverage by industry or financial analysts. If one or more of the
analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these
analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
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As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S.
issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of
the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. For
example, we are not subject to the proxy rules in the United States, and disclosure with respect to our annual general meetings will be
governed by the AIM Rules for Companies, or the AIM Rules, listing rules in Hong Kong and Cayman Islands requirements. In addition,
our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of
Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers,
directors and principal shareholders purchase or sell our ordinary shares or ADSs.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters
that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to
shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing rules that allow us to
follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ
significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law
has no corporate governance regime which prescribes specific corporate governance standards. We intend to continue to follow Cayman
Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Global Select Market in respect
of the following: (i) the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules, (ii) the
requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of independent directors
governed by a remuneration committee charter oversee executive compensation and (iii) the requirement under Section 5605(e) of the
Nasdaq listing rules that director nominees be selected or recommended for selection by either a majority of the independent directors
or a nominations committee comprised solely of independent directors. Cayman Islands law does not impose a requirement that our
board of directors consist of a majority of independent directors, nor does Cayman Islands law impose specific requirements on the
establishment of a remuneration committee or nominating committee or nominating process. Therefore, our shareholders may be
afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic
issuers. We have voluntarily complied with the Corporate Governance Code contained in Appendix 14 of the Rules Governing the
Listing of Securities on SEHK. See Item 6.C. “Board Practice—Hong Kong Corporate Governance Code” for more details.
We may in the future lose our foreign private issuer status under U.S. securities laws, which could result in significant additional
costs and expenses.
We are a foreign private issuer as defined in the Securities Act, and therefore, we are not required to comply with all of the periodic
disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually
on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be
made with respect to us on June 30, 2022. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary
shares are directly or indirectly held by residents of the United States on June 30, 2022 and we fail to meet additional requirements
necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file
with the SEC periodic reports and registration statements on U.S. domestic issuer forms beginning on January 1, 2023, which are more
detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal
proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and
recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain
corporate governance requirements under the Nasdaq listing rules. As a U.S.-listed public company, should we lose our foreign private
issuer status, we will incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
Fluctuations in the value of the renminbi may have a material adverse effect on your investment.
The value of the renminbi against the U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in
China’s and international political and economic conditions and the PRC government’s fiscal and currency policies. Since 1994, the
conversion of renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC, which are set daily
based on the previous business day’s inter-bank foreign exchange market rates and current exchange rates on the world financial markets.
It is expected that China may further reform its exchange rate system in the future.
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Significant revaluation of the renminbi may have a material adverse effect on your investment. For example, to the extent that we
need to convert U.S. dollars into renminbi for our operations, appreciation of the renminbi against the U.S. dollar would have an adverse
effect on the renminbi amount we would receive from the conversion. Conversely, if we decide to convert our renminbi into U.S. dollars,
appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amount available to us. Appreciation
or depreciation in the value of the renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms
regardless of any underlying change in our business or results of operations. In addition, our operating transactions and assets and
liabilities in the PRC are mainly denominated in renminbi. Such amounts are translated into U.S. dollars for purpose of preparing our
consolidated financial statements, with translation adjustments reflected in accumulated other comprehensive income/(loss) in
shareholders’ equity. We recorded a foreign currency translation loss of $4.3 million, a foreign currency translation gain of $9.5 million
and a foreign currency translation gain of $3.0 million for the years ended December 31, 2019, 2020 and 2021, respectively.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not
entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to
enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able
to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert renminbi into foreign currency.
We do not currently intend to pay dividends on our securities, and, consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of the ADSs.
We have never declared or paid any dividends on our ordinary shares. We currently intend to invest our future earnings, if any, to
fund our growth. Therefore, you are not likely to receive any dividends on your ADSs at least in the near term, and the success of an
investment in ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their
holdings of ADSs after price appreciation, which may never occur, to realize any future gains on their investment. There is no guarantee
that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs.
The trading prices for our ADSs may be volatile which could result in substantial losses to you.
The market price of our ADSs has been volatile. From March 17, 2016 to March 1, 2022, the closing sale price of our ADSs ranged
from a high of $43.94 to a low of $11.26 per ADS.
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the
following:
announcements of competitive developments;
regulatory developments affecting us, our customers or our competitors;
announcements regarding litigation or administrative proceedings involving us;
actual or anticipated fluctuations in our period-to-period operating results;
changes in financial estimates by securities research analysts;
additions or departures of our executive officers;
release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and
sales or perceived sales of additional ordinary shares or ADSs.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. Prolonged global capital markets volatility may affect overall investor sentiment
towards our ADSs, which would also negatively affect the trading prices for our ADSs.
56
The triple listing of our ordinary shares and the ADSs may adversely affect the liquidity and value of the ADSs.
Our ordinary shares are listed on the AIM market and on the SEHK. The triple listing of our ordinary shares and the ADSs may
dilute the liquidity of these securities in one or more of these markets and may adversely affect the development of an active trading
market for the ADSs in the United States or shares in Hong Kong and the United Kingdom. The price of the ADSs could also be
adversely affected by trading in our ordinary shares on the AIM market and the SEHK.
Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling may increase the risk of holding
the ADSs.
Our share price is quoted on the SEHK and AIM market in Hong Kong dollar and pence sterling, respectively, while the ADSs
trade on Nasdaq in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar, Hong Kong dollar and the pound sterling
may result in temporary differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy
trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S.
dollar, Hong Kong dollar and the pound sterling, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive
upon the sale in Hong Kong of any ordinary shares or in the United Kingdom of any ordinary shares withdrawn from the depositary and
the dollar equivalent of any cash dividends paid in Hong Kong dollar or pound sterling on our shares represented by the ADSs could
also decline.
Securities traded on the AIM market or on the SEHK may carry or be perceived to carry a higher risk than shares traded on other
exchanges and may impact the value of your investment.
Our ordinary shares are currently traded on the AIM market and on the SEHK. Investment in equities traded on AIM and the SEHK
may be perceived by some to carry a higher risk than an investment in equities quoted on exchanges, such as the New York Stock
Exchange or the Nasdaq. You should be aware that the value of our ordinary shares may be influenced by many factors, some of which
may be specific to us and some of which may affect AIM-listed or Hong Kong-listed companies generally, including the depth and
liquidity of the market, our performance, a large or small volume of trading in our ordinary shares, legislative changes and general
economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the
market price of our ordinary shares underlying the ADSs may not reflect the underlying value of our company.
The depositary for our ADSs gives us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at
shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.
Under the deposit agreement for the ADSs, the depositary gives us a discretionary proxy to vote our ordinary shares underlying
your ADSs at shareholders’ meetings if you do not vote, unless:
we do not wish a discretionary proxy to be given;
we are aware or should reasonably be aware that there is substantial opposition as to a matter to be voted on at the meeting; or
a matter to be voted on at the meeting would materially and adversely affect the rights of shareholders.
The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent
the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders
of our ordinary shares are not subject to this discretionary proxy.
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Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
Holders of our ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the
underlying ordinary shares in accordance with the provisions of the deposit agreement. Under our amended and restated Memorandum
and Articles of Association, an annual general meeting shall be called by notice with not less than 21 clear days, and all other general
meetings (including an extraordinary general meeting) shall be called by notice with not less than 14 clear days. When a general meeting
is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the ordinary shares underlying
your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, we will give the depositary notice
of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date and the depositary
will send a notice to you about the upcoming vote and will arrange to deliver our voting materials to you. The depositary and its agents,
however, may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all
reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will
receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs.
Furthermore, the depositary will not be liable for any failure to carry out any instructions to vote, for the manner in which any vote is
cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your
ADSs are not voted as you request. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting.
You may not receive distributions on our ADSs or any value for them if such distribution is illegal or if any required government
approval cannot be obtained in order to make such distribution available to you.
Although we do not have any present plan to pay any dividends, the depositary of our ADSs has agreed to pay to you the cash
dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after
deducting its fees and expenses and any applicable taxes and governmental charges. You will receive these distributions in proportion
to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder
of ADSs if it consists of securities whose offering would require registration under the Securities Act but is not so properly registered
or distributed under an applicable exemption from registration. The depositary may also determine that it is not reasonably practicable
to distribute certain property. In these cases, the depositary may determine not to distribute such property. We have no obligation to
register under the U.S. securities laws any offering of ADSs, ordinary shares, rights or other securities received through such
distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything
else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it
is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make
rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities
Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not
make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the
distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared
effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. If the depositary does not
distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be
unable to participate in our rights offerings and may experience dilution in your holdings.
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If we are classified as a passive foreign investment company, U.S. investors could be subject to adverse U.S. federal income tax
consequences.
The rules governing passive foreign investment companies, or PFICs, can have adverse effects for U.S. investors for U.S. federal
income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative values of certain categories of
assets and the relative amounts of certain kinds of income. As discussed in “Taxation—Material U.S. Federal Income Tax
Considerations,” we do not believe that we are currently a PFIC. Notwithstanding the foregoing, the determination of whether we are a
PFIC depends on particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets)
and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. The fair market value of
our assets is expected to depend, in part, upon (1) the market price of our ordinary shares and ADSs and (2) the composition of our
income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing transaction. In
light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC in any future
taxable year. Furthermore, if we are treated as a PFIC, then one or more of our subsidiaries may also be treated as PFICs.
If we are or become a PFIC, and, if so, if one or more of our subsidiaries are treated as PFICs, U.S. holders of our ordinary shares
and ADSs would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferential tax rates on capital
gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under
U.S. federal income tax laws and regulations. Whether U.S. holders of our ordinary shares or ADSs make (or are eligible to make) a
timely qualified electing fund, or QEF, election or a mark-to-market election may affect the U.S. federal income tax consequences to
U.S. holders with respect to the acquisition, ownership and disposition of our ordinary shares and ADSs and any distributions such U.S.
holders may receive. We do not, however, expect to provide the information regarding our income that would be necessary in order for
a U.S. holder to make a QEF election if we are classified as a PFIC. Investors should consult their own tax advisors regarding all aspects
of the application of the PFIC rules to our ordinary shares and ADSs.
You may have difficulty enforcing judgments obtained against us.
We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the
United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are
nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside
the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may
also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S.
federal securities laws against us and our officers and directors, all of whom are not residents in the United States and whose assets are
located outside the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would
recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities
laws of the United States or any state.
You may be subject to limitations on transfers of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or
from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to
deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we
or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under
any provision of the deposit agreement, or for any other reason.
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It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of
law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for
regulatory investigations or litigation initiated outside China. Although the authorities in China may establish a regulatory cooperation
mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and
administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of
mutual and practical cooperation mechanisms. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which
became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection
activities within the territory of the PRC. While detailed interpretations of or implementation rules under Article 177 have yet to be
promulgated, the inability for an overseas securities regulator to directly conduct investigations or evidence collection activities within
China may further increase difficulties you may face in protecting your interests.
We are a Cayman Islands company. As judicial precedent regarding the rights of shareholders under Cayman Islands law is different
from U.S. law, English law or Hong Kong law, shareholders may have different shareholder rights than they would have under U.S.
law, English law or Hong Kong law and may face difficulties in protecting your interests.
We are an exempted company with limited liability incorporated in the Cayman Islands. Our corporate affairs are governed by our
Articles of Association (as may be further amended from time to time), the Companies Act (as amended) of the Cayman Islands and the
common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders
and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. This common
law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which
has persuasive, but not binding, authority on a court in the Cayman Islands. The laws of the Cayman Islands relating to the protection
of the interests of minority shareholders differ in some aspects from those in the United States, the United Kingdom and Hong Kong.
Such differences mean that the remedies available to our minority shareholders may be different from those they would have under the
laws of United States, the United Kingdom, Hong Kong or other jurisdictions. In addition, some states in the United States, such as
Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
In addition, as a Cayman Islands exempted company, our shareholders have no general rights under Cayman Islands law to inspect
corporate records and accounts or to obtain copies of lists of shareholders of these companies with the exception that the shareholders
may request a copy of the Articles of Association. Our directors have discretion under our Articles of Association to determine whether
or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them
available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary
for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest. As a Cayman Islands company,
we may not have standing to initiate a derivative action in U.S. federal courts, English courts or Hong Kong courts. As a result, you
may be limited in your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in U.S.
federal courts, English courts or Hong Kong courts. In addition, shareholders of Cayman Islands companies may not have standing to
initiate a shareholder derivative action in U.S. federal courts, English courts or Hong Kong courts.
Most of our directors and executive officers reside outside of the United States and a substantial portion of their assets are located
outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals
in the United States in the event that you believe that your rights have been infringed under the securities laws of the United States or
otherwise. In addition, some of our operating subsidiaries are incorporated in China. To the extent our directors and executive officers
reside in China or their assets are located in China, it may not be possible for investors to effect service of process upon us or our
management inside China. Even if you are successful in bringing an action, the laws of the Cayman Islands and China may render you
unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman
Islands of judgments obtained in the United States, Hong Kong or China, although the courts of the Cayman Islands will generally
recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits subject to certain
conditions.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken
by management, members of the board of directors or controlling shareholders than they would as public shareholders of an English
company, a U.S. company or a Hong Kong company.
60
We cannot assure you that our ordinary shares will remain listed on the AIM or the SEHK or our ADSs will remain listed on Nasdaq.
Although it is currently intended that our ordinary shares and ADSs will remain listed on the AIM, the SEHK and Nasdaq, as
applicable, there is no guarantee of the continued listing of our securities on any of these exchanges. We may decide at some point in
the future to delist voluntarily (subject to the applicable regulatory requirements) from one or more of these exchanges, or we may be
delisted involuntarily if, among other factors, we do not continue to satisfy the listing requirements of the applicable exchange or comply
with applicable law. For example, we could be delisted from the Nasdaq if the PCAOB continues to be unable to inspect our independent
registered public accounting firm for three consecutive years. The AIM Rules for companies provide that a voluntary cancellation of
admission to AIM is conditional upon the consent of not less than 75% of votes cast by its shareholders at a general meeting unless the
London Stock Exchange otherwise agrees. Circumstances where the London Stock Exchange might otherwise agree that shareholder
consent at a general meeting is not required would include the situation where the AIM securities are already admitted to trading on an
“AIM Designated Market” (which includes Nasdaq) to enable shareholders to trade their AIM securities in the future. The SEHK rules
allow an issuer whose primary listing is on SEHK and which has an alternative listing on another stock exchange to withdraw its listing
with the prior approval of shareholders by ordinary resolution obtained at a duly convened meeting of the shareholders and the
satisfaction of other requirements. SEHK may also cancel the listing of any securities that have been suspended from trading for a
continuous period of 18 months. We cannot predict the effect a delisting of our shares on the SEHK or AIM market or our ADSs on
Nasdaq would have on the market price of our shares and/or ADSs. We may also seek further listings on other stock exchanges such as
the Shanghai Stock Exchange. However, there is no assurance that we would proceed with a listing and if we do proceed, that a listing
would materialize.
The characteristics of the Hong Kong, U.S. and U.K. capital markets are different.
The SEHK, Nasdaq and the AIM have different trading hours, trading characteristics (including trading volume and liquidity),
trading and listing rules, market regulations, and investor bases (including different levels of retail and institutional participation). As a
result of these differences, the trading prices of the shares and the ADSs might not be the same, even allowing for currency differences.
Circumstances peculiar to the U.S. capital markets could materially and adversely affect the price of the shares. Because of the different
characteristics of the Hong Kong, U.S. and U.K. equity markets, the historical market prices of our securities may not be indicative of
the performance of the shares.
We are subject to Hong Kong, Nasdaq and AIM listing and regulatory requirements concurrently.
As we are listed on the SEHK, the Nasdaq and the AIM, we are required to comply with the listing rules (where applicable) and
other regulatory regimes of each stock exchange, unless otherwise agreed by the relevant regulators. We may also seek further listings
on other stock exchanges such as the Shanghai Stock Exchange. Accordingly, we may incur additional costs and resources in complying
with the requirements of each stock exchange.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company.
HUTCHMED (China) Limited (formerly Hutchison China MediTech Limited) was incorporated in the Cayman Islands on
December 18, 2000 as an exempted company with limited liability under the Companies Act, Cap 22 (Act 3 of 1961, as consolidated
and revised) of the Cayman Islands. Our company was founded by a wholly owned subsidiary of CK Hutchison, a multinational
conglomerate with operations in over 50 countries. CK Hutchison is the ultimate parent company of our largest shareholder Hutchison
Healthcare Holdings Limited.
We launched our novel drug research and development operations in 2002 with the establishment of our subsidiary HUTCHMED
Limited, which is focused on discovering, developing and marketing drugs for the treatment of cancer and immunological diseases.
Twelve of our in-house discovered drug candidates have entered clinical trials around the world and three have so far been approved for
sale. Since 2001, we have also developed drug marketing and distribution platforms in China, which primarily focus on prescription
drug and consumer health products through several joint ventures and subsidiary companies and are included in our Other Ventures.
We listed our ordinary shares on the AIM market in 2006, ADSs on the Nasdaq Global Select Market in 2016 and our ordinary
shares on the SEHK in 2021.
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On March 4, 2021 we announced the consolidation of the two corporate identities that we have used since our inception. Hutchison
China MediTech, or Chi-Med, has been used as our group identity, while Hutchison MediPharma has been the identity of our novel
drug research and development operations under which our oncology products have been developed and are now being marketed. The
brand HUTCHMED immediately replaced Chi-Med as our abbreviated name, and we changed our group company name at our Annual
General Meeting in April 2021 from Hutchison China MediTech Limited to HUTCHMED (China) Limited.
On April 14, 2021, we completed the sale of $100 million of ordinary shares at a price of $6.10 per share via a private placement
to Pachytene Limited, an investment holding company wholly owned by Baring Asia Private Equity Fund VII.
In June 2021, we sold a total of 104,000,000 ordinary shares in our initial public offering on the SEHK, raising gross proceeds of
approximately $534.7 million. In July 2021, the over-allotment option of our initial public offering on the SEHK was fully exercised,
and we sold a total of 15,600,000 ordinary shares, raising gross proceeds of approximately $80.2 million.
On September 28, 2021, we disposed of our entire investment in Hutchison Baiyunshan, our non-core and non-consolidated over-
the-counter drug joint venture business, to GL Mountrose Investment Two Limited, a company controlled and managed by GL Capital
Group. GL Capital Group is an investment firm that focuses on buyout and growth opportunities in China’s healthcare industry. As our
focus is the discovery and development of novel therapies in oncology and immunology, the sale of our interest in Hutchison Baiyunshan
allows us to focus resources on our primary aim of accelerating investment in our Oncology/Immunology assets. We are also considering
divesting other non-core businesses in our Other Ventures segment, including Shanghai Hutchison Pharmaceuticals.
Our principal executive offices are located at 48th Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong. Our telephone
number at that address is +852 2121 8200. The address of our registered office in the Cayman Islands is P.O. Box 309, Ugland House,
Grand Cayman, KY1-1104, Cayman Islands.
See Item 5.B. “Liquidity and Capital Resources” for details on our capital expenditures for the years ended December 31, 2019,
2020 and 2021.
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with
the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information
regarding registrants that make electronic filings with the SEC using its EDGAR system. We also make available on our website’s
investor relations page, free of charge, our annual report and the text of our reports on Form 6-K, including any amendments to these
reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the
SEC. The address for our investor relations page is www.hutch-med.com/shareholder-information. The information contained on our
website is not incorporated by reference in this annual report.
B. Business Overview.
Overview
We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of
targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. Our company started in
China in 2000 and has since developed fully integrated capabilities and expanded oncology and immunology drug development
operations globally. Our operational achievements and capabilities to date include:
Broad pipeline of differentiated targeted therapies and immunotherapies built for the global market. We have a pipeline of
differentiated drug candidates covering both novel and validated targets, including MET, VEGFR, FGFR, CSF-1R, PI3Kδ, Syk, EZH2,
IDH, ERK, BTK, and EGFR. The aim of our research is to develop drugs with high selectivity and superior safety profiles, a key benefit
of which is that our drug candidates have the potential to be effectively paired with other oncology and immunology therapies at effective
dosages with fewer side effects.
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Commercially launching products while continuing to discover new assets. In China, we have launched three of our internally
developed drugs, Elunate (fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib), to patients. All three drugs are in late-stage
development outside of China, with the most advanced being surufatinib for which an NDA submission to the United States FDA is
under review. Our marketing authorization application for surufatinib for the treatment of NETs to the European Medicines Agency, or
EMA, is also under review. In addition, we have ten additional drug candidates that have entered earlier stages of clinical development
(Phase I/Ib and Phase Ib/II proof of concept studies) and one advanced pre-clinical drug candidate.
Comprehensive global in-house discovery and development capabilities. We have a comprehensive drug discovery and
development operation covering chemistry, biology, pharmacology, toxicology, chemistry and manufacturing controls for clinical and
commercial supply, clinical and regulatory and other functions. It is led by a team of approximately 820 scientists, who have created
one of the broadest global clinical pipelines among our peer oncology and immunology focused biotechnology companies. Currently,
we are conducting and planning over 40 different clinical studies in oncology patients globally, including over a dozen Phase III
registration and Phase II registration-intent studies underway.
Fast expanding and productive international organization. Our U.S. and European teams of approximately 130 mainly consisting
of clinical, regulatory and commercial staff significantly broadened our international operations, particularly in the United States,
Europe, Japan and Australia. This team has established a productive track record since it was established in 2018, including the
submission and acceptance of a rolling U.S. NDA filing for surufatinib, initiation and full enrollment of a large global randomized
controlled study for fruquintinib, and ongoing U.S. and European Phase I and II trials for our drug candidates sovleplenib, amdizalisib,
HMPL-306 and HMPL-760. The FDA granted surufatinib two fast track designations as well as an orphan drug designation for NETs.
Fruquintinib has also received FDA fast track designation, for late stage colorectal cancer (CRC). Furthermore, we are now building a
commercial team in the United States, having recruited a team of over 30 personnel, to support the potential upcoming launch of
surufatinib in the United States.
Long-standing drug marketing and distribution experience to support the realization of in-house oncology innovations in China.
We have built large-scale and profitable drug marketing and distribution capabilities through our Other Ventures operations, which
primarily manufacture, market and distribute prescription drugs in China. Our 20-year track record and deep institutional knowledge of
the drug marketing and distribution process are being leveraged to bring our in-house oncology innovations to patients. We have built
and continue to expand our in-house oncology drug sales team of about 630 persons to support the commercialization of Elunate, Sulanda
and our other innovative drugs, if approved, throughout China. Our oncology drug sales team covers over 2,500 oncology hospitals and
over 29,000 oncology physicians in China, a network that we estimate represents over 90% of oncology drug sales in China.
Our Strategies
Our vision is to be a global leader in the discovery, development and commercialization of targeted therapies and immunotherapies
for the treatment of patients with cancer and immunological diseases. Key elements of our strategy are to:
Realize the global potential of our oncology drug candidates
Our first wave of innovation, surufatinib (unpartnered), fruquintinib (partnered in China with Eli Lilly) and savolitinib (partnered
globally with AstraZeneca), are either commercialized, under review for marketing authorization or in registrational studies in multiple
jurisdictions. In tandem with our ongoing progression of such drugs, we will continue to invest in the future with our deep pipeline of
unpartnered next wave of oncology assets for which we own all rights globally and have significant flexibility in driving their
development. We intend to accelerate our global drug development by leveraging our advanced clinical trial data from China and
selectively conduct clinical trials concurrently in China and other jurisdictions so that the programs progress in parallel globally. To
broaden and scale our international operations and support the increasing clinical activities in the United States and Europe, we plan to
continue significantly expanding our clinical teams in those geographies.
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Continue designing and creating molecules to develop into medicines with specific and differentiated characteristics for the
benefit of patients
We believe our world-class drug discovery engine is our key competitive advantage. We strive to create differentiated novel
oncology and immunology treatments with global potential. Our drug discovery team has utilized our expertise in advanced medicinal
chemistry to develop next-generation TKI that have both high selectivity and superior pharmacokinetic properties. Equally importantly,
we will continue to design chemical and biologic drug candidates with profiles that allow them to be used in innovative combinations
with other selective inhibitors, chemotherapy agents and immunotherapies. Such combination therapies enable treatment of cancer via
multiple pathways and modalities simultaneously, which has the potential to significantly improve treatment outcomes.
We plan to continue to build out our global pipeline of self-discovered drug candidates by advancing a rich pipeline of early-stage
drug candidates, which include small molecule drugs targeting new pathways such as MAPK and biologics addressing novel targets
designed for use in combination with our small molecules, as well as potentially a broad range of third-party therapies.
Build and scale our marketing and commercialization capabilities globally
We plan to leverage our long-standing drug marketing and distribution know-how and infrastructure to support our innovative
oncology product launches, focusing in particular on the Chinese and U.S. markets. We have a 20-year track record of marketing and
selling products in China. We aim to grow our in-house oncology drug sales team in China of about 630 persons to about 700 persons
by the end of 2023. Outside of China, we intend to commercialize our products, if approved, in the United States where we have already
begun to build our own sales team. In Europe, Japan and other major markets, we will look to form collaborations with leading
biopharmaceutical companies and/or contract sales organizations to fully realize the value of our assets. We will also continue to scale
our manufacturing capacity to support the sales of our approved drugs, including through the expansion of our existing Suzhou facility
production team and the ongoing construction of our new plant in Shanghai, which will provide a five-fold increase in our existing
production capacity.
Identify global business development and strategic acquisition opportunities to complement our internal research and
development activities
We plan to explore opportunities to access complementary drug candidates and/or acquire interests in other biopharmaceutical
companies to supplement our in-house research and development capabilities and to enhance our current drug candidate pipeline. We
will also continue to seek in-licensing opportunities in China, with a focus on drug candidates with the potential to both complement
our existing drug pipeline and have synergistic effects with each other, such as Tazverik from Epizyme. In addition, we expect to
progress some of our drug candidates by pursuing business development opportunities with other biopharmaceutical companies both in
China and globally such as our collaboration with BeiGene to evaluate combining surufatinib and fruquintinib with its anti-PD-1
antibody tislelizumab for the treatment of various solid tumor cancers. We will also continue to work with our partners, AstraZeneca
and Eli Lilly, to optimize the potential of our drug candidates savolitinib (globally with AstraZeneca) and fruquintinib (in China with
Eli Lilly).
Capitalize on regulatory reforms currently underway in China aimed at addressing existing unmet medical needs and
improving the health of its people
We believe the Chinese oncology market, which comprises approximately a quarter of the global oncology patient population,
represents a substantial and fast-growing market opportunity. Over the past decade, the PRC government has endeavored to foster an
innovative biopharmaceutical ecosystem, and in the last few years, the pace of reforms has accelerated with a clear focus on providing
Chinese patients access to world-class oncology therapies through expanded insurance reimbursement and reduced time for clinical
trials and drug approvals. As a result, the oncology drug market in China is growing rapidly. Having invested in drug innovation in
China for about 20 years, beginning at a time when almost no other domestic companies were involved in innovative oncology research,
we believe we are well positioned to capture this market opportunity.
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Oncology Commercial Operations
Surufatinib – Sulanda in China
We received approval from the NMPA for Sulanda as a treatment for patients with advanced non-pancreatic NETs in December
2020 and advanced pancreatic NETs in June 2021. During 2021, we introduced Sulanda through a campaign of local, regional and
national launch events involving approximately 12,000 healthcare professionals. We have also confirmed a total of approximately 50
investigator-initiated studies in a broad range of exploratory solid tumor indications all of which are expected to gradually expand
awareness of Sulanda in China. In 2021, we used means-test early access and patient access programs to help patients afford Sulanda,
and we estimate approximately 4,800 new patients were treated. By the end of 2021, Sulanda prescriptions had been written in more
than 30 provinces in China. Total in-market sales of Sulanda were $11.6 million in 2021, and in January 2022, Sulanda was included
on China’s NRDL, making it available in all public hospitals in China. There are an estimated approximately 34,000 new patients of
advanced NETs per year in China and were potentially over 300,000 patients living with NET in China in 2021.
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Fruquintinib – Elunate in China
We received approval from the NMPA for Elunate as a treatment for metastatic colorectal cancer, or mCRC, in September 2018.
At the end of 2018, our collaboration partner Eli Lilly commenced commercial sales of Elunate, targeting the more than 80,000 mCRC
third-line patients in China each year. In January 2020, Elunate was included on China’s NRDL, and is therefore now available in
public hospitals throughout China, paving the way to significantly broaden access for advanced CRC patients and rapidly build
penetration in China over the coming years. In October 2020, we took over the development and execution of all on-the-ground medical
detailing, promotion and local and regional marketing responsibilities in China through an amendment to our collaboration terms with
Eli Lilly. Since taking on these commercial responsibilities, we have deployed our oncology drug sales force to market Elunate. We are
quickly expanding hospital pharmacy listings, one of the most important factors affecting broad-scale adoption of Elunate in China,
which now total over 400.
Driven in part by the inclusion of Elunate on the 2020 NRDL and our assumption of responsibility for detailing, promoting and
marketing the drug in China in October 2020, total in-market sales of Elunate by Eli Lilly, as provided to us by Eli Lilly, increased by
111% to $71.0 million for the year ended December 31, 2021 compared to $33.7 million for the year ended December 31, 2020. We
recognize revenue for royalties and manufacturing costs and, since October 1, 2020, additional service payments in association with our
expanded role in the commercialization of Elunate paid to us by Eli Lilly. Subject to meeting pre-agreed sales targets, Eli Lilly will pay
us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and service payments. In
2021, we recorded $53.5 million in revenue for Elunate, equal to 75.4% of in-market sales. Following negotiations with the China
National Healthcare Security Administration, Elunate continues to be included in the NRDL for a new two-year term starting in January
2022. For this renewal, we agreed to a discount of 5% relative to the 2021 NRDL price.
During 2021, our medical marketing and affairs teams conducted about 4,800 educational/scientific events for Elunate in China.
Savolitinib – Orpathys in China
On June 22, 2021, Orpathys became the first-in-class selective MET inhibitor to be approved in China. Our partner, AstraZeneca,
then launched Orpathys in mid-July 2021, less than three weeks after its conditional approval by the NMPA for patients with MET exon
14 skipping alteration NSCLC. We are responsible for manufacturing and all other marketing authorization holder, or MAH,
responsibilities, and our commercial collaboration partner AstraZeneca is responsible for the commercialization of Orpathys. In return
for these commercial rights, AstraZeneca pays us a 30% royalty on all sales, various development and commercial milestones and
manufacturing fees.
More than a third of the world’s lung cancer patients are in China and, among those with NSCLC, approximately 2-3% have tumors
with MET exon 14 skipping alterations, representing an approximate incidence of 13,000 new patients per year in China. Importantly
also, MET plays a role in multiple other solid tumors, with an estimated total incidence of 120,000 new patients per year in China. In-
market sales of Orpathys since its launch in July 2021, as provided to us by AstraZeneca, were $15.9 million showing rapid initial self-
pay uptake for being the first-in-class selective MET inhibitor in China. These in-market sales also resulted in a $25.0 million first sale
milestone payment from AstraZeneca to us and $11.3 million in revenues recognized by us from manufacturing fees and royalties in
2021. Since mid-2021, the progress made in the research, development and commercialization of savolitinib has triggered a total of $40
million in milestone payments from AstraZeneca to us. We estimate that approximately 1,900 new patients were treated with Orpathys
in 2021.
AstraZeneca introduced a patient access program in late 2021 which subsidizes the use of Orpathys through progressive disease.
Following negotiations with the China National Healthcare Security Administration, we and AstraZeneca declined inclusion in the 2022
NRDL, a position that will be reassessed for potential 2023 inclusion.
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International Clinical Drug Development (Outside China)
Seven of our oncology drug candidates are in development outside China. Our fast expanding international organization, led mainly
from the United States, is developing these candidates. We completed the rolling submission of our first U.S. NDA in April 2021, for
surufatinib, and this NDA was accepted by the FDA in June 2021 subject to certain clinical site inspections by the FDA. The EMA also
validated and accepted our marketing authorization application for surufatinib for advanced NETs in July 2021, and we completed the
120 day assessment and are now entering the later stages of MAA review. For savolitinib in combination with Tagrisso in EGFR TKI
refractory NSCLC, we conducted an end of phase 2 meeting with the FDA. We also completed clinical trial applications in the United
States, Europe and Japan for the SAFFRON study, a global pivotal Phase III of savolitinib and Tagrisso in patients with NSCLC who
have progressed following Tagrisso treatment due to MET amplification or overexpression. In addition to the SAFFRON study, which
we are preparing to initiate in mid-2022, we continue to evaluate the possibility of using the ongoing SAVANNAH study as the basis
for U.S. accelerated approval. Among other progress we have made, enrollment was completed for fruquintinib in a fourteen-country
global Phase III study, the FRESCO-2 study, in CRC which is expected to read-out later in 2022, and positive and differentiated proof-
of-concept data was presented for amdizalisib.
The following table summarizes the status of our international clinical drug portfolio’s development as of the date of the filing of
this annual report:
Program Investigational treatment
Disease
Target patient
Study
name
Sites
Dose (cid:31)inding /
safety run-in
Proof-of-concept
Registration
Savoli(cid:31)nib + Tagrisso
Savoli(cid:31)nib + Tagrisso
NSCLC
NSCLC
2L/3L EGFRm; Tagrisso ref.; MET+
SAVANNAH Global
2L/3L EGFRm; Tagrisso ref.; MET+
SAFFRON
Global
*
**
Savolitinib
MET
Savoli(cid:31)nib + Imfinzi (PD-L1)
Papillary RCC
Savoli(cid:31)nib + Imfinzi (PD-L1)
Papillary RCC
MET+
All
SAMETA
Global
CALYPSO UK/Spain
***
Savoli(cid:31)nib + Imfinzi (PD-L1)
Clear cell RCC
VEGFR TKI refractory
CALYPSO UK/Spain
***
Gastric cancer
MET+
VIKTORY
S Korea
***
Refractory
NET
NET
NET
US
EU
JP
US/EU
(Bridging)
NDA under review
MMA under review
Colorectal cancer
Refractory
FRESCO-2 US/EU/JP
Savoli(cid:31)nib
Surufa(cid:31)nib
Surufa(cid:31)nib
Surufa(cid:31)nib
Fruquin(cid:31)nib
Fruquin(cid:31)nib
Surufatinib
VEGFR 1/2/3;
FGFR 1;
CSF-1R
Fruquintinib
VEGFR 1/2/3
Surufa(cid:31)nib + (cid:31)slelizumab (PD-1)
Solid tumors
Breast cancer
Fruquin(cid:31)nib + (cid:31)slelizumab (PD-1)
TN breast cancer, EMC
Fruquin(cid:31)nib + (cid:31)slelizumab (PD-1)
Solid tumors
Amdizalisib
(HMPL-689)
PI3Kδ
Amdizalisib
Amdizalisib
Sovleplenib
(HMPL-523)
Syk
Sovleplenib
Sovleplenib
HMPL-306
IDH 1/2
HMPL-306
HMPL-306
HMPL-760 HMPL-760
Indolent NHL, PTCL
Healthy volunteers
Indolent NHL
Indolent NHL
Solid tumors
Heme. malignancies
B-Cell NHL
US
US
S Korea
US/EU
Australia
Australia
US/EU
US/EU
US/EU
US/EU
**
* Phase II registration-intent study subject to regulatory discussion; ** In planning; *** Investigator-initiated trials (IIT)
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Note: NDA = New Drug Application; MAA = Marketing Authorization Application; MET = mesenchymal epithelial transition
receptor; NSCLC = non-small cell lung cancer; EGFRm = epidermal growth factor receptor mutation; RCC = renal cell
carcinoma; VEGFR = vascular endothelial growth factor receptor; TKI = tyrosine kinase inhibitor; FGFR 1 = fibroblast growth
factor receptor 1; CSF-1R = colony stimulating factor-1 receptor; NET = neuroendocrine tumors; TN = triple negative; EMC
= endometrial cancer; PI3Kδ = Phosphatidylinositol-3-Kinase delta; NHL = Non-Hodgkin’s Lymphoma; PTCL = peripheral
T-cell lymphoma; Syk = spleen tyrosine kinase; IDH 1/2 = isocitrate dehydrogenase 1/2; BTK = Bruton’s tyrosine kinase.
Savolitinib – selective MET inhibitor in late-stage clinical development as a monotherapy and in combination therapies in global
partnership with AstraZeneca
Savolitinib, which has been approved in China for the treatment of patients with locally advanced or metastatic NSCLC, is a potent
and selective small molecule inhibitor of the MET receptor tyrosine kinase, an enzyme which has been shown to function abnormally
in many types of solid tumors. We designed savolitinib through chemical structure modification to specifically address kidney toxicity,
the primary issue that halted development of several other selective MET inhibitors. In clinical trials to date in over 1,500 patients
globally, savolitinib has shown promising signs of clinical efficacy in patients with multiple types of MET gene alterations in lung
cancer, kidney cancer and gastric cancer with an acceptable safety profile.
We are currently testing savolitinib in global partnership with AstraZeneca, both as a monotherapy and in combination with
immunotherapy and targeted therapy. Most notably, MET-amplification is a major mechanism for acquired resistance to both first-
generation EGFR TKIs as well as third-generation EGFR TKIs like Tagrisso. Savolitinib has been studied extensively in these patients
in the TATTON and SAVANNAH studies. Final results from the TATTON study were presented at World Conference on Lung Cancers,
or WCLC, in January 2021, and initial results from SAVANNAH are in preparation for submission to a scientific conference in 2022.
The successful results led to the initiation and planning of three Phase III studies: SACHI and SANOVO were initiated in China in 2021,
and the global, pivotal Phase III study, the SAFFRON study, is planned to commence enrollment in mid-2022. In addition to a planned
Phase III study, we continue to evaluate the possibility of using data from the TATTON and SAVANNAH studies to seek accelerated
approval in the United States.
Proof-of-concept studies of savolitinib in kidney cancer (as a monotherapy as well as in combination with a PD-L1 inhibitor) and
gastric cancer (as a monotherapy as well as in combinations with chemotherapy) have demonstrated positive results, with subsequent
clinical development ongoing or in planning. For example, we initiated a global Phase III pivotal trial (SAMETA) in October 2021 for
savolitinib in combination with Imfinzi, AstraZeneca’s anti-PD-L1 antibody durvalumab, in MET positive patients with papillary renal
cell carcinoma or PRCC, a form of kidney cancer. Savolitinib opportunities are also continuing to be explored in multiple other MET-
driven tumor settings via investigator-initiated studies including CRC.
Surufatinib—unique angio-immuno kinase inhibitor with NDA submission completed in the United States and MAA in Europe;
potential first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs
Surufatinib, which has been approved in China for the treatment of advanced NETs, is a novel, oral angio-immuno kinase, small
molecule inhibitor that selectively inhibits the tyrosine kinase activity associated with VEGFR and FGFR, which both inhibit
angiogenesis, and colony stimulating factor-1 receptor, or CSF-1R, which regulates tumor-associated macrophages, promoting the
body’s immune response against tumor cells. Its unique dual mechanism of action may be very suitable for possible combinations with
other immunotherapies. We believe surufatinib is potentially the first VEGFR/FGFR/CSF-1R inhibitor for all advanced NETs.
In the United States, the FDA granted orphan drug designation to surufatinib for the treatment of pancreatic NETs in November
2019 and granted fast track designations for the treatment of both pancreatic NETs and non-pancreatic NETs in April 2020. In May
2020, we reached an agreement with the FDA that the completed SANET-ep (non-pancreatic NET) and SANET-p (pancreatic NET)
studies in China, along with existing data from surufatinib in U.S. non-pancreatic and pancreatic NET patients, could form the basis to
support an NDA submission. Pharmacokinetic and safety data from U.S. Phase Ib neuroendocrine tumor cohorts demonstrated similar
profiles of surufatinib between Chinese and U.S. patients.
We completed a U.S. NDA submission in April 2021 for surufatinib for the treatment of pancreatic and non-pancreatic NETs. This
is our first NDA in the United States, and it was accepted by the FDA in June 2021. The related clinical site inspections and pre-approval
inspections of our manufacturing facilities are ongoing. The data package has also been used to file a marketing authorization application,
to the EMA, based on scientific advice from the EMA Committee for Medicinal Products for Human Use, or CHMP. The EMA has
validated and accepted our marketing authorization application in July 2021.
68
We have various additional clinical trials of surufatinib ongoing as a single agent, as well as in combination with checkpoint
inhibitors. In March 2021, we dosed the first patient in a combination study of surufatinib with tislelizumab, an anti-PD-1 antibody
being developed by BeiGene, in the United States and Europe, and we expect to submit the data from this study for presentation in late
2022. In September 2021, we dosed our first patient in a registration-enabling bridging study in Japan to support the registration of
surufatinib in the treatment of patients with advanced NETs. In addition, we believe surufatinib has potential in a number of other tumor
types such as CRC, small cell lung cancer, gastric cancer and soft tissue sarcoma.
Surufatinib is the first oncology medicine that we have launched in China and expanded development globally without the support
of a development partner. We own all rights to surufatinib globally.
Fruquintinib—selective VEGFR 1, 2 and 3 inhibitor with the best selectivity for its targets in global Phase III development
Fruquintinib, which has been approved in China for the treatment of advanced mCRC, is a highly selective and potent oral inhibitor
of vascular endothelial growth factor or VEGF receptors, known as VEGFR 1, 2 and 3. We believe that fruquintinib has the potential
to become a selective small molecule VEGFR 1, 2 and 3 inhibitor for many types of solid tumors that has the highest selectivity, and
we are currently studying fruquintinib in CRC, gastric cancer, breast cancer and other solid tumor types. Fruquintinib was designed to
improve kinase selectivity to minimize off-target toxicities, improve tolerability and provide more consistent target coverage. The
tolerability in patients to date, along with fruquintinib’s low potential for drug-drug interaction based on pre-clinical assessment,
suggests that it may be highly suitable for combinations with other anti-cancer therapies.
Building on the data collected from our successful Phase III trial in China, known as the FRESCO study, which supported
fruquintinib’s approval in China, we initiated FRESCO-2, a large randomized controlled study of fruquintinib in the United States,
Europe, Japan and Australia. The first patient was dosed in September 2020, and the study enrolled over 690 patients in over 150 sites
in 14 countries. The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC in
June 2020. The FDA has acknowledged the totality of the fruquintinib clinical data, including the FRESCO-2 study, if positive, the
prior positive Phase III FRESCO study demonstrating improvement in overall survival, or OS, that led to fruquintinib approval for
metastatic CRC in China in 2018 and additional completed and ongoing supporting studies in metastatic CRC, could support a future
NDA for the treatment of patients with third-line and above mCRC. The EMA and Japanese Pharmaceuticals and Medical Devices
Agency or PMDA have reviewed and endorsed the FRESCO-2 study design. Preliminary data of U.S. Phase I/Ib CRC cohorts
demonstrated encouraging efficacy in patients refractory or intolerant to Stivarga and Lonsurf.
We are conducting and planning global combination studies of fruquintinib with BeiGene’s anti-PD-1 antibody tislelizumab for the
treatment of various solid tumor cancers, including an ongoing Phase Ib/II study in advanced, refractory triple negative breast cancer or
advanced endometrial cancer.
Fruquintinib is being commercialized and developed in partnership with Eli Lilly in China, where we are responsible for
development, manufacturing, on-the-ground medical detailing, promotion and local and regional marketing activities. We own all rights
to fruquintinib outside of China.
Amdizalisib (HMPL-689)—novel, highly selective PI3Kδ inhibitor with potential in hematological cancer
Amdizalisib is a novel, highly selective and potent small molecule inhibitor targeting the isoform PI3Kδ. In pre-clinical
pharmacokinetic studies, amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate
tissue distribution and low clearance. Amdizalisib is also expected to have low risk of drug accumulation and drug-drug interaction and
is highly potent, particularly at the whole blood level. Amdizalisib received Breakthrough Therapy Designation from the CDE of the
NMPA in China for the treatment of refractory follicular lymphoma in September 2021. The NMPA grants Breakthrough Therapy
Designation to new drugs that treat life-threatening diseases or serious conditions for which there are no effective treatment options, and
where clinical evidence demonstrates significant advantages over existing therapies. Drug candidates with Breakthrough Therapy
Designation may be considered for conditional approval and priority review when submitting an NDA.
We have early-stage clinical trials of amdizalisib ongoing and preliminary evidence suggests that amdizalisib may perform in the
clinic as designed. Based on extensive Phase I/Ib proof-of-concept clinical data in China and Australia on amdizalisib, we have opened
18 U.S. and European sites for a Phase I/Ib study with patient enrollment underway, focusing on advanced relapsed or refractory
lymphoma. We have initiated the dose expansion portion of the Phase I study in the United States and Europe in the second half of 2021
in multiple types of non-Hodgkin’s lymphoma.
69
We own all rights to amdizalisib globally.
Sovleplenib (HMPL-523)—potentially the first selective Syk inhibitor for hematological cancer
Sovleplenib is a novel, highly selective, oral, small molecule inhibitor targeting the spleen tyrosine kinase, or Syk, for the treatment
of hematological cancers and certain chronic immune diseases. Syk is a major component in B-cell receptor signaling and is an
established therapeutic target in multiple subtypes of B-cell lymphomas. Because B-cell malignancies are heterogeneous and patients
commonly experience relapse despite current therapies, there is a need for new therapies.
We have various clinical trials of sovleplenib ongoing. We have multiple sites in the United States and Europe for a Phase I/Ib
study with patient enrollment underway, focusing on advanced relapsed or refractory lymphoma and are close to establishing our Phase
II dose.
We own all rights to sovleplenib globally.
HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid
tumors
HMPL-306 is a novel small molecule dual-inhibitor of isocitrate dehydrogenase 1 and 2, or IDH 1 and 2, enzymes. IDH1 and IDH2
mutations have been implicated as drivers of certain hematological malignancies and solid tumors, particularly among acute myeloid
leukemia patients. We initiated two international Phase I studies, one for AML and the other for solid tumors, with the first patient dosed
in the United States in March 2021.
We own all rights to HMPL-306 globally.
HMPL-760—an investigational, highly selective, third-generation oral inhibitor of BTK with improved potency versus first
generation BTK inhibitors against both wild type & C481S mutant enzymes
We initiated a Phase I study in patients with advanced hematological malignancies in China in January 2022. We are also initiating
an international Phase I study in patients with advanced hematological malignancies in the United States. We own all rights to HMPL-
760 globally.
China Clinical Drug Development
We are the MAH of three internally discovered and developed innovative oncology medicines, Orpathys, Sulanda and Elunate. We
have additional drug candidates in earlier stage clinical development (Phase I/Ib and Phase Ib/II proof-of-concept studies) and several
advanced pre-clinical drug candidates. Our four submitted China NDAs were classified by the NMPA as Category 1. If submitted for
approval, all of our drug candidates are expected to be classified as Category 1, as they are innovative drugs that have not been marketed
inside or outside of China.
70
The following table summarizes the status of our China clinical programs as of the date of the filing of this annual report.
Proof-of-concept Registration
Marketed
Marketed
Marketed
Marketed
Program Investigational treatment
Dose (cid:9)inding /
safety run-in
Study
SANET-p
Disease
Target patient
≥3L; chemotherapy refractory
2L
MET Exon 14 skipping
NSCLC
Savoli(cid:24)nib
Naïve MET+ & EGFRm NSCLC
NSCLC
Savoli(cid:24)nib + Tagrisso
2L EGFR TKI ref. NSCLC; MET+
NSCLC
Savoli(cid:24)nib + Tagrisso
2L; MET+
Gastric cancer
Savoli(cid:24)nib
Pancrea(cid:21)c NET
All
Surufa(cid:25)nib
Non-Pancrea(cid:21)c NET All
Surufa(cid:25)nib
NEC
Surufa(cid:25)nib + Tuoyi (PD-1)
ESCC
Surufa(cid:25)nib + Tuoyi (PD-1)
GC, SCLC
Surufa(cid:25)nib + Tuoyi (PD-1)
BTC, Sarcoma
Surufa(cid:25)nib + Tuoyi (PD-1)
TC, EMC, NSCLC
Surufa(cid:25)nib + Tuoyi (PD-1)
Colorectal cancer
Fruquin(cid:25)nib
Gastric cancer
Fruquin(cid:25)nib + Taxol
EMC
Fruquin(cid:25)nib + Tyvyt (PD-1)
CRC
Fruquin(cid:25)nib + Tyvyt (PD-1)
Fruquin(cid:24)nib + Tyvyt (PD-1)
RCC, HCC
GI tumors
Fruquin(cid:24)nib + Tyvyt (PD-1)
Fruquin(cid:24)nib + (cid:4)slelizumab (PD-1) Solid tumors
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Sovleplenib
Sovleplenib
Sovleplenib
Tazemetostat **
Tazemetostat **
Note: Tazemetostat developed by Epizyme. Approved in the U.S. for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned.
HMPL-306
FL
MZL
MCL, DLBCL
CLL/SLL, HL
All
ITP
B-cell malignancies All
All
wAIHA
Relapsed/Refractory
FL
FL
3L
Heme. malignancies
B-Cell NHL
name Sites
China
SANOVO China
China
SACHI
China
China
SANET-ep China
SURTORI- 01 China
China
China
China
China
China
FRESCO
FRUTIGA China
China
China
China
China
China
China
China
China
China
ESLIM-01 China
China
China *
China *
China * (Bridging)
China
China
China
China
China
China
Mul(cid:4)ple combos
IHCC
Solid tumors
Solid tumors
Solid tumors, TGCT
HMPL-453
HMPL-453
HMPL-295
HMPL-653
HMPL-760
SYMPHONY-1
Savolitinib
MET
Surufatinib
VEGFR 1/2/3;
CSF-1R
FGFR 1;
Fruquintinib
VEGFR 1/2/3
Amdizalisib
(HMPL-689)
PI3Kδ
Sovleplenib
(HMPL-523)
Syk
Tazemetostat
EZH2
HMPL-306
IDH 1/2
HMPL-760
BTK, 3G
HMPL-453
FGFR 1/2/3
HMPL-295
ERK, MAPK pathway
HMPL-653
CSF-1R
* In planning; ** development in collaboration with Epizyme
71
Note: MET = mesenchymal epithelial transition receptor; NSCLC = non-small cell lung cancer; EGFRm = epidermal growth factor
receptor mutation; TKI = tyrosine kinase inhibitor; VEGFR = vascular endothelial growth factor receptor; FGFR 1 = fibroblast
growth factor receptor 1; CSF-1R = colony stimulating factor-1 receptor; NET = neuroendocrine tumors; NEC =
neuroendocrine carcinoma; ESCC = esophageal cancer; GC = gastric cancer; SCLC = small cell lung cancer; BTC = biliary
tract cancer; TC = thyroid cancer; EMC = endometrial cancer; CRC = colorectal cancer; RCC = renal cell carcinoma; HCC =
hepatocellular carcinoma; GI = gastrointestinal; PI3Kδ = Phosphatidylinositol-3-Kinase delta; FL = follicular lymphoma; MZL
= marginal zone lymphoma; MCL = mantle cell lymphoma; DLBCL = diffuse large B cell lymphoma; CLL/SLL = chronic
lymphocytic leukemia/small lymphocytic lymphoma; HL = Hodgkin’s lymphoma; Syk = spleen tyrosine kinase; ITP = immune
thrombocytopenic purpura; wAIHA = warm autoimmune hemolytic anemia; EZH2 = enhancer of zeste homolog 2; IHCC =
intrahepatic cholangiocarcinoma; IDH 1/2 = isocitrate dehydrogenase 1/2; ERK = extracellular-signal-regulated kinase; MAPK
pathway = RAS-RAF-MEK-ERK signaling cascade; BTK = Bruton’s tyrosine kinase; TGCT = Tenosynovial Giant Cell
Tumors.
Savolitinib – commercially launched as Orpathys and first selective MET inhibitor in China
In June 2021, the NMPA approved savolitinib for marketing for the treatment of NSCLC with MET exon 14 skipping alterations,
making savolitinib the first-in-class selective MET inhibitor in China. This approval follows a priority review designation by the NMPA
and is the first regulatory approval globally for this oral, potent and selective MET TKI. The approval by the NMPA was based on
positive results from a Phase II trial conducted in China in patients with NSCLC with this mutation, including patients with the more
aggressive pulmonary sarcomatoid carcinoma subtype. Savolitinib demonstrated effective anti-tumor activity based on an independent
review of objective response rate or ORR and disease control rate or DCR. The approval is conditional upon successful completion of
a confirmatory study in this patient population. The results reviewed by the NMPA when it approved savolitinib were also published in
The Lancet Respiratory Medicine.
In 2021, we initiated several new trials in a variety of indications, including for example, SAMETA, a global Phase III pivotal study
of savolitinib with Imfinzi in MET-driven, unresearchable and locally advanced or metastatic PRCC, and a confirmatory China Phase
IIIb post-approval study of savolitinib monotherapy in MET exon 14 skipping alteration patients. In the same year, we also presented
CALYPSO Phase II study data in MET-drive patients for savolitinib in combination with Imfinzi at the 2021 American Society of
Clinical Oncology, or ASCO, annual meeting and the final Phase II data for the TATTON study at 2020 WCLC annual meeting.
In 2022, we plan to submit for presentation the SAVANNAH Phase II study for the savolitinib plus Tagrisso combination in NSCLC
patients harboring EGFR mutation and MET amplification or overexpression. SAVANNAH has informed the regulatory, biomarker
and dose regimen strategy for the China Phase III studies SANOVO and SACHI, and the global Phase III study in planning. We also
plan to initiate a global, pivotal Phase III study for the savolitinib plus Tagrisso combination in mid-2022, in patients with NSCLC who
have progressed following Tagrisso treatment due to MET amplification.
Surufatinib—commercially launched as Sulanda in China in advanced NETs; first VEGFR/FGFR/CSF-1R inhibitor for all
advanced NETs
Surufatinib was approved by the NMPA in December 2020 for the treatment of non-pancreatic NETs and is now being marketed
by us in China under the brand name Sulanda. This NMPA approval of surufatinib was based on results from the SANET-ep study, a
Phase III trial in patients with advanced non-pancreatic NETs conducted in China. The positive results of this trial were highlighted in
an oral presentation at the 2019 ESMO Congress and published in The Lancet Oncology in September 2020. In June 2021, surufatinib
was approved by the NMPA for the treatment of advanced pancreatic NETs. This NMPA approval of surufatinib was based on results
from the SANET-p study, a Phase III trial in patients with advanced pancreatic NETs conducted in China. The positive results of this
trial were highlighted in an oral presentation at the 2020 ESMO Congress and published in The Lancet Oncology in September 2020.
Sulanda was included in the NRDL starting January 2022, thereby broadening access to patients with advanced NETs in China. Our in-
house oncology drug sales team is now responsible for the marketing and commercialization of surufatinib throughout China for such
indications. In 2021, we initiated, among others, the SURTORI-01 Phase III trial in NEC patients in China, the first pivotal study
combining surufatinib and toripalimab.
In 2021, we presented NEC cohort and gastric and gastroesophageal junction cancers cohort data from the China Phase II study of
surufatinib plus Tuoyi at the 2021 ASCO and updated data at ESMO Immuno-Oncology Congress 2021 annual meetings. We also
presented encouraging data from the subgroup analysis by Ki-67 and baseline CgA of the Phase III monotherapy study in pancreatic
NET (SANET-p) and Phase II study for surufatinib monotherapy in BTC patients at the 2021 ASCO annual meeting.
72
Fruquintinib – commercially launched as Elunate in China in CRC in November 2018; potential VEGFR 1, 2 and 3 inhibitor with
the best selectivity for many solid tumors
Fruquintinib was first commercially launched in China, marketed by our partner Eli Lilly, in November 2018 for the treatment of
advanced CRC. In January 2020 (and subsequently extended for another two-year term starting in January 2022), fruquintinib was
included on the NRDL thereby broadening access by advanced CRC patients in China. Since launch, Eli Lilly has deployed a dedicated
team of over 140 oncology commercial personnel to market fruquintinib in China. Since October 1, 2020, we have taken over
development and execution of all on-the-ground medical detailing, promotion and local and regional marketing activities for fruquintinib
in China, using our in-house oncology drug sales team supported by our long-standing drug marketing and distribution platforms. Subject
to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of
royalties, manufacturing costs and service payments.
We believe that fruquintinib is a VEGFR 1, 2 and 3 inhibitor with the best selectivity and could be considered for development in
China in many solid tumor indications in which VEGFR inhibitors have been approved globally. To this end, since 2018, we have
assumed all planning, execution and decision-making responsibilities for life cycle indication development of fruquintinib in China.
In addition to its commercial launch in CRC in China, we have made progress with fruquintinib in various other cancer indications,
including the FRUTIGA study in China, a pivotal Phase III study in approximately 700 patients to evaluate the efficacy and safety of
fruquintinib in combination with Taxol, a chemotherapy medication, compared with Taxol monotherapy for second-line treatment of
advanced gastric cancer in patients who had failed first-line chemotherapy. We expect to complete enrollment of the study in 2022.
We are conducting Phase Ib/II dose expansion studies in China of fruquintinib with Tyvyt, a PD-1 monoclonal antibody being
developed by Innovent, in different tumor types, including HCC, endometrial cancer, RCC and CRC. Furthermore, we intend to conduct
studies of fruquintinib in combination with BeiGene’s tislelizumab for the treatment of various solid tumor cancers in China. At the
2021 ASCO annual meeting, encouraging preliminary Phase I/Ib results were presented for fruquintinib in combination with two
different PD-1 inhibitors: Tyvyt and geptanolimab.
Amdizalisib—novel, highly selective PI3Kδ inhibitor with potential in hematological cancer
Our Phase I dose escalation study on amdizalisib in China has been completed, and a recommended Phase II dose was selected.
Amdizalisib was well tolerated, exhibiting dose-proportional pharmacokinetics, a manageable toxicity profile, and single-agent clinical
activity in relapsed/refractory B-cell lymphoma patients. Our Phase Ib expansion study in China is ongoing in multiple sub-categories
of indolent non-Hodgkin’s lymphoma. In April 2021, we commenced a registration-intent Phase II trial of amdizalisib a highly selective
and potent PI3Kδ inhibitor in China in patients with relapsed or refractory follicular lymphoma and marginal zone lymphoma, two
subtypes of non-Hodgkin’s lymphoma.
Sovleplenib—potentially the first selective Syk inhibitor for hematological diseases
Data from an extensive Phase I/Ib dose escalation and expansion study (covering more than 200 patients) on sovleplenib has
encouraged us to initiate exploratory studies in China on multiple indolent non-Hodgkin’s lymphoma sub-categories, including chronic
lymphocytic
lymphoma, Waldenstrom’s
follicular
macroglobulinemia and mantle cell lymphoma.
lymphoma, marginal zone
leukemia/small
lymphocytic
lymphoma,
Furthermore, in August 2019 we commenced a Phase I study of sovleplenib in China for the treatment of immune thrombocytopenia,
an autoimmune disorder characterized by low platelet count and an increased bleeding risk. Based on the encouraging data from Phase
Ib study of sovleplenib in adult patients with immune thrombocytopenia, we commenced a Phase III study in the same indication and
dosed the first patient in October 2021. In January 2022, sovleplenib received the Breakthrough Therapy Designation in China for
treatment of primary immune thrombocytopenia.
73
Tazemetostat
In August 2021, we entered into a strategic collaboration with Epizyme, Inc. to research, develop, manufacture and commercialize
tazemetostat (Tazverik) in Greater China, including mainland China, Hong Kong, Macau and Taiwan. Tazemetostat is an inhibitor of
EZH2 developed by Epizyme that is approved by the FDA for the treatment of certain epithelioid sarcoma and follicular lymphoma
patients. It received accelerated approval from the FDA based on ORR and DOR in January and June 2020 for epithelioid sarcoma and
follicular lymphoma, respectively. We plan to develop and seek approval for tazemetostat in various hematological and solid tumors,
including epithelial sarcoma, follicular lymphoma and diffuse large b-cell lymphoma in Greater China. We are participating in
Epizyme’s SYMPHONY-1 (EZH-302) study, leading it in Greater China. We and Epizyme also intend to conduct additional global
studies jointly.
HMPL-306—potentially the first dual inhibitor of IDH1 and IDH2 with applications in hematological malignancies and solid
tumors
A Phase I trial in China was initiated in July 2020, in patients of relapsed or refractory hematological malignancies with an IDH1
and/or IDH2 mutation. Multiple sites have been initiated and we aim to establish the Phase II dose in mid-2022.
HMPL-760—highly potent, selective, and reversible inhibitor with long target engagement against BTK
In January 2022, we initiated a Phase I trial in China in patients with previously treated chronic lymphocytic leukemia/small
lymphocytic lymphoma or other types of non-Hodgkin lymphoma, including patients treated with a prior regimen containing a BTK
inhibitor, whose disease carries either wild-type BTK or acquired resistance to first generation BTK inhibitors due to additional
mutations to BTK. An initial dose escalation stage to determine the maximum tolerated dose and/or the RP2D is planned, to be followed
by a dose expansion phase where patients will receive HMPL‑760 to further evaluate the safety, tolerability, and clinical activity at the
RP2D. Approximately 100 patients are expected to be enrolled.
HMPL-453—highly selective FGFR 1/2/3 inhibitor with potential in solid tumors
Aberrant FGFR signaling is associated with tumor growth, promotion of angiogenesis, as well as resistance to anti-tumor therapies.
A Phase II study is ongoing in patients with advanced intrahepatic cholangiocarcinoma, or IHCC, with FGFR2 fusion that had failed at
least one line of systemic therapy. IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic
malignancy after hepatocellular carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion. We also
initiated a Phase Ib/II study of HMPL-453 in combination with chemotherapies or toripalimab for advanced solid tumors in China in
January 2022.
HMPL-295 – an investigative and highly selective small molecule inhibitor of ERK in the MAPK pathway with the potential to
address intrinsic or acquired resistance from upstream mechanisms such as RAS-RAF-MEK
HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a downstream
component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery
targeting the MAPK pathway. A China Phase I study of HMPL-295 as a monotherapy has been initiated in July 2021.
HMPL-653—CSF-1R inhibitor
HMPL-653 is a novel, highly selective, and potent CSF-1R inhibitor designed to target CSF-1R driven tumors as a monotherapy or
in combination with other drugs. A China Phase I initiated in January 2022.
74
Discovery Research & Pre-clinical Development
We have built a drug discovery engine based in China, which has already produced a pipeline of 17 differentiated clinical and late
pre-clinical stage drug candidates covering both novel and validated targets of which two are now marketed and one is under review for
approval. We strive to create differentiated novel oncology and immunology treatments with global potential. These include furthering
both small molecule and biologic therapies which address aberrant genetic drivers and cancer cell metabolism; modulate tumor immune
microenvironment; and target immune cell checkpoints. We design drug candidates with profiles that enable them to be used in
innovative combinations with other therapies, such as chemotherapy, immunotherapy and other targeted therapies in order to attack
disease simultaneously through multiple modalities and pathways. We believe that this approach can significantly improve treatment
outcomes for patients. In addition to our clinical-stage assets, we have another novel oncology drug candidate in late pre-clinical stage,
namely HMPL-A83, targeting solid tumors and hematological malignancies.
Beyond these clinical and pre-clinical stage candidates, we continue to conduct research into discovering new types of drug
candidates, including among others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein
translation; biologic drug candidates including bispecific antibodies; and novel technologies including antibody-drug conjugates and
heterobifunctional small molecules.
Manufacturing
Our manufacturing facility in Suzhou complies with applicable GMP standards, providing supplies of our drug candidates for
clinical trials and Elunate and Sulanda for commercial sale. We plan to continue to invest resources in the Suzhou facility, expanding
the production team in phases. At the end of 2020, we commenced construction of a large-scale manufacturing plant for innovative
drugs in Shanghai. The Shanghai factory will be our largest manufacturing facility, with a production capacity estimated to be five times
that of our manufacturing plant in Suzhou.
The first phase will be primarily for small molecule production, while the second phase is expected to include expansion into large
molecule production. The Shanghai factory is designed to increase our novel drug product manufacturing capacity by over five-fold,
and we plan to complete the small molecule equipment installation in late 2022, with GMP compliance targeted for late 2023.
Currently, our commercial supplies of Elunate and Sulanda sold by our Oncology/Immunology operations are manufactured at our
manufacturing facility in Suzhou, China. Our commercial supplies of Orpathys are outsourced and manufactured by a third-party
manufacturer based in Shanghai, China. We have completed the manufacturing process studies for amdizalisib and sovleplenib in
preparation for potential NDA submissions.
Other Ventures
In addition to our Oncology/Immunology operations, our Other Ventures include large-scale drug marketing and distribution
platforms covering about 290 cities and towns in China with approximately 2,900 manufacturing and commercial personnel as of
December 31, 2021. Built over the past 20 years, it primarily focuses on prescription drug and consumer health products mainly through:
(i) Shanghai Hutchison Pharmaceuticals, a non-consolidated joint venture with a commercial team of over 2,200 staff managing the
medical detailing and marketing of a range of own-brand prescription drug products and (ii) Hutchison Sinopharm, a consolidated joint
venture focused on providing commercial services for our own marketed drugs, as well as marketing third-party prescription drug
products and our science-based infant nutrition products. Hutchison Baiyunshan, a former non-consolidated joint venture focused on
the manufacturing, marketing and distribution of primarily own-brand OTC drugs, was also a part of our Other Ventures’ operations
before its disposal in September 2021.
Net income attributable to our company from our Other Ventures totaled $41.5 million, $72.8 million and $142.9 million for the
years ended December 31, 2019, 2020 and 2021, respectively, and are remitted to our group through dividend payments primarily from
our non-consolidated joint ventures mentioned above. In 2021, dividends of an aggregate amount of $103.0 million were declared from
these joint ventures to our group, with aggregate dividends declared to our group since inception of over $400 million.
75
The following table summarizes the status of our clinical programs as of the date of the filing of this annual report:
Program Investigational treatment
Disease
Target patient
Study
name
Sites
Dose (cid:9)inding /
safety run-in
Proof-of-concept Registration
Our Clinical Pipeline
Marketed
NDA under review
MMA under review
Marketed
Marketed
Marketed
Savolitinib
MET
Surufatinib
VEGFR 1/2/3;
FGFR 1;
CSF-1R
Savoli(cid:25)nib
Savoli(cid:25)nib
Savoli(cid:25)nib + Tagrisso
Savoli(cid:25)nib + Tagrisso
Savoli(cid:25)nib
Surufa(cid:25)nib
Surufa(cid:25)nib
Surufa(cid:25)nib
Savoli(cid:25)nib + Tagrisso
Savoli(cid:25)nib + Tagrisso
NSCLC
NSCLC
2L/3L EGFRm; Tagrisso ref.; MET+
SAVANNAH
Global
2L/3L EGFRm; Tagrisso ref.; MET+
SAFFRON
Global
*
**
Savoli(cid:25)nib + Imfinzi (PD-L1)
Papillary RCC
Savoli(cid:25)nib + Imfinzi (PD-L1)
Papillary RCC
MET+
All
SAMETA
Global
CALYPSO
UK/Spain
***
Savoli(cid:25)nib + Imfinzi (PD-L1)
Clear cell RCC
VEGFR TKI refractory
CALYPSO
UK/Spain
***
Gastric cancer
MET+
VIKTORY
S Korea
***
NSCLC
NSCLC
NSCLC
MET Exon 14 skipping
Naïve MET+ & EGFRm NSCLC
SANOVO
2L EGFR TKI ref. NSCLC; MET+
SACHI
Gastric cancer
2L; MET+
NET
NET
NET
Refractory
Refractory
China
China
China
China
US
EU
JP
US/EU
China
China
(Bridging)
SANET-p
SANET-ep
SURTORI-01
China
China
China
China
China
Surufa(cid:25)nib + (cid:31)slelizumab (PD-1)
Solid tumors
Surufa(cid:25)nib
Surufa(cid:25)nib
Pancrea(cid:31)c NET
Non-Pancrea(cid:31)c NET
All
All
Surufa(cid:25)nib + Tuoyi (PD-1)
Surufa(cid:25)nib + Tuoyi (PD-1)
NEC
ESCC
Surufa(cid:25)nib + Tuoyi (PD-1)
GC, SCLC
Surufa(cid:25)nib + Tuoyi (PD-1)
BTC, Sarcoma
Surufa(cid:26)nib + Tuoyi (PD-1)
TC, EMC, NSCLC
Fruquin(cid:26)nib
Fruquin(cid:26)nib
Breast cancer
Colorectal cancer
Refractory
FRESCO-2
US/EU/JP
Fruquin(cid:26)nib + (cid:31)slelizumab (PD-1)
TN breast cancer, EMC
Fruquin(cid:26)nib + (cid:31)slelizumab (PD-1)
Solid tumors
Fruquintinib
VEGFR 1/2/3
Fruquin(cid:26)nib
Colorectal cancer
≥3L; chemotherapy refractory
FRESCO
Fruquin(cid:25)nib + Taxol
Gastric cancer
2L
FRUTIGA
Fruquin(cid:25)nib + Tyvyt (PD-1)
Fruquin(cid:25)nib + Tyvyt (PD-1)
Fruquin(cid:25)nib + Tyvyt (PD-1)
Fruquin(cid:25)nib + Tyvyt (PD-1)
EMC
CRC
RCC, HCC
GI tumors
Fruquin(cid:25)nib + (cid:30)slelizumab (PD-1)
Solid tumors
Amdizalisib
(HMPL-689)
PI3Kδ
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Amdizalisib
Sovleplenib
Sovleplenib
Sovleplenib
(HMPL-523)
Sovleplenib
Syk
Sovleplenib
Sovleplenib
Tazemetostat
EZH2
Tazemetostat ****
Tazemetostat ****
Indolent NHL, PTCL
Healthy volunteers
FL
MZL
MCL, DLBCL
CLL/SLL, HL
Indolent NHL
Indolent NHL
ITP
B-cell malignancies
wAIHA
FL
FL
All
All
All
ESLIM-01
Relapsed/Refractory
SYMPHONY-1
3L
US
US
S Korea
China
China
China
China
China
China
China
US/EU
Australia
China
China
China
China
Australia
US/EU
China
China
China
China
China
**
**
** (Bridging)
Note: Tazemetostat developed by Epizyme. Approved in the U.S. for ES and FL as a monotherapy. HUTCHMED rights are for Greater China – bridging study being planned.
HMPL-306
IDH 1/2
HMPL-760
BTK, 3G
HMPL-453
FGFR 1/2/3
HMPL-295
ERK, MAPK pathway
HMPL-653
CSF-1R
HMPL-306
HMPL-306
HMPL-306
HMPL-760
HMPL-760
HMPL-453
HMPL-453
HMPL-295
Solid tumors
Heme. malignancies
Heme. malignancies
B-Cell NHL
B-Cell NHL
IHCC
Solid tumors
Mul(cid:31)ple combos
Solid tumors
HMPL-653
Solid tumors, TGCT
Global
China
US/EU
US/EU
China
US/EU
China
China
China
China
China
76
* Phase II registration-intent study subject to regulatory discussion; ** In planning;
*** Investigator-initiated trials (IIT); **** development in collaboration with Epizyme
Note: NDA = New Drug Application; MAA = Marketing Authorization Application; MET = mesenchymal epithelial transition
receptor; NSCLC = non-small cell lung cancer; EGFRm = epidermal growth factor receptor mutation; RCC = renal cell
carcinoma; VEGFR = vascular endothelial growth factor receptor; TKI = tyrosine kinase inhibitor; FGFR 1 = fibroblast growth
factor receptor 1; CSF-1R = colony stimulating factor-1 receptor; NET = neuroendocrine tumors; NEC = neuroendocrine
carcinoma; ESCC = esophageal cancer; GC = gastric cancer; SCLC = small cell lung cancer; BTC = biliary tract cancer; TC =
thyroid cancer; EMC = endometrial cancer; TN = triple negative; CRC = colorectal cancer; HCC = hepatocellular carcinoma;
GI = gastrointestinal; PI3Kδ = Phosphatidylinositol-3-Kinase delta; NHL = Non-Hodgkin’s Lymphoma; PTCL = peripheral
T-cell lymphoma; FL = follicular lymphoma; MZL = marginal zone lymphoma; MCL = mantle cell lymphoma; DLBCL =
diffuse large B cell lymphoma; CLL/SLL = chronic lymphocytic leukemia/small lymphocytic lymphoma; HL = Hodgkin’s
lymphoma; Syk = spleen tyrosine kinase; ITP = immune thrombocytopenic purpura; wAIHA = warm autoimmune hemolytic
anemia; EZH2 = enhancer of zeste homolog 2; IHCC = intrahepatic cholangiocarcinoma; IDH ½ = isocitrate dehydrogenase
1/2; ERK = extracellular-signal-regulated kinase; MAPK pathway = RAS-RAF-MEK-ERK signaling cascade; BTK = Bruton’s
tyrosine kinase; TGCT = Tenosynovial Giant Cell Tumors.
The following is a summary of the clinical pipeline for our drug candidates, many of which are being investigated against multiple
indications.
1. Savolitinib (HMPL-504), MET Inhibitor
Savolitinib is a potent and selective inhibitor of MET, an enzyme which has been shown to function abnormally in many types of
solid tumors. We designed savolitinib to address human metabolite-related renal toxicity, the primary issue that halted development of
several other selective MET inhibitors. In clinical studies to date, savolitinib has shown promising signs of clinical efficacy in patients
with MET gene alterations in NSCLC, PRCC, CRC, gastric cancer and prostate cancer with an acceptable safety profile. In global
partnership with AstraZeneca, savolitinib has been studied in over 1,500 patients to date, both as a monotherapy and in combinations.
For more information regarding our partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.”
Mechanism of Action
MET is a signaling pathway that has specific roles in normal mammalian growth and development. However, the MET pathway
has also been shown to function abnormally in a range of different cancers, primarily through MET gene amplification, overexpression
and gene mutations. The aberrant activation of MET has been demonstrated to be highly correlated in many cancer indications, including
kidney, lung, gastric, colorectal, esophageal and brain cancer. It plays a major role in cancer pathogenesis (i.e., the development of the
cancer), including tumor growth, survival, invasion, metastasis, the suppression of cell death as well as tumor angiogenesis.
MET also plays a role in drug resistance in many tumor types. For instance, MET gene amplification has been found in NSCLC
and CRC following anti-EGFR treatment, leading to drug resistance. Furthermore, MET dysregulation is considered to play a role in
the immunosuppression and pathogenesis of kidney cancer.
Savolitinib Research Background
First generation selective MET inhibitors previously discovered by multinational pharmaceutical companies had positive pre-
clinical data that supported their high MET selectivity and pharmacokinetic and toxicity profiles, but did not progress very far due to
kidney toxicity. The issue appeared to be that certain metabolites of earlier compounds had dramatically reduced solubility and appeared
to crystalize in the kidney, resulting in obstructive toxicity. With this understanding, we designed our compound, savolitinib (also
known as AZD6094 and HMPL-504, formerly known as volitinib), differently while preserving high MET inhibition properties across
multiple types of MET aberrations. Savolitinib has not shown any renal toxicity to date and does not appear to carry the same metabolite
problems as the earlier selective MET compounds based on studies in over 1,500 patients conducted by AstraZeneca in global
partnership with the company.
77
Savolitinib Pre-clinical Evidence
In pre-clinical trials, savolitinib demonstrated strong in vitro activity against MET, affecting its downstream signaling targets and
thus blocking the related cellular functions effectively, including proliferation, migration, invasion, scattering and the secretion of VEGF
that plays a pivotal role in tumor angiogenesis.
One of our key areas of focus in our pre-clinical trials is to achieve superior selectivity on a number of kinases. A commonly used
quantitative measure of selectivity is through comparing enzyme IC50, which represents the concentration of a drug that is required for
50% inhibition of the target kinase in vitro and the plasma concentration required for obtaining 50% of a maximum effect in vivo. High
selectivity is achieved with a very low IC50 for the target cells, and a very high IC50 for the healthy cells (approximately 100 times higher
than for the target cells). IC50 is measured in nM (nano-mole, a microscopic unit of measurement for the number of small molecules
required to deliver the desired inhibitory effect).
In the MET enzymatic assay, savolitinib showed potent activity with IC50 of 5 nM. In a kinase selectivity screening with 274
kinases, savolitinib had potent activity against the MET Y1268T mutant (comparable to the wild-type), weaker activity against other
MET mutants and almost no activity against all other kinases. Savolitinib was found to be approximately 1,000 times more potent to
MET than the next non-MET kinase. Similarly, in cell-based assays measuring activity against MET phosphorylation, savolitinib
demonstrated potent activity in both ligand-independent (gene amplified) and ligand-dependent (overexpressed) cells with IC50 at low
nanomolar levels. In target related tumor cell function assays, savolitinib showed high potency with IC50 of less than 10 nM.
Furthermore, savolitinib demonstrated cytotoxicity only on tumor cells that were MET gene amplified or MET overexpressed. In other
cells, inhibition measurements demonstrated that IC50 amounts were over 30,000 nM, which is thousands of times higher than the IC50
on MET tumor cells.
The data above suggest that (i) savolitinib has potent activity against tumor cell lines with MET gene amplification in the absence
of hepatocyte growth factor, or HGF, indicating that there is HGF-independent MET activation in these cells; (ii) savolitinib has potent
activity in tumor cell lines with MET overexpressed, but only in the presence of HGF, indicating HGF-dependent MET activation; and
(iii) savolitinib has no activity in tumor cell lines with low MET overexpression/gene amplification, suggesting that savolitinib has
strong kinase selectivity.
Savolitinib Clinical Development
As discussed below, we have tested, and are currently testing, savolitinib in partnership with AstraZeneca in multiple indications,
both as a monotherapy and in combination with other targeted therapies.
78
Non-small Cell Lung Cancer
We have two ongoing studies, which subject to positive clinical outcome, are designed to support NDA submission in NSCLC. The
table below shows a summary of the clinical trials that we have recently completed and underway for savolitinib in NSCLC patients.
Current and Recent Clinical Trials of Savolitinib in NSCLC
Treatment
Savolitinib
monotherapy
Savolitinib
monotherapy
Sponsors/Partners
HUTCHMED MET exon
Name, Line, Patient Focus
Sites
China
14 skipping alterations
Phase
II
Registration
Status/Plan
Approved
and launched
HUTCHMED
MET exon
14 skipping alterations
China
III
Confirmator
y
Ongoing
NCT #
NCT02897479
NCT04923945
Savolitinib + Tagrisso AstraZeneca
and
HUTCHMED
SAVANNAH: 2L/3L
EGFRm+; Tagrisso
refractory; MET+
Globa
l
II
Registration-
intent
Savolitinib + Tagrisso AstraZeneca
and
HUTCHMED
Savolitinib + Tagrisso AstraZeneca
SAFFRON:2L/3L
EGFRm+;
Tagrisso refractory;
MET+
SACHI: 2L EGFR TKI
refractory NSCLC;
and
HUTCHMED MET+
Global
III
Ongoing. Data has NCT03778229
supported
progression
into Phase IIIs
In planning,
Intend to initiate in
mid-2022
NCT05261399
China
III
Ongoing
NCT0501560
8
Savolitinib + Tagrisso
AstraZeneca
and
HUTCHMED & MET+
SANOVO: Naïve
patients with EGFRm
China
III
Ongoing
NCT05009836
Notes: Global = more than two countries; 2L = second line; 3L = third line; and refractory = resistant to prior treatment.
Savolitinib Monotherapy
More than one third of the world’s lung cancer patients are in China and, among those with NSCLC, approximately 2-3% have
tumors with MET exon 14 skipping alterations, representing an approximate incidence of 13,000 new patients per year in China.
Importantly also, MET plays a role in multiple other solid tumors, with an estimated total incidence of 120,000 new patients per year in
China.
Phase II study of savolitinib monotherapy in NSCLC patients with MET exon 14 alteration (Status: Approved and launched; NCT02897479).
We have completed a 70-patient Phase II registration-intent study in China of savolitinib as a monotherapy for MET exon 14
skipping NSCLC patients who have progressed following prior systemic therapy, or unable to receive chemotherapy.
79
At the ASCO annual meeting in June 2020, we presented interim data on 70 treated patients, of which 61 patients were efficacy
evaluable at the data cut-off date of March 31, 2020. The overall data were encouraging, with efficacy in line with other selective MET
inhibitors, despite the inclusion of patients with a more aggressive subtype (36% with pulmonary sarcomatoid carcinoma) and with
tolerable safety. Efficacy measurements included the objective response rate, or ORR, (the percentage of patients in the study who show
either partial response (tumor measurement reduction of greater than 30%) or complete response), disease control rate, median
progression-free survival or PFS and median OS.
At subsequent data cut-off date of August 3, 2020, in the 61 evaluable patients, ORR was 49.2% and disease control rate was 93.4%.
Median duration of response was 8.3 months (95% confidence interval: 5.3-16.6). In the full analysis set of 70 patients, median PFS
was 6.8 months (95% confidence interval: 4.2-9.6). Median OS was 12.5 months (95% confidence interval: 10.5-23.6). A 95%
confidence interval means that there is a 95% chance that the results will be within the stated range. CTC grade 3 or above TEAEs, with
greater than 5% incidence related to savolitinib treatment were peripheral edema (9%), increased aspartate aminotransferase (13%) and
increased alanine aminotransferase (10%). Clinical data demonstrated an acceptable safety profile with an adverse events-related
discontinuations rate of 14.3%.
Results from this study were published in The Lancet Respiratory Medicine and formed the basis for an NDA filing, which was
approved by the NMPA in June 2021. The approval is conditional upon successful completion of a Phase III confirmatory study in the
same patient population, which is expected to enroll approximately 160 patients from about 40 sites.
Phase II Study of Savolitinib Monotherapy Showing Effect in MET Exon 14 Alteration NSCLC Patients
Pa
esponse
Stable disease
Progressive disease
Notes: N = number of patients; ORR = objective response rate; DCR = disease control rate; and CI = confidence interval.
Source: Lu S, Fang J et al. Phase II study of savolitinib in patients (pts) with pulmonary sarcomatoid carcinoma (PSC) and other types
of non-small cell lung cancer (NSCLC) harboring MET exon 14 skipping mutations (METex14+). Journal of Clinical Oncology
2020 38:15_suppl, 9519-9519.
80
Savolitinib and Tagrisso Combination
In 2015, AstraZeneca received FDA approval for Tagrisso, its drug for the treatment of T790M+ EGFRm+, TKI-resistant NSCLC.
A drug with this type of activity is known as a third-generation EGFR inhibitor. In 2018, Tagrisso’s label was expanded to include
previously untreated patients with EGFRm+ NSCLC. In December 2020, Tagrisso’s label was further expanded to include adjuvant
therapy after tumor resection in EGFRm+ NSCLC patients. Tagrisso has been established as a new standard of care in the treatment of
EGFRm+ NSCLC and has now been approved in over 80 countries. Understanding the mechanism of acquired resistance following
Tagrisso treatment is a key clinical question to inform the next treatment choice. A portion of EGFRm+ TKI-resistant patients and a
portion of T790M+ EGFRm+ TKI-resistant patients progress because of MET gene amplification.
At the ESMO Congress in 2018, AstraZeneca presented the first results on the acquired resistance spectrum detected in patient
plasma samples after progression in the first-line (FLAURA) and second-line T790M (AURA3) Phase III studies. MET amplification
was among the most frequent mechanisms of acquired resistance to Tagrisso, with 15% of patients in the FLAURA study and 19% of
patients in the AURA3 study exhibiting MET amplification after treatment with Tagrisso. Ongoing research with tissue (biopsy)
samples will further elucidate the incidence of MET and other mechanisms in the development of resistance to EGFR inhibitors.
Data presented in June 2017 at the ASCO by the Harvard Medical School and Massachusetts General Hospital Cancer Center
showed that about 30% (7/23 patients) of Tagrisso-resistant third-line NSCLC patients harbored MET gene amplification based on
analysis of tissue samples. This third-line patient population was generally heavily pre-treated and highly complex from a molecular
analysis standpoint, with the study showing that more than half of the MET gene amplification patients also harbored additional genetic
alterations, including EGFR gene amplification and K-Ras mutations.
As discussed in more detail below, we and AstraZeneca are studying savolitinib in combination with Tagrisso as a treatment choice
for patients who have developed a resistance to TKI (primarily Tagrisso). The acceptance and uptake of Tagrisso indicates that the
market potential for savolitinib in Tagrisso-resistant, NSCLC could be material.
TATTON study: Phase Ib/II expansion studies of savolitinib in combination with Tagrisso in NSCLC EGFRm+ inhibitor refractory
patients (Status: complete; NCT02143466).
The TATTON study is a global exploratory Phase I/Ib study in NSCLC aiming to recruit patients with MET gene amplification
who had progressed after prior treatment with EGFR inhibitors to support a decision on global Phase II/III registration strategy. This
followed the completion of TATTON Part A, a Phase I study that established that a savolitinib and Tagrisso combination could be safe
and well tolerated and also demonstrated preliminary signs of efficacy. In 11 evaluable patients who were MET positive, the ORR was
55% with a disease control rate of 100%.
As of data cut-off on March 4, 2020, a total of over 220 patients had received the savolitinib plus the Tagrisso combination treatment
across six TATTON treatment arms, Parts A, B1, B2, B3, C and D. Final analysis for the B and D parts of the study were most recently
presented at the 2020 WCLC Worldwide Virtual Event held in January 2021, and interim data (data cut-off on March 29, 2019) were
previously published in The Lancet Oncology in February 2020. As summarized below, the combination demonstrated an encouraging
anti-tumor activity and an acceptable risk-benefit profile, regardless of dose.
First and second-generation EGFRm+ inhibitor refractory patients with acquired resistance driven by MET amplification
TATTON Part B2 tested patients who were T790M negative with no prior third-generation EGFR TKI treatment. Of the 51 patients
who received treatment (48 efficacy evaluable), 33 patients had confirmed responses (65% of treated patients; 69% of evaluable patients)
with 45 patients experiencing disease control (88% of treated patients; 94% of evaluable patients). The median PFS was 9.1 months
(95% confidence interval: 5.5-12.8 months). Pooled CTC grade 3 or above TEAEs in Part B of the study with greater than 5% incidence
independent of causality were decreased neutrophil count (7%), increased aspartate aminotransferase (6%), increased alanine
aminotransferase (5%), and pneumonia (5%).
TATTON Part B3 tested patients who were T790M positive with no prior third-generation EGFR TKI treatment. Of the 18 patients
who received treatment, 12 patients had confirmed responses (67%) with 18 patients experiencing disease control (100%). The median
PFS was 11.1 months (95% confidence interval: 4.1 months – 22.1 months).
81
In late 2017, the TATTON Part D study was initiated to study Tagrisso combined with a lower savolitinib dose (300 mg once daily)
in the context of maximizing long-term tolerability of the combination for patients who could be in poor condition and/or on the
combination for long periods of time. Of the 42 patients who received treatment (40 efficacy evaluable), 26 patients had confirmed
responses (62% of all patients; 65% of evaluable patients) with 39 patients experiencing disease control (93% of all patients; 98% of
evaluable patients). The median PFS was 9.0 months (95% confidence interval: 5.6-12.7 months). CTC grade 3 or above TEAEs in
Part D of the study with greater than 5% incidence independent of causality were pneumonia (10%), drug hypersensitivity (7%),
pulmonary embolism (5%), diarrhea (5%), myalgia (5%) and generalized edema (5%). Overall the combination regimen of savolitinib
300 mg and Tagrisso was tolerable. In Part D of the study, there was lower incidence of grade ≥ 3 AEs and SAEs as compared to Part
B. The TATTON Part D study demonstrated that a lower dose did not impair clinical efficacy, while maintaining a better tolerability
profile. The results led to the selection of the 300 mg savolitinib plus 80 mg Tagrisso combination dose for the SAVANNAH study,
and two additional cohorts of savolitinib 300 mg twice daily dose (BID) and 600 mg once daily dose (QD) plus 80 mg Tagrisso
combination doses are recruiting, as discussed below.
Tagrisso or another experimental third-generation EGFRm TKI refractory patients with acquired resistance driven by MET
amplification
The TATTON Part B1 study also enrolled NSCLC patients that had progressed after treatment with a third-generation EGFR
inhibitor as a result of MET gene amplification acquired resistance. These patients were recruited prior to the April 2018 FDA approval
of Tagrisso as a first-line treatment and the January 2019 update to the National Comprehensive Cancer Network guidelines that state
that Tagrisso is the preferred first-line treatment for patients with EGFR mutation regardless of pre-treatment T790M mutation status.
Savolitinib in combination with Tagrisso from the TATTON Part B1 study showed promising data. Of the 69 patients that had
progressed on Tagrisso monotherapy and harbored MET amplification (60 patients were efficacy evaluable), there were 23 patients with
confirmed responses (33% of all patients; 38% of evaluable patients) with 52 patients experiencing disease control (75% of all patients;
87% of evaluable patients). The median PFS was 5.5 months (95% confidence interval: 4.1-7.7 months).
The savolitinib and Tagrisso combination is being studied in second line setting as one of several treatment arms in the ORCHARD
study. ORCHARD is a global, phase II, open-label, multi-centre, biomarker-directed platform study in adult patients with locally
advanced/metastatic EGFRm NSCLC whose disease has progressed on first-line Tagrisso monotherapy. Initial results from interim
analysis demonstrated preliminary activities of this combination in Tagrisso refractory patients. Of the 20 patients enrolled, 17 were
evaluable for confirmed response analysis at data cut-off, with an ORR of 41% (7/17). Safety profile was consistent with the known
profiles of Tagrisso and savolitinib, and no new safety signals were identified.
82
Savolitinib plus Tagrisso combination showing effect in EGFR refractory patients who are either Tagrisso refractory (ORCHARD,
TATTON Part B1) or Tagrisso naïve (TATTON Parts B2, B3, D)
(n=51)
(n=18)
(n=42)
Notes: [1] Data cut-off as of January 21, 2021; [2] Data cut-off as of March 4, 2020; [3] Most patients were enrolled to Part
B1, B2, B3 on 600 mg savolitinib, prior to weight-based dosing implementation, but following a protocol amendment
in response to a safety signal of hypersensitivity, the final 21 patients enrolled in Part B were dosed with savolitinib by
body weight as follows: patients who weighed ≤55 kg (n=8) received 300 mg daily and those weighing >55 kg (n=13)
received 600 mg daily; Best response data are for patients who had an opportunity to have two follow-up scans;
* 80% CI; CI = confidence interval; n = number of patients; 2L = second line; 2L+ = second line above; NR = not
reached; ORR = objective response rate; DoR = duration of response; PFS = progression free survival; and EGFR-TKI
= epidermal growth factor receptor tyrosine kinase; neg. = negative; pos. = positive
Source: [1] Yu H.A. et al. “ORCHARD osimertinib + savolitinib interim analysis: A biomarker-directed phase II platform study in
patients (pts) with advanced non-small cell lung cancer (NSCLC) whose disease has progressed on first-line (1L) osimertinib”
Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 13, 2021. Presentation
#1239P.
[2] Han JY, Sequist LV, Ahn MJ, et al. Osimertinib + savolitinib in patients with EGFRm MET-amplified/overexpressed
NSCLC: Phase Ib TATTON Parts B and D final analysis. Poster presented at: 2021 World Conference on Lung Cancer
Singapore; January 28-21, 2021; Virtual. https://bit.ly/3cl7QRE
83
SAVANNAH study: Phase II study of savolitinib in combination with Tagrisso in NSCLC Tagrisso-refractory EGFRm+ patients
(Status: ongoing; NCT03778229).
Based on the encouraging results of the multiple TATTON studies, we and AstraZeneca have initiated a global Phase II study of
savolitinib in combination with Tagrisso in EGFRm+ NSCLC patients with MET gene amplification who have progressed following
first or second-line Tagrisso therapy. The SAVANNAH study is a single-arm study in North and South America, Europe and Asia. We
plan to submit results for presentation at a scientific conference in 2022. In addition to the global Phase III currently under preparation
to commence enrollment in mid-2022, we continue to evaluate the possibility of using the SAVANNAH study as the basis for U.S.
accelerated approval.
The SAVANNAH Study Design: Addressing Tagrisso Resistance Through Combination Therapies
2L+ LOCALLY ADVANCED /
METASTATIC EGFRM+
NSCLC PATIENTS
Progression on 1L or 2L TAGRISSO;
No prior chemo or immunotherapy;
(central FISH/IHC or pre-existing local
NGS);
No prior MET inhibitor therapy;
Stable/asymptomatic CNS mets.
permitted;
ECOG performance status 0-1.
Enrolled
Savolitinib 300mg QD
+ TAGRISSO® 80mg QD
PRIMARY ENDPOINT
300mg QD ORR
Enrolling
Savolitinib 300mg BID
+ TAGRISSO® 80mg QD
SECONDARY ENDPOINTS
300mg QD
ORR by MET FISH+ / IHC+;
PFS; DoR; OS
Safety
300mg BID & 600mg QD
Enrolling
Savolitinib 600mg QD
+ TAGRISSO® 80mg QD
OS)
Safety / tolerability
Notes: 1L = first line; 2L = second line; 2L+ = second line and above; EGFRM+ = epidermal growth factor receptor mutation positive;
ECOG = Eastern Cooperative Oncology Group; BID = twice daily; QD = once daily; FISH (+) = fluorescence in situ
hybridization ( positive ); IHC (+) = immunohistochemistry ( positive ); ORR = objective response rate; PFS = progression
free survival; DoR = duration of response; OS = overall survival; and MET = mesenchymal epithelial transition receptor.
Source: HUTCHMED.
SANOVO study: China Phase III study of combination with Targrisso in naïve NSCLC patients with EGFR mutant and MET positive
(Status: ongoing; NCT05009836).
We have initiated SANOVO, a China Phase III study of savolitinib in combination with AstraZeneca’s third-generation, irreversible
epidermal growth factor receptor TKI, Targrisso as a first-line treatment in certain NSCLC patients whose tumors harbor EGFR
mutations and overexpress MET. The Phase III trial is a blinded, randomized, controlled study in previously untreated patients with
locally advanced or metastatic NSCLC with activating EGFR mutations and MET overexpression. The study will evaluate Targrisso in
combination with savolitinib comparing to Targrisso alone, a standard of care treatment option for these patients. The primary endpoint
of the study is median progression free survival as assessed by investigators. Other endpoints include median progression-free survival
assessed by an independent review committee, median overall survival, ORR, duration of response, disease control rate, time to response
and safety. The first patient was dosed in September 2021.
84
SACHI study: China Phase III study of combination with Targrisso in 2L EGFR TKI refractory, MET amplified NSCLC patients (Status:
ongoing; NCT05015608).
We have initiated SACHI, a China Phase III study of savolitinib in combination with Tagrisso. The Phase III trial is a multi-center,
open-label, randomized, controlled study in patients with locally advanced or metastatic EGFR mutation-positive NSCLC with MET
amplification after disease progression on EGFR inhibitor therapy. The study will evaluate the efficacy and safety of savolitinib in
combination with Tagrisso, compared to platinum-based doublet-chemotherapy (pemetrexed plus cisplatin or carboplatin), the standard
of care treatment option in this setting. The primary endpoint of the study is median PFS as assessed by investigators. Other endpoints
include median PFS assessed by an independent review committee, median overall survival, ORR, duration of response, disease control
rate, time to response, and safety. The first patient was dosed in November 2021.
85
Kidney Cancer
The table below shows a summary of the clinical trials that we have recently completed or are underway for savolitinib in kidney
cancer patients.
Current and Recent Clinical Trials of Savolitinib in Kidney Cancer
Treatment
Savolitinib + Imfinzi
Sponsors/Partners
AstraZeneca and HUTCHMED
Savolitinib + Imfinzi
Savolitinib + Imfinzi
Queen Mary University of
London, Vall d’Hebron Institute of
Oncology, AstraZeneca
Queen Mary University of
London, Vall d’Hebron Institute of
Oncology, AstraZeneca
CALYPSO: Clear cell
RCC; VEGFR TKI
refractory
Name, Line, Patient Focus
SAMETA: MET-driven,
unresectable and locally
advanced or metastatic
PRCC
CALYPSO: PRCC
Sites
Global
Phase
III
Status/Plan
Ongoing
NCT #
NCT05043090
U.K./Spain
U.K./Spain
II
II
Data updated at
ASCO 2021
NCT02819596
Ongoing
NCT02819596
Notes: PRCC = papillary renal cell carcinoma; RCC = renal cell carcinoma; VEGFR TKI refractory = resistant to prior VEGFR
tyrosine kinase inhibitor treatment; Global = more than two countries; PFS = progression-free survival; and MET =
mesenchymal epithelial transition receptor.
MET is a key genetic driver in RCC, and emerging evidence suggests that combining immunotherapies with a MET inhibitor could
enhance anti-tumor activity. PRCC is a subtype of kidney cancer, representing about 15% of patients, with no treatments approved for
patients with tumors that harbor MET-driven alterations.
During an Australian Phase I study, our investigators noted positive outcomes among PRCC patients with a strong correlation to
MET gene amplification status. Out of a total of eight PRCC patients in our Australia Phase I study who were treated with various
doses of savolitinib, three achieved confirmed partial responses. A further three of these eight PRCC patients achieved stable disease,
which means patients without partial response but with a tumor measurement increase of less than 20%. This aggregate ORR of 38%
was very encouraging for PRCC, which has no effective approved treatments. These responses were also durable as demonstrated by a
patient who has been on the therapy for over 30 months and had tumor measurement reduction of greater than 85%. Importantly, the
level of tumor response among these PRCC patients correlated closely with the level of MET gene amplification. The patients with
consistent MET gene amplification across the whole tumor responded most to savolitinib, and with those patients with the highest level
of MET gene amplification responding most to the treatment.
Savolitinib and Immunotherapy Combinations
Immunotherapy combinations are rapidly changing the treatment landscape in kidney cancer. Immune checkpoints such as PD-L1
are sometimes used by cancer cells to avoid being attacked by the immune system. As such, drugs that target these checkpoints are
being developed or marketed as cancer treatments. Imfinzi is an anti-PD-L1 antibody owned by AstraZeneca. Anti-PD-L1 antibodies
have been associated with clinical benefits in metastatic RCC, and MET dysregulation has been considered to play an important role in
PRCC pathogenesis (including in our savolitinib Phase I and Phase II monotherapy studies) and is a mechanism of resistance against
kinase inhibitors in clear cell RCC. Moreover, it is believed that the MET signaling pathway has a complex interplay with the immune
system, including correlation with PD-L1 expression, immune suppression through angiogenesis and many other facets of the immune
system. Our CALYPSO study discussed below aims to explore and potentially confirm this interplay.
CALYPSO study: Phase II study of savolitinib in combination with Imfinzi in both PRCC and clear cell RCC patients (Status: dose
expansion ongoing; NCT02819596).
The CALYPSO study is an investigator-initiated open-label Phase II study of savolitinib in combination with Imfinzi. The study
is evaluating the safety and efficacy of the savolitinib and Imfinzi combination in both PRCC and clear cell RCC patients at sites in the
U.K. and Spain.
86
Interim results of the PRCC cohort of the CALYPSO study were most recently presented at the 2021 ASCO annual meeting and
showed encouraging efficacy across all patients, both MET+ and MET-. In the 41 patients who were selected regardless of PD-L1 or
MET status, ORR was 29% (12/41), while median PFS was 4.9 months (95% confidence interval: 2.5-10.0 months). Median OS was
14.1 months (95% confidence interval: 7.3-30.7 months). For the 14 patients whose tumors are MET-driven, ORR was 57% (8/14),
median PFS was 10.5 months (95% confidence interval: 2.9-15.7), and median OS was 27.4 months (95% confidence interval: 7.3-NR).
Tolerability was consistent with established single agent safety profiles. In the analysis previously presented at ASCO’s Genitourinary
Cancers Symposium in 2020, there were 13 treatment related CTC grade 3 or above TEAEs that occurred in more than three patients,
with edema (10%), nausea (5%) and transaminitis (5%) being most frequent. We and AstraZeneca continue to explore development of
the savolitinib-Imfinzi combination in PRCC patients.
SAMETA study: Phase III in combination with Imfinzi PD-L1 inhibitor in MET-driven, unresectable and locally advanced or metastatic
PRCC (Status: ongoing; NCT05043090)
The Phase III trial is an open-label, randomized, controlled study in treatment-naïve patients with MET-driven, unresectable and
locally advanced or metastatic PRCC, to evaluate the efficacy and safety of savolitinib in combination with Imfinzi compared to single
agent Imfinzi or single agent Sutent, an oral multi-kinase inhibitor considered as the standard of care treatment option in PRCC. The
primary endpoint of the study is median PFS. Other endpoints include median OS, ORR, duration of response, 6-months and 12-months
DCR, time to second progression, safety, pharmacokinetics and quality of life. The first patient was dosed in October 2021.
Gastric Cancer
The table below shows a summary of our clinical trial for savolitinib in gastric cancer patients.
Clinical Trials of Savolitinib in Gastric Cancer
Treatment
Savolitinib monotherapy
Sponsors/Partners
HUTCHMED and
Name, Line, Patient Focus
VIKTORY: Gastric cancer
Sites
China / South
Samsung Medical Center
(MET amplification)
Korea
Savolitinib monotherapy
HUTCHMED
2L+ gastric cancer with
MET amplification
China
Phase
Ib/II
Status/Plan
Completed. Support
decision to progress into
Phase II registration
intent study
Ongoing
II
registration
intent
NCT #
NCT01985555/
NCT02449551
NCT04923932
Phase Ib/II study of savolitinib monotherapy in MET amplified gastric cancer in China (Status: completed; NCT01985555)
Preliminary results of the China study were presented at the 2017 Chinese Society of Clinical Oncology, or CSCO, for the efficacy
evaluable MET gene amplified patients. Based on confirmed and unconfirmed partial responses, the ORR was 43% (3/7) and disease
control rate was 86% (6/7), with ORR of 14% (3/22) and disease control rate of 41% (9/22) among the overall efficacy evaluable aberrant
MET set of patients with MET amplification (n=7) and MET overexpression (n=15). As of the data cut-off, the longest duration of
treatment was in excess of two years. Savolitinib monotherapy was determined to be safe and well tolerated in patients with advanced
gastric cancer. CTC grade 3 or above TEAEs with greater than 5% incidence included abnormal hepatic function in 13% (4/31),
gastrointestinal bleeding or decreased appetite in 10% (3/31 each), and diarrhea or gastrointestinal perforation in 6% (2/31 each). This
China study concluded that savolitinib monotherapy demonstrated promising anti-tumor efficacy in gastric cancer patients with MET
gene amplification and that the potential benefit to these patients warranted further exploration, with enrollment continuing.
87
VIKTORY Phase II study of savolitinib in MET amplified gastric cancer in South Korea (Status: completed; NCT02449551)
The VIKTORY study is a biomarker-based, Phase II umbrella trial in gastric cancer conducted by the Samsung Medical Center in
South Korea. Patients were allocated to one of 12 biomarker-driven arms, based on a master screening protocol with tissue-based
molecular analyses. Patients that tested positive for MET amplification or overexpression were treated with either savolitinib
monotherapy or a combination of savolitinib and Taxotere. A total of 715 gastric cancer patients were successfully sequenced and MET
amplification was observed in 3.5% of these patients (25/715). Of the 10 associated clinical trials under the VIKTORY umbrella, the
highest ORR was observed in the MET amplification arm in patients treated with savolitinib monotherapy, which reported an ORR of
50% (10/20, 95% confidence interval: 28.0-71.9) and met pre-specified 6-week PFS rates. While the savolitinib and Taxotere
combination was well tolerated, the VIKTORY study investigators decided to stop enrollment in the two combination cohorts in order
to direct patients to the savolitinib monotherapy arm of the VIKTORY study as discussed above.
The VIKTORY study investigators have concluded that encouraging clinical efficacy of savolitinib in MET-amplified gastric cancer
warrants further study.
Phase II study of savolitinib with potential for registration intent in 2L+ gastric cancer with MET amplification (Status: ongoing;
NCT04923932)
This Phase II registration-intent study is a two-stage and single-arm study to evaluate the efficacy, safety and pharmacokinetics of
savolitinib in locally advanced or metastatic GC or GEJ patients whose disease progressed after at least one line of standard therapy.
The primary endpoint is ORR as assessed by an independent review committee. Other endpoints include 12-week and 6-month
progression-free survival rates, median progression-free survival, duration of response, disease control rate, median overall survival,
safety, pharmacokinetics and quality of life. The first patient was dosed in July 2021. Subject to the results of the first stage of this
study, we will discuss with the CDE of NMPA the appropriate approach and necessary criteria for registration.
Partnership with AstraZeneca
In December 2011, we entered into a global licensing, co-development, and commercialization agreement for savolitinib with
AstraZeneca. As noted above, given the complexity of many of the signal transduction pathways and resistance mechanisms in oncology,
the industry is increasingly studying combinations of targeted therapies (TKI, monoclonal antibodies and immunotherapies) and
chemotherapy as potentially the best approach to treating this complex and constantly mutating disease. Based on savolitinib’s clinical
progress as a highly selective MET inhibitor in a number of cancers, in August 2016, December 2020 and November 2021, we and
AstraZeneca amended our global licensing, co-development, and commercialization agreement for savolitinib. We believe that
AstraZeneca’s portfolio of proprietary targeted therapies is well suited to be used in combinations with savolitinib, and we are studying
combinations with Tagrisso (EGFRm+, T790M+) and Imfinzi (PD-L1). These combinations of multiple global first-in-class compounds
are difficult to replicate, and we believe represent a significant opportunity for us and AstraZeneca. For more information regarding our
partnership with AstraZeneca, see “—Overview of Our Collaborations—AstraZeneca.”
2.
Surufatinib (HMPL-012), VEGFR 1, 2 and 3, FGFR1 and CSF-1R Inhibitor
Surufatinib is a novel, oral angio-immuno kinase inhibitor that selectively inhibits the tyrosine kinase activity associated with
VEGFR and FGFR, both of which have been shown to be involved in tumor angiogenesis, and CSF-1R, which plays a key role in
regulating tumor-associated macrophages, promoting the body’s immune response against tumor cells. Surufatinib has been studied in
clinical trials with around 1,200 patients to date, both as a monotherapy and in combinations, and is approved in China. We currently
retain all rights to surufatinib worldwide.
Initial approvals for surufatinib in China are for the treatment of advanced NET patients. NETs present in the body’s organ system
with fragmented epidemiology. Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages
and promote infiltration of effector T cells into tumors could help improve the anti-tumor activity of PD-1 antibodies. Several
combination studies with PD-1 antibodies have shown promising data.
88
Mechanism of Action
Both VEGFR and FGFR signaling pathways can mediate tumor angiogenesis. CSF-1R plays an important role in the functions of
macrophages. Recently, the roles in increasing tumor immune evasion of VEGFR, FGFR in regulation of T cells, tumor-associated
macrophages and myeloid-derived suppressor cells have been demonstrated. Therefore, blockade of tumor angiogenesis and tumor
immune evasion by simultaneously targeting VEGFR 1, 2 and 3, FGFR1 and CSF-1R kinases may represent a promising approach for
oncology therapy.
Surufatinib Pre-clinical Evidence
Surufatinib inhibited VEGFR 1, 2, and 3, FGFR1 and CSF-1R kinases with IC50 in a range of 1 nM to 24 nM. It also strongly
blocked VEGF-induced VEGFR2 phosphorylation in HEK293 cells and CSF-1R phosphorylation in RAW264.7 cells with an IC50 of
2 nM and 79 nM, respectively. Surufatinib also reduced VEGF- or FGF-stimulated human umbilical vein endothelial cell proliferation
with an IC50 < 50 nM. In animal studies, a single oral dose of surufatinib inhibited VEGF-stimulated VEGFR2 phosphorylation in lung
tissues of nude mice in an exposure-dependent manner. Furthermore, elevation of FGF23 levels in plasma 24 hours post dosing
suggested suppression of FGFR signaling.
Surufatinib demonstrated potent tumor growth inhibition in multiple human xenograft models and decreased cluster of
differentiation 31 expression remarkably, suggesting strong inhibition on angiogenesis through VEGFR and FGFR signaling. In a
syngeneic murine colon cancer model, surufatinib demonstrated moderate tumor growth inhibition after single-agent treatment. Flow
cytometry and immunohistochemistry analysis revealed an increase of certain T cells and a significant reduction in certain tumor-
associated macrophages, including CSF-1R mutation positive tumor-associated macrophages in tumor tissue, indicating surufatinib has
a strong effect on CSF-1R. Interestingly, a combination of surufatinib with a PD-L1 antibody resulted in enhanced anti-tumor effect.
These results suggested that surufatinib has a strong effect in modulating angiogenesis and cancer immunity.
89
Surufatinib Clinical Trials
We currently have various clinical trials of surufatinib as a monotherapy and in combination with checkpoint inhibitors ongoing or
expected to begin in the near term.
Neuroendocrine Tumors
Neuroendocrine tumors begin in the specialized cells of the body’s neuroendocrine system. Cells have traits of both hormone-
producing endocrine cells and nerve cells. Neuroendocrine tumors are found throughout the body’s organ system and have complex
and fragmented epidemiology with about 65-75% of NETs originating in the gastrointestinal tract and pancreas, 25-35% in the lung or
bronchus, and a further 20-30% in other organs or unknown origins.
In China, there are an estimated approximately 34,000 new patients of advanced NETs per year and were potentially over 300,000
patients living with NET in China in 2021.
NETs can be functional, releasing hormones and peptides that cause symptoms like diarrhea and flushing, or non-functional with
no symptoms. Early-stage NETs, which are often functional, can be treated with somatostatin analogue subcutaneous injections, which
are approved and reimbursed in China and alleviate symptoms and slow NET growth, but have limited tumor reduction efficacy.
Advanced NETs grow more quickly. In China, Sutent is approved in pancreatic NET while Afinitor, an mTOR inhibitor, is
approved in non-functional NETs in the pancreas, lung and gastrointestinal tract. These approvals, however, cover only about half of
advanced neuroendocrine tumor patients.
The table below shows a summary of the clinical trials that we have completed or are in planning for surufatinib in neuroendocrine
cancer patients. Our Phase Ib study in planning for the U.S. and Europe will also include expansion cohorts to explore surufatinib in
patients with BTC and sarcoma.
Clinical Trials of Surufatinib in NETs
Treatment
Surufatinib
monotherapy
Surufatinib
monotherapy
Surufatinib
monotherapy(1)
Surufatinib
monotherapy
Surufatinib
monotherapy
Sponsors/Partners Name, Line, Patient Focus
HUTCHMED
SANET-ep: Non-pancreatic
NET
SANET-p: Pancreatic NET
HUTCHMED
HUTCHMED
NETs
HUTCHMED
NETs
Sites
China
China
U.S.
Europe
Phase
III
Status/Plan
Approved and launched
III
Ib
II
Approved and launched;
subgroup analysis presented at
ASCO 2021
FDA accepted NDA (June
2021); updated Ib data presented
at ASCO 2021
EMA accepted MAA (July
2021)
Ongoing. Reg-enabling study
NCT #
NCT02588170
NCT02589821
NCT02549937
NCT04579679
NCT05077384
HUTCHMED
NETs
Japan
Bridging
Notes:
(1)
track designation for our pancreatic and non-pancreatic NET development programs in April 2020.
FDA granted surufatinib orphan drug designation for the treatment of pancreatic NETs in November 2019 and fast
NET = neuroendocrine tumor.
90
SANET-ep study: Phase III study of surufatinib monotherapy in non-pancreatic NETs (Status: completed and product launched in China;
NCT02588170)
In 2015, we initiated the SANET-ep study, which is a Phase III study in China in patients with grade 1 and 2 advanced non-
pancreatic NETs. In this study, patients were randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo
once daily on a 28-day treatment cycle. The primary endpoint was PFS, with secondary endpoints including ORR, disease control rate,
time to response, duration of response, OS, safety and tolerability.
A 198-patient interim analysis was conducted on SANET-ep in mid-2019, leading the independent data monitoring committee, or
IDMC, to determine that it had met the pre-defined primary endpoint of PFS and should be stopped early. The positive results of this
trial were highlighted in an oral presentation at the 2019 European Society for Medical Oncology Congress, and subsequently published
in The Lancet Oncology in September 2020. Median PFS per investigator assessment was 9.2 months for patients treated with
surufatinib, as compared to 3.8 months for patients in the placebo group (HR 0.334; 95% CI: 0.223, 0.499; p<0.0001). Efficacy was also
supported by a blinded independent image review committee assessment. Surufatinib was well-tolerated in this study and the safety
profile was consistent with observations in prior clinical studies. CTC grade 3 or above TEAEs in this study with greater than 5%
incidence were hypertension (36%), proteinuria (19%) and anemia (7%).
SANET-ep Clearly Succeeded in Meeting Primary Endpoint of PFS
Number at risk
(number censored)
Surufatinib
Placebo
)
%
(
l
a
v
i
v
r
u
s
e
e
r
f
-
n
o
i
s
s
e
r
g
o
r
P
100
90
80
70
60
50
40
30
20
10
0
0
Surufatinib
Placebo
HR 0.334 (95% CI 0.223–0.499); p<0.0001
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
Time (months)
129 (0)
69 (0)
100 (16)
43 (11)
83 (24)
25 (15)
63 (31)
16 (16)
46 (36)
10 (16)
37 (36)
6 (17)
25 (42)
6 (17)
13 (47)
4 (17)
13 (47)
4 (17)
8 (49)
1 (18)
7 (49)
0 (18)
7 (49)
··
4 (50)
··
3 (50)
··
2 (51)
··
2 (51)
··
0 (52)
··
91
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Zhou Z, et al. Surufatinib in advanced extrapancreatic neuroendocrine tumours (SANET-ep): a randomised,
double-blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1500-1512. doi:10.1016/S1470-2045(20)30496-
4.
In late 2020, surufatinib was granted approval for drug registration by the NMPA for the treatment of non-pancreatic NET and
launched in mid-January 2021 within three weeks of approval. We believe the benefits of surufatinib as a monotherapy to patients with
non-pancreatic NETs in China could be significant as compared to the minimal treatment alternatives currently available to them.
SANET-p study: Phase III study of surufatinib monotherapy in pancreatic NETs (Status: completed and product launched in China for
treatment of pancreatic NETs; NCT02589821)
In 2016, we initiated the SANET-p study, which is a Phase III study in China in patients with low- or intermediate-grade, advanced
pancreatic NETs. In this study, patients are randomized at a 2:1 ratio to receive either an oral dose of 300 mg of surufatinib or a placebo
once daily on a 28-day treatment cycle. The primary endpoint is PFS, with secondary endpoints including ORR, disease control rate,
time to response, duration of response, OS, safety and tolerability.
In early 2020, an interim analysis was conducted on SANET-p, leading the IDMC to recommend that the study stop early as the
pre-defined primary endpoint of PFS had already been met. Investigator-assessed median PFS was 10.9 months for patients treated with
surufatinib, as compared to 3.7 months for patients in the placebo group (HR 0.491; 95% CI: 0.319-0.755; p=0.0011). ORRs were 19.2%
for the efficacy evaluable patients in the surufatinib group versus 1.9% for the placebo group, with a DCR of 80.8% versus 66.0%,
respectively. Most patients in the trial had Grade 2 disease with heavy tumor burden, including liver metastasis and multiple organ
involvement. Efficacy was also supported by blinded independent image review committee assessment, with a median PFS of 13.9
months for surufatinib as compared to 4.6 months for placebo (HR 0.339; 95% CI 0.209-0.549; p<0.0001). The safety profile of
surufatinib was manageable and consistent with observations in prior studies. Treatment was well tolerated for most patients, with
discontinuation rates as a result of TEAEs of 10.6% in the surufatinib group as compared to 6.8% in the placebo group. CTC grade 3 or
above TEAEs in this study with greater than 5% incidence were hypertension (38%), proteinuria (10%) and hypertriglyceridemia (7%).
SANET-p Clearly Succeeded in Meeting Primary Endpoint of PFS
Surufatinib
Placebo
HR for progression or death 0.49 (95% CI 0.32–0.76); p=0.0011
)
%
(
l
a
v
i
v
r
u
s
e
e
r
f
-
n
o
i
s
s
e
r
g
o
r
P
100
90
80
70
60
50
40
30
20
10
0
Number at risk
(number censored)
Surufatinib
Placebo
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
Time (months)
113 (0) 79 (27) 61 (33) 50 (36) 43 (39) 33 (42) 25 (44) 20 (45) 19 (45) 13 (45) 8 (50)
59 (0)
33 (10) 20 (11) 12 (14) 10 (15) 9 (15)
5 (53) 4 (54) 2 (55)
5 (17) 4 (17) 4 (17) 4 (17) 4 (17) 3 (17)
6 (17)
6 (17)
6 (17)
8 (50)
2 (55)
1 (56) 1 (56) 1 (57)
3 (17) 3 (17) 2 (18) 0 (20)
92
Notes: P-value is obtained from the stratified one-sided log-rank test; Hazard ratio is obtained from stratified Cox model; CI =
confidence interval; and HR = hazard ratio.
Source: Xu J, Shen L, Bai C, et al. Surufatinib in advanced pancreatic neuroendocrine tumours (SANET-p): a randomised, double-
blind, placebo-controlled, phase 3 study. Lancet Oncol. 2020;21(11):1489-1499. doi:10.1016/S1470-2045(20)30493-9.
Surufatinib was granted approval for drug registration by the NMPA for the treatment of advanced pancreatic NET and launched
in June 2021. We believe the benefits of surufatinib as a monotherapy to patients with pancreatic NETs in China could be significant as
compared to the alternatives currently available to them. We believe that surufatinib is currently the only approved targeted therapy that
can address and treat all subtypes of NETs.
Global development of surufatinib in NET: U.S. NDA and EU MAA under review
The U.S. NDA and EU MAA are supported by data from two positive Phase III studies of surufatinib in patients with pancreatic
and extra-pancreatic NET in China (SANET-p and SANET-ep both previously reported in The Lancet Oncology), and a surufatinib
Phase Ib study conducted in U.S. NET patients (N=107 for safety and N=67 for efficacy).
In June 2021, the U.S. FDA accepted our filing of the NDA for surufatinib for the treatment of pancreatic and extra-pancreatic
(non-pancreatic) NETs. Surufatinib received fast track designation in April 2020 for the treatment of pancreatic and extra-pancreatic
NET. Orphan Drug Designation for pancreatic NET was also granted in November 2019. In addition, we have initiated an expanded
access program in the United States for compassionate use by patients with NET with limited therapeutic options. Regulatory clearance
of this program has been granted by the U.S. FDA and this program is open for site activation.
U.S. FDA NDA review, as well as the clinical site inspections and pre-approval inspections of our manufacturing facilities, are
ongoing. The PDUFA goal date for the FDA’s completion of review is April 30, 2022. Timing of completion of the NDA review is
subject to FDA scheduling limitations which are contingent on COVID–19 travel restrictions and security requirements for foreign
visitors. Remaining inspections must be completed before regulatory action can be taken.
We have also submitted the EMA MAA for surufatinib, which was validated and accepted in July 2021, for the treatment of both
pancreatic and non-pancreatic NET. The 120-day assessment has been completed, and we are now entering the later stages of MAA
review. In addition, we initiated a registration-enabling bridging study in NET patients in Japan in September 2021.
Phase Ib study of surufatinib monotherapy in heavily pretreated progressive NETs (Status: ongoing; NCT02549937)
We are conducting a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of
surufatinib in U.S. patients, which has established the U.S. recommended Phase II dose, or RP2D, to be 300 mg, the same as that in
China. At the 2021 ASCO annual meeting, preliminary data presented from the two NET cohorts in the ongoing U.S. Phase Ib trial for
surufatinib demonstrated efficacy comparable to China data in heavily pretreated patients, including Afinitor and Sutent, with pancreatic
or non-pancreatic NETs. The safety profile was also consistent with the larger pool of surufatinib safety data. As of June 30, 2020, 16
patients with pancreatic NET were treated for a median of 8.5 months (range 2-23) and 16 patients with non-pancreatic NET were
treated for a median of 8 months (range of 2-15). All 32 patients have pretreated progressive NETs (median prior lines of treatment: 3;
range 1-8). Confirmed response was observed in 18.8% of pancreatic, NET, and disease control was observed in 87.5% of patients. In
the non-pancreatic NET cohort, confirmed response was observed in 6.3% of the patients and disease control was observed in 93.8% of
patients. Median PFS was 11.5 months for patients in both cohorts (95% confidence interval: 6.5-17.5).
93
US Phase Ib: Encouraging Preliminary Efficacy in Afinitor and Sutent Refractory/Intolerant NET
surufatinib
everolimus
sunitinib
Other Tx
8
12
10
24
3
3
2
X
15
3
11
2
3
2
5
7
8
36
18
7
8
24
12
4
10
12
8
15
6
6
3
4
7
8
11
9
18
X
X
2
2
1
3
2
6
6
X
X
X
6
14
2
3
1
36
12
24
32
12
3
22
5
12
36
-48
-36
-24
-12
0
24
22
12
12
6
24
PR
uPR
X
X
X
(n=3)
(n=1)
Treatment ongoing (n=5)
Rx stop – AE (n=1)
Rx stop – PD (n=7)
Rx stop – Other (n=3)
PR
uPR
X
4
12
6
18
6
X
4
13
12
12
PR
X
PR
12
3
24
48
8
X
8
X
36
48
60
72
84
Months since treatment of
everolimus (AFINITOR®) or sunitinib (SUTENT®)
Notes: Data cut-off as of April 21, 2020. PR = partial response; AE = adverse event; PD = progressive disease; Rx = treatment; Tx =
treatment; and n = number of patients.
Source: Dasari, et al. Efficacy and safety of surufatinib in United States (US) patients (pts) with neuroendocrine tumors (NETs). Journal
of Clinical Oncology 2020 38:15_suppl, 4610-4610.
Bridging study of surufatinib monotherapy in heavily pretreated progressive NETs (Status: ongoing; NCT05077384)
In September 2021, we initiated a Japan registration-enabling bridging study for surufatinib to support the registration of surufatinib
in the treatment of patients with advanced NETs. Based on dialogue with the PMDA, it was agreed that the surufatinib Japanese NDA
for the treatment of advanced NETs include results from a pivotal study to be conducted in Japan, to complement the registration data
package supporting the NDA to the U.S. FDA and the MAA to the EMA.
This Japan study is a two-stage, open label study of surufatinib where approximately 34 patients are expected to be recruited. In
part 1 of the study, the safety and tolerability of surufatinib 300mg once daily after 28 days of treatment will be assessed in patients with
relapsed/refractory non-hematological malignancies; pharmacokinetics and anti-tumor activity of surufatinib are secondary endpoints.
In Part 2 of the study, efficacy will be assessed in patients with locally advanced or metastatic NETs; the primary outcome measure is
ORR. The secondary outcome measures include DCR, PFS, DoR, safety, and pharmacokinetics.
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Biliary Tract Cancer
BTC (also known as cholangiocarcinoma) is a heterogeneous group of rare malignancies arising from the biliary tract epithelia.
Gemzar, a type of chemotherapy, is the currently approved first-line therapy for BTC patients, with median survival of less than 12
months for patients with unresectable or metastatic disease at diagnosis. As a result, this is an unmet medical need for patients who have
progressed on chemotherapy. There is currently no standard of care for these patients. Surufatinib may offer a new targeted treatment
option in this tumor type. The table below shows a summary of the clinical studies that we have conducted for surufatinib in BTC
patients. Based on the emerging data from our Phase II cohort of the surufatinib combination plus Tuoyi in BTC, we are now prioritizing
the combination over surufatinib monotherapy for further development.
Clinical Trials of Surufatinib in BTC
Treatment
Surufatinib monotherapy
HUTCHMED
Sponsors/Partners
Name, Line, Patient Focus
BTC
BTC
Sites
China
Phase
Ib/IIa
Status/Plan
Completed; data
presented at
ASCO 2021
NCT #
NCT02966821
China
IIb
Completed
NCT03873532
Surufatinib monotherapy
HUTCHMED
Notes: Chemotherapy refractory = resistant to prior chemotherapy treatment; and BTC = biliary tract cancer.
Phase Ib/IIa surufatinib monotherapy in chemotherapy refractory BTC – China (Status: completed; NCT02966821)
In early 2017, we began a Phase Ib/IIa proof-of-concept study in patients with BTC. Preliminary efficacy led us to begin the Phase
II/III study discussed below.
At the 2021 ASCO annual meeting, results of this study were disclosed. Surufatinib demonstrated moderate efficacy and favorable
tolerability profile. After 16 weeks of treatment, 46% of the patients did not experience progression of their disease. Median PFS was
3.7 months and median OS was 6.9 months. The most common Grade 3 or higher treatment-related adverse events were blood bilirubin
increase (21%), hypertension (18%), and proteinuria (13%).
Phase IIb study of surufatinib monotherapy in second line BTC – China (Status: completed; NCT03873532)
In March 2019, based on preliminary Phase Ib/IIa data, we initiated a registration-intent Phase IIb/III study comparing surufatinib
with capecitabine in patients with unresectable or metastatic BTC. Enrollment for the Phase IIb portion (80 patients) of this study was
completed in late 2020.
Surufatinib Combinations with Checkpoint Inhibitors
Surufatinib’s ability to inhibit angiogenesis, block the accumulation of tumor associated macrophages and promote infiltration of
effector T cells into tumors, could help improve the anti-tumor activity of PD-1 antibodies.
The table below shows a summary of the clinical trials that we have underway or in planning for surufatinib in combination with
checkpoint inhibitors.
95
Clinical Trials of Surufatinib with Checkpoint Inhibitors
Treatment
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Sponsors/Partners
Name, Line, Patient Focus
Sites
HUTCHMED and Junshi
HUTCHMED and Junshi
SURTORI-01: neuroendocrine carcinoma China
China
Neuroendocrine neoplasms
Phase
III
II
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
HUTCHMED and Junshi
HUTCHMED and Junshi
BTC
Gastric cancer
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
HUTCHMED and Junshi
HUTCHMED and Junshi
Thyroid cancer
Small cell lung cancer
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
Surufatinib and Tuoyi (PD-1)
HUTCHMED and Junshi
HUTCHMED and Junshi
HUTCHMED and Junshi
Soft tissue sarcoma
Endometrial cancer
Esophageal cancer
China
China
China
China
China
China
China
II
II
II
II
II
II
II
Surufatinib and Tuoyi (PD-1)
Surufatinib and tislelizumab (PD-1)
HUTCHMED and Junshi
HUTCHMED and BeiGene
NSCLC
Solid tumors
China
U.S./ Europe
II
Ib/II
Status/Plan
Ongoing
Ongoing; data
presented at
ASCO 2021 and
ESMO IO 2021.
Ongoing
Ongoing; data
presented at
ASCO 2021 and
updated at ESMO
IO 2021
Ongoing
Ongoing; data
presented at
ESMO IO 2021
Ongoing
Ongoing
Ongoing; data
presented at
ESMO IO 2021.
Ongoing
Ongoing
NCT #
NCT05015621
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04169672
NCT04579757
In late 2018, we entered into a global collaboration with Junshi to evaluate the combination of surufatinib with Tuoyi. We completed
a Phase I dose-finding study and presented the data at the AACR Conference in April 2020. The data showed that surufatinib plus Tuoyi
were well tolerated with no unexpected safety signals observed. At the recommend Phase 2 dose, a DCR of 100% and ORR of 63.6%
were reported for 11 efficacy evaluable patients, with 2 unconfirmed partial responses. Surufatinib plus Tuoyi showed encouraging
antitumor activity in patients with advanced solid tumors. A Phase II China study is enrolling approximately 260 patients in nine solid
tumor indications, including NENs, BTC, gastric cancer, thyroid cancer, small cell lung cancer, soft tissue sarcoma, endometrial cancer,
esophageal cancer and NSCLC. In 2021, we presented encouraging preliminary data on several of these surufatinib-Tuoyi combination
cohorts at CSCO and ESMO IO. These have led to the initiation of the first Phase III trial combining surufatinib with a PD-1 antibody,
the SURTORI-01 study in NEC, and we are currently considering further registration studies in gastric cancer, small cell lung cancer
and esophageal cancer.
NEC (subset of NENs) cohort – At the 2021 CSCO annual meeting, we presented data, with a cutoff date of July 30, 2021 for all
21 enrolled NEC patients that were efficacy evaluable. Average duration of treatment was 4.9 months (range 1-19) and median OS was
10.3 months (95% CI: 9.1-not reached). The median PFS was 4.14 months (95% CI: 1.5-5.5) and median DoR was 4.1 months (95%
CI: 3.0-not reached). The confirmed ORR was 23.8% (95% CI: 8.2-47.2) and DCR was 71.4% (95% CI: 47.8-88.7). All patients
experienced treatment-related adverse events, including 9 (42.9%) who experienced grade 3 or above treatment-related adverse events.
1 (4.8%) patient reported treatment-related serious adverse events. Hyperglycemia (3 patients, 14.3%), hypertension (2 patients, 9.5%)
and hypertriglyceridemia (2 patients, 9.5%) were the most commonly (more than one patient) reported grade 3 or above treatment-
related adverse events. No treatment-related adverse events led to treatment discontinuation or treatment-related deaths.
In September 2021, we initiated a Phase III study to evaluate the combination compared with Folfiri to treat patients with advanced
NEC who have progression of disease or intolerable toxicity after previous first-line chemotherapy. It is a randomized, controlled, open-
label, multi-center study where approximately 200 patients are expected to be enrolled. For the study group, all patients will receive
study treatment in a 21-day cycle. The primary outcome measure is OS. We are the sponsor and responsible for the study’s execution.
We and Junshi Biosciences are jointly funding the study.
At the 2021 ASCO annual meeting, encouraging preliminary data were disclosed for the surufatinib and Tuoyi combination in the
NEC and GC cohorts. For the 20 patients in the NEC cohort who received an average of 5 cycles of treatments and are efficacy evaluable,
ORR was 20% while DCR was 70%. Median PFS was 3.9 months (95% confidence interval: 1.3-NR). Grade 3 or higher treatment-
related adverse events occurred in 33% of patients. Median duration of treatment for the GC cohort was 3 months, with 15 patients
efficacy evaluable at the time of the analysis. For these 15 patients, confirmed ORR was 13% and an additional 20% of patients had
unconfirmed OR. DCR was 73% and median PFS was 3.7 months (95% confidence interval: 1.4-NR). Grade 3 or higher treatment-
related adverse events occurred in 14% of patients.
96
In 2022, we plan to initiate SURTORI-02, a Phase III study of surufatinib in combination with Tuoyi in esophageal cancer in China.
We also plan to submit further Phase II data for presentation from the surufatinib and Tuoyi combination for biliary tract, esophageal,
small cell lung cancers and sarcoma cohorts in 2022.
In addition, in May 2020, we entered into a global clinical collaboration agreement to evaluate the safety, tolerability and efficacy
of combining surufatinib with BeiGene’s anti-PD-1 antibody, tislelizumab, for the treatment of various solid tumor cancers in the United
States, Europe, China and Australia. In March 2021, we dosed the first patient in an open-label, Phase Ib/II study of surufatinib in
combination with tislelizumab in the United States and Europe, evaluating the safety, tolerability, pharmacokinetics and efficacy in
patients with advanced solid tumors, including CRC, NET, small cell lung cancer, gastric cancer and soft tissue sarcoma. The dose
finding phase of the study is now complete, and the expansion phase is ongoing.
Surufatinib Exploratory Development
In China, we support an investigator initiated trial, or IIT, program for surufatinib, with about 50 IITs in various solid tumor settings
being conducted for both combination and single agent regimens. These trials explore and answer important medical questions in
addition to our own company-sponsored clinical trials.
Overview of Sulanda Commercial Launch
Surufatinib capsules, sold under the brand name Sulanda, were approved for marketing in China by the NMPA in December 2020
and June 2021 for the treatment of advanced non-pancreatic NETs and pancreatic NETs, respectively. In 2021, Sulanda was sold as a
self-pay drug whereby patients paid for treatment out-of-pocket. We used means-test early access and patient access programs to help
patients afford Sulanda, and we estimate that approximately 4,800 new patients were treated. Following negotiations with the China
National Healthcare Security Administration, Sulanda was included on China’s NRDL at a 52% discount on our main 50mg dosage
form, relative to the 2021 self-pay price, for two years starting on January 1, 2022.
During 2021, we introduced Sulanda through a campaign of local, regional and national launch events involving approximately
12,000 healthcare professionals. We have also confirmed a total of around 50 investigator-initiated studies in a broad range of
exploratory solid tumor indications all of which are expected to gradually expand awareness of Sulanda in China.
3. Fruquintinib (HMPL-013), VEGFR 1, 2 and 3 Inhibitor
Fruquintinib is a VEGFR inhibitor that we believe is highly differentiated due to its superior kinase selectivity compared to other
small molecule VEGFR inhibitors, which can be prone to excessive off-target toxicities. Fruquintinib’s selectivity on VEGFR 1, 2 and
3 results in fewer off-target toxicities, thereby allowing for better target coverage, as well as possible use in combination with other
agents such as chemotherapies, targeted therapies and immunotherapies.
We believe these are meaningful points of differentiation compared to other approved small molecule VEGFR inhibitors such as
Sutent, Nexavar and Stivarga, and can potentially significantly expand the use and market potential of fruquintinib. Consequently, we
believe that fruquintinib has the potential to become a global small molecule VEGFR inhibitor with the best selectivity for many types
of solid tumors.
We received full approval for launch of fruquintinib (under the brand name Elunate) in CRC in September 2018. In partnership
with Eli Lilly, we launched fruquintinib in China in late November 2018. Elunate is indicated for the treatment of patients with mCRC
that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan, including those who have previously received anti-
VEGF, therapy and/or anti-EGFR therapy (Ras wild type). We manufacture all commercial supplies of Elunate in our factory in Suzhou
and have expanded our role in the commercialization of Elunate since October 1, 2020. For more information regarding the Elunate
product launch, see “—Overview of Elunate Commercial Launch.”
97
Mechanism of Action
During the development of cancer, tumors at an advanced stage can secrete large amounts of VEGF, a protein ligand, to stimulate
formation of excessive vasculature (angiogenesis) around the tumor in order to provide greater blood flow, oxygen, and nutrients to fuel
the rapid growth of the tumor. Since essentially all solid tumors require angiogenesis to progress beyond a few millimeters in diameter,
VEGFR drugs have demonstrated benefits in a wide variety of tumor types. VEGF and other ligands can bind to three VEGF receptors,
VEGFR 1, 2 and 3, each of which has been shown to play a role in angiogenesis. Therefore, inhibition of the VEGF/VEGFR signaling
pathway can act to stop the growth of the vasculature around the tumor and thereby starve the tumor of the nutrients and oxygen it needs
to grow rapidly.
This therapeutic strategy has been well validated with several first-generation VEGF inhibitors having been approved globally since
2005 and 2006. These include both small molecule multi-kinase inhibitor drugs such as Nexavar and Sutent as well as monoclonal
antibodies such as Avastin. The success of these drugs validated VEGFR inhibition as a new class of therapy for the treatment of cancer.
Fruquintinib Pre-clinical Evidence
Pre-clinical trials have demonstrated that fruquintinib is a highly selective VEGFR 1, 2 and 3 inhibitor with high potency and low
cell toxicity at the enzymatic and cellular levels. In a kinase selectivity screening, fruquintinib was found to be approximately 250 times
more selective to VEGFR 3 than to the next non-VEGFR kinase.
As a result of off-target side effects, existing VEGFR inhibitors are often unable to be dosed high enough to completely inhibit
VEGFR, the intended target. In addition, the complex off-target toxicities resulting from inhibition of multiple signaling pathways are
often difficult to manage in clinical practice. Combining such drugs with chemotherapy can lead to severe toxicities that can cause more
harm than benefit to patients. To date, the first generation VEGFR TKI have been rarely used in combination with other therapies,
thereby limiting their potential. Because of the potency and selectivity of fruquintinib, we believe that it has the potential to be safely
combined with other oncology drugs, which could significantly expand its clinical potential.
Fruquintinib Clinical Trials
Colorectal Cancer
The table below shows a summary of the clinical trials we have recently completed, are underway or are in planning for fruquintinib
in CRC patients. We have two additional trials in progress for fruquintinib in CRC in combination with a checkpoint inhibitor as
discussed in more detail below under “— Fruquintinib Combinations with Checkpoint Inhibitors.”
Current Clinical Trials of Fruquintinib in CRC
Treatment
Fruquintinib monotherapy HUTCHMED and Eli Lilly FRESCO: �3L CRC;
Name, Line, Patient Focus
Sponsors/Partners
Sites
China
Fruquintinib monotherapy (1) HUTCHMED
Fruquintinib monotherapy HUTCHMED
chemotherapy refractory
FRESCO-2: mCRC
CRC, TN &
HR+/HER2- breast
cancer
U.S./Europe/
Japan/Australia
U.S.
Phase
Status/Plan
III Approved and
launched
III Fully enrolled
NCT #
NCT02314819
NCT04322539
Ib Ongoing
NCT03251378
Notes: (1)
The FDA granted fast track designation for the development of fruquintinib for the treatment of patients with mCRC
in June 2020.
CRC = colorectal cancer; ≥3L= third line or above; refractory = resistant to prior treatment ; TN = triple-negative; HR+ =
hormone receptor-positive; and HER2 = human epidermal growth factor receptor 2.
98
FRESCO study; Phase III study of fruquintinib monotherapy in third-line CRC (Status: completed and product launched;
NCT02314819)
In 2014, we initiated the FRESCO study, which is a randomized, double-blind, placebo-controlled, multi-center, Phase III pivotal
trial in China in patients with locally advanced or mCRC who had failed at least two prior systemic antineoplastic therapies, including
fluoropyrimidine, Eloxatin and Camptosar. No drugs had been approved in third-line CRC in China with best supportive care being the
general standard of care. This study followed a Phase II proof-of-concept trial in third-line CRC that met its primary endpoint of PFS in
2014.
Enrollment was completed in May 2016, and 519 patients were screened. The intent-to-treat population of 416 patients was
randomized at a 2:1 ratio to receive either: 5 mg of fruquintinib orally once daily, on a three-weeks-on/one-week-off cycle, plus best
supportive care (278 patients) or placebo plus best supportive care (138 patients). Randomization was stratified for prior anti-VEGF
therapy and K-RAS gene status. The trial concluded in January 2017.
In June 2017, we presented the results of the FRESCO study in an oral presentation at the ASCO annual meeting. Results showed
that FRESCO met all primary and secondary endpoints including significant improvements in OS and PFS with a manageable safety
profile and lower off-target toxicities compared to other targeted therapies. The primary endpoint of median OS was 9.30 months (95%
confidence interval: 8.18-10.45 months) in the fruquintinib group versus 6.57 months (95% confidence interval: 5.88-8.11 months) in
the placebo group, with a hazard ratio of 0.65 (95% confidence interval: 0.51-0.83; two-sided p<0.001). The secondary endpoint of
median PFS was 3.71 months (95% confidence interval: 3.65-4.63 months) in the fruquintinib group versus 1.84 months (95%
confidence interval: 1.81-1.84 months) in the placebo group, with a hazard ratio of 0.26 (95% confidence interval: 0.21-0.34; two-sided
p<0.001). Significant benefits were also seen in other secondary endpoints. The disease control rate in the fruquintinib group was 62%
versus 12% for placebo (p<0.001), while the ORR based on confirmed responses was 5% versus 0% for placebo (p=0.012).
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We have not performed a head-to-head clinical trial of fruquintinib versus Stivarga. While it is difficult to directly evaluate and
compare clinical results across separate trials, data from the FRESCO study compare favorably to the data from the CONCUR study, a
Phase III study of Stivarga monotherapy in CRC conducted in Asia, and the CORRECT study, a global Phase III study of Stivarga in
CRC. In particular, in the Chinese patient subgroup of the CONCUR study, Stivarga had a disease control rate of 46% versus 7% in the
placebo group. Median PFS was 2.0 months in the Stivarga group versus 1.7 months in the placebo group, and median OS was 8.4
months in the Stivarga group versus 6.2 months in the placebo group. In the CORRECT study, Stivarga had a disease control rate of
41% versus 15% in the placebo group. Median PFS was 1.9 months in the Stivarga group versus 1.7 months for the placebo group, and
median OS was 6.4 months in the Stivarga group versus 5.0 months in the placebo group.
In terms of safety, results showed that fruquintinib had a manageable safety profile with lower off-target toxicities compared to
Stivarga, the other VEGFR TKI approved for third-line CRC. Of particular interest was that the CTC grade 3 or above hepatotoxicity
was similar for the fruquintinib group as compared to the placebo group, which was in contrast to Stivarga which was markedly higher
and often difficult to manage in the Chinese patient population in the CONCUR study. Adverse events led to dose interruptions in 69%
of patients in the Chinese patient subgroup of the CONCUR study, compared to 35% in the FRESCO study. The most frequently reported
fruquintinib-related CTC grade 3 or above TEAEs included hypertension (21%), hand-foot skin reaction (11%), proteinuria (3%) and
diarrhea (3%), all possibly associated with VEGFR inhibition. No other CTC grade 3 or above TEAEs exceeded 2% in the fruquintinib
population, including hepatic function adverse events such as elevations in bilirubin (1%), alanine aminotransferase (<1%) or aspartate
aminotransferase (<1%).
In terms of tolerability, dose interruptions or reductions occurred in only 35% and 24% of patients in the fruquintinib arm,
respectively, and only 15% of patients discontinued treatment of fruquintinib due to adverse events versus 6% for placebo. The FRESCO
study was published in the Journal of the American Medical Association in June 2018.
Subgroup analysis
In June 2018, a further subgroup analysis of data from the FRESCO Phase III study was presented at the ASCO annual meeting.
This analysis explored possible effects of prior target therapy on the efficacy and safety of fruquintinib by analyzing the subgroups of
patients with prior target therapy and those without prior target therapy.
Results showed that the benefits of fruquintinib were generally consistent across all subgroups. Among a total of 278 fruquintinib-
treated patients, 111 had received prior target therapy while 55 of the 138 placebo-treated patients had received prior target therapy. In
the prior target therapy subgroup, fruquintinib significantly prolonged OS and PFS. Median OS was 7.69 months for patients treated
with fruquintinib versus 5.98 months for placebo (hazard ratio = 0.63; p = 0.012). Median PFS was 3.65 months for patients treated
with fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p < 0.001).
Among these 278 patients, the results showed that a subgroup of 84 patients who had received prior anti-VEGF treatment also
benefited from fruquintinib. In this subgroup, the median OS was 7.20 months for fruquintinib versus 5.91 months for placebo (hazard
ratio = 0.68; p=0.066) and the median PFS was 3.48 months for fruquintinib versus 1.84 months for placebo (hazard ratio = 0.24; p <
0.001).
In the subgroup of 250 patients without prior targeted therapies, the median OS was 10.35 months for 167 patients treated with
fruquintinib versus 6.93 months for 83 patients treated with placebo (hazard ratio = 0.63; p = 0.003), and the median PFS for patients
treated with fruquintinib was 3.81 months versus 1.84 months for placebo (hazard ratio = 0.28; p < 0.001).
Additional data showed that there were no observed cumulative CTC grade 3 or above TEAEs in the subgroup of patients with
prior target therapy. The CTC grade 3 or above TEAEs rates of fruquintinib were similar in the subgroups with prior target therapy
(61.3%) and without prior target therapy (61.1%). This subgroup analysis is consistent with the previously reported results from the
FRESCO study’s intent-to-treat population.
The results of this analysis showed that fruquintinib had clinically meaningful benefits in third-line mCRC patients regardless of
prior target therapy without observed cumulative toxicity.
100
Quality-adjusted survival analysis
At the 2018 ASCO Annual Meeting, an analysis was presented that aimed to compare the quality-adjusted survival between the
two arms of the FRESCO study using quality-adjusted time without symptoms or toxicity, or Q-TWiST, methodology and to investigate
the Q-TWiST benefit of fruquintinib treatment among subgroups. Q-TWiST is a tool to evaluate relative clinical benefit-risk from a
patient’s perspective and has been widely used in oncology treatment assessment. The survival time for each patient was divided into
three portions: time with CTC grade 3 or above toxicity before progression, time without symptoms or CTC grade 3 or above toxicity,
and time from progression or relapse until death or end of follow-up.
Patients treated with fruquintinib had longer Q-TWiST periods compared to patients treated with placebo. Q-TWiST benefits were
observed regardless of prior lines of chemotherapy and prior anti-VEGF or anti-EGFR targeted therapy. The relative improvement of
Q-TWiST with fruquintinib represents a clinically important quality-of-life benefit for mCRC patients.
Supported by data from the successful FRESCO study, we submitted an NDA for fruquintinib in June 2017. Fruquintinib was
subsequently awarded priority review status by the NMPA in view of its clinical value in September 2017, and in September 2018, the
NMPA approved fruquintinib for the treatment of patients with advanced CRC and was launched in November 2018. For more
information regarding the Elunate product launch, see “—Overview of Elunate Commercial Launch.”
Phase III study of fruquintinib monotherapy in mCRC – Global (Status: enrollment completed; NCT04322539)
We initiated a global Phase III registration study, known as the FRESCO-2 study, in refractory metastatic CRC. The first patient
was dosed in September 2020 in the United States and the enrollment was completed in December 2021, where 691 patients from over
150 sites in 14 countries were enrolled.
The U.S. FDA has acknowledged the totality of the fruquintinib clinical data, including the FRESCO-2 study (if positive), the prior
positive Phase III FRESCO study demonstrating improvement in OS that led to fruquintinib approval for metastatic CRC in China in
2018, and additional completed and ongoing supporting studies in metastatic CRC, could potentially support an NDA for the treatment
of patients with metastatic CRC in the third-line setting. The EMA and PMDA have reviewed and endorsed the FRESCO-2 study design.
The primary endpoint of the study is OS.
We expect to report outcome of this study in the second half of 2022 when the event-driven primary endpoint, OS, is reached. If
positive, we plan to initiate a simultaneous submission program to apply for fruquintinib marketing authorization with the U.S. FDA,
the EMA and the PMDA.
Phase Ib study of fruquintinib monotherapy in metastatic colorectal and breast cancers – U.S. (Status: ongoing; NCT03251378)
We are conducting a multi-center, open-label, Phase Ib clinical study to evaluate the safety, tolerability and pharmacokinetics of
fruquintinib in U.S. patients, which has established the U.S. RP2D to be 5 mg, the same as that in China. This dose is being further
evaluated in patients with mCRC and breast cancers.
Preliminary efficacy and safety data of fruquintinib in patients with refractory, metastatic CRC were presented at the ASCO
Gastrointestinal Cancers Symposium in early 2022. In patients who had progressed on all standard therapies, including Lonsurf and/or
Stivarga, the DCR was 68.3% and the median duration of treatment was 19.3 weeks. In patients who had not received Lonsurf or
Stivarga, the DCR was 57.5% and the median duration of treatment was 14.1 weeks. The safety profile in both patient populations was
consistent with what has previously been reported.
Gastric Cancer
Advanced gastric cancer is a major medical need, particularly in Asian populations, with limited treatment options for patients who
have failed first-line standard chemotherapy with 5-fluorouracil and platinum doublets. The table below shows a summary of the clinical
study we have underway for fruquintinib in gastric cancer patients.
101
Clinical Trials of Fruquintinib in Gastric Cancer
Treatment
Fruquintinib and Taxol
Sponsors/Partners
HUTCHMED and Eli Lilly
Name, Line, Patient Focus Sites
China
FRUTIGA: 2L gastric
cancer
Phase
III
Status/Plan
Ongoing; completed
second interim
analysis
NCT #
NCT03223376
Notes: 2L = second line.
FRUTIGA study: Phase III study of fruquintinib in combination with Taxol in gastric cancer (second-line) (Status: Completed second
interim analysis; NCT03223376)
In October 2017, we initiated the FRUTIGA study, a pivotal Phase III clinical trial of fruquintinib in combination with Taxol for
the treatment in advanced gastric or gastroesophageal junction adenocarcinoma patients in China. This randomized, double-blind,
placebo-controlled, multi-center trial is being conducted in patients with advanced gastric cancer who have progressed after first-line
standard chemotherapy. All subjects will receive fruquintinib or placebo combined with paclitaxel. Patients will be randomized at a 1:1
ratio and stratified according to factors such as stomach versus gastroesophageal junction tumors and ECOG performance status, a scale
established by the Eastern Cooperative Oncology Group which determines ability of patient to tolerate therapies in serious illness,
specifically for chemotherapy. The study is expected to enroll approximately 700 patients. Its co-primary endpoints are PFS and OS.
In June 2020, the IDMC of the FRUTIGA study completed a second planned interim data review and, based on the preset criteria,
the IDMC and Joint Steering Committees recommended that the trial continue with a sample size increase to ~700 patients. We expect
to complete enrollment of FRUTIGA in 2022.
Fruquintinib Combinations with Checkpoint Inhibitors
The table below shows a summary of the clinical trials we have ongoing and in planning for fruquintinib in combination with
checkpoint inhibitors.
Treatment
Fruquintinib and
Tyvyt (PD-
1)
Fruquintinib and
Tyvyt (PD-1)
Fruquintinib and
Tyvyt (PD-
1)
Fruquintinib and
Tyvyt (PD-1)
1)
Fruquintinib and
Tyvyt (PD-
Fruquintinib and
tislelizumab (PD-1)
Fruquintinib and
tislelizumab (PD-1)
Clinical Trials of Fruquintinib with Checkpoint Inhibitors
Sponsors/Partners
Name, Line, Patient Focus
Sites
Phase
Chinese PLA General
Hospital and Innovent
CRC
China
II
HUTCHMED and Innovent Hepatocellular carcinoma China
Ib/II
HUTCHMED and Innovent Endometrial cancer
China
HUTCHMED and Innovent RCC
China
Ib/II
Status/Plan
Ongoing;
data
presented
at ASCO
2021
Ongoing;
data
presented
at CSCO
2021
Ongoing;
Ib data
presented
at CSCO
2021
Ongoing;
data at
CSCO
2021
Ongoing
NCT #
NCT04179084
NCT03903705
NCT03903705
NCT03903705
NCT03903705
II
registration-
intent
Ib/II
Ib/II
U.S.
Ongoing
NCT04577963
Korea / China Ib/II
Ongoing
NCT04716634
HUTCHMED and Innovent Gastrointestinal tumors
China
HUTCHMED and BeiGene
BeiGene and HUTCHMED
TN breast cancer &
endometrial cancer
Solid tumors
102
Notes: CRC = colorectal cancer; NSCLC = non-small cell lung cancer.
In November 2018, we entered into two collaboration agreements to evaluate the safety, tolerability and efficacy of fruquintinib in
combination with checkpoint inhibitors. These include a global collaboration with Innovent to evaluate the combination of fruquintinib
with Innovent’s Tyvyt, a PD-1 monoclonal antibody approved in China, and a collaboration in China with Genor to evaluate the
fruquintinib combination with geptanolimab, a PD-1 monoclonal antibody being developed by Genor. We are now approaching
completion of the Phase I dose-finding study in China of fruquintinib in combination with Tyvyt, with the Phase I dose-expansion study
already underway in five solid tumor indications. Phase Ib studies of fruquintinib in combination with geptanolimab in second-line
CRC and NSCLC are ongoing. In 2022, we plan to initiate Phase III studies of fruquintnib plus Tyvyt combination in HCC, RCC and
endometrial cancer in China.
Advanced endometrial cancer registration-intent cohort
Platinum-based systemic chemotherapy is the standard first-line treatment for advanced endometrial cancer. However, patients who
progress following first-line chemotherapy have limited treatment options, and the prognosis remains poor. As disclosed at CSCO 2021,
as of the data cutoff date of August 31, 2021, 35 patients were enrolled (NCT03903705), including 7 treatment-naïve and 28 pretreated
patients. Of them, 29 were efficacy evaluable, 4 were treatment-naïve and 25 were pretreated. All 4 treatment-naïve patients experienced
confirmed tumor response, for ORR of 100% (95% CI: 39.8-100.0), and median PFS was not reached. Among the 25 pretreated patients,
the confirmed ORR was 32.0% (95% CI: 14.9-53.5), DCR was 92.0% (95% CI: 74.0-99.0) and the median PFS was 6.9 months (95%
CI: 4.1-NR). Among the 19 proficient mismatch repair (pMMR) patients in the pretreated cohort, the confirmed ORR was 36.8% (95%
CI: 16.3-61.6), DCR was 94.7% (95% CI: 74.0-99.9), median PFS was 6.9 months (95% CI: 4.1-NR), and the median OS was not
reached. Among the 35 enrolled patients, treatment-related adverse events of grade 3 or above that occurred in more than 10% of patients
were hypertension (4 patients, 11.4%) and proteinuria (4 patients, 11.4%). 5 (14.3%) patients reported treatment-related serious adverse
events.
Following discussion with the NMPA in late 2021, the cohort is now targeting to enroll over 130 patients to meet the requirements
to be a single-arm, registration-intent Phase II study.
CRC registration strategy for mCRC under discussion
Encouraging preliminary data presented at ASCO 2021 for fruquintinib in combination with two PD-1 inhibitors, Tyvyt and
geptanolimab, in advanced CRC showed a five-fold increase in ORR and a doubling of median PFS as compared to the FRESCO study
for fruquintinib as a monotherapy.
In the Tyvyt combination study (NCT04179084), 44 patients were enrolled into the CRC cohort, 22 of whom received the RP2D.
ORR was 23% for all patients and 27% for those who received the RP2D. DCR was 86% for all patients and 96% for those who received
the RP2D. Median PFS was 5.6 months for all patients, and 6.9 months for those who received the RP2D. Median OS was 11.8 months
for all patients.
In the geptanolimab combination study (NCT03977090), for the 15 patients in the CRC cohort ORR was 26.7% (including 1 patient
with unconfirmed PR) and 33% in the group that received the RP2D. DCR for all evaluable patients was 80% and median PFS was 7.3
months (95% CI: 1.9-NR). Grade 3 treatment-related adverse events occurred in 47% of patients, and no incidences of grade 4 or 5
treatment-related adverse events were observed.
Tislelizumab combinations (NCT04577963 & NCT04716634)
In August 2021, we initiated an open-label, multi-center, non-randomized Phase Ib/II study in the U.S. to assess fruquintinib in
combination with tislelizumab in patients with locally advanced triple negative breast cancer or advanced endometrial cancer. In
addition, a Phase II study in China and Korea for fruquintinib in combination with tislelizumab was initiated and is being led by BeiGene
for the treatment of advanced or metastatic, unresectable gastric cancer, CRC or NSCLC.
Fruquintinib Exploratory Development
We are conducting multiple Phase Ib expansion cohorts in the United States to explore fruquintinib in CRC and breast cancer. In
China, there are about 40 ongoing investigator-initiated studies in various solid tumor settings.
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Overview of Elunate Commercial Launch
Fruquintinib capsules, sold under the brand name Elunate, were approved for marketing in China by the NMPA in September 2018
and commercially launched in late November 2018. We also received marketing approval for Elunate in Macau in February 2022.
Elunate is for the treatment of patients with mCRC that have been previously treated with fluoropyrimidine, oxaliplatin and irinotecan,
including those who have previously received anti-VEGF therapy and/or anti-EGFR therapy (RAS wild type).
Starting on January 1, 2020, Elunate was included on China’s NRDL at a 63% discount to its initial retail price for two years, paving
the way to significantly broaden access for advanced CRC patients and rapidly build penetration in China over the coming years. The
inclusion was renewed pursuant to which we agreed to a discount of 5% relative to the 2021 NRDL price, and Elunate will continue to
be included in the NRDL starting January 2022 for another two years.
The revenues we generate from Elunate are comprised of royalty revenue, revenue from the sales of Elunate to Eli Lilly which we
manufacture and sell at cost and, starting in October 2020, revenue from promotion and marketing services. In 2019, we generated
$10.8 million in total revenue from Elunate, of which $2.7 million was royalty revenue and $8.1 million was revenue from sales to Eli
Lilly. In 2020, we generated $20.0 million in total revenue from Elunate, of which $4.9 million was royalty revenue, $11.3 million was
revenue from sales of goods primarily to Eli Lilly and $3.8 million was revenue from promotion and marketing services to Eli Lilly. In
2021, we generated $53.5 million in total revenue from Elunate, of which $10.3 million was royalty revenue, $15.8 million was revenue
from sales of goods primarily to Eli Lilly and $27.4 million was revenue from promotion and marketing services to Eli Lilly.
Partnership with Eli Lilly
In October 2013, we entered into a license and collaboration agreement with Eli Lilly in order to accelerate and broaden our
fruquintinib development program in China. As a result, we were able to quickly expand the clinical development of fruquintinib into
indications with unmet medical needs in China including CRC and gastric cancer, as discussed above. In December 2018, we amended
our license and collaboration agreement with Eli Lilly. This amendment gives us, among other things, all planning, execution and
decision making responsibilities for life cycle indication development of fruquintinib in China. Support from Eli Lilly has also helped
us to establish our own manufacturing (formulation) facility in Suzhou, China, which now produces clinical and commercial supplies
of fruquintinib. In July 2020, we reached an agreement with Eli Lilly to take over development and execution of all on-the-ground
medical detailing, promotion and local and regional marketing activities for Elunate in China starting on October 1, 2020. Under the
terms of the new agreement, we will share gross profits linked to sales target performance. Subject to meeting pre-agreed sales targets,
Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form of royalties, manufacturing costs and
service payments.
For more information regarding our partnership with Eli Lilly, see “—Overview of Our Collaborations—Eli Lilly.”
4. Amdizalisib (HMPL-689), PI3Kδ Inhibitor
Amdizalisib is a novel, highly selective oral inhibitor targeting the isoform PI3Kδ, a key component in the B-cell receptor signaling
pathway. Amdizalisib’s pharmacokinetic properties have been found to be favorable with good oral absorption, moderate tissue
distribution and low clearance in pre-clinical studies. We also expect that amdizalisib will have low risk of drug accumulation and drug-
drug interactions. In 2021, registration-intent studies for amdizalisib were initiated and Breakthrough Therapy Designation was granted
for relapse or refractory follicular lymphoma in China.
Mechanism of Action
Targeting the B-cell signaling pathway is emerging as a potential means to treat both hematological cancer and immunological
diseases. Inhibiting different kinases found along the B-cell signaling pathway has proven to have clinical efficacy in hematological
cancers, with breakthrough therapies having been recently approved by the FDA.
The high efficacy and successful approvals of Bruton’s tyrosine kinase, or BTK, inhibitors and PI3Kδ inhibitors are evidence that
modulation of the B-cell signaling pathway is critical for the effective treatment of B-cell malignancies.
Class I phosphatidylinositide-3-kinases, or PI3Ks, are lipid kinases that, through a series of intermediate processes, control the
activation of several important signaling proteins including the serine/threonine kinase AKT.
104
There are multiple sub-families of PI3K kinases, and PI3Kδ is a lipid kinase that, through a series of intermediate processes, controls
the activation of several important signaling proteins, including the serine/threonine kinase B, or AKT. In most cells, AKT is a key
PI3Kδ affector that regulates cell proliferation, carbohydrate metabolism, cell motility and apoptosis and other cellular processes. Upon
an antigen binding to B-cell receptors, PI3Kδ can be activated through the Lyn and Syk signaling cascade.
Aberrant B-cell function has been observed in multiple immunological diseases and B-cell mediated malignancies. Therefore,
PI3Kδ is considered to be a promising target for drugs that aim to prevent or treat hematologic cancer, autoimmunity and transplant
organ rejection and other related inflammation diseases.
Amdizalisib Pre-clinical Evidence
Compared to other PI3Kδ inhibitors, amdizalisib shows higher potency and selectivity.
Enzyme Selectivity (IC50, in nM) of amdizalisib Versus Competing PI3Kδ Inhibitors; This Shows amdizalisib is Approximately Five-
fold More Potent than Zydelig on Whole Blood Level and, unlike Copiktra, does not Inhibit PI3K-
Enzyme IC50 (nM)
PI3Kδ
PI3Kγ (fold vs. PI3Kδ)
PI3Kα (fold vs. PI3Kδ)
PI3Kδ human whole blood CD63+
PI3Kβ (fold vs. PI3Kδ)
Source: Company.
Amdizalisib Clinical Development
HMPL‑689
Zydelig
Copiktra
Aliqopa
0.8 (n = 3)
114 (142x)
>1,000 (>1,250x)
3
87 (109x)
1
2 (2x)
2
104 (52x)
866 (433x) 143 (143x)
14
293 (147x)
15
8 (8x)
0.7
6.4 (9x)
0.5 (1x)
n/a
3.7 (5x)
The table below shows a summary of the clinical studies for amdizalisib.
Clinical Trials of Amdizalisib
Treatment
Amdizalisib monotherapy HUTCHMED
Sponsors/Partners
Amdizalisib monotherapy HUTCHMED
Amdizalisib monotherapy HUTCHMED
Amdizalisib monotherapy HUTCHMED
Name, Line, Patient Focus
Indolent non-Hodgkin's lymphoma
PTCL
Relapsed/refractory follicular
lymphoma
Relapsed/refractory marginal zone
lymphoma
Indolent non-Hodgkin's lymphoma
Sites
China
China
China
U.S./
Europe
Phase
Ib
II registration-
intent
II registration-
intent
I/Ib
Status/Plan
Ongoing; expansion data
presented at ESMO 2021
Ongoing: initiated in April
2021. Breakthrough
Therapy Designation
Ongoing: initiated in April
2021
Dose expansion portion
initiated in the second half
of 2021
NCT #
NCT03128164
NCT04849351
NCT04849351
NCT03786926
Phase Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in China (Status: ongoing; NCT03128164)
Our Phase I/Ib study of amdizalisib in China has successfully established a Phase II dose and has now expanded into multiple sub-
categories of indolent non-Hodgkin’s lymphoma.
In December 2020, we presented preliminary results from a Phase I dose escalation study of amdizalisib in Chinese patients with
relapsed/refractory lymphoma at the American Society of Hematology (ASH) Annual Meeting. A total of 56 patients were enrolled
resulting in an ORR of 51.9% (27/52) and complete response rate of 11.5% (6/52) in efficacy evaluable patients. The median time to
response and duration of response were 1.8 months (1.8-1.9) and 9.2 months (3.9-NR), respectively. One patient with follicular
lymphoma who achieved complete response (per post hoc independent radiologic review) was on treatment for over 19 months. In the
nine efficacy evaluable patients treated with the RP2D of 30mg QD orally, efficacy was encouraging with an ORR of 100% (4/4) in
follicular lymphoma, 100% in marginal zone lymphoma (2/2) and 67% (2/3) in diffuse large B cell lymphoma.
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Phase 1 Dose Escalation Study: Promising Amdizalisib Single-agent Clinical Activity in Relapsed/refractory B-cell Lymphoma
CLL/SLL DLBCL
FL
HL
MCL
MZL
Patients
5mg QD
10mg QD
20mg QD
30mg QD
2.5mg QD
5mg QD
7.5mg QD
10mg QD
40mg QD
PR
+80%
+60%
+40%
+20%
0%
-20%
-40%
-60%
-80%
-100%
Intent-to-treat population (n=56)
Best Response
Complete Response, %
Partial Response, %
%,esaesiDelbatS
Progressive Disease, %
Overall Response Rate
Clinical Benefit Rate
Time on Treatment
Time to Response
Duration of Response
11 (4-22)
37
43
11
48% (35-62)
82% (70-91)
5.6 months (0.7–23.2)
1.8 months (1.8–1.9)
9.2 months (3.9–NR)
Progression Free Survival
10.1 months (5.5–15.7)
etarSFPraey-1
)75–72(%04
Notes: CLL = chronic lymphocytic leukemia; SLL = small lymphocytic lymphoma; DLBCL = diffuse large B-cell lymphoma; FL =
follicular lymphoma; HL = Hodgkin’s lymphoma; MCL = mantle cell lymphoma; MZL = marginal zone lymphoma; BID =
twice daily; QD = once daily; PR = partial response; n = number of patients; PFS = progression free survival; and NA = not
available.
Source: Cao JN, et al. “Results from a Phase 1 Dose Escalation Study of Amdizalisib, a Selective Oral Phosphoinositide 3-Kinase-
Delta Inhibitor, in Chinese Patients with relapsed/refractory (R/R) Lymphoma.” Presented at the 62nd American Society
of Hematology (ASH) Annual Meeting and Exposition on December 5, 2020. Abstract #1135.
Amdizalisib was well tolerated at the RP2D exhibiting dose-proportional pharmacokinetics and a manageable toxicity profile.
Grade 3 or more non-hematologic TEAEs occurring in more than two patients were pneumonia, rash, hypertension, and increased lipase.
Grade 3 or more hematologic TEAEs occurring in more than two patients were neutropenia, and no Grade 5 TEAEs were reported.
In ESMO 2021, we presented results from the Phase Ib study. In the efficacy evaluable population of 76 patients, the median time
of follow-up was 5.6 months (95% CI: 5.5-8.3). Objective response rate was 53.9%, completed response rate was 11.8%, and clinical
benefit rate was 76.3%. Median duration of response was not reached, and 6-months duration of response rate was 84.5% (95% CI:
62.9-94.1). Median time to response was 1.9 months (95% CI: 1.8-1.9). Amdizalisib showed promising single-agent clinical activity in
patients with relapsed/refractory B-cell lymphoma, with high objective response rate and complete response rates noted particularly for
follicular lymphoma patients.
In the 22 follicular lymphoma patients with efficacy evaluable, the median time of follow-up was 8.3 months (95% CI: 2.0-11.0).
Objective response rate was 81.8%, complete response rate was 36.4% and clinical benefit rate was 90.9%. Median time to response
was 1.8 months (95% CI: 1.8-1.9), 1-year duration of response was 59.7%, and progression-free survival rate was 75.8%. 77% of the
patients remain on therapy.
106
Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma:
Phase Ib Study of Amdizalisib in Chinese Patients with Relapsed/Refractory Lymphoma:
Best response of target lesion (N=76)
Best response of target lesion (N=76)
FL
n=22
MZL
n=14
CLL/SLL
n=3
MCL
n=8
DLBCL
n=29
CR
PR
PD
SD
100
75
50
25
0
-25
-50
-75
-100
PD
PD
SD
SD
PR
PR
CR
SD
SD
SD
SD
SD
SD
SD
PR
PR
PD
SD
PR
PR
CR
PR
PR
PR
PR
CR PR
CR
PR
CR
PR
PR
PR
CR
PR
PR
CR
CR
CR
CR
CR
CR
CR
PR
PR
PR
PR
PR
PR
PR
2
PR
2
PD-PD-PD-PD-PD-PD-PD-
PD
PD PD
PD
PD
PD
PD
PD SD
SD
PR
PR
PR
PR
PR
SD SD SD SD
SD
PR
PR
PR
PR
PD
PD
PR PR
PR
PR
PR
1
0
0
0
1
1
2
2
1
0
0
0
1
1
2
0
0
1
0
0
0
0
0
0
0
0
1
0
0
0
0
2
0
0
2
0
2
6
-
0
4
-
0
4
7
-
0
-
0
7
7
-
0
-
0
1
-
0
1
5
4
3
-
0
-
0
-
0
-
0
2
4
-
0
-
0
2
1
-
2
-
0
4
3
-
0
-
0
2
-
0
2
-
0
4
-
0
3
-
0
6
-
0
7
-
0
4
-
0
3
-
0
9
-
0
8
-
0
4
-
0
4
-
0
4
-
0
1
-
0
3
-
0
4
-
0
3
-
0
4
-
0
1
-
0
0
3
3
0
0
0
0
0
0
4
1
2
0
0
1
3
3
0
2
3
2
4
0
0
3
4
0
0
4
4
2
0
2
3
0
6
4
9
1
3
2
3
5
1
3
1
2
1
7
2
6
6
1
1
2
9
0
2
3
5
2
4
1
9
1
6
4
7
7
4
0
6
8
0
4
4
-
0
-
0
0
3
-
0
0
2
1
0
1
0
1
2
1
-
0
5
-
0
4
-
2
6
-
0
3
-
0
6
-
2
1
-
0
0
9
0
2
4
0
8
8
3
7
0
1
1
0
3
-
0
0
0
0
1
1
1
1
2
1
0
0
1
1
1
2
0
2
0
0
0
1
1
0
0
2
1
0
2
0
2
2
-
0
3
2
-
2
-
0
6
6
-
0
-
2
9
4
-
0
-
0
9
-
0
8
-
0
8
-
0
2
2
-
0
-
2
9
-
0
1
-
0
3
4
2
4
4
9
7
4
2
1
-
0
-
0
-
0
-
0
-
0
-
2
-
2
-
0
-
0
-
0
2
3
-
0
-
0
1
-
0
2
-
0
3
-
0
2
0
0
0
0
0
0
0
0
0
0
0
0
1
4
0
1
4
4
0
0
4
1
0
0
3
1
1
0
4
2
6
2
5
2
1
6
3
5
9
3
3
3
1
2
2
0
2
1
1
4
9
6
5
3
1
3
2
Notes: Data cut-off as of June 15, 2021. Target lesion SPD (sum of the product of perpendicular diameters) increased more over 100%.
Efficacy evaluable population: received at least one tumor assessment. FL = follicular lymphoma; MZL = marginal zone
lymphoma; CLL/SLL = chronic lymphocytic leukemia / small lymphocytic lymphoma; MCL = mantle cell lymphoma; DLBCL
= diffuse large B cell lymphoma; n = number of patients; CR = complete response; PR = partial response; PD = progressive
disease; SD = stable disease; ORR = objective response rate; CBR = clinical benefit rate (CR + PR + SD)
Source: CaoJN, et al. “A phase Ib study result of HMPL-689, a PI3Kδ inhibitor, in Chinese patients with relapsed/refractory
lymphoma.” Presented at the 2021 European Society for Medical Oncology (ESMO) Virtual Congress on September 20, 2021.
Presentation #833O
Amdizalisib was well tolerated and demonstrated a manageable safety profile. The most frequent treatment-emergent adverse event
was neutrophil count decreased (28.9%), and most frequent, non-hematologic, Grade 3 or above treatment-emergent adverse events
were pneumonia (13.3%) and rash (5.6%). All liver enzyme elevation was mild to moderate (Grade 1-2). Grade 3 diarrhea was low
(2.2%) and there were no colitis cases as of the data cut-off. Treatment discontinuation rate due to adverse events was 5.6%.
Phase II registration-intent study of amdizalisib in patients with relapsed/refractory follicular lymphoma and relapsed/refractory
marginal zone lymphoma in China (Status: enrolling; NCT04849351)
Based on the highly promising preliminary results from the above Phase Ib expansion study, in April 2021, we commenced a
registration-intent Phase II trial of amdizalisib in China in patients with relapsed or refractory follicular lymphoma and marginal zone
lymphoma, two subtypes of non-Hodgkin’s lymphoma. The clinical trial is a multi-center, single-arm, open-label clinical study to
evaluate the efficacy and safety of amdizalisib once a day oral monotherapy in approximately 100 patients with relapsed/refractory
follicular lymphoma and approximately 80 patients with relapsed/refractory marginal zone lymphoma. Relapsed/refractory is defined
when a patient has not achieved response (complete response or partial response) after the latest line of systemic treatment, or has
progressive disease or relapse after achieving response. The primary endpoint is ORR, with secondary endpoints including CR rate,
PFS, TTR and duration of response. The trial is being conducted in over 35 sites in China.
107
Phase I/Ib study of amdizalisib in patients with Indolent non-Hodgkin’s lymphoma in the United States and Europe (Status: enrolling;
NCT03786926)
In August 2019, we initiated an international Phase I/Ib study of amdizalisib in patients with relapsed or refractory lymphoma. The
international clinical study, with 17 sites in the United States and Europe, is a multi-center, open-label, two-stage study, including dose
escalation and expansion, investigating the effects of amdizalisib administered orally to patients with relapsed or refractory lymphoma.
The primary outcome measures are safety and tolerability. Secondary outcomes include pharmacokinetic measurements and preliminary
efficacy such as ORR.
5. Sovleplenib (HMPL-523), Syk Inhibitor
The result of our over six-year program of discovery and pre-clinical work against Syk is sovleplenib, a highly selective Syk
inhibitor with a unique pharmacokinetic profile which provides for higher drug exposure in the tissue than on a whole blood level. We
designed sovleplenib intentionally to have high tissue distribution because it is in the tissue that the B-cell activation associated with
rheumatoid arthritis and lupus occurs most often. Furthermore, and somewhat counter intuitively, in hematological cancer the vast
majority of cancer cells nest in tissue, with a small proportion of cancer cells releasing and circulating in the blood where they cannot
survive for long. We assessed that an effective small molecule Syk inhibitor would need to have superior tissue distribution.
In January 2022, the Center for Drug Evaluation of the NMPA granted Breakthrough Therapy Designation to sovleplenib for the
treatment of chronic adult primary immune thrombocytopenia patients who have received at least one prior therapy.
Mechanism of Action
Syk is a key kinase upstream to PI3Kδ and BTK within the B-cell signaling pathway and therefore thought to be an important target
for modulating B-cell signaling.
Syk, a target for autoimmune diseases
The central role of Syk in signaling processes is not only in cells of immune responses but also in cell types known to be involved
in the expression of tissue pathology in autoimmune, inflammatory and allergic diseases. Therefore, interfering with Syk could represent
a possible therapeutic approach for treating these disorders. Indeed, several studies have highlighted Syk as a key player in the
pathogenesis of a multitude of diseases, including rheumatoid arthritis, systemic lupus erythematosus and multiple sclerosis.
Syk, a target for oncology
In hematological cancer, we believe Syk is a high potential target. In hematopoietic cells, Syk is recruited to the intracellular
membrane by activated membrane receptors like B-cell receptors or another receptor called Fc and then binds to the intracellular domain
of the receptors. Syk is activated after being phosphorylated by certain kinases and then further induces downstream intracellular signals
including B-cell linker, PI3Kδ, BTK and Phospholipase C-y2 to regulate B-cell proliferation, growth, differentiation, homing, survival,
maturation, and immune responses. Syk not only involves the regulation of lymphatic cells but also signal transduction of non-lymphatic
cells such as mast cells, macrophages, and basophils, resulting in different immunological functions such as degranulation to release
immune active substances, leading to immunological reaction and disease. Therefore, regulating B-cell signal pathways through Syk is
expected to be effective for treating lymphoma.
Syk is upstream of both BTK and PI3Kδ, and we believe it could deliver the same outcome as inhibitors of BTK and PI3Kδ,
assuming no unintentional toxicities are derived from Syk inhibition.
108
Sovleplenib Research Background
The threshold of safety for a Syk inhibitor in chronic disease is extremely high, with no room for material toxicity. The failure of
Tavalisse in a global Phase III registration study in rheumatoid arthritis provided important insights for us in the area of toxicity. While
Tavalisse clearly showed patient benefit in rheumatoid arthritis, a critical proof-of-concept for Syk modulation, it also caused high levels
of hypertension which is widely believed to be due to the high levels of off-target kinase insert domain receptor inhibition. In addition,
Tavalisse has also been shown to strongly inhibit the Ret kinase, and in pre-clinical trials it was demonstrated that inhibition of the Ret
kinase was associated with developmental and reproductive toxicities.
The requirement for Syk kinase activity in inflammatory responses was first evaluated with Tavalisse, which was co-developed by
AstraZeneca/Rigel Pharmaceuticals, Inc. In 2013, AstraZeneca announced results from pivotal Phase III clinical trials that Tavalisse
statistically significantly improved ACR20 (a 20% improvement from baseline based on the study criteria) response rates of patients
inadequately responding to conventional disease-modifying anti-rheumatic drugs and a single anti-TNFα (a key pro-inflammatory
cytokine involved in rheumatoid arthritis pathogenesis) antagonist at 24 weeks, but failed to demonstrate statistical significance in
comparison to placebo at 24 weeks. As a result, AstraZeneca decided not to proceed. Rigel Pharmaceuticals subsequently chose to
develop Tavalisse for immune thrombocytopenia instead, for which it was approved by the FDA in 2018 and the EMA in 2020.
Tavalisse was also in trials for B-cell lymphoma and T-cell lymphoma. It demonstrated some clinical efficacy in diffused large B-
cell lymphoma patients with an ORR of 22%. Entospletinib has features of high potency and good selectivity toward kinases. However,
while the Phase II study discussed above showed that it had significant efficacy in patients with chronic lymphocytic leukemia and small
lymphocytic lymphoma, its poor solubility and permeability into intestinal epithelial cells resulted in unsatisfactory oral absorption and
a great variation of individual drug exposure. In addition, entospletinib shows some inhibition of the CYP3A4, CYP2D6, and CYP1A2
enzymes involved in the metabolism of certain drugs, and therefore their inhibition could increase the risk of drug-to-drug interaction
when used in combined therapy.
Sovleplenib Pre-clinical Evidence
The safety profile of sovleplenib was evaluated in multiple in vitro and in vivo pre-clinical trials under good laboratory practice
guidelines and found to be well tolerated following single dose oral administration. Toxic findings were seen in repeat dose animal
safety evaluations in rats and dogs at higher doses and found to be reversible. These findings can be readily monitored in the clinical
trials and fully recoverable upon drug withdrawal. The starting dose in humans was suggested to be 5 mg. This dose level is
approximately 5% of the human equivalent dose extrapolated from the pre-clinical “no observed adverse event levels,” which is below
the 10% threshold recommended by FDA guidelines.
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Sovleplenib Clinical Trials
As discussed below, we currently have various clinical trials of sovleplenib ongoing in Australia, the United States, Europe and
China as a monotherapy. We plan to complete U.S. IND and initiate Phase I study in the United States in patients with immune
thrombocytopenia purpura in 2022. The table below shows a summary of the clinical trials that we currently have for sovleplenib.
Treatment
Sovleplenib monotherapy
Sponsors/Partners
Name, Line, Patient Focus
Sites
HUTCHMED
ESLM-01: Immune thrombocytopenia
China
Phase
III
Current Clinical Trials of Sovleplenib
Sovleplenib monotherapy
HUTCHMED
Immune thrombocytopenia purpura
China
I/Ib
Sovleplenib monotherapy
HUTCHMED
Indolent non-Hodgkin's lymphoma
Australia
Ib
Sovleplenib monotherapy
HUTCHMED
Indolent non-Hodgkin's lymphoma
U.S./ Europe
I/Ib
Sovleplenib monotherapy
Sovleplenib monotherapy
HUTCHMED
HUTCHMED
Multiple sub-types of B-cell malignancies China
China
wAIHA
I/Ib
II
Status/Plan
Ongoing: initiated
in October 2021.
Breakthrough
Therapy
Designation
Completed: data
presented at ASH
2021
Active, not
recruiting
Ongoing;
preliminary data
presented at ASH
2021
Completed
In planning
NCT #
NCT05029635
NCT03951623
NCT02503033
NCT03779113
NCT02857998
N/A
Phase I/Ib study of sovleplenib in patients with immune thrombocytopenia (Status: ongoing; NCT03951623)
In mid-2019, we initiated a Phase I study of sovleplenib in patients with immune thrombocytopenia purpura. Immune
thrombocytopenia purpura is an autoimmune disorder characterized by low platelet count and an increased bleeding risk. Despite
availability of several treatments with differing mechanisms of action, a significant proportion of patients develop resistance to treatment
and are prone to relapse. In addition, there is a significant population of patients who have limited sensitivity to currently available
agents and are in need of a new approach to treatment.
The study is a randomized, double-blinded, placebo-controlled Phase Ib clinical trial investigating the safety, tolerability,
pharmacokinetics and preliminary efficacy of sovleplenib in adult patients with immune thrombocytopenia purpura. The primary
endpoint is the number of patients with any adverse event. The secondary endpoints are maximum plasma concentration, area under
the concentration-time curve in a selected time interval, and rate of clinical remission at week eighty. The trial is comprised of a dose
escalation stage and a dose expansion stage. Approximately 50 to 60 patients are expected to be enrolled. Encouraging results from the
Phase Ib study were presented at the ASH 2021 annual meeting.
As of the data cutoff date, 34 patients had received sovleplenib and 11 received placebo. Among 16 patients who received the RP2D
of 300mg once daily, 11 (68.8%) experienced response (defined by at least one incident of platelet count being ≥ 50x10⁹/L in the initial
8-week double blinded phase of the study), compared to one placebo patient (9.1%). One additional patient at the RP2D experienced
response during the subsequent 16-week open-label phase of the study, and all four placebo patients that crossed over to receive treatment
at RP2D after the initial 8-week double blinded phase experienced response. In total, 16 out of 20 patients (80%) experienced response
during both phases of the study. Durable response (defined as platelet count being ≥ 50x10⁹/L in at least 4 out of 6 last scheduled visits)
was reported in 8 out of 20 patients (40%) who received RP2D in both phases of the study.
Safety data were presented for all 41 patients (31 sovleplenib, 10 placebo). The median duration of treatment was 142 days (range:
23-170). No patients discontinued treatment due to treatment-related adverse event, and no cases of treatment-related serious adverse
events were reported. There were 30 patients (73%) who experienced treatment-related adverse events, including 3 (7.3%) who
experienced grade 3 or above treatment-related adverse events, one of whom received the RP2D. No treatment-related adverse events
of grade 3 or above occurred in more than one patient.
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Phase Ib Study of Sovleplenib in Adult Patients with Primary Immune Thrombocytopenia
Phase Ib Study of Sovleplenib in Adult Patients with Primary Immune Thrombocytopenia
Notes: Data cut-off as of September 30, 2021. Overall Response was defined as at least one incident of platelet count being ≥ 50×109/L
in the initial 8-week double blinded phase of the study. Durable Response was defined as platelet count being ≥ 50×109/L in at
least 4 out of 6 last scheduled visits.
*The 300mg QD cohort includes 4 patients who, after receiving placebo in the first 8 weeks of double blind treatment, received
sovleplenib 300mg QD in a 16-week open-label treatment period. QD= once daily
Source: Yang R, et al. “Safety, Pharmacokinetics and Preliminary Efficacy of HMPL-523 in Adult Patients with Primary Immune
Thrombocytopenia: A Randomized, Double-Blind and Placebo-Controlled Phase Ib Study.” Presented at the 63rd American
Society of Hematology (ASH) Annual Meeting and Exposition on December 11, 2021. Abstract #149895.
Phase III study of sovleplenib in patients with immune thrombocytopenia (Status: ongoing; NCT05029635)
Based on encouraging data from the Phase Ib study of sovleplenib in adult patients with immune thrombocytopenia, we initiated a
Phase III study of sovleplenib in October 2021. The study is a randomized, double blinded, placebo-controlled Phase III clinical trial
evaluating the efficacy and safety of sovleplenib in treating adult patients with ITP. The primary endpoint of the study is the durable
response rate. Secondary and exploratory endpoints include ORR, incidence of treatment emergent adverse events, and patient quality
of life improvement. Approximately 180 patients are expected to be enrolled. Sovleplenib received Breakthrough Therapy Designation
in China in January 2022.
Phase I/Ib studies in multiple subtypes of B-cell malignancies (Status: ongoing; NCT02503033/NCT02857998)
Our Phase I/Ib dose escalation and expansion studies in Australia and China have now enrolled over 200 patients in a broad range
of hematological cancers and have identified indications of interest for future development.
Phase I/Ib study of sovleplenib in indolent non-Hodgkin’s lymphoma (Status: enrolling; NCT03779113)
Based on extensive proof-of-concept clinical data in China and Australia, we have initiated a Phase I/Ib study in the United States
and Europe. We presented preliminary results from this study at the ASH 2021 annual meeting, which support progressing sovleplenib
into the ongoing dose expansion phase of the study to evaluate its safety and efficacy in multiple subtypes of B-cell and T-cell lymphoma
at the RP2D of 700mg.
6. Tazemetostat, EZH2 Inhibitor
Tazemetostat is an inhibitor of EZH2 developed by Epizyme that is approved by the U.S. FDA for the treatment of certain epithelioid
sarcoma and follicular lymphoma patients. It received accelerated approval from the FDA based on ORR and DoR in January and June
2020 for epithelioid sarcoma and follicular lymphoma, respectively. Tazemetostat is currently marketed as Tazverik in the United States.
We entered into a strategic collaboration with Epizyme pursuant to which we received a license to research, develop, manufacture and
commercialize Tazemetostat in Greater China, including mainland China, Hong Kong, Macau and Taiwan.
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We plan to seek approval for tazemetostat in various hematological and solid tumors, including epithelial sarcoma, follicular
lymphoma and diffuse large b-cell lymphoma (DLBCL) in Greater China. We are participating in Epizyme’s SYMPHONY-1 (EZH-
302) study, leading it in Greater China. The parties also intend to conduct additional global studies jointly. Tazemetostat’s mechanism
of action is highly complementary and potentially synergistic with HUTCHMED’s portfolio of cancer drug candidates. We will
generally be responsible for funding all clinical trials of tazemetostat in Greater China including the portion of global trials conducted
there. We are responsible for the research, manufacturing and commercialization of tazemetostat in Greater China.
Mechanism of Action
EZH2 is one member of a class of histone methyltransferases (“HMTs”). It catalyzes the methylation of histone H3 at lysine 27
(H3K27) which controls expression of various genes and in turn plays a role in the normal physiology of many cell types. Dysregulation
of EZH2 has been seen in a wide range of cancers and is associated with poor clinical prognosis and outcomes. Tazemetostat inhibits
EZH2 which allows transcription of genes involved in functions such as cell cycle control and terminal differentiation and thus inhibits
cancer cell proliferation.
Tazemetostat Clinical Trials
The table below shows a summary of the clinical trials that we have recently underway for tazemetostat.
Clinical Trials of Tazemetostat
Treatment
Tazemetostat and R² (lenalidomide and
rituximab)
Sponsors/Partners Name, Line, Patient Focus
SYMPHONY-1: 2L follicular
lymphoma
HUTCHMED /
Epizyme
Sites
Global
Phase
III
Tazemetostat monotherapy
HUTCHMED
Relapsed/refractory 3L+
follicular lymphoma
China
Tazemetostat combinations
HUTCHMED
Indolent lymphoma combinations China
II
registration-
intent
(bridging)
II
Status/Plan
HUTCHMED is
leading China
portion of global
Phase III trial
In planning
NCT #
NCT04224493
Pending
In planning
N/A
SYMPHONY-1 is a global, multicenter, randomized, double-blind, active-controlled, 3-stage, biomarker-enriched, Phase Ib/III
study of tazemetostat in combination with R² (lenalidomide and rituximab) in patients with relapsed or refractory follicular lymphoma
after at least one prior line of therapy. Epizyme conducted the Phase Ib portion of the study in 2021, which determined the recommended
Phase III dose (“RP3D”) and also demonstrated potential efficacy in second-line follicular lymphoma. The safety profile of the
combination was consistent with the previously reported safety information in the U.S. prescribing information for both Tazverik and
R², respectively.
In the Phase III portion of the trial, approximately 500 patients are randomly assigned to receive the RP3D of tazemetostat + R² or
placebo + R². The study will also include a maintenance arm with tazemetostat or placebo following the first year of treatment with
tazemetostat + R² or placebo + R². We anticipate the first patient enrollment in the first half of 2022 in the China Phase III portion of
SYMPHONY-1.
We intend to initiate a bridging study in follicular lymphoma to support China registration as well as several combination studies
of Tazemetostat with HUTCHMED assets.
7. HMPL-306, IDH1 and 2 Inhibitor
HMPL-306 is a novel small molecule dual-inhibitor of IDH1 and 2 enzymes. IDH1 and IDH2 mutations have been implicated as
drivers of certain hematological malignancies and solid tumors, particularly among acute myeloid leukemia patients.
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Mechanism of Action
IDHs are critical metabolic enzymes that help to break down nutrients and generate energy for cells. When mutated, IDH creates a
molecule that alters the cell’s genetic programming and prevents cells from maturing, 2-hydroxyglutarate (“2-HG”). Reduction in 2-HG
levels can be used as a marker of target engagement by an IDH inhibitor. IDH1 or IDH2 mutations are common genetic alterations in
various types of blood and solid tumors, including acute myeloid leukemia, with approximately 20% of patients having mutant IDH
genes, myelodysplastic syndrome
intrahepatic
cholangiocarcinoma. Mutant IDH isoform switching, either from cytoplasmic mutant IDH1 to mitochondrial mutant IDH2, or vice
versa, is a mechanism of acquired resistance to IDH inhibition in acute myeloid leukemia and cholangiocarcinoma.
(MDS), myeloproliferative neoplasms
low-grade glioma and
(MPNs),
Cytoplasmic mutant IDH1 and mitochondrial mutant IDH2 have been known to switch to the other form when targeted by an
inhibitor of IDH1 mutant alone or IDH2 mutant alone. By targeting both IDH1 and IDH2 mutations, HMPL-306 could potentially
provide therapeutic benefits in cancer patients harboring either IDH mutation and may address acquired resistance to IDH inhibition
through isoform switching.
Currently, the FDA has approved one drug for IDH1 mutation and one drug for IDH2 mutation, but no dual inhibitor targeting both
IDH1 and IDH2 mutants has been approved.
HMPL-306 Clinical Trials
The table below shows a summary of the clinical trials that we have recently underway or in planning for HMPL-306.
Clinical Trials of HMPL-306
Treatment
HMPL-306 monotherapy HUTCHMED
Sponsors/Partners
Name, Line, Patient Focus Sites
Hematological
malignancies
China
I
Phase
Status/Plan
NCT #
Ongoing:
close to
establishing
the RP2D,
dose
expansion in
mid-2022
Ongoing:
initiated in
March 2021.
Dose
expansion
phase is
expected to
start in mid-
2022
Ongoing:
initiated in
May 2021
NCT04272957
NCT04762602
NCT04764474
HMPL-306 monotherapy HUTCHMED
Solid tumors including
U.S.
I
but not limited to
gliomas,
chondrosarcomas or
cholangiocarcinomas
HMPL-306 monotherapy HUTCHMED
Hematological
malignancies
U.S
I
Phase I HMPL-306 monotherapy–China (Status: ongoing; NCT04272957)
In July 2020, we initiated our Phase I development in China. This is a multi-center study to evaluate the safety, pharmacokinetics,
pharmacodynamics and efficacy of HMPL-306 in patients of relapsed or refractory hematological malignancies with an IDH1 and/or
IDH2 mutation. We plan to submit presentation data from the dose escalation portion of the study in China in mid-2022.
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Phase I HMPL-306 monotherapy in solid tumors–U.S. and Europe (Status: ongoing; NCT04762602)
In March 2021, we initiated our Phase I development in the United States and Europe. This is a multi-center study to evaluate the
safety, tolerability pharmacokinetics, pharmacodynamics and preliminary efficacy of HMPL-306 in solid tumors, including but not
limited to gliomas, chondrosarcomas or cholangiocarcinomas. We plan to initiate the dose expansion portion of the study in relapsed or
refractory solid tumors in mid-2022.
Phase I HMPL-306 monotherapy in hematological malignancies–U.S. and Europe (Status: ongoing; NCT04764474)
In the United States, IND applications for solid tumors and hematologic malignancies were cleared in October 2020. In May 2021,
we dosed the first patient with IDHm+ hematological malignancies.
8. HMPL-760, BTK Inhibitor
HMPL-760 is an investigational, non-covalent, third-generation BTK inhibitor. It is a highly potent, selective, and reversible
inhibitor with long target engagement against BTK, including wild-type and C481S-mutated BTK.
Mechanism of Action
BTK is a key component of the B-cell receptor signaling pathway and is an important regulator of cell proliferation and cell survival
in various lymphomas. The abnormal activation of B-cell receptor signaling is closely related to the development of B-cell type
hematological cancers, which represent approximately 85% of all NHL cases. BTK is considered a validated target for drugs that aim
to treat certain hematological cancers, however C481S mutation of BTK is a known resistance mechanism for first and second generation
BTK inhibitors.
HMPL-760 Clinical Trials
The table below shows a summary of the clinical trials that we have recently underway or in planning for HMPL-760.
Clinical Trials of HMPL-760
Treatment
HMPL-760
monotherapy
HMPL-760
monotherapy
Sponsors/Partners Name, Line, Patient Focus
HUTCHMED CLL, SLL, other
Sites
China
HUTCHMED CLL, SLL, other
U.S.
NHL
Phase
I
I
Status/Plan
NCT #
Ongoing: initiated NCT05190068
in January 2022
Initiating
NCT05176691
NHL
We currently retain all rights to HMPL-760 worldwide. We have an ongoing Phase I study in China and are in the process of
initiating a Phase I study in the United States. Both of these are multi-center and open-label studies to evaluate the safety, tolerability,
pharmacokinetics, pharmacodynamics and preliminary efficacy profile of HMPL-760 in patients with previously treated chronic
lymphocytic leukemia/small lymphocytic lymphoma or other types of non-Hodgkin lymphoma.
9. HMPL-453, FGFR Inhibitor
Mechanism of Action
FGFR belongs to a subfamily of receptor tyrosine kinases. Four different FGFRs (FGFR1-4) and at least 18 ligand FGFs constitute
the FGF/FGFR signaling system. Activation of the FGFR pathway through the phosphorylation of various downstream molecules
ultimately leads to increased cell proliferation, migration and survival. FGF/FGFR signaling regulates a wide range of basic biological
processes, including tissue development, angiogenesis, and tissue regeneration. Given the inherent complexity and critical roles in
physiological processes, dysfunction in the FGF/FGFR signaling leads to a number of developmental disorders and is consistently found
to be a driving force in cancer. Deregulation of the FGFR can take many forms, including receptor amplification, activating mutations,
gene fusions, and receptor isoform switching, and the molecular alterations are found at relatively low frequencies in most tumors. The
incidence of FGFR aberrance in various cancer types is listed in the table below.
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Common FGFR Alterations in Certain Tumor Types
FGFR1
FGFR2
FGFR3
Gene amplification
Gene translocation
Lung squamous (n/a)
Glioblastoma (n/a)
Lung squamous (7-15%)
H&N squamous (10-17%)
Esophageal squamous (9%) Myeloproliferative syndrome (n/a)
Breast (10-15%)
Gastric (5-10%)
Breast (5-10%)
Bladder (3%)
Salivary adenoid cystic (n/a) Lung squamous (3%)
Glioblastoma (3-7%)
Breast (1%)
Myeloma (15-20%)
Breast (n/a)
Intra-hepatic biliary tract cancer (14%) Endometrial (12-14%)
Lung squamous (5%)
Breast (n/a)
Bladder (60-80% NMIBC; 15-20% MIBC)
Bladder (3-6%)
Cervical (5%)
Gene mutation
Gastric (4%)
Pilocytic astrocytoma (5-8%)
Notes: H&N = head and neck; NMIBC = non-muscle invasive bladder cancer; MIBC = muscle invasive bladder cancer; and n/a =
data not available.
Source: M. Touat et al., “Targeting FGFR Signaling in Cancer,” Clinical Cancer Research (2015); 21(12); 2684-94.
HMPL-453 Research Background
We noted a growing body of evidence has demonstrated the oncogenic potential of FGFR aberrations in driving tumor growth,
promoting angiogenesis, and conferring resistance mechanisms to oncology therapies. Targeting the FGF/FGFR signaling pathway has
therefore attracted attention from biopharmaceutical companies and has become an important exploratory target for new anti-tumor
target therapies.
The main FGFR on-target toxicities observed to date in these compounds are all mild and manageable, including
hyperphosphatemia, nail and mucosal disorder, and reversible retinal pigmented epithelial detachment. However, there are still many
challenges in the development of FGFR-directed therapies. Uncertainties include the screening and stratifying of patients who are most
likely to benefit from FGFR targeted therapy. Intra-tumor heterogeneity observed in FGFR amplified cancer may compromise the anti-
tumor activity. In addition, the low frequency of specific FGFR molecular aberrance in each cancer type may hinder clinical trial
enrollment.
HMPL-453 Pre-clinical Evidence
HMPL-453 is a highly selective and potent, small molecule that targets FGFR 1/2/3 with an IC50 in the low nanomolar range. Its
good selectivity was revealed in the screening against 292 kinases. HMPL-453 exhibited strong anti-tumor activity that correlated with
target inhibition in tumor models with abnormal FGFR activation.
HMPL-453 has good pharmacokinetic properties characterized by rapid absorption following oral dosing, good bioavailability,
moderate tissue distribution and moderate clearance in all pre-clinical animal species. HMPL-453 was found to have little inhibitory
effect on major cytochrome P450 enzymes, indicating low likelihood of drug-to-drug interaction issues.
HMPL-453 Clinical Development
The table below shows a summary of the clinical trials that we have recently completed and underway for HMPL-453.
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Clinical Trials of HMPL-453
Treatment
HMPL-453
monotherapy
HMPL-453 with
chemotherapies
HMPL-453 with
Tuoyi (PD-1)
Sponsors/Partners Name, Line, Patient Focus
HUTCHMED
2L Cholangiocarcinoma
Sites
China
Phase
II
Ongoing. ~10-15% of
Status/Plan
NCT #
(IHCC with FGFR
fusion)
HUTCHMED
Advanced solid tumors
China
HUTCHMED
Advanced solid tumors
China
IHCC pts’ tumors harbor
FGFR2 fusion
I/II Ongoing; initiated in
January 2022
I/II Ongoing; initiated in
January 2022
NCT04353375
NCT05173142
NCT05173142
Phase II HMPL-453 monotherapy in advanced IHCC–China (Status: ongoing; NCT04353375)
In September 2020, we initiated a Phase II, single-arm, multi-center, open-label study, evaluating the efficacy, safety and
pharmacokinetics of HMPL-453 in patients with advanced IHCC with FGFR2 fusion that had failed at least one line of systemic therapy.
IHCC is a cancer that develops within the bile ducts, the second most common primary hepatic malignancy after hepatocellular
carcinoma. Approximately 10-15% of IHCC patients have tumors that harbor FGFR2 fusion.
Phase Ib/II HMPL-453 in combination with chemotherapies or toripalimab in advanced solid tumors–China (Status: ongoing;
NCT05173142)
In January 2022, we initiated a Phase Ib/II, multi-center, two-stage, open-label clinical trial of HMPL-453 in combination with
chemotherapy or the anti-PD-1 therapy, toripalimab, to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy
profile of HMPL-453 combination therapy in patients with specific advanced or metastatic solid tumors. The first stage of the study is
a dose escalation phase to determine the dose limiting toxicity (DLT) and recommended Phase II dose of HMPL-453 in combination
with chemotherapy (gemcitabine and cisplatin) or toripalimab. The second stage of the study is a dose expansion phase in solid tumor
patients with either gastric cancer, intrahepatic cholangiocarcinoma, or urothelial carcinoma, harboring specific FGFR gene alterations.
Each solid tumor cohort will be treated with a specific combination of HMPL‑453 and a chemotherapy or anti-PD-1 therapy to further
evaluate the preliminary efficacy, safety and tolerability at the recommended Phase II dose.
10. HMPL-295, ERK Inhibitor
HMPL-295, a novel ERK inhibitor, is our tenth in-house discovered small molecule oncology drug candidate. ERK is a downstream
component of the RAS-RAF-MEK-ERK signaling cascade (MAPK pathway). This is our first of multiple candidates in discovery
addressing the MAPK pathway.
Mechanism of Action
RAS-MAPK pathway is dysregulated in human diseases, particularly cancer, in which mutations or nongenetic events hyperactivate
the pathway in more than 50% of cancers. Activating mutations in RAS genes occur in more than 30% of cancers. RAS and RAF
mutations predict worse clinical prognosis in a wide variety of tumor types, mediate resistance to targeted therapies, and decrease the
response to the approved standards of care, namely, targeted therapy and immunotherapy. On the MAPK pathway, KRAS inhibitors are
under clinical evaluation, and acquired resistance develops for RAF/MEK targeted therapies. ERK inhibition has the potential to
overcome or avoid the intrinsic or acquired resistance from the inhibition of RAS, RAF and MEK upstream mechanisms.
HMPL-295 Clinical Trials
The table below shows a summary of the clinical trial that we have underway for HMPL-295.
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Clinical Trial of HMPL-295
Treatment
HMPL-295
monotherapy
Sponsors/Partners Name, Line, Patient Focus
HUTCHMED
Solid tumors
China
Sites
Phase
I
Status/Plan
NCT #
Ongoing: initiated in NCT04908046
July 2021
We currently retain all rights to HMPL-295 worldwide. We initiated our Phase I development in China in July 2021. This is a multi-
center and open-label study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy profile of HMPL-295, and to
determine the maximum tolerated dose and RP2D in patients with advanced malignant solid tumors.
11. HMPL-653, CSF-1R Inhibitor
HMPL-653 is an investigational novel, highly selective, and potent CSF-1R inhibitor designed to target malignant driven tumors as
a monotherapy or in combination with other drugs.
Mechanism of Action
CSF-1R is usually expressed on the surface of macrophages and can promote growth and differentiation of macrophages. Studies
have shown that blocking the CSF-1R signaling pathway could effectively modulate the tumor microenvironment, relieve tumor
immunosuppression, and synergize with other anti-cancer therapies such as immune checkpoint inhibitors to achieve tumor inhibition.
It has been demonstrated in several clinical studies that CSF-1R inhibitors could treat tenosynovial giant cell tumors and treat a variety
of malignancies combined with immuno-oncology or other therapeutic agents.
HMPL-653 Clinical Trials
The table below shows a summary of the clinical trial that we have recently underway for HMPL-653.
Clinical Trial of HMPL-653
Treatment
HMPL-653
monotherapy
Sponsors/Partners Name, Line, Patient Focus
HUTCHMED Solid tumors &
Sites
China
Phase
I
tenosynovial giant
cell tumors
NCT #
NCT05190068
Status/Plan
Ongoing: initiated in
January 2022, ~110
patients expected to be
enrolled
We currently retain all rights to HMPL-653 worldwide. We initiated our Phase I development in China in January 2022, and the
study is a multi-center, open-label and single-armed study to evaluate the safety, tolerability, pharmacokinetics and preliminary efficacy
of HMPL-653 in patients with advanced or metastatic solid tumors and tenosynovial giant cell tumors. We expect to enroll around 110
patients in this study.
12. Epitinib and theliatinib, EGFR Inhibitors
Our strategy has been to create targeted therapies in the EGFR area that would go beyond the already approved EGFRm+ patient
population to address certain areas of unmet medical needs that represent market opportunities, including: (i) brain metastasis and/or
primary brain tumors with EGFRm+, which we seek to address with epitinib; and (ii) tumors with EGFR gene amplification or EGFR
overexpressed, which we seek to address with theliatinib.
Epitinib (also known as HMPL-813) is a potent and selective oral EGFR inhibitor designed to optimize brain penetration. A
significant portion of patients with EGFR activating mutations go on to develop brain metastasis. Patients with brain metastasis suffer
from poor prognosis and low quality of life with limited treatment options. EGFR inhibitors have revolutionized the treatment of NSCLC
with EGFR activating mutations. However, many approved EGFR inhibitors cannot penetrate the blood-brain barrier effectively, leaving
the majority of patients with primary brain tumors or brain metastasis without an effective targeted therapy.
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Furthermore, tumors with wild-type EGFR activation, for instance through gene amplification or protein over-expression, are less
sensitive to many EGFR tyrosine kinase inhibitors due to sub-optimal binding affinity. Theliatinib (also known as HMPL-309) is a novel
oral EGFR inhibitor that has been designed with strong affinity to the wild-type EGFR kinase and has demonstrated five to ten times
the potency than Tarceva in pre-clinical trials. This holds importance because tumors with wild-type EGFR activation have been found
to be less sensitive to current EGFR inhibitors and is notable in certain cancer types such as esophageal cancer, where 15-28% have
EGFR gene amplification and 50-70% have EGFR overexpressed. As a result, we believe that theliatinib could potentially be more
effective than existing EGFR tyrosine kinase inhibitor products and benefit patients with tumor types with a high incidence of wild-type
EGFR activation.
We have completed Phase I and II trials for both epitinib (NSCLC with brain metastases; glioblastoma) and theliatinib (solid tumors;
esophageal cancer) and have observed efficacy. However, we have decided not to continue their development as monotherapies at this
time.
Our Research and Development Approach
Our core research and development philosophy is to take a holistic approach to the treatment of cancer and immunological diseases,
through multiple modalities and mechanisms, including targeted therapies, immunotherapies and other pathways. A primary objective
of our research efforts has been to develop next generation drug candidates with:
unique selectivity to limit target-based toxicity;
high potency to optimize the dose selection with the objective to lower the required dose and thereby limit compound-based
toxicity;
chemical structures deliberately engineered to improve drug exposure in the targeted tissue; and
ability to be combined with other therapeutic agents, including targeted therapies, immunotherapies and chemotherapies.
We have built a drug discovery engine, with which we strive to create differentiated novel oncology and immunology treatments
with global potential. These include furthering both small molecule and biologic therapies which address aberrant genetic drivers and
cancer cell metabolism; modulate tumor immune microenvironment; and target immune cell checkpoints. We design drug candidates
with profiles that enable them to be used in innovative combinations with other therapies, such as chemotherapy, immunotherapy and
other targeted therapy in order to attack disease simultaneously through multiple modalities and pathways. We believe that this approach
can significantly improve treatment outcomes for patients.
We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be
the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global
first-in-class or best-in-class drug candidates requires a significant investment of resources over a prolonged period of time, and a core
part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug
candidates has been steadily advancing and expanding, with thirteen clinical-stage drug candidates. See “– Our Clinical Pipeline” for
more details.
Beyond these clinical candidates, we continue to conduct research into discovering new types of drug candidates, including among
others, small molecules addressing cancer-related apoptosis, cell signaling, epigenetics and protein translation; biologic drug candidates
including bispecific antibodies; and novel technologies including antibody-drug conjugates and heterobifunctional small molecules.
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Our Collaborations
Collaborations and joint ventures with corporate partners have provided us with significant funding and access to our partners’
scientific, development, regulatory and commercial capabilities. Our current oncology collaborations focus on savolitinib (collaboration
with AstraZeneca) and fruquintinib (collaboration with Eli Lilly). When we entered into these collaborations, we had already conducted
the discovery research and early clinical development of each drug candidate and, following our agreements, continued to conduct the
clinical development and manage the engagement with regulatory authorities in China up to and including filing the NDAs with the
NMPA. Our collaboration partners fund a significant portion of our research and development costs for drug candidates developed in
collaboration with them. In addition, we receive upfront payments upon our entry into these collaboration arrangements and upon the
achievement of certain development milestones for the relevant drug candidate. We have received upfront payments, equity
contributions and milestone payments totaling approximately $183.5 million mainly from our collaborations with AstraZeneca and Eli
Lilly as of December 31, 2021. In return, our collaboration partners are entitled to a significant proportion of any future revenue from
our drug candidates developed in collaboration with them, as well as a degree of influence over the clinical development process for
such drug candidates. In addition, we have entered into other clinical collaborations for combination studies of fruquintinib and
surufatinib with drug candidates belonging to BeiGene, Innovent and/or Junshi. We also have an immunology collaboration with
Inmagene with respect to four novel pre-clinical drug candidates discovered by us and an in-licensing collaboration with Epizyme with
respect to tazemetostat.
AstraZeneca
In 2008, our in-house teams started research on MET inhibitors, subsequently discovering our drug candidate, savolitinib, and
conducting its pre-clinical development in-house. In 2011, we submitted applications for clinical development and initiated Phase I
clinical trials. In December 2011, we entered into an agreement with AstraZeneca under which we granted to AstraZeneca co-exclusive,
worldwide rights to develop, and exclusive worldwide rights to manufacture and commercialize savolitinib for all diagnostic,
prophylactic and therapeutic uses. In August 2016, December 2020 and November 2021, we and AstraZeneca amended the terms of the
agreement. We refer to this agreement, including the amendments thereto, as the AstraZeneca Agreement.
AstraZeneca paid $20.0 million upon execution of the AstraZeneca Agreement and agreed to pay royalties and additional amounts
upon the achievement of development and sales milestones. Under the original terms of the AstraZeneca Agreement, we and
AstraZeneca agreed to share the development costs for savolitinib in China, with AstraZeneca being responsible for the development
costs for savolitinib in the rest of the world. With respect to certain clinical trials, we subsequently agreed with AstraZeneca on sharing
development costs. As of December 31, 2021, we had received $49.9 million in milestone payments in addition to approximately $57.1
million in reimbursements for certain development costs. We may potentially receive future clinical development and first sales
milestones payments for clinical development and initial sales of savolitinib, plus significant further milestone payments based on sales.
Subject to approval of savolitinib in treating PRCC, under the amended AstraZeneca Agreement, AstraZeneca is obligated to pay us
increased tiered royalties from 14% to 18% annually on all sales made of any product outside of China, which represents a five
percentage point increase over the original terms, subject to a potential downward adjustment on such point increase based on the amount
of any contribution by AstraZeneca to the Phase III development in patients with such indication. After total aggregate additional
royalties have reached five times our contribution to the Phase III development in patients with such indication, this royalty will step
down over a two-year period, to an ongoing royalty rate of 10.5% to 14.5%. AstraZeneca is also obligated to pay us a fixed royalty of
30% on all sales made of any product in China.
Development and collaboration under this agreement are overseen by a joint steering committee that is comprised of three of our
senior representatives as well as three senior representatives from AstraZeneca. AstraZeneca is responsible for the development of
savolitinib and all regulatory matters related to this agreement in all countries and territories other than China, and we are responsible
for the development of savolitinib and all regulatory matters related to this agreement in China. Since entering the AstraZeneca
Agreement, we have continued to lead the development of savolitinib in China.
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Subject to earlier termination, the AstraZeneca Agreement will continue in full force and effect on a country-by-country basis as
long as any collaboration product is being developed or commercialized. The AstraZeneca Agreement is terminable by either party upon
a breach that is uncured, upon the occurrence of bankruptcy or insolvency of either party, or by mutual agreement of the parties. The
AstraZeneca Agreement may also be terminated by AstraZeneca for convenience with 180 days’ prior written notice. Termination for
cause by us or AstraZeneca or for convenience by AstraZeneca will have the effect of, among other things, terminating the applicable
licenses granted by us. Termination for convenience by AstraZeneca will have the effect of obligating AstraZeneca to grant to us all of
its rights to regulatory approvals and other rights necessary to commercialize savolitinib. Termination by AstraZeneca for convenience
will not have the effect of terminating any license granted by AstraZeneca to us.
Eli Lilly
In 2007, our in-house research into VEGFR inhibitors led to the discovery of our drug candidate, fruquintinib. We conducted pre-
clinical development in-house and initiated a Phase I clinical trial in 2010. In October 2013, we entered into an agreement with Eli Lilly
whereby we granted Eli Lilly an exclusive license to develop, manufacture and commercialize fruquintinib for all uses in China and
Hong Kong. In December 2018, following the commercial launch of fruquintinib in China, we and Eli Lilly amended the terms of the
agreement and further amended the terms of the agreement in July 2020. We refer to this agreement, including the amendments thereto,
as the Eli Lilly Agreement.
Subsequent to the entering of the Eli Lilly Agreement, we continued to lead the development of fruquintinib, including all clinical
trial development. Eli Lilly reimbursed us for a majority of the development costs and provided input over the course of the development
of fruquintinib. Development, collaboration and manufacture of the products under this agreement are overseen by a joint steering
committee comprised of equal numbers of representatives from each party.
Eli Lilly paid a $6.5 million upfront fee following the execution of the Eli Lilly Agreement in 2013, and agreed to pay royalties and
additional amounts upon the achievement of development and regulatory approval milestones. As of December 31, 2021, Eli Lilly had
paid us $37.2 million in milestone payments in addition to approximately $57.7 million in reimbursements for certain development
costs.
We could potentially receive future milestone payments for the achievement of development and regulatory approval milestones in
China. Additionally, Eli Lilly is obligated to pay us tiered royalties from 15% to 20% annually on sales made of fruquintinib in China
and Hong Kong, the rate to be determined based upon the dollar amount of sales made for all products in that year. Under the terms of
our 2018 amendment, upon the first commercial launch of fruquintinib in China in a new life cycle indication, these tiered royalties
increased to 15% to 29%. Under the terms of our 2020 amendment, we and Eli Lilly share gross profits linked to sales target performance.
Subject to meeting pre-agreed sales targets, Eli Lilly will pay us an estimated total of 70% to 80% of Elunate in-market sales in the form
of royalties, manufacturing costs and service payments.
Under the terms of our 2018 amendment, we are entitled to determine and conduct future life cycle indication development of
fruquintinib in China beyond the three initial indications specified in the original Eli Lilly Agreement. After the 2018 amendment, we
assumed responsibility for all development activities and costs for fruquintinib in China in new life cycle indications, and we have the
liberty to collaborate with third-parties to explore combination therapies of fruquintinib with various immunotherapy agents. Under the
terms of our 2020 amendment, we took over development and execution of all on-the-ground medical detailing, promotion and local
and regional marketing activities for Elunate in China.
We are responsible in consultation with Eli Lilly for the supply of, and have the right to supply, all clinical and commercial supplies
for fruquintinib pursuant to an agreed strategy for manufacturing. For the term of the Eli Lilly Agreement, such supplies will be provided
by us at a transfer price that accounts for our cost of goods sold.
The Eli Lilly Agreement is terminable by either party for breach that is uncured. The Eli Lilly Agreement is also terminable by Eli
Lilly for convenience with 120 days’ prior written notice or if there is a major unexpected safety issue with respect to a product.
Termination by either us or Eli Lilly for any reason will have the effect of, among other things, terminating the applicable licenses
granted by us, and will obligate Eli Lilly to transfer to us all regulatory materials necessary for us to continue development efforts for
fruquintinib.
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BeiGene
In May 2020, we entered into a clinical collaboration agreement with BeiGene to evaluate the safety, tolerability and efficacy of
combining surufatinib and fruquintinib with BeiGene’s anti-PD-1 antibody tislelizumab, for the treatment of various solid tumor cancers,
in the United States, Europe, China and Australia. Under the terms of the agreement, we and BeiGene each plan to explore development
of the combination of surufatinib with tislelizumab or fruquintinib with tislelizumab in different indications and regions. We have agreed
to provide mutual drug supply and other support.
Inmagene
In January 2021, we and Inmagene entered into a strategic partnership to further develop four novel pre-clinical drug candidates
(HMPL-A28, HMPL-727, HMPL-662 and HMPL-958) discovered by us for the potential treatment of multiple immunological diseases.
We will work together to move the drug candidates towards IND submission. If successful, Inmagene will then move the drug candidates
through global clinical development.
Under the terms of the agreement, we have granted Inmagene exclusive options to four drug candidates solely for the treatment of
immunological diseases. If Inmagene exercises an option, it will have the right to further develop, manufacture and commercialize that
specific drug candidate worldwide, while we retain first right to co-commercialization in China. For each of the drug candidates, we
will be entitled to development milestones of up to $95 million and up to $135 million in commercial milestones, as well as up to double-
digit royalties upon commercialization.
Epizyme
In August 2021, we entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to
develop, an exclusive license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan
and Macau for all therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large
b-cell lymphoma and any other indications that are approved according to the terms of the licensing agreement.
To date, we have paid Epizyme a $25.0 million upfront payment. We may be required to pay an additional aggregate amount of up
to $110 million in development and regulatory milestone payments and up to an additional $175 million in sales milestone payments.
Epizyme is also eligible to receive, across up to eight potential indications, certain tiered royalties (from mid-teen to low-twenties-
percentage) based on annual net sales of tazemetostat in the licensed territory. In addition, we received a four-year warrant to acquire
up to $65 million of Epizyme shares at a price of $11.50 per share.
We have the right to manufacture the licensed product for development and commercialization in the licensed territory and are
generally responsible for funding all clinical trials of tazemetostat, including the portion of global trials conducted in the licensed
territory. The agreement with Epizyme will remain in effect until, on a licensed product-by-licensed product basis, the expiration of the
royalty term for each licensed product in the licensed territory. We have the right to terminate the agreement for convenience at any
time, subject to a certain notice period. Either party has the right to terminate the agreement if the other party or its affiliates challenge
its patents. In addition, either party may terminate the agreement with written notice for the other party’s material breach, subject to a
certain cure period, or for the other party’s bankruptcy or insolvency.
Other Collaborations
In October and November 2018, we entered into multiple collaborations to evaluate combinations of fruquintinib and surufatinib.
These include a global collaboration with Innovent to evaluate the combination of fruquintinib with Tyvyt and a global collaboration
with Junshi to evaluate the combination of surufatinib with Tuoyi. In September 2019, we expanded our global collaboration agreement
with Innovent to evaluate the safety and efficacy of Tyvyt in combination with surufatinib.
Other Ventures is our large-scale, profitable drug marketing and distribution platform covering about 290 cities and towns in China
with approximately 2,900 manufacturing and commercial personnel as of December 31, 2021. Built over the past 20 years, it has been
focused on the sale of prescription drug products and consumer health products conducted through the following entities:
Other Ventures
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Shanghai Hutchison Pharmaceuticals
Shanghai Hutchison Pharmaceuticals, our non-consolidated joint venture, primarily engages in the manufacture and sale of
prescription drug products originally contributed by our joint venture partner, as well as third-party prescription drugs with a focus on
cardiovascular medicine. Shanghai Hutchison Pharmaceuticals’ proprietary products are sold under the “Shang Yao” brand, literally
meaning “Shanghai pharmaceuticals,” a trademark that has been used for over 50 years in the pharmaceutical retail market, primarily in
Eastern China. In early 2019, Shanghai Hutchison Pharmaceuticals was awarded the 2018 State Scientific and Technological Progress
Award – Second Prize, which was presented by President Xi Jinping, Premier Li Keqiang and other state leaders of the PRC at the
National Science and Technology Awards Ceremony. This award was one of only two such awards given that year to studies in the
botanical drug industry.
Its key product is She Xiang Bao Xin pills, a vasodilator for the long-term treatment of coronary artery and heart disease and for
rapid control and prevention of acute angina pectoris, a form of chest pain. There are over one million deaths due to coronary artery
disease per year in China. She Xiang Bao Xin pill is the third largest botanical prescription drug in this indication in China, with market
share in 2021 of 19.6% (2020 of 18.2%) nationally and 43.6% (2020: 47.5%) in Shanghai. She Xiang Bao Xin pills’ sales represented
92% of all Shanghai Hutchison Pharmaceuticals sales in 2021.
She Xiang Bao Xin pills were first approved in 1983 and subsequently enjoyed 22 proprietary commercial protections under the
prevailing regulatory system in China. In 2005, Shanghai Hutchison Pharmaceuticals was able to attain “Confidential State Secret
Technology” status protection, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, which extended
proprietary protection in China until late 2016. The Science and Technology Commission of Shanghai Municipality has subsequently
extended such protection. Shanghai Hutchison Pharmaceuticals holds an invention patent in China covering its formulation, which
extends proprietary protection through 2029. She Xiang Bao Xin pill is one of less than two dozen proprietary prescription drugs
represented on China’s National Essential Medicines List, which means that all Chinese state-owned health care institutions are required
to carry it. She Xiang Bao Xin pill is fully reimbursed in all of China.
Shanghai Hutchison Pharmaceuticals manufactures its products at its 78,000 square meter production facility located in Feng Pu
district outside the center of Shanghai. Shanghai Hutchison Pharmaceuticals holds 74 drug product manufacturing licenses, of which 17
are included in the National Essential Medicines List, and three are in active production. The factory is operated by over 530
manufacturing staff.
As of December 31, 2021, Shanghai Hutchison Pharmaceuticals had a commercial team of about 2,200 medical sales representatives
allowing for the promotion and scientific detailing of our products not just in hospitals in provincial capitals and medium-sized cities,
but also in the majority of county-level hospitals in China. Shanghai Hutchison Pharmaceuticals, through its GSP-certified subsidiary,
sells its products and its third-party licensed prescription drugs directly to distributors who on-sell such products to hospitals and clinics,
pharmacies and other retail outlets in their respective areas, as well as to other local distributors. As of December 31, 2021, Shanghai
Hutchison Pharmaceuticals engaged a group of approximately 550 primary distributors to cover China. These primary distributors in
turn used over 2,000 secondary distributors to work directly with hospitals, on a local level, to manage logistics. Shanghai Hutchison
Pharmaceuticals’ own prescription drugs sales representatives promote its products to doctors and purchasing managers in hospitals,
clinics and pharmacies as part of its marketing efforts.
Hutchison Sinopharm
Hutchison Sinopharm is our consolidated joint venture with Sinopharm. Based in Shanghai, Hutchison Sinopharm focuses on
providing logistics services to, and distributing and marketing prescription drugs in China. As of December 31, 2021, Hutchison
Sinopharm had a dedicated team of over 130 commercial staff focused on two key areas of operation—a commercial team that markets
approximately 1,100 third-party prescription drug and other products directly to about 700 public and private hospitals in the Shanghai
region and through a network of approximately 50 distributors to cover all other provinces in China, and a second commercial team that
markets our Zhi Ling Tong infant nutrition brand through a network of over 32,000 promoters in over 7,700 outlets in China.
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Starting in 2015, Hutchison Sinopharm had been the exclusive marketing agent for Seroquel tablets in China. In June 2018,
AstraZeneca sold and licensed its rights to Seroquel to Luye Pharma Group, Ltd., including its rights in China. The terms of our
agreement with AstraZeneca were assigned to Luye Pharma Hong Kong Ltd., or Luye Pharma HK. In May 2019, we received a notice
from Luye Pharma HK purporting to terminate our agreement. We believe that Luye Pharma HK had no basis for termination and
commenced confidential legal proceedings to seek damages. In December 2021, the Hong Kong International Arbitration Centre made
a final award in favor of Hutchison Sinopharm against Luye Pharma Hong Kong in the amount of RMB253.2 million plus costs we
incurred in the legal proceedings and interest. We expect the award to be paid in 2022. We did not have any revenue from the distribution
of Seroquel for the years ended December 31, 2019, 2020 and 2021.
In 2019, we began building an in-house oncology commercial sales and marketing team at Hutchison Sinopharm to support the
launch of certain of our innovative oncology drugs. By December 31, 2021, this team had grown to over 630 commercial sales and
marketing staff.
In 2021, a substantial portion of Hutchison Sinopharm’s sales were made directly to hospitals and clinics, with the remaining sales
being made through distributors. As of December 31, 2021, Hutchison Sinopharm had approximately 740 customers of which
approximately 6% were distributors, and the revenue generated from these distributors accounted for approximately 26% of the revenue
of Hutchison Sinopharm for the year ended December 31, 2021.
Hutchison Baiyunshan
Hutchison Baiyunshan was our non-consolidated joint venture until we disposed of our interest in it in September 2021. It focused
primarily on the manufacture, marketing and distribution of over-the-counter pharmaceutical products, including Banlangen granules
for the treatment of viral flu, fever, and respiratory tract infections and Fu Fang Dan Shen tablets for the treatment of chest congestion
and angina pectoris.
Hutchison Hain Organic
Hutchison Hain Organic is a consolidated joint venture with Hain Celestial, a Nasdaq-listed, natural and organic food and personal
care products company. Hutchison Hain Organic distributes a broad range of over 500 imported organic and natural products. Pursuant
to its joint venture agreement, Hutchison Hain Organic has rights to manufacture, market and distribute Hain Celestial’s products within
nine Asian territories. We believe the key strategic product for Hutchison Hain Organic is Earth’s Best organic baby products, a leading
brand in the United States. Hutchison Hain Organic’s other products are distributed to hypermarkets, specialty stores and other retail
outlets in Hong Kong, China and across seven other territories in Asia mainly through third-party local distributors, including retail
chains owned by affiliates of CK Hutchison.
Hutchison Healthcare
Hutchison Healthcare is our wholly owned subsidiary and is primarily engaged in the manufacture and sale of health supplements.
Hutchison Healthcare’s major product is Zhi Ling Tong DHA capsules, a health supplement made from algae DHA oil for the promotion
of brain and retinal development in babies and young children, which is distributed by Hutchison Sinopharm.
The majority of Hutchison Healthcare’s products are contract manufactured at a dedicated and certified manufacturing facility
operated by a third party.
HUTCHMED Science Nutrition
HUTCHMED Science Nutrition is our wholly owned subsidiary that is primarily engaged in the distribution of third-party consumer
products in Asia.
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Oncology/Immunology Competition
Competition
The biotechnology and pharmaceutical industries are highly competitive. While we believe that our highly selective drug
candidates, experienced development team and chemistry-focused scientific approach provide us with competitive advantages, we face
potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology
companies. Any drug candidates that we successfully develop and commercialize will compete with existing drugs and/or new drugs
that may become available in the future.
We compete in the segments of the pharmaceutical, biotechnology and other related markets that address inhibition of key biological
pathways in cancer and immunological diseases. There are other companies working to develop kinase inhibitors and monoclonal
antibodies as targeted therapies for cancer and immunological diseases. These companies include divisions of large pharmaceutical
companies and biotechnology companies of various sizes.
Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the discovery and development of drug candidates, obtaining regulatory
approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may
be in obtaining approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or
more effectively marketed and sold, than any drug we may commercialize and may render our drug candidates obsolete or non-
competitive before we can recover the expenses of developing and commercializing any of our drug candidates. We anticipate that we
will face intense and increasing competition as new drugs enter the market and advanced technologies become available.
Below is a summary of existing therapies and therapies currently under development that may become available in the future which
may compete with each of our clinical-stage drug candidates.
Savolitinib
While there are currently no approved selective MET inhibitors on the market in China, two selective MET inhibitors are on the
market in the US and Japan: Tepmetko (tepotinib) and Tabrecta (capmatinib) are approved for MET exon 14 skipping NSCLC with
additional programs underway focused on lung cancer. Market Authorization Applications for Tabrecta and Tepmetko are both under
review by the European Medicines Agency (EMA) for use in the treatment of MET exon 14 skipping NSCLC. Other selective MET
inhibitors in development include telisotuzumab vedotin (in Phase II for advanced solid tumors, including NSCLC), elzovantinib (TPX-
0022, in Phase I/II development for advanced solid tumors), AMG 337 (in Phase II for advanced or metastatic clear cell sarcoma
harboring the EWSR1-ATF1 gene fusion), and glumetinib (in Phase I/II in China for advanced solid tumors, including MET-altered
NSCLC). Sym-015 is a bi-specific antibody that binds to non-overlapping epitopes on the extracellular domain of the Met receptor
tyrosine kinase (in Phase IIa development).
Approved compounds that inhibit MET as well as other kinases include Xalkori (crizotinib) (ALK, ROS1 and MET inhibitor
marketed for NSCLC) and Cabometyx (cabozantinib) (VEGFR/MET/Ret inhibitor approved for RCC and liver cancer as well as in
development for genitourinary cancers). Amivantamab (JNJ-61186372) (EGFR/MET bi-specific antibody) is approved for NSCLC
harboring EGFR exon 20 insertion mutation and in late-stage development for EGFRm+ NSCLC.
Surufatinib
Sutent (VEGFR inhibitor) and Afinitor (mTOR inhibitor) have been approved for the treatment of pancreatic NETs. Somatuline
Depot (Lanreotide) is a growth hormone release inhibitor that has been approved for the treatment of gastroenteropancreatic NETs.
Sandostatin (octreotide) is a growth hormone and insulin-like growth factor-1 inhibitor that has also been approved for NETs. Lutathera
(Lu-dotatate), a somatostatin receptor targeting radiotherapy, has been approved by the FDA for the treatment of somatostatin receptor
positive gastroenteropancreatic NETs. Furthermore, small molecules, monoclonal antibodies and radiotherapies are being developed
for the treatment of NETs. Compounds undergoing development for NETs include Inlyta (axitinib, tyrosine kinase inhibitor), and
Vargatef (nintedanib, a tyrosine kinase inhibitor). Cometriq (an additional brand name for cabozantinib) has been marketed for thyroid
cancer and is being studied for NETs. In addition, Avastin is an anti-VEGF monoclonal antibody being studied for NETs.
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Fruquintinib
Approved VEGF inhibitors on the market for the treatment of CRC include Avastin (anti-VEGF monoclonal antibody), Cyramza
(anti-VEGFR2 monoclonal antibody), Stivarga (VEGFR/TIE2 inhibitor) and Zaltrap (ziv-aflibercept) (VEGF inhibitor). Cyramza is
additionally approved for the treatment of NSCLC, gastric cancer, and a certain type of liver cancer. Avastin is approved for NSCLC
and nintedanib is approved for the treatment of lung disease associated with fibrosis (under the name Ofev) as well asadeno-NSCLC in
Europe (under the name Vargatef). Other VEGFR inhibitors being developed for the treatment of NSCLC include Cabometyx, Lenvima
(lenvatinib), lucitanib and Caprelsa. VEGFR inhibitors being developed for the treatment of gastric cancer include dovitinib, telatinib
and Stivarga. In China, Aitan (apatinib) has been approved for the treatment of third-line gastric cancer and Focus-V (anlotinib) has
been approved for the treatment of third-line NSCLC.
Sovleplenib and Amdizalisib
There has been extensive research on oral small-molecule Syk inhibitors due to the major unmet medical need in inflammation and
oncology. However, many Syk inhibitors have failed in the development stage due to their off-target toxicity as a result of lower kinase
selectivity and possibly poor pharmacokinetic properties. The only small molecule drug candidate targeting Syk specifically has been
approved to date is Tavalisse for the treatment of chronic immune thrombocytopenia. Lanraplenib (GS-9876) is a Syk inhibitor that has
been studied for autoimmune diseases, but not currently in active development for autoimmune diseases. Syk inhibitors currently in
clinical studies for hematological cancers include entospletinib (AML harboring NPM1c or FLT3 mutations), lanraplenib and
cerdulatinib (lymphoma).
Currently there are three PI3K inhibitors approved and on the market. In February 2021, Ukoniq (umbralisib) was approved for
the treatment of relapsed or refractory marginal zone lymphoma and follicular lymphoma, although the FDA is currently investigating
possible increased risk of death associated with umbralisib. Aliqopa (copanlisib, pan-PI3K inhibitor) was approved for relapsed
follicular lymphoma as a monotherapy and is being studied in combination with rituximab as well as rituximab and chemotherapy in
NHL. Copiktra (duvelisib, PI3K-δ/γ dual inhibitor) is currently approved for relapsed/refractory chronic lymphocytic leukemia/small
lymphocytic lymphoma as a monotherapy. In January 2022, Incyte announced that it is withdrawing its NDA for parsaclisib due to the
investment required to complete a post marketing confirmatory study within the timeframe required by the FDA. In addition, several
drug candidates that inhibit PI3Kδ are in clinical development for hematological cancers, including zandelisib (ME-401), ACP 319 and
YY-20394.
Tazemetostat
The most common treatments for follicular lymphoma are chemotherapies, usually combined with the monoclonal antibody
Rituxan, or Gazyva, which is an antibody that acts against the same target as Rituxan, CD20. While Rituxan and a number of other
widely used anti-cancer agents are labeled broadly for follicular lymphoma, no therapies are approved specifically for the treatment of
tumors associated with EZH2 activating mutations. There are a number of companies currently evaluating investigational agents in the
relapsed and refractory follicular lymphoma patient setting.
In the relapsed and refractory follicular lymphoma patient setting, both current and near-term competition exists. Current
competition includes CD20 combinations along with multiple PI3K inhibitors. Near term competition includes companies currently
evaluating investigational agents with varying mechanisms of action.
Other than tazemetostat, there are no therapies which have been approved specifically for the treatment of epithelioid sarcoma.
Epithelioid sarcoma, an INI1-negative tumor, is typically treated with surgical resection when it presents as localized disease. When
epithelioid sarcoma recurs or metastasizes, it may be treated with systemic chemotherapy or investigational agents because, other than
tazemetostat, there are no approved systemic therapies specifically indicated for this disease. To the best of our knowledge there are no
competitive products in development specifically for epithelioid sarcoma. However, we are aware of several clinical trials run by
competitors that recruit patients with soft tissue sarcoma, which is inclusive of epithelioid sarcoma.
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HMPL-306
Tilbsovo (ivosidenib) is an approved therapy that specifically inhibits IDH1 while Idhifa (enasidenib) is an approved therapy that
specifically inhibits IDH2. To date, there are no approved therapies that inhibit both IDH1 and IDH2, which could be advantageous in
deferring resistance to therapy. A pan-IDH inhibitor, vorasidenib, is currently in late stage development for glioma. An IDH 1/2 inhibitor,
LY3410738, is in Phase 1 development for both hematological malignancies and solid tumors. Other IDH1 inhibitors in development
include olutasidenib (FT-2102), BAY1436032, and DS-1001b.
HMPL-760
Approved first and second generation BTK inhibitors include Imbruvica, Calquence, Tirabrutinib, Brukinsa and orelabrutinib.
Rolling NDA submission started for pirtobruntinib in mantle cell lymphoma in December 2021. Nemtabrutinib, orelabrutinib, TG-1701
and JNJ-64264681 are in development for cancer. A number of other BTK inhibitors, such as evobrutinib, remibrutinib, tolebrutinib,
rilzabrutinib, SAR444727 and fenebrutinib, are in development for immunological diseases.
HMPL-453
To date, Balversa, Pemazyre and Truseltiq are the only approved therapies that specifically target the FGFR signaling pathway.
Late-stage studies are underway for futibatinib and derazantinib. Additionally, a FGFR specific monoclonal antibody, bemarituzumab,
is in Phase III development for gastric cancer and gastroesophageal junction (GEJ) adenocarcinoma. Several small molecule FGFR TKI
are in clinical trials for solid tumors, including AZD4547, rogaratinib, fisogatinib (BLU-554), famitinib, Debio 1347, E7090, ICP-192,
ICP-105, ASP5878, FGF401, RLY-4008 and HH185.
HMPL-295
To date, no ERK inhibitor drug has been approved. A number of ERK inhibitors, including BVD-523, LY3214996 and LLT462,
among others are being developed in clinical settings as a single agent and/or in combination with various therapeutical agents.
HMPL-653
Turalio is the only FDA approved CSF-1R inhibitor drug and currently there is no CSF-1R inhibitors approved in China. CSF-1R
inhibitors in development globally include axatilimab, BLZ945, vimseltinib, AMB-05X, NMS-03592088, ARRY-382, JNJ-40346527,
emactuzumab, AMG820 and IMC-CS4.
Other Ventures Competition
Our Other Ventures operations which focus on prescription drugs compete in the pharmaceutical industry in China, which is highly
competitive and is characterized by a number of established, large pharmaceutical companies, as well as some smaller emerging
pharmaceutical companies. This business faces competition from other pharmaceutical companies in China engaged in the development,
production, marketing or sales of prescription drugs, in particular cardiovascular drugs.
The barrier to entry for the PRC pharmaceutical industry primarily relates to regulatory requirements in connection with the
production of pharmaceutical products and new product launches. The identities of the key competitors with respect to our prescription
drugs business vary by product, and, in certain cases, different competitors that have greater financial resources than us may elect to
focus these resources on developing, importing or in-licensing and marketing products in the PRC that are substitutes for our products
and may have broader sales and marketing infrastructure with which to do so.
We believe that we compete primarily on the basis of brand recognition, pricing, sales network, promotion activities, product
efficacy, safety and reliability. We believe our Other Ventures’ continued success will depend on our business’s capability to: maintain
profitability of its products, obtain and maintain regulatory approvals, develop drug candidates with market potential, maintain an
efficient operational model, apply technologies to production lines, attract and retain talented personnel, maintain high quality standards,
and effectively market and promote the products sold by our prescription drugs business.
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Our Other Ventures operations which focus on consumer health products competes in a highly fragmented market in Asia,
particularly in our primary market in China. We believe that this business competes primarily on the basis of brand recognition, pricing,
sales network, promotion activities, product safety and reliability. We believe our continued success will depend on our business’s
capability to: successfully market and distribute in-licensed products such as Earth’s Best infant formula, maintain an efficient
operational model, attract and retain talented personnel, maintain high quality standards, and effectively market and promote the products
sold by our business.
Patents and Other Intellectual Property
Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our
Oncology/Immunology drugs and drug candidates, our Other Ventures’ products and other know-how. Our policy is to seek to protect
our proprietary and intellectual property position by, among other methods, filing patent applications in various jurisdictions related to
our proprietary technology, inventions and improvements that are important to the development and implementation of our business.
We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and
intellectual property position.
Patents
We and our joint ventures file patent applications directed to our Oncology/Immunology drugs and drug candidates and our Other
Ventures’ products in an effort to establish intellectual property positions with regard to new small molecule compounds and/or extracts
of natural herbs, their compositions as well as their medical uses in the treatment of diseases. In relation to our Oncology/Immunology
operations, we also file patent applications directed to crystalline forms, formulations, processes, key intermediates, and secondary uses
as clinical trials for our drug candidates evolve. We file such patent applications in major market jurisdictions, including but not limited
to the United States, Europe, Japan and China.
Our Oncology/Immunology Patents
As of December 31, 2021, we had 270 issued patents, including 21 Chinese patents, 24 U.S. patents and 14 European patents, 184
patent applications pending in the above major market jurisdictions, and 13 pending PCT patent applications relating to the drugs and
drug candidates of our Oncology/Immunology operations. The intellectual property portfolios for our most advanced drug candidates
are summarized below. With respect to most of the pending patent applications covering our drug candidates, prosecution has yet to
commence. Prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the relevant
patent office is often significantly narrowed by the time when they issue, if they issue at all. We expect this to be the case for our pending
patent applications referred to below.
Savolitinib—The intellectual property portfolio for savolitinib contains two patent families.
The first patent family for savolitinib is directed to novel small molecule compounds as well as methods of treating cancers with
such compounds. As of December 31, 2021, we owned 56 patents in this family, including patents in China, the United States, Europe
and Japan, each expiring in 2030, and we also had 11 patent applications pending in various other jurisdictions.
The second patent family is directed to the method for the preparation of savolitinib. As of December 31, 2021, we had 17 patent
applications pending in this family in various jurisdictions, including China, the United States, Europe, and Japan, each of which, if
issued, would have an expiration date in 2039. This patent family is co-owned by us and AstraZeneca.
Our collaboration partner AstraZeneca is responsible for maintaining and enforcing the intellectual property portfolio for savolitinib.
Surufatinib—The intellectual property portfolio for surufatinib contains nine patent families.
The first patent family for surufatinib is directed to novel small molecule compounds as well as methods of treating tumor
angiogenesis-related disorders with such compounds. As of December 31, 2021, in this patent family we owned one Chinese patent
expiring in 2027 and 12 patents in various other jurisdictions, including the United States expiring in 2031, and Europe and Japan, each
expiring in 2028. As of December 31, 2021, we also had one patent application pending in Brazil.
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The second patent family is directed to the crystalline forms of surufatinib as well as methods of treating tumor angiogenesis-related
disorders with such forms. As of December 31, 2021, in this patent family we owned two patents in China expiring in 2029 and 2030,
respectively, and we owned 15 patents in other jurisdictions, including the United States expiring in 2031 and Europe expiring in 2030.
As of December 31, 2021, we also had one patent application pending in Brazil.
The third patent family is directed to the formulation of a micronized active pharmaceutical ingredient used in surufatinib as well
as methods of treating tumor angiogenesis-related disorders with such formulation. As of December 31, 2021, we owned 11 patents in
this family in various jurisdictions, including China, Europe and Japan, each of which will expire in 2036. We also had 8 patent
applications pending in various other jurisdictions, each of which, if issued, would have an expiration date in 2036.
The fourth patent family is directed to clinical indications of surufatinib. With respect to this patent family, we had one patent
application pending in Japan, which, if issued, would have an expiration date in 2036.
The fifth patent family is subject to confidential review by the patent authorities. With respect to this family, we had one patent
application pending in China, which, if issued, would have an expiration date in 2040.
The sixth patent family is directed to the pharmaceutical combinations of toripalimab and surufatinib. With respect to this family,
we had one PCT and one Taiwan applications pending, each of which, if issued, would have an expiration date in 2041. This patent
family is co-owned by us and Shanghai Junshi Biosciences Co., Ltd.
The seventh patent family is subject to confidential review by the patent authorities. With respect to this family, we had one patent
application pending in the United States, which, if issued, would have an expiration date in 2041.
The eighth and ninth patent families are each subject to confidential review by the patent authorities. With respect to each of these
families, we had one patent application pending in China, which, if issued, would have an expiration date in 2041.
Fruquintinib—The intellectual property portfolio for fruquintinib contains six patent families.
The first patent family for fruquintinib is directed to novel small molecule compounds as well as methods of treating tumor
angiogenesis-related disorders with such compounds. As of December 31, 2021, we owned three U.S. patents, one Chinese patent and
one Taiwanese patent in this family, each of which will expire in 2028. We also owned 15 patents in other jurisdictions including Europe
and Japan, each of which will expire in 2029. As of December 31, 2021, we also had one patent application pending in Brazil.
The second patent family is directed to crystalline forms of fruquintinib as well as methods of treating tumor angiogenesis-related
disorders with such forms. As of December 31, 2021, we owned 22 patents in this family in various jurisdictions, including the United
States, China, Europe and Japan, each of which will expire in 2035, and we had 5 patent applications pending in various other
jurisdictions.
The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of
fruquintinib. With respect to this patent family, we had one patent in China expiring in 2034.
The fourth patent family is directed to the pharmaceutical composition of fruquintinib. As of December 31, 2021, we had 7 patent
applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan, each of which,
if issued, would have an expiration date in 2039.
The fifth patent family is directed to the pharmaceutical combinations of geptanolimab and fruquintinib. With respect to this family,
we had one patent application pending in China, which, if issued, would have an expiration date in 2040. We also had one PCT
application pending in this family, which, if issued, would have an expiration date in 2041. This patent family is co-owned by us and
Genor Biopharma Co. Ltd.
The sixth patent family is directed to the pharmaceutical combinations of sintilimab and fruquintinib. With respect to this family,
we had one PCT and one Taiwan application pending, each of which, if issued, would have an expiration date in 2041. This patent
family is co-owned by us and Innovent Biologics (Suzhou) Co. Ltd.
Sovleplenib—The intellectual property portfolio for sovleplenib contains two patent families.
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The first patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases,
allergic diseases, cell-proliferative diseases, and immunological diseases with such compounds. As of December 31, 2021, we owned
24 patents in this family in various jurisdictions, including the United States, China, Europe and Japan, each of which will expire in
2032. As of December 31, 2021, we also had one patent application pending in India.
The second patent family is directed to the salts of sovleplenib as well as crystalline forms thereof. As of December 31, 2021, we
had 24 patent applications pending in this patent family in various jurisdictions, including China, the United States, Europe and Japan,
each of which, if issued, would have an expiration date in 2038.
Amdizalisib—The intellectual property portfolio for amdizalisib contains three patent families.
The first patent family is directed to novel small molecule compounds as well as uses of such compounds. As of December 31,
2021, we owned 25 patents in this family in various jurisdictions, including the United States, Europe, China and Japan, each of which
will expire in 2035. As of December 31, 2021, we also had two patent applications pending in this family in Argentina and Brazil.
The second patent family is directed to crystalline forms of amdizalisib. As of December 31, 2021, we had 23 patent applications
pending in this family in various jurisdictions, including China, the United States, Europe and Japan, each of which, if issued, would
have an expiration date in 2039.
The third patent family is directed to the method of preparing one of the critical intermediates used in the manufacturing process of
amdizalisib. With respect to this patent family, we had one patent in China expiring in 2038.
Tazemetostat — The intellectual property portfolio for Tazemetostat is licensed from Epizyme, Inc.
We entered into a licensing agreement with Epizyme pursuant to which we obtained a co-exclusive license to develop, an exclusive
license to commercialize and a co-exclusive license to manufacture tazemetostat in China, Hong Kong, Taiwan and Macau for all
therapeutic and palliative uses in epithelioid sarcoma, follicular lymphoma (second line and third line), diffuse large B-cell lymphoma
and any other indications that are approved according to the terms of the licensing agreement. For more details, please see “—Our
Collaborations—Epizyme.”
HMPL-306 — The intellectual property portfolio for HMPL-306 contains one patent family.
The patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds. As
of December 31, 2021, we had 24 patent applications pending in this patent family in various jurisdictions, including China, the United
States, Europe and Japan, each of which, if issued, would have an expiration date in 2038.
HMPL-760 — The intellectual property portfolio for HMPL-760 contains one patent family.
The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or
auto-immune diseases with such compounds. As of December 31, 2021, in this patent family we had PCT, the United States, Argentina
and Taiwan applications pending, each of which, if issued, would have an expiration date in 2041.
HMPL-453 — The intellectual property portfolio for HMPL-453 contains two patent families.
The first patent family is directed to novel small molecule compounds as well as methods of treating cancers with the compounds.
As of December 31, 2021, we owned 22 patents in this family in various jurisdictions, including China, Europe, Japan and the United
States, each of which will expire in 2034. As of December 31, 2021, we had three patent applications pending in various other
jurisdictions.
The second patent family is directed to the salts of HMPL-453. With respect to this family, we had PCT, Argentina and Taiwan
applications pending, each of which, if issued, would have an expiration date in 2040.
HMPL-295 — The intellectual property portfolio for HMPL-295 contains one patent family.
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The patent family is directed to novel small molecule compounds as well as methods of treating cancers or auto-immune diseases
with such compounds. As of December 31, 2021, in this patent family we had 23 patent applications pending in various jurisdictions,
including China, the United States, Europe and Japan, each of which, if issued, would have an expiration date in 2040.
HMPL-653 — The intellectual property portfolio for HMPL-653 contains one patent family.
The patent family is directed to novel small molecule compounds as well as methods of treating cancers, inflammatory diseases or
auto-immune diseases with such compounds. As of December 31, 2021, in this patent family we had PCT, Argentina and Taiwan
applications pending, each of which, if issued, would have an expiration date in 2041.
Epitinib—The intellectual property portfolio for epitinib contains two patent families.
The first patent family is directed to novel small molecule compounds as well as methods of treating cancers with such compounds.
As of December 31, 2021, we owned two patents in China and Taiwan expiring in 2028, one patent in the United States expiring in
2031 and 14 patents in other jurisdictions, including Europe, each expiring in 2029.
The second patent family is directed to the salts and solvates of epitinib and crystalline forms thereof, as well as methods of treating
cancers with such forms. As of December 31, 2021, we had one patent application pending in this family in China, which, if issued,
would have an expiration date in 2038.
Theliatinib—The intellectual property portfolio for theliatinib contains two patent families.
The first patent family is directed to novel small molecule compounds as well as methods of treating cancers with such compounds.
As of December 31, 2021, we owned 19 patents in this family in various jurisdictions, including China and Japan, each of which will
expire in 2031.
The second patent family is directed to the salts and solvates of theliatinib and crystalline forms thereof. With respect to this family,
we had one Chinese application pending, which, if issued, would have an expiration date in 2038.
Other Ventures Patents
As of December 31, 2021, our joint venture Shanghai Hutchison Pharmaceuticals had 60 issued patents and 37 pending patent
applications in China, including patents for its key prescription products described below.
She Xiang Bao Xin Pills. As of December 31, 2021, Shanghai Hutchison Pharmaceuticals held an invention patent in China directed
to the formulation of the She Xiang Bao Xin pill. Under PRC law, invention patents are granted for new technical innovations with
respect to products or processes. Invention patents in China have a maximum term of 20 years. This patent will expire in 2029. The
“Confidential State Secret Technology” status protection on the She Xiang Bao Xin pill technology held by Shanghai Hutchison
Pharmaceuticals, as certified by China’s Ministry of Science and Technology and State Secrecy Bureau, is currently active.
Danning Tablets. As of December 31, 2021, Shanghai Hutchison Pharmaceuticals also held an invention patent in China directed
to the formulation of the Danning tablet. This patent will expire in 2027.
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Patent Term
The term of a patent depends upon the laws of the country in which it is issued. In most jurisdictions, a patent term is 20 years from
the earliest filing date of a non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term
adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be
shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a patent that covers a drug or biological product
may also be eligible for patent term extension when FDA approval is granted, provided statutory and regulatory requirements are met.
In the future, if and when our drug candidates receive approval by the FDA or other regulatory authorities, we expect to apply for patent
term extensions on issued patents covering those drugs, depending upon the length of the clinical trials for each drug and other factors.
There can be no assurance that any of our pending patent applications will be issued or that we will benefit from any patent term
extension.
As with other pharmaceutical companies, our or our joint ventures’ ability to maintain and solidify our proprietary and intellectual
property position for our drugs and drug candidates or our or their products and technologies will depend on our or our joint ventures’
success in obtaining effective patent claims and enforcing those claims if granted. However, our or our joint ventures’ pending patent
applications and any patent applications that we or they may in the future file or license from third parties may not result in the issuance
of patents. We also cannot predict the breadth of claims that may be allowed or enforced in our or our joint ventures’ patents. Any
issued patents that we may receive in the future may be challenged, invalidated or circumvented. For example, we cannot be certain of
the priority of filing covered by pending third-party patent applications. If third parties prepare and file patent applications in the United
States, China or other markets that also claim technology or therapeutics to which we or our joint ventures have rights, we or our joint
ventures may have to participate in interference proceedings, which could result in substantial costs to us, even if the eventual outcome
is favorable to us, which is highly unpredictable. In addition, because of the extensive time required for clinical development and
regulatory review of a drug candidate we may develop, it is possible that, before any of our drug candidates can be commercialized, any
related patent may expire or remain in force for only a short period following commercialization, thereby limiting protection such patent
would afford the respective product and any competitive advantage such patent may provide.
Trade Secrets
In addition to patents, we and our joint ventures rely upon unpatented trade secrets and know-how and continuing technological
innovation to develop and maintain our or their competitive position. We and our joint ventures seek to protect our proprietary
information, in part, by executing confidentiality agreements with our collaborators and scientific advisors, and non-competition,
non-solicitation, confidentiality, and invention assignment agreements with our employees and consultants. We and our joint ventures
have also executed agreements requiring assignment of inventions with selected scientific advisors and collaborators. The confidentiality
agreements we and our joint ventures enter into are designed to protect our or our joint ventures’ proprietary information and the
agreements or clauses requiring assignment of inventions to us or our joint ventures, as applicable, are designed to grant us or our joint
ventures, as applicable, ownership of technologies that are developed through our or their relationship with the respective counterpart.
We cannot guarantee, however, that these agreements will afford us or our joint ventures adequate protection of our or their intellectual
property and proprietary information rights.
Trademarks and Domain Names
We conduct our business using trademarks with various forms of the “Hutchison”, “Chi-Med”, “Hutchison China MediTech”,
“HUTCHMED”, “Elunate”, “Sulanda”, “Orpathys” and “Tazverik” brands, the logos used by HUTCHMED Limited, as well as domain
names incorporating some or all of these trademarks. In April 2006, we entered into a brand license agreement (as amended and restated
on June 15, 2021) with Hutchison Whampoa Enterprises Limited, an indirect wholly-owned subsidiary of CK Hutchison, pursuant to
which we have been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison”, “Hutchison China MediTech”,
“Chi-Med”, “HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in
connection with the operation of our business worldwide. See “Connected Transactions” for further details. The Elunate and Orpathys
trademarks are licensed to us in China by our collaboration partners Eli Lilly and AstraZeneca, respectively. The trademarks for the
HUTCHMED Limited logo and “Sulanda” are owned by us. The Tazverik trademark is licensed to us in China, Hong Kong, Taiwan
and Macau by our collaboration partner Epizyme.
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In addition, our joint ventures seek trademark protection in China for their products. As of December 31, 2021, our joint venture
Shanghai Hutchison Pharmaceuticals owned a total of 12 trademarks in China related to products sold by it. For example, the name
“Shang Yao” is a registered trademark of Shanghai Hutchison Pharmaceuticals in China for certain uses including pharmaceutical
preparations.
Raw Materials and Supplies
Raw materials and supplies are ordered based on our or our joint ventures’ respective sales plans and reasonable order forecasts and
are generally available from our or our joint ventures’ own cultivation operations and various third-party suppliers in quantities adequate
to meet our needs. We typically order raw materials on short-term contract or purchase order basis and do not enter into long-term
dedicated capacity or minimum supply arrangements.
For our Oncology/Immunology operations, the active pharmaceutical ingredient used in our drug candidates are supplied to us from
third-party vendors. Our ability to successfully develop our drug candidates, and to ultimately supply our commercial drugs in quantities
sufficient to meet the market demand, depends in part on our ability to obtain the active pharmaceutical ingredients for these drugs in
accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing.
We generally aim to identify and qualify one or more manufacturers to provide such active pharmaceutical ingredients prior to
submission of an NDA to the FDA and/or NMPA. We contract with a single supplier to manufacture and supply us with the active
pharmaceutical ingredient for fruquintinib for commercial purposes and are in the process of engaging a second supplier. We have
already validated the second supplier’s cGMP production processes and the application for this second supplier has been approved by
the NMPA. We also contract with a single supplier to manufacture and supply us with the active pharmaceutical ingredient for surufatinib
for commercial purposes. We contracted with a single supplier to provide active pharmaceutical ingredient and finished product for
savolitinib. We manage the risk of price fluctuations and supply disruptions of active pharmaceutical ingredients by purchasing them in
bulk quantities as these ingredients have a relatively long shelf life. Other than the foregoing, we do not currently have arrangements in
place for a contingent or second-source supply of the active pharmaceutical ingredients for fruquintinib, surufatinib or savolitinib in the
event any of our current suppliers of such active pharmaceutical ingredients or finished product cease their operations for any reason,
which may lead to an interruption in our production and operations. However, to date, while we have experienced price fluctuations
associated with our raw materials, we have not experienced any material disruptions in the supply of the active pharmaceutical
ingredients or the other raw materials we and our joint venture partners use. See Item 3.D. “Risk Factors—Certain of our joint venture
parties principal products involve the cultivation or sourcing of key raw materials including botanical products, and any quality control
or supply failure or price fluctuations could adversely affect our ability to manufacture our products and/or could materially and
adversely affect our operating results.”
Quality Control and Assurance
We have our own independent quality control system and devote significant attention to quality control for the designing,
manufacturing and testing of our products. We have established a strict quality control system in accordance with the NMPA regulations.
Our laboratories fully comply with the Chinese manufacturing guidelines and are staffed with highly educated and skilled technicians
to ensure quality of all batches of product release. We monitor in real time our operations throughout the entire production process,
from inspection of raw and auxiliary materials, manufacture, delivery of finished products, clinical testing at hospitals, to ethical sales
tactics. Our quality assurance team is also responsible for ensuring that we are in compliance with all applicable regulations, standards
and internal policies. Our senior management team is actively involved in setting quality policies and managing internal and external
quality performance of our company and our joint venture Shanghai Hutchison Pharmaceuticals.
Customers and Suppliers
For the years ended December 31, 2019, 2020 and 2021, we generated revenue of $75.7 million, $102.3 million and $188.9 million
from our five largest customers, respectively. For the years ended December 31, 2019, 2020 and 2021, revenue from our five largest
customers represented approximately 37%, 45% and 53% of our total revenue, respectively, and revenue from our largest customer in
those periods represented approximately 13%, 16% and 16% of our revenue in the same periods, respectively. Save for Sinopharm, our
five largest customers were independent third parties and none of our directors or their close associates or, to the knowledge of our
directors, any shareholders who owned more than 5% of our issued ordinary shares had any interest in any of our five largest customers
as of the date of the filing of this annual report.
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In 2019, 2020 and 2021, Sinopharm, which jointly owns Hutchison Sinopharm with us, was one of our five largest customers. Sales
to Sinopharm and/or its associates contributed 14%, 16% and 12% of our revenue in 2019, 2020 and 2021, respectively. Purchases from
Sinopharm and/or its associates contributed less than 1% of our total purchases in 2019, 2020 and 2021, respectively.
For the years ended December 31, 2019, 2020 and 2021, the total purchases from our five largest suppliers were $46.8 million,
$58.0 million and $100.6 million, respectively. For the years ended December 31, 2019, 2020 and 2021, our purchases from our five
largest suppliers represented 28% of our total purchases. Save for Shanghai Hutchison Pharmaceuticals and Hain Celestial, all of our
five largest suppliers were independent third parties and none of our directors or their close associates or, to the knowledge of our
directors, any shareholder who owned more than 5% of our issued ordinary shares had any interest in any of our five largest suppliers
as of the date of the filing of this annual report.
Contract Research Organizations
Although we or our collaboration partners design the clinical trials for our drug candidates, CROs conduct most of the clinical trials.
Our agreements with CROs are usually structured as master service agreements which set out the services to be performed, payment
schedule, term and confirmation that all intellectual rights arising out of or made in performance of the services are owned by us. We
and our collaboration partners work with major global and Chinese CROs.
Certificates and Permits
HUTCHMED (Suzhou) Limited (formerly Hutchison MediPharma (Suzhou) Limited) holds a pharmaceutical manufacturing permit
issued by its local regulatory authority expiring on September 13, 2025. It also complies with applicable GMP standards.
Hutchison Sinopharm holds a pharmaceutical trading license issued by its local regulatory authority expiring on July 30, 2024.
Hutchison Sinopharm also holds a good supply practice, or GSP, certificate issued by its local regulatory authority which expires on
July 30, 2024.
Shanghai Hutchison Pharmaceuticals holds a pharmaceutical manufacturing permit from its local regulatory authorities expiring on
December 31, 2025.
Shanghai Shangyao Hutchison Whampoa GSP Company Limited, a subsidiary of Shanghai Hutchison Pharmaceuticals, holds a
pharmaceutical trading license from its local regulatory authority expiring on November 17, 2024. It also holds a GSP certificate issued
by its local regulatory authority expiring on November 17, 2024.
Regulations
This section sets forth a summary of the most significant rules and regulations affecting our business activities in China and the
United States.
Government Regulation of Pharmaceutical Product Development and Approval
PRC Regulation of Pharmaceutical Product Development and Approval
Since China’s entry to the World Trade Organization in 2001, the PRC government has made significant efforts to standardize
regulations, develop its pharmaceutical regulatory system and strengthen intellectual property protection.
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Regulatory Authorities
In the PRC, the NMPA is the authority that monitors and supervises the administration of pharmaceutical products and medical
appliances and equipment as well as cosmetics. The NMPA’s predecessor, the State Drug Administration, or the SDA, was established
on August 19, 1998 as an organization under the State Council to assume the responsibilities previously handled by the Ministry of
Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the State Administration of Traditional
Chinese Medicine of the PRC. The SDA was replaced by the State Food and Drug Administration, or the SFDA, in March 2003 and
was later reorganized into the China Food and Drug Administration, or the CFDA, in March 2013. On March 17, 2018, the First Session
of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the duties
of the CFDA were consolidated into the State Administration for Market Regulation, or the SAMR, and the NMPA was established
under the management and supervision of the SAMR.
The primary responsibilities of the NMPA include:
monitoring and supervising the administration of pharmaceutical products, medical appliances and equipment as well as
cosmetics in the PRC;
formulating administrative rules and policies concerning the supervision and administration of cosmetics and the
pharmaceutical industry; evaluating, registering and approving of new drugs, generic drugs, imported drugs and traditional
Chinese medicine;
undertaking the standard, registration, quality and post marketing risk management of pharmaceutical products, medical
appliances and equipment as well as cosmetics; and
examining, evaluating and supervising the safety of pharmaceutical products, medical appliances and equipment as well as that
of cosmetics.
The MOH is an authority at the ministerial level under the State Council and is primarily responsible for national public health.
Following the establishment of the SFDA in 2003, the MOH was put in charge of the overall administration of national health in the
PRC excluding the pharmaceutical industry. In March 2008, the State Council placed the SFDA under the management and supervision
of the MOH. The MOH performs a variety of tasks in relation to the health industry such as establishing social medical institutes and
producing professional codes of ethics for public medical personnel. The MOH is also responsible for overseas affairs, such as dealings
with overseas companies and governments. In 2013, the MOH and the National Population and Family Planning Commission were
integrated into the National Health and Family Planning Commission of the PRC, or the NHFPC. On March 17, 2018, the First Session
of the Thirteenth National People’s Congress approved the State Council Institutional Reform Proposal, according to which the
responsibilities of NHFPC and certain other governmental authorities are consolidated into the National Health Commission, or the
NHC, and the NHFPC shall no longer be maintained. The responsibilities of the NHC include organizing the formulation of national
drug policies, the national essential medicine system and the National Essential Medicines List and drafting the administrative rules for
the procurement, distribution and use of national essential medicines.
Healthcare System Reform
The PRC government has promulgated several healthcare reform policies and regulations to reform the healthcare system. On
March 17, 2009, the Central Committee of the PRC Communist Party and the State Council jointly issued the Guidelines on
Strengthening the Reform of Healthcare System. On March 18, 2009, the State Council issued the Implementation Plan for the Recent
Priorities of the Healthcare System Reform (2009-2011). On July 22, 2009, the General Office of the State Council issued the Five Main
Tasks of Healthcare System Reform in 2009.
Highlights of these healthcare reform policies and regulations include the following:
The overall objective of the reform is to establish a basic healthcare system to cover both urban and rural residents and provide
the Chinese people with safe, effective, convenient and affordable healthcare services. The PRC government aims to extend
basic medical insurance coverage to at least 90% of the country’s population by 2011 and increase the amount of subsidies on
basic medical insurance for urban residents and rural cooperative medical insurance to RMB120 ($18.32) per person per year
by 2010. By 2020, a basic healthcare system covering both urban and rural residents should be established.
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The reforms aim to promote orderly market competition and improve the efficiency and quality of the healthcare system to
meet the various medical needs of the Chinese population. From 2009, basic public healthcare services such as preventive
healthcare, maternal and child healthcare and health education will be provided to urban and rural residents. In the meantime,
the reforms also encourage innovations by pharmaceutical companies to eliminate low-quality and duplicative products.
The five key tasks of the reform from 2009 to 2011 are as follows: (1) to accelerate the formation of a basic medical insurance
system; (2) to establish a national essential drug system; (3) to establish a basic healthcare service system; (4) to promote equal
access to basic public healthcare services; and (5) to promote the reform of public hospitals.
Drug Administration Laws and Regulations
The PRC Drug Administration Law as promulgated by the Standing Committee of the National People’s Congress in 1984 and the
Implementing Measures of the PRC Drug Administration Law as promulgated by the MOH in 1989 have laid down the legal framework
for the establishment of pharmaceutical manufacturing enterprises, pharmaceutical trading enterprises and for the administration of
pharmaceutical products including the development and manufacturing of new drugs and medicinal preparations by medical institutions.
The PRC Drug Administration Law also regulates the packaging, trademarks and the advertisements of pharmaceutical products in the
PRC.
Certain revisions to the PRC Drug Administration Law took effect on December 1, 2001. They were formulated to strengthen the
supervision and administration of pharmaceutical products, and to ensure the quality and the safety of pharmaceutical products for
human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the development, production,
trade, application, supervision and administration of pharmaceutical products. It regulates and prescribes a framework for the
administration of pharmaceutical manufacturers, pharmaceutical trading companies, and medicinal preparations of medical institutions
and the development, research, manufacturing, distribution, packaging, pricing and advertisements of pharmaceutical products.
The PRC Drug Administration Law was later amended on December 28, 2013 and April 24, 2015 by the Standing Committee of
the National People’s Congress. It provides the basic legal framework for the administration of the production and sale of pharmaceutical
products in China and covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products.
On August 26, 2019, the Standing Committee of the National People’s Congress promulgated the amended PRC Drug
Administration Law, which took effect on December 1, 2019. The amendment brought a series of changes to the drug supervision and
administration system, including but not limited to the clarification of the MAH system, pursuant to which the MAH shall assume
responsibilities for non-clinical studies, clinical trials, manufacturing and marketing, post-marketing studies, monitoring, reporting and
handling of adverse reactions of the drug. The amendment also stipulated that the PRC supports the innovation of drugs with clinical
value and specific or special effects on human diseases, encourages the development of drugs with new therapeutic mechanisms and
promotes the technological advancement of such drugs.
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According to the PRC Drug Administration Law, no pharmaceutical products may be produced without a pharmaceutical production
license. A manufacturer of pharmaceutical products must obtain a pharmaceutical production license from one of NMPA’s provincial
level branches in order to commence production of pharmaceuticals. Prior to granting such license, the relevant government authority
will inspect the manufacturer’s production facilities, and decide whether the sanitary conditions, quality assurance system, management
structure and equipment within the facilities have met the required standards.
The PRC Drug Administration Implementation Regulations promulgated by the State Council took effect on September 15, 2002
and were later amended on February 6, 2016 and March 2, 2019 to provide detailed implementation regulations for the revised PRC
Drug Administration Law. With respect to the latest revision of the PRC Drug Administration Law, promulgated on August 26, 2019
and effective on December 1, 2019, there are no corresponding revised PRC Drug Administration Implementation Regulations.
Examination and Approval of New Medicines
On January 22, 2020, the NMPA promulgated the Administrative Measures on the Registration of Pharmaceutical Products, or the
Registration Measures, which became effective on July 1, 2020. According to the Registration Measures, an applicant who has obtained
a drug registration certificate shall be a drug MAH. The approval process for medicines seeking marketing authorization mainly consists
of the following steps:
upon the completion of pharmaceutical, pharmacological and toxicological research and related activities, an application for
clinical trial will be submitted to the Center for Drug Evaluation of the NMPA, or the Center for Drug Evaluation, for review.
The Center for Drug Evaluation will organize pharmacists, medical personnel and other professionals to review the application
for clinical trial. A decision on approval or non-approval of the application for clinical trial of drugs will be made within 60
working days from acceptance of the application, and the applicant shall be notified of the examination and approval result
through the website of the Center for Drug Evaluation. If the applicant is not notified within the stipulated period, the
application shall be deemed approved. The applicant who is approved to conduct clinical trial shall act as the sponsor for the
clinical trial;
if the application for clinical trial is approved, the sponsor shall, prior to conducting subsequent phases of the clinical trial,
formulate a corresponding program for the clinical trial, carry out the clinical trial after the review and approval by the Ethics
Committee, and submit the corresponding program for clinical trial and supporting materials on the website of the Center for
Drug Evaluation. The applicant may proceed with the relevant clinical research (which is generally conducted in three phases
for a new medicine under the Registration Measures) at institutions with appropriate qualification:
Phase I refers to the preliminary clinical trial for clinical pharmacology and body safety. It is conducted to observe
the human body tolerance for new medicine and pharmacokinetics, so as to provide a basis for determining the
prescription plan.
Phase I or II refers to the stage of preliminary evaluation of clinical effectiveness. The purpose is to preliminarily
evaluate the clinical effectiveness and safety of the medicine used on patients with targeted indication, as well as to
provide a basis for determining the Phase III clinical trial research plan and the volume under the prescription plan.
Phase III is a clinical trial stage to verify the clinical effectiveness. The purpose is to test and determine the clinical
effectiveness and safety of the medicine used on patients with targeted indication, to evaluate the benefits and risks
thereof and, eventually, to provide sufficient basis for review of the medicine registration application.
Phase IV refers to the stage of surveillance and research after the new medicines is launched. The purpose is to observe
the clinical effectiveness and adverse effects of the medicine over a much larger patient population and longer time
period than in Phase I to III clinical trials, and evaluate the benefits and risks when it is administered to general or
special patient population in larger prescription volume;
the sponsor shall submit a safety update report during the research and development period on the website of the NMPA on a
regular basis. The safety update report during the research and development period shall be submitted once a year, and within
two months of every full year after the clinical drug trial is approved. The NMPA may require the sponsor to adjust the reporting
period if deemed necessary;
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after (i) completing relevant pharmaceutical, pharmacological and toxicological research, clinical drug trials, and other research
supporting the marketing registration of a medicine, (ii) determining medicine quality standards, (iii) completing the
verification of commercial scale manufacturing process, and (iv) making preparations for drug registration inspections, the
applicant shall file the application for drug marketing authorization with the Center for Drug Evaluation;
the Center for Drug Evaluation will organize pharmaceutical, medical and other professionals to review accepted drug
marketing authorization applications in accordance with relevant requirements;
upon acceptance of an application for drug registration, the Center for Drug Evaluation will conduct a preliminary examination
within 40 working days from acceptance of the application; if there is a need to conduct an examination of manufacturing
premises for drug registration, the Center for Drug Evaluation will notify the Centre for Food and Drug Inspection of the NMPA
to organize an examination, provide the relevant materials required, and simultaneously notify the applicant as well as the
provincial drug administrative authorities where the applicant or the manufacturing enterprise is located. The Centre for Food
and Drug Inspection of the NMPA shall in principle complete the examination 40 working days before expiry of the review
period, and give feedback to the Center for Drug Evaluation on the status and findings etc. of the examinations; and
if the application is approved through the comprehensive review process, the drug shall be approved for marketing and a drug
registration certificate shall be issued. The drug registration certificate will state the approval number for the drug, the holder
of the certificate, and information of the manufacturing enterprise. A drug registration certificate for non-prescription drugs
will also state the non-prescription drug category.
Any applicant who is not satisfied with the Center for Drug Evaluation’s decision to deny an application during the application of
the drug registration period can appeal within 15 working days after it is notified by the Center for Drug Evaluation of such decision.
Upon termination for examination and approval of the application for drug registration, if the applicant is dissatisfied with the
administrative licensing decision, the applicant may apply for administrative review or file an administrative lawsuit.
In accordance with the Provisions on the Administration of Special Examination and Approval of Registration of New Drugs
promulgated by the NMPA, issued and effective on January 7, 2009, an NDA that meets certain requirements as specified below will
be handled with priority in the review and approval process, so-called “green-channel” approval. In addition, the applicant is entitled
to provide additional materials during the review period besides those requested by the NMPA, and will have access to enhanced
communication channels with the NMPA.
Applicants for the registration of the following new drugs are entitled to request priority treatment in review and approval: (i) active
ingredients and their preparations extracted from plants, animals and minerals, and newly discovered medical materials and their
preparations that have not been sold in the China market, (ii) chemical drugs and their preparations and biological products that have
not been approved for sale at its origin country or abroad, (iii) new drugs with obvious clinical treatment advantages for such diseases
as AIDS, therioma, and rare diseases, and (iv) new drugs for diseases that have not been treated effectively. Under category (i) or
(ii) above, the applicant for drug registration may apply for special examination and approval when applying for the clinical trial of new
drugs; under category (iii) or (iv) above, the applicant may only apply for special examination and approval when applying for
manufacturing.
In addition, on July 7, 2020, the NMPA released the Priority Review and Approval Procedures for Drug Marketing Authorizations
(for Trial Implementation), which further clarified that a fast track process for drug registration will be available to the following drugs
with distinctive clinical value: (i) (a) drugs in urgent clinical demand and in shortage and (b) innovative drugs and modified new drugs
for prevention and treatment of serious infectious diseases, rare diseases and other diseases; (ii) new varieties, dosage forms and
specifications of children’s drugs that conform to children’s physiological characteristics; (iii) (a) vaccines that are in urgent need for
disease prevention and control and (b) innovative vaccines; (iv) drugs that have been included in the procedures for Breakthrough
Therapy Designation; (v) drugs that are subject to conditional approval; and (vi) other drugs which the NMPA deems applicable. It also
specified that fast track status would be given to clinical trial applications for drugs with patent expiry within three years and
manufacturing authorization applications for drugs with patent expiry within one year. Concurrent applications for new drug clinical
trials which are already approved in the United States or E.U. are also eligible for fast track NMPA approval.
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Drug Technology Transfer Regulations
On August 19, 2009, the NMPA promulgated the Administrative Regulations for Technology Transfer Registration of Drugs to
standardize the registration process of drug technology transfer, which includes application for, and evaluation, examination, approval
and monitoring of, drug technology transfer. Drug technology transfer refers to the transfer of drug production technology by the owner
to a drug manufacturer and the application for drug registration by the transferee according to the provisions in the new regulations.
Drug technology transfer includes new drug technology transfer and drug production technology transfer.
Conditions for the application for new drug technology transfer
Applications for new drug technology transfer may be submitted prior to the expiration date of the monitoring period of the new
drugs with respect to:
drugs with new drug certificates only; or
drugs with new drug certificates and drug approval numbers.
For drugs with new drug certificates only and not yet in the monitoring period, or drug substances with new drug certificates,
applications for new drug technology transfer should be submitted prior to the respective expiration date of the monitoring periods for
each drug registration category set forth in the new regulations and after the issue date of the new drug certificates.
Conditions for the application of drug production technology transfer
Applications for drug production technology transfer may be submitted if:
the transferor holds new drug certificates or both new drug certificates and drug approval numbers, and the monitoring period
has expired or there is no monitoring period;
with respect to drugs without new drug certificates, both the transferor and the transferee are legally qualified drug
manufacturing enterprises, one of which holds over 50% of the equity interests in the other, or both of which are majority-
owned subsidiaries of the same drug manufacturing enterprise;
with respect to imported drugs with imported drug licenses, the original applicants for the imported drug registration may
transfer these drugs to local drug manufacturing enterprises.
Application for, and examination and approval of, drug technology transfer
Applications for drug technology transfer should be submitted to the provincial drug administration. If the transferor and the
transferee are located in different provinces, the provincial drug administration where the transferor is located should provide
examination opinions. The provincial drug administration where the transferee is located is responsible for examining application
materials for technology transfer and organizing inspections on the production facilities of the transferee. Medical examination institutes
are responsible for testing three batches of drug samples.
The Center for Drug Evaluation should further review the application materials, provide technical evaluation opinions and form a
comprehensive evaluation opinion based on the site inspection reports and the testing results of the samples. The NMPA should
determine whether to approve the application according to the comprehensive evaluation opinion of the Center for Drug Evaluation. An
approval letter of supplementary application and a drug approval number will be issued to qualified applications. An approval letter of
clinical trials will be issued when necessary. For rejected applications, a notification letter of the examination opinions will be issued
with the reasons for rejection.
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Permits and Licenses for Manufacturing and Registration of Drugs
Production Licenses
To manufacture pharmaceutical products in the PRC, a pharmaceutical manufacturing enterprise must first obtain a Pharmaceutical
Manufacturing Permit issued by the relevant pharmaceutical administrative authorities at the provincial level where the enterprise is
located. Among other things, such a permit must set forth the permit number, the name, legal representative and registered address of
the enterprise, the site and scope of production, issuing institution, date of issuance and effective period.
Each Pharmaceutical Manufacturing Permit issued to a pharmaceutical manufacturing enterprise is effective for a period of five
years. The enterprise is required to apply for renewal of such permit within six months prior to its expiry and will be subject to
reassessment by the issuing authorities in accordance with then prevailing legal and regulatory requirements for the purposes of such
renewal.
Business Licenses
In addition to a Pharmaceutical Manufacturing permit, the manufacturing enterprise must also obtain a business license from the
administrative bureau of industry and commerce at the local level. The name, legal representative and registered address of the enterprise
specified in the business license must be identical to that set forth in the Pharmaceutical Manufacturing Permit.
Registration of Pharmaceutical Products
All pharmaceutical products that are produced in the PRC must bear a registration number issued by the NMPA, with the exception
of Chinese herbs and Chinese herbal medicines in soluble form. The medicine manufacturing enterprises must obtain the medicine
registration number before manufacturing any medicine.
Good Manufacturing Practices
The Guidelines on Good Manufacturing Practices, as amended in 1998 and 2010, or the Guidelines, took effect on August 1, 1999
and set the basic standards for the manufacture of pharmaceuticals. These Guidelines cover issues such as the production facilities, the
qualification of the personnel at the management level, production plant and facilities, documentation, material packaging and labeling,
inspection, production management, sales and return of products and customers’ complaints. On October 23, 2003, the NMPA issued
the Notice on the Overall Implementation and Supervision of Accreditation of Good Manufacturing Practice Certificates for
Pharmaceuticals, which required all pharmaceutical manufacturers to apply for the GMP certificates by June 30, 2004. Those enterprises
that failed to obtain the GMP certificates by December 31, 2004 would have their Pharmaceutical Manufacturing Permit revoked by the
drug administrative authorities at the provincial level. On October 24, 2007, the NMPA issued Evaluation Standard on Good
Manufacturing Practices which became effective on January 1, 2008. On December 1, 2019, per the Announcement of the NMPA on
Issues Concerning the Implementation of the PRC Drug Administration Law, GMP certificates were abolished, though manufacturers
remain to be obligated to operate in accordance with the applicable requirements of the Guidelines. The Notice of the NMPA on
Promulgation of the Administrative Measures for Drug Inspection (for Trial Implementation), or Trial Drug Inspection Measures, was
released and effective on May 24, 2021, which regulates the inspection, investigation, evidence collection and disposal and other actions
carried out by medical products administrative authorities with respect to the manufacturing, distribution and use of drugs. The Trial
Drug Inspection Measures stipulate that where an application for a pharmaceutical manufacturing permit is filed for the first time, on-
site inspection shall be carried out in accordance with the applicable requirements of the Guidelines. Where an application for re-issuance
of a pharmaceutical manufacturing permit is filed, a compliance inspection may be carried out if necessary based on the principles of
risk management, taking into consideration the enterprise’s compliance with the laws and regulations on drug administration, the
Guidelines, and the running of quality control systems.
Marketing Authorization Holder System
In May 2016, the State Council announced the piloting of the MAH system in ten provinces in China, where the market
authorization/drug license holders are no longer required to be the actual manufacturers. The MAH system will allow for more
flexibilities in contract manufacturing arrangements.
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Under the authorization of the Standing Committee of the National People’s Congress, the State Council issued the Pilot Plan for
the Drug MAH Mechanism on May 26, 2016, providing a detailed pilot plan for the MAH system in ten provinces in China. Under the
MAH system, domestic drug research and development institutions and individuals in the pilot regions are eligible to be holders of drug
registrations without having to become drug manufacturers. The MAHs may engage contract manufacturers for manufacturing, provided
that the contract manufacturers are licensed and are also located within the pilot regions. Drugs that qualify for the MAH system include:
(1) new drugs (including biological products for curative uses of Class I, Class VII and biosimilars under the Administration of Drug
Registration) approved after the implementation of the MAH system; (2) generic drugs approved as Category 3 or 4 drugs under the
Reform Plan for Registration Category of Chemical Medicine issued by the NMPA on March 4, 2016; (3) previously approved generics
that have passed equivalence assessments against their original drugs; and (4) previously approved drugs whose licenses were held by
drug manufacturers originally located within the pilot regions but have moved out of the pilot regions due to corporate mergers or other
reasons.
On August 15, 2017, the NMPA issued the Circular on the Matters Relating to Promotion of the Pilot Program for the Drug MAH
System, clarifying that the MAH shall be responsible for managing the whole manufacturing and marketing chain and the whole life
cycle of drugs and shall assume full legal liabilities for the non-clinical drug study, clinical trials, manufacturing, marketing and
distribution and adverse drug reaction monitoring. The MAH is permitted to entrust several drug manufacturers under the drug quality
management system established by the MAH. The MAH shall submit a report of drug manufacturing, marketing, prescription,
techniques, pharmacovigilance, quality control measures and certain other matters to the NMPA within 20 working days after the end
of each year.
On December 1, 2019, the latest amendment of Drug Administration Law came into effect, marking the success of the pilot work,
and the MAH system has become a national system. Pursuant to the latest amendment, the legal representative and the key person-in-
charge of a drug MAH shall be fully responsible for the quality of drugs.
Administrative Protection for New Drugs
The Administrative Measures Governing the Production Quality of Pharmaceutical Products, or the Administrative Measures for
Production, provides detailed guidelines on practices governing the production of pharmaceutical products. A manufacturer’s factory
must meet certain criteria in the Administrative Measures for Production, which include: institution and staff qualifications, production
premises and facilities, equipment, hygiene conditions, production management, quality controls, product operation, maintenance of
sales records and manner of handling customer complaints and adverse reaction reports.
Distribution of Pharmaceutical Products
According to the PRC Drug Administration Law and its implementing regulations and the Measures for the Supervision and
Administration of Circulation of Pharmaceuticals, a manufacturer of pharmaceutical products in the PRC can only engage in the trading
of the pharmaceutical products that the manufacturer has produced itself. In addition, such manufacturer can only sell its products to:
wholesalers and distributors holding Pharmaceutical Distribution Permits;
other holders of Pharmaceutical Manufacturing Permits; or
medical practitioners holding Medical Practice Permits.
A pharmaceutical manufacturer in the PRC is prohibited from selling its products to end-users, or individuals or entities other than
holders of Pharmaceutical Distribution Permits, the Pharmaceutical Manufacturing Permits or the Medical Practice Permits.
The granting of a Pharmaceutical Distribution Permit to wholesalers shall be subject to approval of the provincial level drug
regulatory authorities, while the granting of a retailer permit shall be subject to the approval of the drug regulatory authorities above the
county level. Unless otherwise expressly approved, no pharmaceutical wholesaler may engage in the retail of pharmaceutical products,
nor may pharmaceutical retailers engage in wholesaling.
A pharmaceutical distributor shall satisfy the following requirements:
personnel with pharmaceutical expertise as qualified according to law;
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business site, facilities, warehousing and sanitary environment compatible to the pharmaceutical products being distributed;
quality management system and personnel compatible to the pharmaceutical products being distributed; and
rules and regulations to ensure the quality of the pharmaceutical products being distributed.
Operations of pharmaceutical distributors shall be conducted in accordance with the Pharmaceutical Operation Quality Management
Rules.
Pharmaceutical distributors must keep true and complete records of any pharmaceutical products purchased, distributed or sold with
the generic name of such products, specification, approval code, term, manufacturer, purchasing or selling party, price and date of
purchase or sale. A pharmaceutical distributor must keep such record at least until one year after the expiry date of such products and in
any case, such record must be kept for no less than three years. Penalties may be imposed for any violation of record-keeping.
Pharmaceutical distributors can only distribute pharmaceutical products obtained from those with a Pharmaceutical Manufacturing
Permit and a Pharmaceutical Distribution Permit.
On December 26, 2016, the Medical Reform Office of the State Council, the National Health and Family Planning Commission,
the NMPA and other five government authorities promulgated the “Two-Invoice System” Opinions, which became effective on the
same date. On April 25, 2017, the General Office of the State Council further promulgated the Notice on Issuing the Key Working Tasks
for Deepening the Reform of Medicine and Health System in 2017. According to these rules, a two-invoice system is encouraged to be
gradually adopted for drug procurement. The two-invoice system generally requires a drug manufacturer to issue only one invoice to its
distributor followed by the distributor issuing a second invoice directly to the end customer hospital. Only one distributor is permitted
to distribute drug products between the manufacturer and the hospital. The system also encourages manufacturers to sell drug products
directly to hospitals. Public medical institutions are required to adopt the two-invoice system, and its full implementation nationwide is
targeted for 2018. As of the date of the filing of this annual report, the relevant local rules with respect to the “Two-Invoice System”
have been promulgated in some provinces and municipal cities in the PRC, and the reform is still in progress. Private medical institutions
are encouraged but not yet required to adopt the two-invoice system. Pharmaceutical manufacturers and distributors who fail to
implement the two-invoice system may be disqualified from attending future bidding events or providing distribution for hospitals and
blacklisted for drug procurement practices. These rules aim to consolidate drug distribution and reduce drug prices. The impact on our
company is that Shanghai Hutchison Pharmaceuticals was required to restructure its distribution and logistics network and Hutchison
Sinopharm began to shift its prior Seroquel distribution model to a fee-for-service model. For more details, please refer to Item 4.B.
“Business Overview—Other Ventures.”
Foreign Investment and “State Secret” Technology Drugs
The interpretation of certain PRC laws and regulations governing foreign investment and “state secret” technology is uncertain.
Under the Special Administrative Measures (Negative List) for Foreign Investment Access, or the Negative List, published by the
MOFCOM and the China National Development and Reform Commission or the NDRC. Under the Catalogue, “manufacturing of
modern Chinese medicines with confidential proprietary formula” has been deemed prohibited for any foreign investment. The
technology and know-how of the She Xiang Bao Xin pill is classified as “state secret” technology by China’s Ministry of Science and
Technology, or the MOST, and the National Administration for the Protection of State Secrets, or NAPSS.
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There are currently no PRC laws or regulations or official interpretations, and therefore there can be no assurance, as to whether
the use of “state secret” technology constitutes the “manufacturing of Chinese medicines with confidential proprietary formula” under
the Negative List. However, under the Rules on Confidentiality of Science and Technology promulgated by the State Science and
Technology Commission (the predecessor of the MOST and the NAPSS) on January 6, 1995, cooperation with foreign parties or
establishing joint ventures with foreign parties in respect of state secret technology is expressly allowed, provided that such cooperation
has been duly approved by the relevant science and technology authorities. The establishment of Shanghai Hutchison Pharmaceuticals
as a sino-foreign joint venture, including the re-registration of licenses for She Xiang Bao Xin pills in its name, was approved by the
local counterpart of the MOFCOM and the Shanghai Drug Administration in 2001. Subsequently, the “Confidential State Secret
Technology” status protection for She Xiang Bao Xin pills was also granted in 2005 to Shanghai Hutchison Pharmaceuticals as a sino-
foreign joint venture by the MOST and NAPSS. Consequently, we believe Shanghai Hutchison Pharmaceuticals is in compliance with
all applicable PRC laws and regulations governing foreign investment and “state secret” technology. Moreover, we believe that our
other joint ventures and wholly-foreign owned enterprises in the PRC are also in compliance with all applicable PRC laws and
regulations governing foreign investment.
U.S. Regulation of Pharmaceutical Product Development and Approval
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health
Service Act, or PHSA, and their implementing regulations. The process of obtaining approvals and the subsequent compliance with
appropriate federal, state and local rules and regulations requires the expenditure of substantial time and financial resources. Failure to
comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after
approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by FDA to approve
pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of enforcement
correspondence, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of
government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the U.S.
Department of Justice, or DOJ, or other governmental entities. Drugs are also subject to other federal, state and local statutes and
regulations.
Our drug candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United
States. The process required by the FDA before a drug may be marketed in the United States generally involves the following:
completion of extensive pre-clinical studies, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal studies
and formulation studies all performed in compliance with applicable regulations, including the FDA’s good laboratory practice
regulations;
submission to the FDA of an IND application which must become effective before human clinical trials may begin and must
be updated annually;
IRB approval before each clinical trial may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with study protocols, the applicable GCPs and
other clinical trial-related regulations, to establish the safety and efficacy of the proposed drug product for its proposed
indication;
preparation and submission to the FDA of an NDA;
a determination by the FDA within 60 days of its receipt of an NDA whether the NDA is acceptable for filing; if the FDA
determines that the NDA is not sufficiently complete to permit substantive review, it may request additional information and
decline to accept the application for filing until the information is provided;
in-depth review of the NDA by FDA, which may include review by a scientific advisory committee;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the active
pharmaceutical ingredient and finished drug product are produced to assess compliance with the FDA’s cGMP;
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potential FDA audit of the pre-clinical and/or clinical trial sites that generated the data in support of the NDA;
payment of user fees and FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the
United States; and
compliance with any post-approval requirements, such as REMS and post-approval studies required by FDA.
Pre-clinical Studies
The data required to support an NDA is generated in two distinct development stages: pre-clinical and clinical. For new chemical
entities, or NCEs, the pre-clinical development stage generally involves synthesizing the active component, developing the formulation
and determining the manufacturing process, evaluating purity and stability, as well as carrying out non-human toxicology, pharmacology
and drug metabolism studies in the laboratory, which support subsequent clinical testing. The conduct of the pre-clinical tests must
comply with federal regulations, including good laboratory practices. The sponsor must submit the results of the pre-clinical tests,
together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the
FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans.
The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials
and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor must resolve with the FDA any
outstanding concerns or questions before the clinical trial can begin. Some long-term pre-clinical testing, such as animal tests of
reproductive adverse events and carcinogenicity, may continue after the IND is submitted. The FDA may also impose clinical holds on
a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, submission of an
IND does not guarantee the FDA will allow clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to
be suspended or terminated.
Clinical Studies
The clinical stage of development involves the administration of the drug product to human subjects or patients under the
supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with
GCPs, which include the requirement that, in general, all research subjects provide their informed consent in writing for their
participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives
of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety
and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND.
Further, each clinical trial must be reviewed and approved by each institution at which the clinical trial will be conducted. An IRB is
charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals
participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also reviews and approves
the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the
clinical trial until completed. There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial
results to public registries. For example, information about certain clinical trials must be submitted within specific timeframes to the
National Institutes of Health for public dissemination on their ClinicalTrials.gov website.
Clinical trials are generally conducted in three sequential phases that may overlap or be combined, known as Phase I, Phase II and
Phase III clinical trials.
Phase I: In a standard Phase I clinical trial, the drug is initially introduced into a small number of subjects who are initially
exposed to a range of doses of the drug candidate. The primary purpose of these clinical trials is to assess the metabolism,
pharmacologic action, appropriate dosing, side effect tolerability and safety of the drug.
Phase Ib: Although Phase I clinical trials are not intended to treat disease or illness, a Phase Ib trial is conducted in
patient populations who have been diagnosed with the disease for which the study drug is intended. The patient
population typically demonstrates a biomarker, surrogate, or other clinical outcome that can be assessed to show
“proof-of-concept.” In a Phase Ib study, proof-of-concept typically confirms a hypothesis that the current prediction
of a biomarker, surrogate or other outcome benefit is compatible with the mechanism of action of the study drug.
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Phase I/II: A Phase I and Phase II trial for the same treatment is combined into a single study protocol. The drug is
administered first to determine a maximum tolerable dose, and then additional patients are treated in the Phase II
portion of the study to further assess safety and/or efficacy.
Phase II: The drug is administered to a limited patient population to determine dose tolerance and optimal dosage required to
produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is
collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy.
Phase III: The drug is administered to an expanded number of patients, generally at multiple sites that are geographically
dispersed, in well-controlled clinical trials to generate enough data to demonstrate the efficacy of the drug for its intended use,
its safety profile, and to establish the overall benefit/risk profile of the drug and provide an adequate basis for drug approval
and labeling of the drug product. Phase III clinical trials may include comparisons with placebo and/or other comparator
treatments. The duration of treatment is often extended to mimic the actual use of a drug during marketing. Generally, two
adequate and well-controlled Phase III clinical trials are required by the FDA for approval of an NDA. A pivotal study is a
clinical study that adequately meets regulatory agency requirements for the evaluation of a drug candidate’s efficacy and safety
such that it can be used to justify the approval of the drug. Generally, pivotal studies are also Phase III studies but may be Phase
II studies if the trial design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations
where there is an unmet medical need. Phase IV clinical trials are conducted after initial regulatory approval, and they are used
to collect additional information from the treatment of patients in the intended therapeutic indication or to meet other regulatory
requirements. In certain instances, FDA may mandate the performance of Phase IV clinical trials.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and more frequently if
serious adverse events occur. Written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected
adverse events or any finding from tests in laboratory animals that suggests a significant risk to human subjects. The FDA, the IRB, or
the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research
subjects or patients are being exposed to an unacceptable health risk. The FDA will typically inspect one or more clinical sites to assure
compliance with GCPs and the integrity of the clinical data submitted. Similarly, an IRB can suspend or terminate approval of a clinical
trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements
or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an
independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee.
This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain
data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop
additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the
drug in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently
producing quality batches of the drug candidate and, among other things, cGMPs impose extensive procedural, substantive and
recordkeeping requirements to ensure and preserve the long-term stability and quality of the final drug product. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo
unacceptable deterioration over its shelf life.
NDA Submission and FDA Review Process
Following trial completion, trial results and data are analyzed to assess safety and efficacy. The results of pre-clinical studies and
clinical trials are then submitted to the FDA as part of an NDA, along with proposed labeling for the drug, information about the
manufacturing process and facilities that will be used to ensure drug quality, results of analytical testing conducted on the chemistry of
the drug, and other relevant information. The NDA is a request for approval to market the drug and must contain adequate evidence of
safety and efficacy, which is demonstrated by extensive pre-clinical and clinical testing. The application includes both negative or
ambiguous results of pre-clinical and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials
intended to test the safety and efficacy of a use of a drug, or from a number of alternative sources, including studies initiated by
investigators. To support regulatory approval, the data submitted must be sufficient in quality and quantity to establish the safety and
efficacy of the investigational drug product to the satisfaction of the FDA. Under federal law, the submission of most NDAs is subject
to the payment of an application user fees; a waiver of such fees may be obtained under certain limited circumstances. FDA approval of
an NDA must be obtained before a drug may be offered for sale in the United States.
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In addition, under the Pediatric Research Equity Act of 2003, or PREA, an NDA or supplement to an NDA must contain data to
assess the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and
administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant deferrals for submission
of data or full or partial waivers.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompanied by an application user fee.
The FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s fee schedule, effective through September 30, 2021,
the user fee for an application requiring clinical data, such as an NDA, is $2,875,842. PDUFA also imposes a program fee for prescription
human drugs $336,432. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for
the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs,
unless the product also includes a non-orphan indication. The FDA reviews all NDAs submitted before it accepts them for filing and
may request additional information rather than accepting an NDA for filing. The FDA conducts a preliminary review of an NDA within
60 days of receipt and informs the sponsor by the 74th day after FDA’s receipt of the submission to determine whether the application
is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review of
the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months from the filing date in which to
complete its initial review of a standard NDA and respond to the applicant, and six months from the filing date for a “priority review”
NDA. The FDA does not always meet its PDUFA goal dates for standard and priority review NDAs, and the review process is often
significantly extended by FDA requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed
drug is safe and effective for its intended use, and whether the drug is being manufactured in accordance with cGMP to assure and
preserve the drug’s identity, strength, quality and purity. The FDA may refer applications for drugs or drug candidates that present
difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review,
evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound
by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA
may re-analyze the clinical trial data, which can result in extensive discussions between the FDA and us during the review process.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new drug to
determine whether they comply with cGMPs. The FDA will not approve the drug unless it determines that the manufacturing processes
and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the drug within required
specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP
requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities where the drug product
and/or its active pharmaceutical ingredient will be produced, it may issue an approval letter or a Complete Response Letter. An approval
letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response
Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response
Letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require
additional clinical data and/or an additional pivotal clinical trial(s), and/or other significant, expensive and time-consuming requirements
related to clinical trials, pre-clinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit
the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is
submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are
not always conclusive and the FDA may interpret data differently than we interpret the same data.
If a drug receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may
otherwise be limited. Further, the FDA may require that certain contraindications, warnings or precautions be included in the drug
labeling or may condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and
specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved
drugs. For example, the FDA may require Phase IV testing which involves clinical trials designed to further assess a drug’s safety and
effectiveness and may require testing and surveillance programs to monitor the safety of approved drugs that have been commercialized.
The FDA may also place other conditions on approvals including the requirement for a REMS to ensure that the benefits of a drug or
biological product outweigh its risks. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS.
The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician
communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk
minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription
or dispensing of drugs. Drug approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following
initial marketing.
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Section 505(b)(2) NDAs
NDAs for most new drug products are based on two full clinical studies which must contain substantial evidence of the safety and
efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FDCA. The FDA is, however,
authorized to approve an alternative type of NDA under Section 505(b)(2) of the FDCA, which authorizes FDA to approve an NDA
based on safety and effectiveness data that were not developed by the applicant. Section 505(b)(2) allows the applicant to rely, in part,
on the FDA’s previous findings of safety and efficacy for a similar product, or published literature. Specifically, Section 505(b)(2)
applies to NDAs for a drug for which the investigations relied upon to show that the drug is safe and effective for the intended use “were
not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for
whom the investigations were conducted.”
Section 505(b)(2) authorizes NDAs filed under Section 505(b)(2) may provide an alternate and potentially more expeditious
pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the 505(b)(2) applicant
can establish that reliance on the FDA’s previous approval is scientifically appropriate, the applicant may eliminate the need to conduct
certain pre-clinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or
measurements to support the change from the approved product. The FDA may then approve the new drug candidate for all or some of
the label indications for which the referenced product has been approved, as well as for any new indication sought by the
Section 505(b)(2) applicant.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-
Waxman Act, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under
the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application,
or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the pre-clinical and clinical testing
previously conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD.
Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect
to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must
also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a
RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the
listed drug.” The Generic Drug User Fee Act (GDUFA), as reauthorized, sets forth performance goals for the FDA to review standard
ANDA’s within 10 months of their submission, and priority ANDA’s within 8 months of their submission if they satisfy certain
requirements.
Upon approval of an ANDA, the FDA indicates that the generic product is “therapeutically equivalent” to the RLD and it assigns a
therapeutic equivalence rating to the approved generic drug in its publication “Approved Drug Products with Therapeutic Equivalence
Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider an “AB” therapeutic equivalence rating to
mean that a generic drug is fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance
programs, FDA’s designation of an “AB” rating often results in substitution of the generic drug without the knowledge or consent of
either the prescribing physician or patient.
Special FDA Expedited Review and Approval Programs
The FDA has various programs, including fast track designation, accelerated approval, priority review and Breakthrough Therapy
Designation, that are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for
the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The
purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures. While
these pathways can reduce the time it takes for the FDA to review an NDA, they do not guarantee that a product will receive FDA
approval. In addition, the Right to Try Act of 2018 established a new regulatory pathway to increase access to unapproved,
investigational treatments for patients diagnosed with life-threatening diseases or conditions who have exhausted approved treatment
options and who are unable to participate in a clinical trial.
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Fast Track Designation
To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a drug is intended to
treat a serious or life threatening disease or condition for which there is no effective treatment and demonstrates the potential to address
an unmet medical need for the disease or condition. Under the fast track program, the sponsor of a drug candidate may request the FDA
to designate the product for a specific indication as a fast track product concurrent with or after the filing of the IND for the drug
candidate. The FDA must make a fast track designation determination within 60 days after receipt of the sponsor’s request.
In addition to other benefits, such as the ability to use surrogate endpoints and have greater interactions with the FDA, the FDA
may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review is available if the
applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable
user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA
is submitted. A fast track drug also may be eligible for accelerated approval and priority review. In addition, the fast track designation
may be withdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process.
Priority Review
The FDA may give a priority review designation to drugs that offer major advances in treatment, or provide a treatment where no
adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the
standard review of 10 months under current PDUFA guidelines. These 6- and 10-month review periods are measured from the “filing”
date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline
for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be
considered appropriate to receive a priority review.
Breakthrough Therapy Designation
Under the provisions of the new Food and Drug Administration Safety and Innovation Act, or FDASIA, enacted by Congress in
2012, a sponsor can request designation of a drug candidate as a “breakthrough therapy,” typically by the end of the drug’s Phase II
trials. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a
serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early
in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. For breakthrough
therapies, the FDA may take certain actions, such as intensive and early guidance on the drug development program, that are intended
to expedite the development and review of an application for approval.
Accelerated Approval
FDASIA also codified and expanded on FDA’s accelerated approval regulations, under which FDA may approve a drug for a
serious or life-threatening illness that provides meaningful therapeutic benefit over existing treatments based on a surrogate endpoint
that is reasonably likely to predict clinical benefit, or on an intermediate clinical endpoint that can be measured earlier than irreversible
morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. A
surrogate endpoint is a marker that does not itself measure clinical benefit but is believed to predict clinical benefit. This determination
takes into account the severity, rarity or prevalence of the disease or condition and the availability or lack of alternative treatments. As
a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform Phase IV or post-marketing
studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be
subject to accelerated withdrawal procedures. All promotional materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the
conditions for qualification or decide that the time period for the FDA review or approval will not be shortened. Furthermore, fast track
designation, priority review, accelerated approval and Breakthrough Therapy Designation, do not change the standards for approval and
may not ultimately expedite the development or approval process.
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Pediatric Trials
Under PREA, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug
product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. With the enactment of FDASIA, a sponsor who is planning to submit a
marketing application for a drug that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new
route of administration must also submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-of-Phase II meeting or as
may be agreed between the sponsor and the FDA. The initial PSP must include an outline of the pediatric study or studies that the
sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification
for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the
requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement
on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be
considered based on data collected from pre-clinical studies, early phase clinical trials, and/or other clinical development programs. The
law requires the FDA to send a non-compliance letters to sponsors who do not submit their pediatric assessments as required.
Under the Best Pharmaceuticals for Children Act, or BPCA, certain therapeutic candidates may obtain an additional six months of
exclusivity if the sponsor submits information requested by the FDA, relating to the use of the active moiety of the product candidate in
children. Although the FDA may issue a written request for studies on either approved or unapproved indications, it may only do so
where it determines that information relating to that use of a product candidate in a pediatric population, or part of the pediatric
population, may produce health benefits in that population.
FDASIA permanently reauthorized PREA and BPCA, modifying some of the requirements under these laws, and established
priority review vouchers for rare pediatric diseases. Pursuant to the Consolidated Appropriations Act of 2021, the FDA’s authority to
award rare pediatric disease vouchers has been extended until September 30, 2024, and until September 30, 2026 for products that
receive rare pediatric disease designation by September 30, 2024.
Orphan Drug Designation and Exclusivity
Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or
condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no
reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease
or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an
NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product
designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, but the product
will be entitled to orphan product exclusivity, meaning that the FDA may not approve any other applications for the same product for
the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for
the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication.
If a drug or drug product designated as an orphan product ultimately receives regulatory approval for an indication broader than what
was designated in its orphan product application, it may not be entitled to exclusivity. The 21st Century Cures Act, which became law
in December 2016, expanded the types of studies that qualify for orphan drug grants. Orphan drug designation also may qualify an
applicant for federal and possibly state tax credits relating to research and development costs.
Post-Marketing Requirements
Following approval of a new drug, a pharmaceutical company and the approved drug are subject to continuing regulation by the
FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of
adverse experiences with the drug, providing the regulatory authorities with updated safety and efficacy information, drug sampling and
distribution requirements, and complying with applicable promotion and advertising requirements.
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Prescription drug advertising is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription
drug promotion, including standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations
that are not described in the drug’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and
educational activities, and requirements for promotional activities involving the internet. Although physicians may legally prescribe
drugs for off-label uses, manufacturers may not market or promote such off-label uses. Prescription drug promotional materials must
be submitted to the FDA in conjunction with their first use. Modifications or enhancements to the drug or its labeling or changes of the
site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result
in a lengthy review process. Any distribution of prescription drugs and pharmaceutical samples also must comply with the U.S.
Prescription Drug Marketing Act, a part of the FDCA.
In the United States, once a drug is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA.
The FDA regulations require that drugs be manufactured in specific approved facilities and in accordance with cGMP. Applicants may
also rely on third parties for the production of clinical and commercial quantities of drugs, and these third parties must operate in
accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the
corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug
manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their
establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain
state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort
in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational,
procedural and documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using third-
party contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain
circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the
FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions
that interrupt the operation of any such facilities or the ability to distribute drugs manufactured, processed or tested by them. Discovery
of problems with a drug after approval may result in restrictions on a drug, manufacturer, or holder of an approved NDA, including,
among other things, recall or withdrawal of the drug from the market, and may require substantial resources to correct.
The FDA also may require Phase IV testing, risk minimization action plans and post-marketing surveillance to monitor the effects
of an approved drug or place conditions on an approval that could restrict the distribution or use of the drug. Discovery of previously
unknown problems with a drug or the failure to comply with applicable FDA requirements can have negative consequences, including
adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or
communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data
may require changes to a drug’s approved labeling, including the addition of new warnings and contraindications, and also may require
the implementation of other risk management measures. Also, new government requirements, including those resulting from new
legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our drugs under
development.
Other U.S. Regulatory Matters
Manufacturing, sales, promotion and other activities following drug approval are also subject to regulation by numerous regulatory
authorities in addition to the FDA, including, in the United States, the Department of Justice, Centers for Medicare & Medicaid Services,
other divisions of the Department of Health and Human Services, the Drug Enforcement Administration for Controlled Substances, the
Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the
Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific/educational
programs must also comply with state and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid
rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Affordable Care Act.
If drugs are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws
and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled
Substances Import and Export Act. Drugs must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention
Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection
and unfair competition laws.
The distribution of pharmaceutical drugs is subject to additional requirements and regulations, including extensive record-keeping,
licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical drugs.
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The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the
circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions,
recall or seizure of drugs, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm
to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements,
new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions
or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for
example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or
discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could
adversely affect the operation of our business.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be
eligible for limited patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of
up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However,
patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The
patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA
plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved
drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The
USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In 2018, the
FDA advanced policies aimed at promoting drug competition and patient access to generic drugs, such as issuing guidance about making
complex generic drugs and the circumstances in which approval of a generic product application may be delayed.
Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications.
The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain
approval of an NDA for a NCE. A drug is a NCE if the FDA has not previously approved any other new drug containing the same active
moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not
accept for review an ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety,
regardless of whether the drug is intended for the same indication as the original innovator drug or for another indication, where the
applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted
after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the
innovator NDA holder. Specifically, the applicant must certify with respect to each relevant patent that: the required patent information
has not been filed; the listed patent has expired; the listed patent has not expired, but will expire on a particular date and approval is
sought after patent expiration, or the listed patent is invalid, unenforceable or will not be infringed by the new product. A certification
that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is
called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a
patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have
expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the
Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent
holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the
ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent, or a decision in the
infringement case that is favorable to the ANDA applicant. To the extent that the Section 505(b)(2) applicant relies on prior FDA
findings of safety and efficacy, the applicant is required to certify to the FDA concerning any patents listed for the previously approved
product in the Orange Book to the same extent that an ANDA applicant would.
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The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical
investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be
essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year
exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does
not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full
NDA would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled
clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described above, may offer a seven-year
period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity
in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month
exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion
of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.
Rest of the World Regulation of Pharmaceutical Product Development and Approval
For other countries outside of China and the United States, such as countries in Europe, Latin America or other parts of Asia, the
requirements governing the conduct of clinical trials, drug licensing, pricing and reimbursement vary from country to country. In all
cases the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and ethical
principles.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension
or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
PRC Coverage and Reimbursement
Coverage and Reimbursement
Historically, most of Chinese healthcare costs have been borne by patients out-of-pocket, which has limited the growth of more
expensive pharmaceutical products. However, in recent years the number of people covered by government and private insurance has
increased. According to the PRC National Healthcare Security Administration, as of December 31, 2020, approximately 1.4 billion
employees and residents in China were enrolled in the national medical insurance program, with participation rates remaining steadily
above 95%. The PRC government has announced a plan to give every person in China access to basic healthcare by year 2020. In 2020,
total income of the National Basic Medical Insurance Fund (including maternity insurance) reached RMB2,484.6 billion, an increase of
1.7% over the previous year and accounting for about 2.4% of GDP.
Reimbursement under the National Medical Insurance Program
The National Medical Insurance Program was adopted pursuant to the Decision of the State Council on the Establishment of the
Urban Employee Basic Medical Insurance Program issued by the State Council on December 14, 1998, under which all employers in
urban cities are required to enroll their employees in the basic medical insurance program and the insurance premium is jointly
contributed by the employers and employees. The State Council promulgated Guiding Opinions of the State Council about the Pilot
Urban Resident Basic Medical Insurance on July 10, 2007, under which urban residents of the pilot district, rather than urban employees,
may voluntarily join Urban Resident Basic Medical Insurance. The State Council expected the Pilot Urban Resident Basic Medical
Insurance to cover the whole nation by 2010.
Participants of the National Medical Insurance Program and their employers, if any, are required to contribute to the payment of
insurance premiums on a monthly basis. Program participants are eligible for full or partial reimbursement of the cost of medicines
included in the NRDL. The Notice Regarding the Tentative Measures for the Administration of the Scope of Medical Insurance Coverage
for Pharmaceutical Products for Urban Employees, jointly issued by several authorities including the Ministry of Labor and Social
Security and the MOF, among others, on May 12, 1999, provides that a pharmaceutical product listed in the NRDL must be clinically
needed, safe, effective, reasonably priced, easy to use, available in sufficient quantity, and must meet the following requirements:
it is set forth in the Pharmacopoeia of the PRC;
it meets the standards promulgated by the NMPA; and
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if imported, it is approved by the NMPA for import.
Factors that affect the inclusion of a pharmaceutical product in the NRDL include whether the product is consumed in large volumes
and commonly prescribed for clinical use in the PRC and whether it is considered to be important in meeting the basic healthcare needs
of the general public.
The PRC Ministry of Labor and Social Security, together with other government authorities, has the power to determine inclusion
of medicines in the NRDL (also referred to as the “Drug Catalog”), which is divided into two parts, Category A and Category B. Per
the Notice on the “National Basic Medical Insurance, Work Injury Insurance and Maternity Insurance Drug Catalog (2021)” issued by
the National Healthcare Security Administration and the Ministry of Labor and Social Security, local authorities are required to strictly
implement the Drug Catalog (2021) and must not adjust the defined payment conditions and the classification of drugs in the Drug
Catalog.
Patients purchasing medicines included in Category A of the NRDL are entitled to reimbursement of the entire amount of the
purchase price. Patients purchasing medicines included in Category B of the NRDL are required to pay a certain percentage of the
purchase price and obtain reimbursement for the remainder of the purchase price. The percentage of reimbursement for Category B
medicines differs from region to region in the PRC.
The total amount of reimbursement for the cost of medicines, in addition to other medical expenses, for an individual participant
under the National Medical Insurance Program in a calendar year is capped at the amounts in such participant’s individual account under
such program. The amount in a participant’s account varies, depending on the amount of contributions from the participant and his or
her employer.
National Essential Medicines List
On August 18, 2009, MOH and eight other ministries and commissions in the PRC issued the Provisional Measures on the
Administration of the National Essential Medicines List, which was later amended in 2015, and the Guidelines on the Implementation
of the Establishment of the National Essential Medicines System, which aim to promote essential medicines sold to consumers at fair
prices in the PRC and ensure that the general public in the PRC has equal access to the drugs contained in the National Essential
Medicines List. MOH promulgated the National Essential Medicines List (Catalog for the Basic Healthcare Institutions) on August 18,
2009, and promulgated the revised National Essential Medicines List on March 13, 2013 and September 30, 2018. According to these
regulations, basic healthcare institutions funded by government, which primarily include county-level hospitals, county-level Chinese
medicine hospitals, rural clinics and community clinics, shall store up and use drugs listed in the National Essential Medicines List. Per
the Opinions of the General Office of the State Council on Improving the National Essential Medicines System, issued and effective on
September 13, 2018, with respect to the qualifying drugs on the National Essential Medicines List, the medical insurance department
shall prioritize their inclusion in the NDRL and adjust their classifications as Category A or B, respectively, in accordance with the
stipulated procedures.
Price Controls
According to the PRC Drug Administration Law and the Implementing Measures of the PRC Drug Administration Law,
pharmaceutical products are subject to a directive pricing system or to be adjusted by the market. Per the Notice of the National
Healthcare Security Administration on issuing the “Opinions on Doing a Good Job in the Current Drug Price Management”, or the
Notice on Current Drug Price Management, effective on November 26, 2019, government guidance prices are to be implemented for
narcotic drugs and Class I psychotropic drugs, while prices of other drugs are to be determined by the market. Government guidance
prices refer to prices as fixed by business operators according to benchmark prices and ranges of the prices as set by the government
department in charge of pricing or other related departments. According to the Pricing Catalogue Initiated by the Central Government
(2020 Edition), which was promulgated by the NDRC and effective on May 1, 2020, the National Healthcare Security Administration
shall be responsible for setting prices of narcotic drugs and Class I psychotropic drugs.
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Further, pursuant to the Notice Regarding Further Improvement of the Order of Market Price of Pharmaceutical Products and
Medical Services, or the Market Price Notice, jointly promulgated by the NDRC, the State Council Legislative Affairs Office and the
State Council Office for Rectifying, the MOH, the NMPA, the MOFCOM, the MOF and Ministry of Labor and Social Security on May
19, 2006, the PRC government exercises price control over pharmaceutical products included in the NRDL and made an overall
adjustment of their prices by reducing the retail price of certain overpriced pharmaceutical products and increasing the retail price of
certain underpriced pharmaceutical products in demand for clinical use but that have not been produced in large quantities by
manufacturers due to their low retail price level. In particular, the retail price charged by hospitals at the county level or above may not
exceed 115% of the procurement cost of the relevant pharmaceutical products or 125% for Chinese herbal pieces. The Market Price
Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021.
On February 9, 2015, the General Office of the State Council issued the Guiding Opinion on Enhancing Consolidated Procurement
of Pharmaceutical Products by Public Hospitals, or the Opinion. The Opinion encourages public hospitals to consolidate their demands
and to play a more active role in the procurement of pharmaceutical products. Hospitals are encouraged to directly settle the prices of
pharmaceutical products with manufacturers. Consolidated procurement of pharmaceutical products should facilitate hospital reform,
reduce patient costs, prevent corrupt conducts, promote fair competition and induce the healthy growth of the pharmaceutical industry.
According to the Opinion, provincial tendering processes will continue to be used for the pricing of essential drugs and generic drugs
with significant demands, and transparent multi-party price negotiation will be used for some patented drugs and exclusive drugs.
On April 26, 2014, the NDRC issued the Notice on Issues concerning Improving the Price Control of Low Price Drugs, or the Low
Price Drugs Notice, together with the Low Price Drug List, or LPDL. According to the Low Price Drugs Notice, for drugs with relatively
low average daily costs within the current government-guided pricing scope (low price drugs), the maximum retail prices set by the
government were cancelled. Within the standards of average daily costs, the specific purchase and sale prices are fixed by the producers
and operators based on the drug production costs, market supply and demand and market competition. The standards of average daily
costs of low price drugs were determined by the NDRC in consideration of the drug production costs, market supply and demand and
other factors and based on the current maximum retail prices set by the government (or the national average bid-winning retail prices
where the government does not set the maximum retail prices) and the average daily dose calculated according to the package insert.
Under the Low Price Drugs Notice, the standards for the daily cost of low price chemical pharmaceuticals and of low price traditional
Chinese medicine pharmaceuticals were less than RMB3.0 ($0.46) per day and RMB5.0 ($0.76) per day respectively. The Low Price
Drugs Notice has been abolished per the NDRC Decision to Abolish Standardized Pricing Directories, effective May 20, 2021.
On May 4, 2015, the NDRC, the National Health and Family Planning Commission, the NMPA, MOFCOM and three other
departments issued Opinions on Promoting Drug Pricing Reform. Under these opinions, beginning on June 1, 2015, the restrictions on
the prices of the drugs that were subject to government pricing were cancelled except for narcotic drugs and Class I psychotropic drugs
which remained subject to maximum factory prices and maximum retail prices set by the NDRC, and following the November 2019
Notice on Current Drug Price Management, narcotic drugs and Class I psychotropic drugs prices have transitioned towards government
guidance prices. The medical insurance regulatory authority now has the power to prescribe the standards, procedures, basis and methods
of the payment for drugs paid by medical insurance funds. The prices of patented drugs are set through transparent and public negotiation
among multiple parties. The prices for blood products not listed in the NRDL, immunity and prevention drugs that are purchased by
the Chinese government in a centralized manner, and AIDS antiviral drugs and contraceptives provided by the Chinese government for
free, are set through a tendering process. Except as otherwise mentioned above, the prices for other drugs may be determined by the
manufacturers and the operators on their own on the basis of production or operation costs and market supply and demand.
Centralized Procurement and Tenders
The Guiding Opinions concerning the Urban Medical and Health System Reform, promulgated on February 21, 2000, aim to provide
medical services with reasonable price and quality to the public through the establishment of an urban medical and health system. One
of the measures used to realize this aim is the regulation of the purchasing process of pharmaceutical products by medical institutions.
Accordingly, the MOH and other relevant government authorities have promulgated a series of regulations and releases in order to
implement the tender requirements.
According to the Notice on Issuing Certain Regulations on the Trial Implementation of Centralized Tender Procurement of Drugs
by Medical Institutions promulgated on July 7, 2000 and the Notice on Further Improvement on the Implementation of Centralized
Tender Procurement of Drugs by Medical Institutions promulgated on August 8, 2001, medical institutions established by county or
higher level government are required to implement centralized tender procurement of drugs.
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The MOH promulgated the Working Regulations of Medical Institutions for Procurement of Drugs by Centralized Tender and Price
Negotiations (for Trial Implementation), or the Centralized Procurement Regulations, on March 13, 2002, and promulgated Sample
Document for Medical Institutions for Procurement of Drugs by Centralized Tender and Price Negotiations (for Trial Implementation),
or the Centralized Tender Sample Document in November 2001, as amended in 2010, to implement the tender process requirements and
ensure the requirements are followed uniformly throughout the country. The Centralized Tender Regulations and the Centralized Tender
Sample Document provide rules for the tender process and negotiations of the prices of drugs, operational procedures, a code of conduct
and standards or measures of evaluating bids and negotiating prices. On January 17, 2009, the MOH, the NMPA and other four national
departments jointly promulgated the Opinions on Further Regulating Centralized Procurement of Drugs by Medical Institutions.
According to the notice, public medical institutions owned by the government at the county level or higher or owned by state-owned
enterprises (including state-controlled enterprises) shall purchase pharmaceutical products through centralized procurement. Each
provincial government shall formulate its catalogue of drugs subject to centralized procurement. Specifically, the procurement could be
achieved through public tendering, online bidding, centralized price negotiations and online competition platform. Except for drugs in
the National Essential Medicines List (the procurement of which shall comply with the relevant rules on the National Essential Medicines
List), certain pharmaceutical products which are under the national government’s special control and traditional Chinese medicines, in
principle, all drugs used by public medical institutions shall be covered by the catalogue of drugs subject to centralized procurement.
On July 7, 2010, the MOH and six other ministries and commissions jointly promulgated the Working Regulations of Medical
Institutions for Centralized Procurement of Drugs to further regulate the centralized procurement of drugs and clarify the code of conduct
of the parties in centralized drug procurement.
The centralized tender process takes the form of public tender operated and organized by provincial or municipal government
agencies in principle is conducted once every year in all provinces and cities in China. Drug manufacturing enterprises, in principle,
shall bid directly for the centralized tender process. Certain related parties, however, may be engaged to act as bidding agencies. Such
intermediaries are not permitted to engage in the distribution of drugs and must have no conflict of interest with the organizing
government agencies. The bids are assessed by a committee composed of pharmaceutical experts who will be randomly selected from
a database of experts approved by the relevant government authorities. The committee members assess the bids based on a number of
factors, including but not limited to, bid price, product quality, clinical effectiveness, qualifications and reputation of the manufacturer,
and after-sale services. Only pharmaceuticals that have won in the centralized tender process may be purchased by public medical
institutions funded by government in the relevant region.
4+7 Quality Consistency Evaluation
On November 15, 2018, China’s Joint Procurement Office published its Paper on Centralized Drug Procurement in “4+7 Cities,”
known as the 4+7 Quality Consistency Evaluation process, or 4+7 QCE. The 4+7 QCE initiative is aimed at driving consolidation in
the fragmented generic drug market in China. The 4+7 QCE initiative began as a pilot program in 11 cities: Beijing, Tianjin, Shanghai,
Chongqing, Shenyang, Dalian, Xiamen, Guangzhou, Shenzhen, Chengdu and Xi’an. Under this pilot program, the public medical
institutions in these 11 cities bulk-buy certain generic drugs together, forcing companies to bid for contracts and driving down prices.
The 4+7 QCE initiative has expanded nationwide and now covers more varieties of drugs. On September 1, 2019, the Joint Procurement
Office published its Paper on Centralized Drug Procurement in Alliance Areas (GY-YD2019-1), such areas covering 25 provinces and
regions across China. On December 29, 2019, the Joint Procurement Office published its Paper on Nationwide Centralized Drug
Procurement (GY-YD2019-2), promoting procurement nationwide, and on January 13, 2020, the National Healthcare Security
Administration, the NHC, the NMPA, the Ministry of Industrial and Information Technology and the Logistics Support Department of
the Central Military Commission promulgated the Notice on the Commencement of the Second Batch of State Organized Centralized
Drug Procurement and Use, which states that the second batch of national organization of centralized procurement and use of drugs
would not be carried out in selected areas but nationwide.
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U.S. Coverage and Reimbursement
Successful sales of our products or drug candidates in the U.S. market, if approved, will depend, in part, on the extent to which our
drugs will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare
organizations. Patients who are provided with prescriptions as part of their medical treatment generally rely on such third-party payors
to reimburse all or part of the costs associated with their prescriptions and therefore adequate coverage and reimbursement from such
third-party payors are critical to new product success. These third-party payors are increasingly reducing reimbursements for medical
drugs and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the
prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant
interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, requirements for
substitution of generic drugs, and pricing transparency requirements. Adoption of price controls and cost-containment measures, and
adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results.
Decreases in third-party reimbursement for our drug candidates, if approved, or a decision by a third-party payor to not cover our drug
candidates could reduce physician usage of such drugs and have a material adverse effect on our sales, results of operations and financial
condition.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D
program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in
prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Unlike Medicare Part A and
B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and
each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D
prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not
necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and
reviewed by a pharmacy and therapeutic committee. Medicare payment for some of the costs of prescription drugs may increase demand
for drugs for which we receive regulatory approval. However, any negotiated prices for our drugs covered by a Part D prescription drug
plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare
beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any
reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness
of different treatments for the same illness. The plan for the research was published in 2012 by the U.S. Department of Health and
Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the
status of the research and related expenditures are made to Congress. Although the results of the comparative effectiveness studies are
not intended to mandate coverage policies for public or private payors, if third-party payors do not consider a drug to be cost-effective
compared to other available therapies, they may not cover such drugs as a benefit under their plans or, if they do, the level of payment
may not be sufficient.
The Affordable Care Act, enacted in March 2010, has had a significant impact on the health care industry. The Affordable Care
Act expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical
products, the Affordable Care Act, among other things, addressed a new methodology by which rebates owed by manufacturers under
the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the
minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to
individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded
prescription drugs, and created a new Medicare Part D coverage gap discount program, in which, beginning in 2019, manufacturers
must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. The Bipartisan Budget
Act of 2018 made certain changes to Medicare Part D coverage, including changing the date when the Medicare Part D coverage gap is
eliminated from 2020 to 2019, sunsetting the exclusion of biosimilars from the Medicare Part D coverage gap discount program in 2019
and reallocating responsibility for discounted pricing under the Medicare Part D coverage gap discount program from third-party payors
to pharmaceutical companies. In December 2017, Congress also repealed the “individual mandate,” which was an Affordable Care Act
requirement that individuals obtain healthcare insurance coverage or face a penalty. This repeal could affect the total number of patients
who have coverage from third-party payors that reimburse for use of our products. In July 2021, the U.S. Supreme Court dismissed a
constitutional challenge to the Affordable Care Act brought by a group of Republican attorneys general seeking to invalidate the law in
its entirety because of Congress’s repeal of the individual mandate.
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On December 14, 2018, a U.S. District Court judge in Texas ruled that the Affordable Care Act is unconstitutional in its entirety
because of Congress’s repeal of the individual mandate. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed
the portion of the district court’s ruling declaring the individual mandate unconstitutional and remanded for the district court to conduct
analysis in the first instance on which provisions of the statute are severable from it and thus remain intact. The U.S. Supreme Court
agreed to hear the case and a decision is expected by the Spring of 2021.
In addition, other legislative and regulatory changes have been proposed and adopted in the United States since the Affordable Care
Act was enacted that affect reimbursement for prescription drugs. On August 2, 2011, the Budget Control Act of 2011 among other
things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with
recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals,
thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, started in April 2013. Section 4408 of the CARES Act temporarily suspended
Medicare sequestration during the period of May 1, 2020 through December 31, 2021, while extending the Medicare sequestration
sunset date through 2030. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which
among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Regulations adopted by the Centers for Medicare & Medicaid Services or CMS grant Medicare Part B plans authority to apply new
cost control measures to steer patients toward lower-priced drug products prior to covering non-preferred, more expensive products.
This could potentially have the result of reducing coverage of our products under Medicare Part B.
In addition, other proposed legislative and regulatory changes could affect reimbursement for prescription drugs. In January 2017,
the Medicare Prescription Drug Price Negotiation Act was proposed in Congress, which would require the government to negotiate
Medicare prescription drug prices with pharmaceutical companies. In October 2017, a similar bill, the Medicare Drug Price Negotiation
Act of 2017 was proposed in Congress. In November 2017, the CMS announced a Final Rule that would adjust the applicable payment
rate as necessary for certain separately payable drugs and biologicals acquired under the 340B Program from average sales price plus
6% to average sales price minus 22.5%. Congress and the U.S. administration continue to evaluate other proposals that could affect
third-party reimbursement for our drug candidates, if approved.
In October 2020, the U.S. Department of Health and Human Services and the FDA issued a final rule and guidance concerning two
new pathways for importing lower-cost drugs into the United States. The final rule allows certain prescription drugs to be imported from
Canada, and the guidance describes procedures for drug manufacturers to facilitate the importation of FDA-approved drugs and biologics
manufactured abroad and originally intended for sale in a foreign country into the United States.
In November 2020, the Department of Health and Human Services, under the outgoing Trump administration, issued a rule
eliminating the safe harbor shielding Medicare Part D rebates to pharmacy benefit managers from the Anti-Kickback Statute. In response
to litigation brought by a trade association on behalf of pharmacy benefit managers, the Biden administration agreed to delay the rule’s
effective date until January 1, 2023. On November 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs
Act, which imposed a moratorium until January 1, 2026 at the earliest on the rule removing rebates from safe harbor protection under
the Anti-Kickback Statute.
In November 2021, the U.S. House of Representatives passed the Build Back Better Act. Under this Act, the federal government
would be permitted to negotiate prices for certain Medicare Part B and Part D drugs, and manufacturers would be required to pay
Medicare rebates for some Part B and many Part D drugs if their prices increased faster than inflation. To date, the U.S. Senate has not
passed the Act, and it is unclear whether the Act or component parts of the Act will ultimately be enacted. Such legislative and regulatory
changes could have the effect of lowering the level of coverage or reimbursement for our products.
Rest of the World Coverage and Reimbursement
In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, the E.U. provides options for its member states to restrict
the range of medicinal drugs for which their national health insurance systems provide reimbursement and to control the prices of
medicinal drugs for human use. A member state may approve a specific price for the medicinal drug or it may instead adopt a system
of direct or indirect controls on the profitability of our company placing the medicinal drug on the market. Historically, drugs launched
in the E.U. do not follow price structures of the United States and generally tend to be significantly lower.
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Other PRC Healthcare Laws
Advertising of Pharmaceutical Products
Other Healthcare Laws
In accordance with the Interim Administrative Measures for the Censorship of Advertisements for Drugs, Medical Devices, Health
Food and Formula Food for Special Medical Purposes effective from March 1, 2020, the State Administration for Market Regulation is
responsible for organizing and guiding the censorship of advertisements for drugs, medical devices, health foods and formula foods for
special medical purposes. Any advertisement for drugs, medical devices, health food or formula food for special medical purposes shall
indicate the advertisement approval number in a prominent position. The validity period of the advertisement approval number for drugs,
medical devices, health food and formula food for special medical purposes shall be consistent with the shortest period of validity of the
product registration certificate, record-filing certificate, or production license. Where no period of validity is prescribed in the product
registration certificate, record-filing certificate or production license, the period of validity of the advertisement approval number shall
be two years.
Packaging of Pharmaceutical Products
According to the Measures for The Administration of Pharmaceutical Packaging, effective on September 1, 1988, pharmaceutical
packaging must comply with the provisions of the national standard and professional standard. If there are no standards, the enterprise
can formulate its own standard after obtaining the approval of the provincial level drug administration or bureau of standards. The
enterprise shall reapply to the relevant authorities if it needs to change the packaging standard. Drugs without packing must not be sold
in PRC (except for drugs needed by the army).
Labor Protection
Under the Labor Law of the PRC, effective on January 1, 1995 and subsequently amended on August 27, 2009 and December 29,
2018, the Labor Contract Law of the PRC, effective on January 1, 2008 and subsequently amended on December 28, 2012, and the
Implementing Regulations of the Labor Contract Law of the PRC, effective on September 18, 2008, employers must establish a
comprehensive management system to protect the rights of their employees, including a system governing occupational health and safety
to provide employees with occupational training to prevent occupational injury, and employers are required to truthfully inform
prospective employees of the job description, working conditions, location, occupational hazards and status of safe production as well
as remuneration and other conditions as requested by the Labor Contract Law of the PRC.
Pursuant to the Law of Manufacturing Safety of the People’s Republic of China effective on November 1, 2002 and subsequently
amended on December 1, 2014 and September 1, 2021, manufacturers must establish a comprehensive management system to ensure
manufacturing safety in accordance with applicable laws and regulations. Manufacturers not meeting relevant legal requirements are
not permitted to commence their manufacturing activities.
Pursuant to the Administrative Measures for Production effective on March 1, 2011, manufacturers of pharmaceutical products are
required to establish production safety and labor protection measures in connection with the operation of their manufacturing equipment
and manufacturing process.
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Pursuant to applicable PRC laws, rules and regulations, including the Social Insurance Law which became effective on July 1, 2011
and subsequently amended on December 29, 2018, the Interim Regulations on the Collection and Payment of Social Security Funds
which became effective on January 22, 1999 and subsequently amended on March 24, 2019, the Interim Measures concerning the
Maternity Insurance which became effective on January 1, 1995 and the Regulations on Work-related Injury Insurance which became
effective on January 1, 2004 and were subsequently amended on December 20, 2010, employers are required to contribute, on behalf of
their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic
medical insurance, work-related injury insurance, and maternity insurance. If an employer fails to make social insurance contributions
timely and in full, the social insurance collecting authority will order the employer to make up outstanding contributions within the
prescribed time period and impose a late payment fee at the rate of 0.05% per day from the date on which the contribution becomes due.
If such employer fails to make social insurance registration, the social insurance collecting authority will order the employer to correct
within the prescribed time period. The relevant administrative department may impose a fine equivalent to three times the overdue
amount and management personnel who are directly responsible can be fined RMB500 ($76.43) to RMB3,000 ($458.02) if the employer
fails to correct within the prescribed time period.
Commercial Bribery
Medical production and operation enterprises involved in criminal, investigation or administrative procedure for commercial bribery
will be listed in the Adverse Records of Commercial Briberies by provincial health and family planning administrative department.
Pursuant to the Provisions on the Establishment of Adverse Records of Commercial Briberies in the Medicine Purchase and Sales
Industry enforced on March 1, 2014 by the National Health and Family Planning Commission, if medical production and operation
enterprises are listed into the Adverse Records of Commercial Briberies for the first time, their production shall not be purchased by
public medical institutions, and medical and health institutions receiving financial subsidies in local provincial regions for a period of
two years following the publication of the Adverse Records, and public medical institutions, and medical and health institutions receiving
financial subsidies in other provinces shall lower their rating in bidding or purchasing process. If medical production and operation
enterprises are listed into the Adverse Records of Commercial Briberies twice or more times in five years, their production may not be
purchased by public medical institutions, and medical and health institutions receiving financial subsidies nationwide in two years from
public of the record.
As advised by our PRC legal advisor, from a PRC law perspective, a pharmaceutical company will not be penalized by the relevant
PRC government authorities merely by virtue of having contractual relationships with distributors or third-party promoters who are
engaged in bribery activities, so long as such pharmaceutical company and its employees are not utilizing the distributors or third-party
promoters for the implementation of, or acting in conjunction with them in, the prohibited bribery activities. In addition, a pharmaceutical
company is under no legal obligation to monitor the operating activities of its distributors and third-party promoters, and will not be
subject to penalties or sanctions by relevant PRC government authorities as a result of failure to monitor their operating activities.
Product Liability
In addition to the strict new drug approval process, certain PRC laws have been promulgated to protect the rights of consumers and
to strengthen the control of medical products in the PRC. Under current PRC law, manufacturers and vendors of defective products in
the PRC may incur liability for loss and injury caused by such products. Pursuant to the Civil Code of the PRC, or the PRC Civil Code,
promulgated on May 28, 2020 and effective on January 1, 2021, a defective product which causes property damage or physical injury
to any person may subject the manufacturer or vendor of such product to civil liability for such damage or injury.
On February 22, 1993, the Product Quality Law of the PRC, or the Product Quality Law, was promulgated aiming to define
responsibilities for product quality, to protect the legitimate rights and interests of the end-users and consumers and to strengthen the
supervision and control of the quality of products. The Product Quality Law was amended by the Ninth National People’s Congress on
July 8, 2000 and was later amended by the Eleventh National People’s Congress on August 27, 2009 and the Thirteenth National
People’s Congress on December 29, 2018. Pursuant to the amended Product Quality Law, manufacturers who produce defective
products may be subject to civil or criminal liability and have their business licenses revoked.
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The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 13, 1993 and was
amended on October 25, 2013 to protect consumers’ rights when they purchase or use goods and accept services. All business operators
must comply with this law when they manufacture or sell goods and/or provide services to customers. Under the amendment on
October 25, 2013, all business operators shall pay high attention to protect the customers’ privacy which they obtain during the business
operation. In addition, in extreme situations, pharmaceutical product manufacturers and operators may be subject to criminal liabilities
under applicable laws of the PRC if their goods or services lead to the death or injuries of customers or other third parties.
Pursuant to the PRC Civil Code, if damages to other persons are caused by defective products that are resulted from the fault of a
third party such as the parties providing transportation or warehousing, the producers and the sellers of the products have the right to
recover their respective losses from such third parties. If defective products are identified after they have been put into circulation, the
producers or the sellers shall take remedial measures such as issuance of warning, and recall of products, etc. in a timely manner. The
producers or the sellers shall be liable under tort if they cause damages due to their failure to take remedial measures in a timely manner
or have not made efforts to take remedial measures, thus causing damages. If the products are produced and sold with known defects,
causing deaths or severe damage to the health of others, the infringed party shall have the right to claim respective punitive damages in
addition to compensatory damages.
Other PRC National and Provincial-Level Laws and Regulations
We are subject to changing regulations under many other laws and regulations administered by governmental authorities at the
national, provincial and municipal levels, some of which are or may become applicable to our business. Our hospital customers are also
subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us.
For example, regulations control the confidentiality of patients’ medical information and the circumstances under which patient
medical information may be released for inclusion in our databases, or released by us to third parties. These laws and regulations
governing both the disclosure and the use of confidential patient medical information may become more restrictive in the future.
We also comply with numerous additional state and local laws relating to matters such as safe working conditions, manufacturing
practices, environmental protection and fire hazard control. We believe that we are currently in compliance with these laws and
regulations; however, we may be required to incur significant costs to comply with these laws and regulations in the future. Unanticipated
changes in existing regulatory requirements or adoption of new requirements could therefore have a material adverse effect on our
business, results of operations and financial condition.
Other U.S. Healthcare Laws
We may also be subject to healthcare regulation and enforcement by the U.S. federal government and the states where we may
market our drug candidates, if approved. These laws include, without limitation, state and federal anti-kickback, fraud and abuse, false
claims, privacy and security and physician sunshine laws and regulations.
Anti-Kickback Statute
The federal Anti-Kickback Statute prohibits, among other things, any person from knowingly and willfully offering, soliciting,
receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service, or the
purchase or order of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and
Medicaid programs. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may
apply to items or services reimbursed by any third-party payor, including commercial insurers. The Anti-Kickback Statute is subject to
evolving interpretations. In the past, the government has enforced the Anti-Kickback Statute to reach large settlements with healthcare,
pharmaceutical, and biotechnology companies based on a range of financial arrangements with physicians and other healthcare industry
entities. A person or entity does not need to have actual knowledge of the Anti-Kickback Statute or specific intent to violate it in order
to have committed a violation. Violations of the Anti-Kickback Statute can result in criminal, civil, or administrative liability. In
addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for the purposes of the federal False Claims Act.
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False Claims
Additionally, the civil False Claims Act prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent
claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the U.S. Attorney General or as a qui
tam action by a private individual in the name of the government. Analogous state law equivalents may apply and may be broader in
scope than the federal requirements. Violations of the False Claims Act can result in very significant monetary penalties and treble
damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation
and prosecution of pharmaceutical and biotechnology companies throughout the United States, for example, in connection with the
violations of the Anti-Kickback Statute, the promotion of products for unapproved uses and other sales and marketing practices. The
government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal
convictions and corporate resolutions under applicable criminal statutes. Given the significant size of actual and potential settlements,
it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’
compliance with applicable fraud and abuse laws.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created new federal criminal statutes that
prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program,
willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up
a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for
healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation.
Payments to Physicians
There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare
providers. The Affordable Care Act, among other things, imposes new reporting requirements on drug manufacturers for payments made
by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate
family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per
year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment
interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers were required to begin
collecting data on August 1, 2013 and submit reports to the government by March 31, 2014 and June 30, 2014, and the 90th day of each
subsequent calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug
manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.
The federal government has begun to impose penalties on companies that fail to appropriately report required information.
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Data Privacy and Security
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct
our business. HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and their respective
implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to
the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s
privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered
entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of
a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business
associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in
federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In
addition, state laws govern the privacy and security of personal health information in certain circumstances, many of which differ from
each other in significant ways, thus complicating compliance efforts.
PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets
PRC Foreign Currency Exchange
Foreign currency exchange regulation in China is primarily governed by the following rules:
Foreign Currency Administration Rules (1996), as last amended on August 5, 2008, or the Exchange Rules; and
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
Under the Exchange Rules, the renminbi is convertible for current account items, including the distribution of dividends, interest
payments, trade and service-related foreign exchange transactions. Conversion of renminbi for capital account items, such as direct
investment, loan, security investment and repatriation of investment, however, is still subject to the SAFE’s scrutiny.
Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks
authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item
transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are also subject
to limitations, which include approvals by the MOFCOM, the SAFE and the NDRC.
Pursuant to the Circular on Further Improving and Adjusting the Direct Investment Foreign Exchange Administration Policies, or
Circular 59, promulgated by the SAFE on November 19, 2012 and became effective on December 17, 2012, approval is not required
for the opening of and payment into foreign exchange accounts under direct investment, for domestic reinvestment with legal income
of foreign investors in China. Circular 59 also simplified the capital verification and confirmation formalities for Chinese foreign-
invested enterprises and the foreign capital and foreign exchange registration formalities required for the foreign investors to acquire
the equities of Chinese party and other items. Circular 59 further improved the administration on exchange settlement of foreign
exchange capital of Chinese foreign-invested enterprises.
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Foreign Exchange Registration of Offshore Investment by PRC Residents
In July 2014, the SAFE issued the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to
Engage in Offshore Investment and Financing and Round Trip Investment via Special Purpose Vehicles, or Circular 37, and its
implementation guidelines, which abolishes and supersedes the SAFE’s Circular on Relevant Issues Concerning Foreign Exchange
Administration for PRC Residents to Engage in Financing and Round Trip Investment via Overseas Special Purpose Vehicles, or
Circular 75. Pursuant to Circular 37 and its implementation guidelines, PRC residents (including PRC institutions and individuals) must
register with local branches of the SAFE in connection with their direct or indirect offshore investment in an overseas special purpose
vehicle, or SPV, directly established or indirectly controlled by PRC residents for the purposes of offshore investment and financing
with their legally owned assets or interests in domestic enterprises, or their legally owned offshore assets or interests. Such PRC residents
are also required to amend their registrations with the SAFE when there is a significant change to the SPV, such as changes of the PRC
individual resident’s increase or decrease of its capital contribution in the SPV, or any share transfer or exchange, merger, division of
the SPV. Failure to comply with the registration procedures set forth in Circular 37 may result in restrictions being imposed on the
foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore
parent or affiliate, the capital inflow from the offshore entities and settlement of foreign exchange capital, and may also subject relevant
onshore company or PRC residents to penalties under PRC foreign exchange administration regulations.
In February 2012, the SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic
Individuals Participating in Stock Incentive Plans of Overseas Publicly Listed Companies. Based on this regulation, directors,
supervisors, senior management and other employees of domestic subsidiaries or branches of a company listed on an overseas stock
market who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject
to a few exceptions, are required to register with the SAFE or its local counterparts by following certain procedures if they participate
in any stock incentive plan of the company listed on an overseas stock market. Foreign exchange income received from the sale of
shares or dividends distributed by the overseas listed company may be remitted into a foreign currency account of such PRC citizen or
be exchanged into renminbi. Our PRC citizen employees who have been granted share options have been subject to these rules due to
our admission to trading on the AIM market and the listing of our ADSs on Nasdaq.
Regulation on Investment in Foreign-invested Enterprises
Pursuant to PRC law, the registered capital of a limited liability company is the total capital contributions subscribed for by all the
shareholders as registered with the company registration authority. A foreign-invested enterprise also has a total investment limit that is
approved by or filed with the MOFCOM or its local counterpart by reference to both its registered capital and expected investment scale.
The difference between the total investment limit and the registered capital of a foreign-invested enterprise or the cross-border financing
risk weighted balance calculated based on a formula by the PBOC represents the foreign debt financing quota to which it is entitled
(i.e., the maximum amount of debt which the company may borrow from a foreign lender). A foreign-invested enterprise is required to
obtain approval from or file with the MOFCOM or its local counterpart for any increases to its total investment limit. In accordance
with these regulations, we and our joint venture partners have contributed financing to our PRC subsidiaries and joint ventures in the
form of capital contributions up to the registered capital amount and/or in the form of shareholder loans up to the foreign debt quota.
According to the financing needs of our PRC subsidiaries and joint ventures, we and our joint venture partners have requested and
received approvals from the government authorities for increases to the total investment limit for certain of our PRC subsidiaries and
joint ventures from time to time. As a result, these regulations have not had a material impact to date on our ability to finance such
entities.
Regulation on Dividend Distribution
The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include:
Company Law of the PRC (1993), as amended in 1999, 2004, 2005, 2013 and 2018;
Foreign Investment Law of the PRC; and
Implementation Rules for the Foreign Investment Law.
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Under these laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned
enterprise in China is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to
its general reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not
distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion
of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of
liquidation.
Filings and Approvals Relating to State-Owned Assets
Pursuant to applicable PRC state-owned assets administration laws and regulations, incorporating a joint venture that will have
investments of assets that are both state-owned and non-state-owned, investing in an entity that was previously owned by a state-owned
enterprise and restructuring an enterprise ultimately owned by the general public require the performance of an assessment of the relevant
state-owned assets and the filing of the assessment results with the competent state-owned assets administration, finance authorities or
other regulatory authorities and, if applicable, the receipt of approvals from such authorities.
Our joint venture partners were required to perform a state-owned asset assessment when Shanghai Hutchison Pharmaceuticals and
Hutchison Baiyunshan were incorporated and our joint venture partners contributed state-owned assets, and when we invested in
Hutchison Sinopharm, which was previously wholly-owned by Sinopharm, a state-owned enterprise. In addition, Hutchison Sinopharm
was required to perform a state-owned asset assessment when Hutchison Sinopharm restructured from an enterprise ultimately owned
by the general public into a limited liability enterprise. In all four instances, our joint venture partners have informed us that they or
Hutchison Sinopharm have duly filed the relevant state-owned asset assessment results with, and obtained the requisite approvals from,
the relevant governmental authorities as required by the foregoing laws and regulations. Accordingly, we believe that such joint ventures
are in full compliance with all applicable laws and regulations governing the administration and restructuring of state-owned assets,
although we are currently unable to obtain copies of certain filing and approval documents from our joint venture partners due to their
internal confidentiality constraints. We have not received any notice of warning or been subject to any penalty or other disciplinary
action from the relevant governmental authorities with respect to the applicable laws and regulations governing the administration and
restructuring of state-owned assets.
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C. Organizational Structure
The chart below shows our organizational structure, including our principal subsidiaries and joint ventures, as of March 1, 2022.
Notes:
(1) Employees and former employees of HUTCHMED Limited hold the remaining 0.2% shareholding in HUTCHMED Holdings
Limited.
(2) Held through HUTCHMED Investment (HK) Limited (formerly Hutchison MediPharma (HK) Investment Limited), a 100.0%
subsidiary of HUTCHMED Holdings Limited. HUTCHMED Limited’s revenue generated by sales of, and royalties, manufacturing
costs and services fees paid in connection with, our current and future internally developed drug candidates are allocated to the
Oncology/Immunology operations.
(3) Our Other Ventures also include Hutchison Hain Organic Holdings Limited, a consolidated joint venture with The Hain Celestial
Group, Inc., which wholly-owns Hutchison Hain Organic (Hong Kong) Limited and Hutchison Hain Organic (Guangzhou) Limited.
(4) Held through our 100.0% subsidiary Shanghai HUTCHMED Investment (HK) Limited (formerly Shanghai Hutchison Chinese
Medicine (HK) Investment Limited). Shanghai Pharmaceuticals Holding Co., Limited is the other 50.0% joint venture partner.
(5) Sinopharm Group Co. Limited is the other 49.0% joint venture partner.
D. Property, Plants and Equipment
We are headquartered in Hong Kong where we have our main administrative offices.
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We rent and operate a 4,968 square meter manufacturing facility that complies with applicable GMP standards for fruquintinib and
surufatinib in Suzhou, Jiangsu Province in Eastern China, and own a 5,024 square meter facility in Shanghai which houses research and
development operations. We lease 9,080 square meters of office and lab space in Shanghai which houses HUTCHMED Limited’s
management and staff. In 2020, we entered into a 50-year land use rights agreement for a 28,771 square meter site in Shanghai. We have
commenced construction of an almost 55,000 square meter large-scale manufacturing facility for innovative drugs on the site. We plan
to install small molecule equipment in late 2022, with GMP compliance targeted for late 2023. The Shanghai factory will be our largest
manufacturing facility, with a production capacity estimated to be five times that of our facility in Suzhou. The first phase will be
primarily for small molecule production, with an expected production capacity of 250 million tablets and capsules per years.
We also lease a 26,989 square foot facility in Florham Park, New Jersey where we house our U.S.-based clinical, regulatory and
commercial management and staff.
Our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, operates a 78,000 square meter large-scale research and
development and manufacturing facility in Shanghai for which it has obtained land use rights and property ownership certificates.
Our and our joint ventures’ manufacturing operations consist of bulk manufacturing and formulation, fill, and finishing activities
that produce products and drug candidates for both clinical and commercial purposes. Our manufacturing capabilities have a large
operation scale for our own-brand products. We and our joint ventures manufacture and sell about 2.5 billion doses of medicines a year,
in the aggregate, through our well-established manufacturing base. See “—Other Ventures—Shanghai Hutchison Pharmaceuticals” for
more details on our manufacturing operations.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations together with our
consolidated financial statements and the related notes and our non-consolidated joint ventures’ consolidated financial statements
and the related notes appearing elsewhere in this annual report. This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act, including, without
limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,”
“anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this annual report are based on
information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. In evaluating
our business, you should carefully consider the information provided under Item 3.D. “Risk Factors.” Actual results could differ materi-
ally from those projected in the forward-looking statements.
A. Operating Results.
Overview
We are a global commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of
targeted therapies and immunotherapies for the treatment of patients with cancer and immunological diseases. We conduct our business
through our Oncology/Immunology and Other Ventures operations.
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Through our Oncology/Immunology operations, our team of over 820 scientists and staff has created, developed and in-licensed a
deep portfolio of thirteen drug candidates. We have advanced thirteen oncology drug candidates to clinical trials in China, with seven
also in clinical development in the United States and Europe. In China, we have brought three of our internally developed drugs, Elunate
(fruquintinib), Sulanda (surufatinib) and Orpathys (savolitinib), to patients. All three drugs are also in late-stage development outside of
China, with the most advanced being surufatinib for which the FDA has accepted our NDA in the United States. We have additional
drug candidates in earlier stage clinical development (Phase I/Ib and Phase Ib/II proof-of-concept studies) and several advanced pre-
clinical drug candidates. These drug candidates are being developed to treat a wide spectrum of diseases, including solid tumors,
hematological malignancies and immunological diseases which we believe may address unmet medical needs and represent large
commercial opportunities. Our success in research and development has led to partnerships with leading global pharmaceutical
companies, including AstraZeneca and Eli Lilly. We and our collaboration partners have invested over $1,260 million in our
Oncology/Immunology operations as of December 31, 2021, with almost all of these funds used for research and development expenses
for the development of our drug candidates. Net loss attributable to our company from our Oncology/Immunology operations was $127.4
million, $175.5 million and $291.7 million for the years ended December 31, 2019, 2020 and 2021, respectively.
In addition, we have built large-scale and profitable drug marketing and distribution capabilities through subsidiaries and joint
ventures in our Other Ventures, which primarily manufacture, market and distribute prescription drugs and consumer health products in
China. Net income attributable to our company generated from our Other Ventures operations was $41.5 million, $72.8 million and
$142.9 million for the years ended December 31, 2019, 2020 and 2021, respectively. In addition to helping to fund our
Oncology/Immunology operations, we utilize the know-how from our Other Ventures to support the launch of our internally developed
Oncology/Immunology products in China. Our Other Ventures also include our businesses focused on a range of health-focused
consumer products.
Our consolidated revenue was $204.9 million, $228.0 million and $356.1 million for the years ended December 31, 2019, 2020 and
2021, respectively. Net loss attributable to our company was $106.0 million, $125.7 million and $194.6 million for the years ended
December 31, 2019, 2020 and 2021, respectively.
Basis of Presentation
Our consolidated statements of operations data presented herein for the years ended December 31, 2021, 2020 and 2019 and our
consolidated balance sheet data presented herein as of December 31, 2021 and 2020 have been derived from our audited consolidated
financial statements, which were prepared in accordance with U.S. GAAP, and should be read in conjunction with those statements
which are included elsewhere in this annual report.
We have two strategic operations, Oncology/Immunology and Other Ventures, that offer different products and services. Our
Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan (until September 28, 2021 when the disposal of our shareholding
interest in Hutchison Baiyunshan was completed) joint ventures under our Other Ventures operations are accounted for under the equity
accounting method as non-consolidated entities in our consolidated financial statements, and their consolidated financial statements
were prepared in accordance with IFRS as issued by the IASB and audited under auditing standards generally accepted in the United
States and included elsewhere in this annual report. The presentation of financial data for our business units excludes certain unallocated
costs attributed to expenses incurred by our corporate head office. For more information on our corporate structure, see Item 4.A.
“History and Development of the Company.”
Research and Development Expenses
Factors Affecting our Results of Operations
We believe our ability to successfully develop innovative drug candidates through our Oncology/Immunology operations will be
the primary factor affecting our long-term competitiveness, as well as our future growth and development. Creating high quality global
first-in-class or best-in-class drug candidates requires significant investment of resources over a prolonged period of time, and a core
part of our strategy is to continue making sustained investments in this area. As a result of this commitment, our pipeline of drug
candidates has been steadily advancing and expanding, with thirteen in China and global clinical development. For more information
on the nature of the efforts and steps necessary to develop our drug candidates, see Item 4.B. “Business Overview—Our Clinical
Pipeline” and “Business Overview—Regulation.”
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The drug candidates of our Oncology/Immunology operations are still in development, and we have incurred and will continue to
incur significant research and development costs for pre-clinical studies and clinical trials. We expect that our research and development
expenses will significantly increase in future periods in line with the advancement and expansion of the development of our drug
candidates.
Research and development expenses include:
employee compensation related expenses, including salaries, benefits and equity compensation expense;
expenses incurred for payments to CROs, investigators and clinical trial sites that conduct our clinical studies;
the cost of acquiring, developing, and manufacturing clinical study materials;
facilities, depreciation, and other expenses, which include office leases and other overhead expenses; and
costs associated with pre-clinical activities and regulatory operations.
Research and development expenses incurred by our Oncology/Immunology operations totaled $138.2 million, $174.8 million and
$299.1 million for the years ended December 31, 2019, 2020 and 2021, respectively, representing approximately 67.4%, 76.7% and
84.0% of our total consolidated revenue for the respective period. These research and development figures do not include payments
made by our collaboration partners directly to third parties to help fund the research and development of our drug candidates.
We have been able to fund the research and development expenses for our Oncology/Immunology operations via a range of sources,
including revenue generated from our commercialized drugs, payments received from our collaboration partners, cash flows generated
from and dividend payments from our Other Ventures, the proceeds raised from our initial public offering on the AIM, initial public
offering and follow-on offerings on Nasdaq, initial public offering on the SEHK, investments from other third parties and bank
borrowings.
This diversified approach to funding allows us to not depend on any one method of funding for our research and development
activities, thereby reducing the risk that sufficient financing will be unavailable as we continue to accelerate the development of our
drug candidates.
For more information on the research and development expenses incurred for the development of our drug candidates, see “—Key
Components of Results of Operations—Cost of Revenues and Operating Expenses—Research and Development Expenses.”
Our Ability to Commercialize Our Drug Candidates
Our ability to generate revenue from our drug candidates depends on our ability to successfully complete clinical trials for our drug
candidates and obtain regulatory approvals for them in the United States, Europe, China and other major markets.
We believe that our globally-facing strategy of focusing on drug development for novel but relatively well-characterized targets
and for validated targets, in combination with our development of multiple drug candidates concurrently and testing them for multiple
indications and in combinations with other drugs, enhances the likelihood that our research and development efforts will yield successful
drug candidates. Nonetheless, we cannot be certain if any of our drug candidates will receive regulatory approvals. Even if such
approvals are granted, we will need to thereafter establish manufacturing supply and engage in extensive marketing prior to generating
any revenue from such drugs. The effectiveness of our marketing will depend on the efforts of our dedicated oncology team in China
and the United States. The ultimate commercial success of our drugs will depend on their acceptance by patients, the medical community
and third-party payors and their ability to compete effectively with other therapies on the market.
To date, fruquintinib, surufatinib and savolitinib have been approved for sale in China.
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Our manufacturing site in Suzhou produces commercial supplies of fruquintinib and surufatinib. Our commercial supplies of
savolitinib are outsourced and manufactured by a third-party manufacturer based in Shanghai, China. Beginning in October 2020, we
assumed responsibility for the development and execution of all on-the-ground medical detailing, promotion and local and regional
marketing activities in China for Elunate. Sulanda is marketed by us without the support of a collaboration partner. However, we have
a limited history of successfully commercializing our internally developed drug candidates, which makes it difficult to evaluate our
future prospects.
The competitive environment is also an important factor with the commercial success of our potential global first-in-class products,
such as sovleplenib, depending on whether we are able to gain regulatory approvals and quickly bring such products to market ahead of
competing drug candidates being developed by other companies.
For our drug candidates where we retain all rights worldwide, which currently include surufatinib, sovleplenib, amdizalisib, HMPL-
306, HMPL-760, HMPL-453, HMPL-295, HMPL-653, epitinib and theliatinib, we will be able to retain all the profits if any of them
are successfully commercialized if they remain unpartnered, though we will need to bear all the costs associated with such drug
candidates. Conversely, as discussed below, for our drug candidates which are subject to collaboration partnerships, our collaboration
partners provide funding for development of the drug candidates but are entitled to retain a significant portion of any revenue generated
by such drug candidates.
Our Collaboration Partnerships
Our results of operations have been, and we expect them to continue to be, affected by our collaborations with third parties for the
development and commercialization of certain of our drug candidates. Currently, these include savolitinib (collaboration with
AstraZeneca) and fruquintinib (collaboration with Eli Lilly). In addition to providing us with clinical and regulatory support, the
payments received from these collaborations have been critical to our ability to develop and quickly advance the pre-clinical and clinical
studies of multiple drug candidates concurrently.
In particular, our partners cover a portion of our research and development costs for drug candidates developed in collaboration
with them. For example, under our collaboration agreement with AstraZeneca, it is responsible for a significant portion of the
development costs for savolitinib. However, in August 2016 and December 2020, we and AstraZeneca amended our collaboration
agreement whereby we agreed to contribute additional funding for the research and development of savolitinib in return for a larger
share of the upside if and when savolitinib is approved. In November 2021, we further amended our collaboration revising the sharing
between us and AstraZeneca of development costs of savolitinib in China for non-small cell lung cancer, as well as adding potential
development milestones. Under our original collaboration agreement with Eli Lilly, it was responsible for a significant portion of all
fruquintinib development costs in China. Under the terms of our December 2018 amendment to this agreement, we are responsible for
all development costs for fruquintinib in new life cycle indications. In July 2020, we amended our collaboration with Eli Lilly to assume
responsibility for all on-the-ground medical detailing, promotion and local and regional marketing activities in China for Elunate,
thereby expanding its potential economic value to our company.
In addition, under our licensing, co-development and commercialization agreements with AstraZeneca and Eli Lilly, we received
upfront payments upon our entry into such agreements and milestone payments upon the achievement of certain development, regulatory
and commercial milestones payments for our provision of research and development services for the relevant drug candidate as well as
royalties and revenue from product sales of Orpathys which we source from a third-party manufacturer and sell to AstraZeneca at cost
and Elunate which we manufacture and sell to Eli Lilly at cost. Revenue recognized in our consolidated financial statements from such
agreements with AstraZeneca and Eli Lilly totaled $26.3 million, $29.7 million and $107.1 million for the years ended December 31,
2019, 2020 and 2021, respectively. AstraZeneca and Eli Lilly are entitled to a significant proportion of any future revenue from
commercialization of our drug candidates developed in collaboration with them, as well as a degree of influence over the clinical
development process for such drug candidates.
Moreover, we have entered into and may consider entering in the future in-licensing arrangements to expand and complement our
existing portfolio of novel oncology assets under which we may be obligated to make upfront, milestone and royalty payments. For
example, in August 2021, we entered into an in-licensing agreement with Epizyme to collaborate in research, development,
manufacturing and commercialization of tazemetostat in Greater China, the licensed territory. In connection with this collaboration,
Epizyme received a $25 million upfront payment and is eligible to receive up to an additional $110 million in development and regulatory
milestone payments and up to an additional $175 million in sales milestone payments. Epizyme is also eligible to receive tiered royalties
of mid-teen to low-twenties percent based on annual net sales of tazemetostat in the licensed territory.
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The achievement of milestones for our and in-licensed drug candidates, which is dependent on the outcome of clinical studies, is
subject to a high degree of uncertainty and, as a result, we cannot reasonably estimate when we can expect to receive or incur future
milestone payments, revenue from related product sales, or other relevant income or expenses or at all. If we are unable to achieve
development milestones for our drug candidates or if our partners were to terminate their collaborative agreements with us, payments
for research and development services could also be affected.
For more information regarding our collaboration agreements, see Item 4.B. “Business Overview—Overview of Our
Collaborations.”
China Government Insurance Reimbursement and Drug Pricing Policies
Our revenue is affected by the sales volume and pricing of our current and future internally developed drug candidates, if approved.
Eligible participants in the government-sponsored medical insurance programs in China are entitled to reimbursement for varying
percentages of the cost for any medicines that are included in applicable reimbursement lists. Factors that affect the inclusion of
medicines in China’s NRDL and any other applicable reimbursement list may include whether the medicine is consumed in large
volumes and commonly prescribed for clinical use in China and whether it is considered to be important in meeting the basic healthcare
needs of the general public. For more information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage
and Reimbursement.” The inclusion of a medicine in the NRDL or other applicable reimbursement lists can substantially improve the
sales volume of the medicine due to the availability of third-party reimbursements. On the other hand, such inclusion may also subject
it to centralized procurement processes. The National Healthcare Security Administration has stated that centralized procurement will
focus on NRDL-listed and costly-to-procure drugs. Centralized procurement may negatively affect the retail price of our drug candidates.
On balance, we believe that, if priced appropriately, the benefit of the inclusion of our drug candidates in the NRDL and other applicable
reimbursement lists outweighs the cost of such inclusion. Elunate was added to the NRDL in January 2020 at approximately 60%
discount to its initial retail price, and such inclusion was renewed for an additional two-year term starting in January 2022 at a discount
of 5% relative to the prior NRDL price. Sulanda was included in the NRDL starting in January 2022 at a 52% discount on its main
dosage form, relative to its 2021 initial retail price.
Revenue from our Other Ventures, including the revenue of our non-consolidated joint venture Shanghai Hutchison
Pharmaceuticals, is affected by the sales volume and pricing of their own-brand and third-party prescription pharmaceutical products.
The sales volume of the products sold by these businesses is driven in part by the level of Chinese government spending on healthcare
and the coverage of Chinese government medical insurance schemes, which is correlated with patient reimbursements for drug
purchases, all of which have increased significantly in recent years as part of healthcare reforms in China. The sales volume of
pharmaceutical products in China is also influenced by their representation on the NRDL, which determines eligibility for drug
reimbursement, as well as their representation on the National Essential Medicines List, which mandates distribution of drugs in China.
Substantially all pharmaceutical products manufactured and sold by Shanghai Hutchison Pharmaceuticals in 2021 were capable of being
reimbursed under the NRDL as of December 31, 2021. There were 17 of its drugs included in the National Essential Medicine List, of
which three were in active production as of December 31, 2021. She Xiang Bao Xin pills, Shanghai Hutchison Pharmaceuticals’ top-
selling drug, is one of the few proprietary drugs included on the National Essential Medicines List.
The NRDL and the National Essential Medicines List are subject to revision by the government from time to time, and our results
could be materially and adversely affected if any of our products are removed from the NRDL or the National Essential Medicines List.
For more information, see Item 3.D. “Risk Factors—Risks Relating to Sales of our Internally Developed Drugs and other Drugs—
Reimbursement may not be available for the products currently sold through our Oncology/Immunology and Other Ventures operations
or our drug candidates in China, the U.S. or other countries, which could diminish our sales or affect our profitability.”
In addition, the pricing of Shanghai Hutchison Pharmaceuticals’ prescription drugs is influenced by the outcomes of periodic
provincial and municipal tender processes organized by the various provincial or municipal government agencies in China. For more
information, see Item 4.B. “Business Overview—Coverage and Reimbursement—PRC Coverage and Reimbursement.”
169
Ability to Effectively Market Own-Brand and Third-Party Drugs
A key component of our Other Ventures operations is the extensive prescription drugs marketing network operated by our joint
ventures Shanghai Hutchison Pharmaceuticals and Hutchison Sinopharm, which includes approximately 2,900 medical sales
representatives covering hospitals in about 290 cities and towns in China. Our results of operations are impacted by the effectiveness of
this network, including the ability of Shanghai Hutchison Pharmaceuticals to generate sales of She Xiang Bao Xin pills, which
represented approximately 88%, 90% and 92% of its total revenue for the years ended December 31, 2019, 2020 and 2021, respectively.
In addition, in recent years Hutchison Sinopharm has been increasingly focused on providing distribution and commercialization
services for prescription drugs licensed from third parties, and we have established and continue to expand our oncology drug sales team
which we utilize for our internally developed drugs for which we have commercialization rights, if approved, throughout China.
If the marketing efforts of these joint ventures to doctors and hospitals are not successful, our revenue and profitability may be
negatively affected. Moreover, if we are unsuccessful in marketing any third party drugs, it may adversely affect our ability to enter
into commercialization arrangements on acceptable terms, gain rights to market additional third-party drugs or prevent us from
expanding the geographic scope of existing arrangements.
Seasonality
The results of operations of our Other Ventures operations are also affected by seasonal factors. Our Other Ventures operations
typically experience higher profits in the first half of the year due to the sale cycles of our distributors, whereby they typically increase
their inventories at the beginning of each year. In addition, in the second half of each year, our Other Ventures operations typically
spend more on marketing activities to help reduce such inventory held by distributors. We do not experience material seasonal variations
in the results of our Oncology/Immunology operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of operating results and financial condition are based upon our consolidated financial statements. The
preparation of consolidated financial statements requires us to estimate the effect of various matters that are inherently uncertain as of
the date of the consolidated financial statements. Each of these required estimates varies with regard to the level of judgment involved
and its potential impact on our reported financial results. Estimates are deemed critical when a different estimate could have reasonably
been used or where changes in the estimates are reasonably likely to occur from period to period, and a different estimate would
materially impact our financial position, changes in financial position or results of operations. Our significant accounting policies are
discussed under note 3 to our consolidated financial statements included in this annual report. We believe the following critical
accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements
and that the judgments and estimates are reasonable.
170
Revenue recognition— Goods and Services
We generate revenue from (1) sales of goods, which are the manufacture or purchase and distribution of pharmaceutical products
and other consumer health products and (2) provision of services, which are the provision of sales, distribution and marketing services
to pharmaceutical manufacturers. We evaluate whether we are the principal or agent for these contracts. Where we obtain control of the
goods for distribution, we are the principal (i.e. recognizes sales of goods on a gross basis). Where we do not obtain control of the goods
for distribution, we are the agent (i.e. recognizes provision of services on a net basis). Control is primarily evidenced by taking physical
possession and inventory risk of the goods.
Revenue from sales of goods is recognized when the customer takes possession of the goods. We have determined that this usually
occurs upon completed delivery of the goods to the customer site. The amount of revenue recognized is adjusted for expected sales
incentives as stipulated in the contract, which are generally issued to customers as direct discounts at the point of sale or indirectly in
the form of rebates. Sales incentives are estimated using the expected value method. Additionally, sales are generally made with a
limited right of return under certain conditions. Revenues are recorded net of provisions for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is
based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the
amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, we recognize
revenue from provision of services based on amounts that can be invoiced to the customer.
Revenue recognition— License and Collaboration Contracts
Our Oncology/Immunology reportable segment includes revenue from license and collaboration contracts. The license and
collaboration contracts generally contain multiple performance obligations including (1) the license to the commercialization rights of
a drug compound and (2) the research and development services for each specified treatment indication, which are accounted for
separately if they are distinct, i.e. if a product or service is separately identifiable from other items in the arrangement and if a customer
can benefit from it on its own or with other resources that are readily available to the customer.
The transaction price generally includes fixed and variable consideration in the form of upfront payment, research and development
cost reimbursements, contingent milestone payments and sales-based royalties. Contingent milestone payments are not included in the
transaction price until it becomes probable that a significant reversal of revenue will not occur, which is generally when the specified
milestone is achieved. The allocation of the transaction price to each performance obligation is based on the relative standalone selling
prices of each performance obligation determined at the inception of the contract. We estimate the standalone selling prices based on
the income approach.
Control of the license to the drug compounds transfers at the inception date of the collaboration agreements and consequently,
amounts allocated to this performance obligation are generally recognized at a point in time. Conversely, research and development
services for each specified indication are performed over time and amounts allocated to these performance obligations are generally
recognized over time using cost inputs as a measure of progress. We have determined that research and development expenses provide
an appropriate depiction of measure of progress for the research and development services. Changes to estimated cost inputs may result
in a cumulative catch-up adjustment. Royalty revenues are recognized as future sales occur as they meet the requirements for the sales-
usage based royalty exception.
Deferred revenue is recognized if allocated consideration is received in advance of the rendering of research and development
services. Accounts receivable is recognized based on the terms of the contract and when we have an unconditional right to bill the
customer, which is generally when research and development services are rendered.
171
Share-based Compensation
We recognize share-based compensation expense on share options granted to employees and directors based on their estimated
grant date fair value using the polynomial model. Determining the fair value of share options requires the use of highly subjective
assumptions. This polynomial pricing model uses various inputs to measure fair value, including the market value of our underlying
ordinary shares at the grant date, contractual terms, estimated volatility, risk-free interest rates and expected dividend yields. The
assumptions in determining the fair value of share options are highly subjective and represent our best estimates, which involve inherent
uncertainties and the application of judgment. As a result, if factors change and different assumptions are used, our level of share-based
compensation could be materially different in the future.
We recognize share-based compensation expense in the consolidated statements of operations on a graded vesting basis over the
requisite service period, and account for forfeitures as they occur.
Impairment of Long-lived Assets
We evaluate the recoverability of long-lived assets in accordance with authoritative guidance on accounting for the impairment or
disposal of long-lived assets.
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of these
assets may not be recoverable. Indicators that we consider in deciding when to perform an impairment review include significant under-
performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant
changes or planned changes in our use of the assets.
If indicators of impairment exist, the first step of the impairment test is performed to assess if the carrying value of the net assets
exceeds the undiscounted cash flows of the assets. If yes, the second step of the impairment test is performed in order to determine if
the carrying value of the net assets exceeds the fair value. If yes, impairment is recognized for the excess.
Impairment of Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible
assets acquired. Goodwill is allocated to our reporting units based on the relative expected fair value provided by the acquisition.
Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component.
Goodwill is attributable to our Other Ventures’ operations.
We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential
impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less
than its carrying value. For reporting units in which this assessment concludes that it is more likely than not that the fair value is more
than its carrying value, goodwill is not considered impaired and we are not required to perform the goodwill impairment test. Qualitative
factors considered in this assessment include industry and market considerations, overall financial performance, and other relevant
events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support
the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value. For
reporting units in which the impairment assessment concludes that it is more likely than not that the fair value is less than its carrying
value, we perform the goodwill impairment test, which compares the fair value of the reporting unit to its carrying value. If the fair value
of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not considered impaired. If
the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, an impairment loss shall be
recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
172
Our goodwill impairment test uses the income method to estimate a reporting unit’s fair value. The income method is based on a
discounted future cash flow approach that uses the following assumptions and inputs: revenue, based on assumed market segment growth
rates; and appropriate discount rates based on a reporting unit’s weighted average cost of capital as determined by considering the
observable weighted average cost of capital of comparable companies. Our estimate of market segment growth is based on historical
data, various internal estimates, and a variety of external sources. This estimate is developed as part of our routine long-range planning
process. We test the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market
data. A reporting unit’s carrying value represents the assignment of various assets and liabilities, excluding certain corporate assets and
liabilities, such as cash, investments, and debt. We performed the goodwill impairment test and determined that the fair values of the
reporting units exceeded their carrying values and considered that impairment was not necessary for any reporting unit.
Allowance for Current Expected Credit Losses
Effective from January 1, 2020, we adopted Accounting Standards Update 2016-13 “Financial Instruments – Credit Losses (Topic
326), Measurement of Credit Losses on Financial Instruments.” We estimate our allowance for current expected credit losses based on
an expected loss model, which requires the consideration of forward-looking economic variables and conditions in the reserve
calculation across the portfolio.
We estimate our allowances for expected credit losses for accounts and other receivables (except for prepayments) by considering
past events, including any historical default, current economic conditions and certain forward-looking information, including reasonable
and supportable forecasts. From January 1, 2020 onwards, the methodologies that the Group uses to estimate the allowance for expected
credit losses for accounts and other receivables are as follows:
Individually evaluated—we review all accounts and other receivables considered at risk on a timely basis and perform an analysis
based upon current information available about the customers and other debtors, which may include financial statements, news reports,
published credit ratings as well as collateral net of repossession cost, prior collection history and current and future expected economic
conditions. Using this information, we determine the expected cash flow for the accounts and other receivables and calculate an estimate
of the potential loss and the probability of loss. For those accounts for which the loss is probable, we record a specific allowance.
Collectively evaluated—we determine our allowance for credit losses for collectively evaluated accounts and other receivables
based on appropriate groupings.
We consider forward-looking macroeconomic variables, which may include gross domestic product, unemployment rates, equity
prices and corporate profits when quantifying the impact of economic forecasts on our allowance for expected credit losses.
Macroeconomic variables may vary based on historical experiences, portfolio composition and current environment. We also consider
the impact of current conditions and economic forecasts relating to specific industries and client-credit ratings, in addition to performing
a qualitative review of credit risk factors across the portfolio. Forward-looking estimates require the use of judgment, particularly in
times of economic uncertainty.
See note 3 to our consolidated financial statements included in this annual report for information regarding recent accounting
pronouncements.
Recent Accounting Pronouncements
173
Key Components of Results of Operations
The following tables set forth our selected consolidated financial data. We have derived the selected consolidated statements of
operations data for the years ended December 31, 2021, 2020 and 2019 and the selected consolidated balance sheet data as of December
31, 2021 and 2020 from our audited consolidated financial statements, which were prepared in accordance with U.S. GAAP and are
included elsewhere in this annual report. The following selected consolidated financial data for years ended December 31, 2018 and
2017 and as of December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements for those years,
which were prepared in accordance with U.S. GAAP and are not included in this annual report.
Consolidated statement of operations data:
Revenues
Goods—third parties
—related parties
Services —commercialization—third parties
—collaboration research and development —third parties
—research and development—related parties
Other collaboration revenue —royalties—third parties
—licensing—third parties
Total revenues
Operating expenses
Costs of goods—third parties
Costs of goods—related parties
Costs of services—commercialization —third parties
Research and development expenses
Selling expenses
Administrative expenses
Total operating expenses
Gain on divestment of an equity investee
Other income/(expense)
Interest income
Other income
Interest expense
Other expense
Total other income/(expense)
Loss before income taxes and equity in earnings of equity investees
Income tax expense
Equity in earnings of equity investees, net of tax
Net loss
Less: Net income attributable to non-controlling interests
Net loss attributable to the Company
Losses per share attributable to the Company—basic and diluted (US$per
share)
Number of shares used in per share calculation—basic and diluted
Net loss
Other comprehensive income/(loss)
Foreign currency translation gain/(loss)
Total comprehensive loss
Less: Comprehensive income attributable to non-controlling interests
Total comprehensive loss attributable to the Company
Consolidated balance sheet data:
Cash and cash equivalents
Short-term investments
Total assets
Total current liabilities
Total non-current liabilities
Total shareholders’ equity
2021
266,199
4,256
27,428
18,995
525
15,064
23,661
356,128
(229,448)
(3,114)
(25,672)
(299,086)
(37,827)
(89,298)
(684,445)
(328,317)
121,310
2,076
2,426
(592)
(12,643)
(8,733)
(215,740)
(11,918)
60,617
(167,041)
(27,607)
(194,648)
Year Ended December 31,
2020
2018
2019
$’000 (except share and per share data)
203,606
5,484
3,734
9,771
491
4,890
—
227,976
(178,828)
(3,671)
(6,020)
(174,776)
(11,334)
(50,015)
(424,644)
(196,668)
—
3,236
4,600
(787)
(115)
6,934
(189,734)
(4,829)
79,046
(115,517)
(10,213)
(125,730)
175,990
7,637
2,584
15,532
494
2,653
—
204,890
(152,729)
(5,494)
(1,929)
(138,190)
(13,724)
(39,210)
(351,276)
(146,386)
—
4,944
1,855
(1,030)
(488)
5,281
(141,105)
(3,274)
40,700
(103,679)
(2,345)
(106,024)
156,234
8,306
11,660
17,681
7,832
261
12,135
214,109
(129,346)
(5,978)
(8,620)
(114,161)
(17,736)
(30,909)
(306,750)
(92,641)
—
5,978
1,798
(1,009)
(781)
5,986
(86,655)
(3,964)
19,333
(71,286)
(3,519)
(74,805)
2017
194,860
8,486
1,860
16,858
9,682
—
9,457
241,203
(168,331)
(6,056)
(1,433)
(75,523)
(19,322)
(23,955)
(294,620)
(53,417)
—
1,220
808
(1,455)
(692)
(119)
(53,536)
(3,080)
33,653
(22,963)
(3,774)
(26,737)
(0.25)
(0.18)
(0.16)
(0.11)
(0.04)
792,684,524
(167,041)
697,931,437
(115,517)
665,683,145
(103,679)
664,263,820
(71,286)
617,171,710
(22,963)
2,964
(164,077)
(28,029)
(192,106)
9,530
(105,987)
(11,413)
(117,400)
(4,331)
(108,010)
(1,620)
(109,630)
(6,626)
(77,912)
(2,566)
(80,478)
10,964
(11,999)
(5,033)
(17,032)
2021
2020
As of December 31,
2019
$’000
2018
2017
377,542
634,158
1,372,661
311,658
21,489
1,039,514
235,630
199,546
724,118
158,397
46,772
518,949
121,157
96,011
465,122
113,101
39,118
312,903
86,036
214,915
532,118
85,479
34,384
412,255
85,265
273,031
597,932
104,600
8,366
484,966
174
Revenues
We derive our consolidated revenue primarily from (i) the sales of goods and services to Eli Lilly as well as royalties on in-market
sales of Elunate by Eli Lilly, (ii) the sales of goods to AstraZeneca as well as royalties on in-market sales of Orpathys by AstraZeneca,
(iii) sales of our unpartnered drug Sulanda, (iv) licensing and collaboration projects conducted by our Oncology/Immunology operations,
which generate revenue in the form of upfront payments, milestone payments, payments received for providing research and
development services for our collaboration projects; and (v) the sales of goods and services by our Other Ventures, which generate
revenue from the distribution and marketing of prescription pharmaceutical and consumer health products.
The following table sets forth the components of our consolidated revenue for the years indicated, which does not include the
revenue from our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals. In September 2021, we sold our interest in our
non-consolidated joint venture, Hutchison Baiyunshan, and its historical financial results and the gain on its divestment are reflected in
our consolidated financial statements. Our revenue from research and development projects for related parties is attributable to income
for research and development services that we received from Shanghai Hutchison Pharmaceuticals. Our revenue from sales to related
parties is attributable to sales by our Other Ventures to indirect subsidiaries of CK Hutchison.
Revenues
Oncology/Immunology:
Goods—third parties
Services:
Services—Commercialization—third parties
Collaboration R&D—third parties
R&D services—related parties
Other collaboration revenue:
Royalties—third parties
Licensing—third parties
Subtotal
Other Ventures:
Goods—third parties
Goods—related parties
Services—third parties
Subtotal
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
33,937
27,428
18,995
525
15,064
23,661
119,610
232,262
4,256
—
236,518
356,128
9.5
7.7
5.3
0.2
4.2
6.7
33.6
65.2
1.2
—
66.4
100.0
11,329
5.0
8,113
3,734
9,771
491
1.7
4.3
0.2
4,890
—
30,215
2.1
—
13.3
—
15,532
494
2,653
—
26,792
192,277
5,484
—
197,761
227,976
84.3
2.4
—
86.7
100.0
167,877
7,637
2,584
178,098
204,890
4.0
—
7.6
0.2
1.3
—
13.1
81.9
3.7
1.3
86.9
100.0
Revenue from Oncology/Immunology primarily comprises revenue from Elunate, Sulanda and Orpathys in China. The revenue we
generate from Elunate is primarily comprised of revenue from the sales of Elunate to Eli Lilly which we manufacture and sell at cost,
promotion and marketing services to Eli Lilly and royalty revenue. The revenue we generate from Sulanda, an unpartnered drug, is
primarily comprised of revenue from sales of Sulanda to distributors. The revenue we generate from Orpathys is primarily comprised
of revenue from the sales of Orpathys to AstraZeneca as well as royalty revenue. Additionally, Oncology/Immunology revenue includes
revenue from licensing, co-development and commercialization agreements for upfront, milestone and research and development
services payments for our drug candidates developed in collaboration with AstraZeneca and Eli Lilly.
The following table sets forth the components of revenues of our Other Ventures by product type for the years indicated.
Revenues—Other Ventures
Prescription drug products
Consumer health products
Services
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
204,091
32,427
—
236,518
86.3
13.7
—
100.0
165,072
32,689
—
197,761
83.5
16.5
—
100.0
141,124
34,390
2,584
178,098
79.2
19.3
1.5
100.0
175
Revenue from our Other Ventures primarily comprises revenue from prescription drugs including the commercial services, logistics
and distribution business of our consolidated Hutchison Sinopharm joint venture with Sinopharm, a leading distributor of pharmaceutical
and healthcare products and a leading supply chain service provider in China.
Revenue from our Other Ventures also comprises revenue from sales of organic and natural products by Hutchison Hain Organic,
Zhi Ling Tong infant nutrition and other health supplement products manufactured by Hutchison Healthcare and distributed through
Hutchison Sinopharm, and certain third-party consumer products distributed and marketed by HUTCHMED Science Nutrition.
The revenue of our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, the accounts of which are prepared in
accordance with IFRS as issued by the IASB and whose revenue is not included in our consolidated revenue, was $272.1 million, $276.4
million and $332.6 million for the years ended December 31, 2019, 2020 and 2021, respectively. Shanghai Hutchison Pharmaceuticals
is a joint venture with Shanghai Pharmaceuticals, a leading pharmaceuticals company in China, and primarily focuses on the manufacture
and sale of prescription pharmaceutical products in China. We and Shanghai Pharmaceuticals each own 50% of this joint venture. We
have the right to nominate the general manager and other management of this joint venture and run its day-to-day operations. The effect
of Shanghai Hutchison Pharmaceuticals on our consolidated financial results is discussed below under “—Equity in Earnings of Equity
Investees.”
The revenue of our former non-consolidated joint venture, Hutchison Baiyunshan, the accounts of which are prepared in accordance
with IFRS as issued by the IASB and whose financial results up to September 28, 2021 are reflected in our consolidated financial
statements, was $215.4 million, $232.4 million and $209.5 million for the years ended December 31, 2019 and 2020 and the period
ended September 28, 2021, respectively. Hutchison Baiyunshan was a joint venture with Guangzhou Baiyunshan, a leading China-based
pharmaceutical company. We sold our interest in this joint venture on September 28, 2021 and recognized a gain on divestment
attributable to our Group, net of taxes, of $82.9 million from this transaction. The effect of Hutchison Baiyunshan on our consolidated
financial results is discussed under “—Equity in Earnings of Equity Investees.”
Cost of Revenues and Operating Expenses
Cost of Revenues
Our cost of revenues is primarily attributable to the cost of revenues of Hutchison Sinopharm and HUTCHMED Limited. Our cost
of revenues to related parties is attributable to sales to indirect subsidiaries of CK Hutchison. The following table sets forth the
components of our cost of revenues attributable to third parties and related parties for the years indicated.
Cost of Revenues
Costs of goods—third parties
Costs of goods—related parties
Costs of services—third parties
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
229,448
3,114
25,672
258,234
88.9
1.2
9.9
100.0
178,828
3,671
6,020
188,519
94.9
1.9
3.2
100.0
152,729
5,494
1,929
160,152
95.4
3.4
1.2
100.0
The following table sets forth the components of cost of revenues of our Other Ventures by product type for the years indicated.
Cost of Revenues—Other Ventures
Prescription drug products
Consumer health products
Services
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
196,375
17,053
—
213,428
92.0
8.0
—
100.0
158,910
17,500
—
176,410
90.1
9.9
—
100.0
133,896
19,447
1,929
155,272
86.2
12.5
1.3
100.0
176
Research and Development Expenses
Our research and development expenses are attributable to our Oncology/Immunology operations. These costs primarily comprise
the cost of research and development for our drug candidates, including clinical trial related costs such as payments to third-party CROs,
personnel compensation and related costs, and other research and development expenses. The following table sets forth the components
of our research and development expenses and the clinical trial related costs incurred for the development of our main drug candidates
for the years indicated.
R&D Expenses
Oncology/Immunology:
Savolitinib (targeting MET)
Fruquintinib (targeting VEGFR1/2/3)
Surufatinib (targeting VEGFR/FGFR1/CSF-1R)
Sovleplenib (targeting Syk)
Amdizalisib (targeting PI3Kδ)
HMPL-453 (targeting FGFR)
HMPL-306 (targeting IDH 1/2)
HMPL-295 (targeting ERK)
HMPL-760 (targeting BTK)
HMPL-653 (targeting CSF-1R)
Tazemetostat (targeting EZH2)
Epitinib (targeting EGFRm+ with brain metastasis)
Theliatinib (targeting EGFR wild-type)
Others and government grant
Total clinical trial related costs
Personnel compensation and related costs
Other research and development costs
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
26,152
57,707
47,971
8,602
21,044
1,708
10,073
692
5,288
132
12,139
—
—
(1,457)
190,051
91,639
17,396
299,086
8.7
19.3
16.0
2.9
7.0
0.6
3.4
0.2
1.8
—
4.1
—
—
(0.4)
63.6
30.6
5.8
100.0
5,341
28,254
32,106
7,422
7,383
1,356
5,389
—
—
—
—
808
(74)
17,884
105,869
63,542
5,365
174,776
3.1
16.2
18.4
4.2
4.2
0.8
3.1
—
—
—
—
0.5
—
10.1
60.6
36.3
3.1
100.0
14,630
19,488
23,809
18,338
5,938
1,948
—
—
—
—
—
(1,841)
138
5,329
87,777
46,246
4,167
138,190
10.6
14.1
17.2
13.3
4.3
1.4
—
—
—
—
—
(1.3)
0.1
3.8
63.5
33.5
3.0
100.0
The following table summarizes our research and development expenses by location for the years indicated.
PRC
U.S. and others
Total
2021
Year Ended December 31,
2020
2019
$’000
159,038
140,048
299,086
%
53.2
46.8
100.0
$’000
111,473
63,303
174,776
%
63.8
36.2
100.0
$’000
116,479
21,711
138,190
%
84.3
15.7
100.0
We cannot determine with certainty the duration and completion costs of the current or future pre-clinical or clinical studies of our
drug candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our drug
candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our drug candidates
currently under development. The duration, costs, and timing of clinical studies and development of our drug candidates will depend on
a variety of factors, including:
the scope, rate of progress and expense of our ongoing as well as any additional clinical studies and other research and
development activities;
future clinical study results;
uncertainties in clinical study enrollment rate;
177
significant and changing government regulation; and
the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant
change in the costs and timing associated with the development of that drug candidate.
For more information on the risks associated with the development of our drug candidates, see Item 3.D. “Risk Factors—Risks
Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—All of our drug candidates, other than
fruquintinib, surufatinib and savolitinib for approved indications in China, are still in development. If we are unable to obtain regulatory
approval and ultimately commercialize our drug candidates, or if we experience significant delays in doing so, our business will be
materially harmed.”
Selling Expenses
The following table sets forth the components of our selling expenses for the years indicated.
Selling Expenses
Oncology/Immunology
Other Ventures
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
24,627
13,200
37,827
65.1
34.9
100.0
237
11,097
11,334
2.1
97.9
100.0
—
13,724
13,724
—
100.0
100.0
Our selling expenses primarily comprise selling expenses incurred by our Oncology/Immunology operations by HUTCHMED
Limited for sales and marketing expenses and related personnel expenses for our unpartnered drug Sulanda and sales of Elunate to third
parties other than Eli Lilly. It also includes sales and marketing expenses and related personnel expenses incurred by our Other Ventures
in their distribution and marketing of pharmaceutical and consumer health products.
Administrative Expenses
The following table sets forth the components of our administrative expenses for the years indicated.
Administrative expenses are also incurred by our corporate head office, which are not allocated to either Oncology/Immunology or
Other Ventures.
Administrative Expenses
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
48,359
7,712
33,227
89,298
54.2
8.6
37.2
100.0
19,144
6,129
24,742
50,015
38.3
12.3
49.4
100.0
12,189
5,292
21,729
39,210
31.1
13.5
55.4
100.0
Oncology/Immunology’s administrative expenses are comprised of the salaries and benefits of administrative staff, office leases
and other overhead expenses incurred by HUTCHMED Limited. It also includes the preparation costs incurred for the potential launch
in the United States of products marketed elsewhere and others.
Our Other Ventures’ administrative expenses primarily comprise the salaries and benefits of administrative staff, office leases and
other overhead expenses incurred by Hutchison Sinopharm, Hutchison Hain Organic and Hutchison Healthcare.
Our corporate head office administrative expenses primarily comprise the salaries and benefits of our corporate head office
employees and directors, office leases and other overhead expenses.
178
Equity in Earnings of Equity Investees
We have historically derived a significant portion of our net income from our equity in earnings of equity investees, which was
primarily attributable to our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals and former non-consolidated joint
venture, Hutchison Baiyunshan. Our equity in earnings of equity investees, net of tax, contributed by Shanghai Hutchison
Pharmaceuticals was $30.7 million, $33.5 million and $44.7 million for the years ended December 31, 2019, 2020 and 2021 respectively.
Our equity in earnings of equity investees, net of tax, contributed by Hutchison Baiyunshan was $9.9 million, $45.6 million and $15.9
million for the years ended December 31, 2019 and 2020 and 2021 (reflecting the period from January 1, 2021 to September 28, 2021),
respectively. Equity in earnings of Hutchison Baiyunshan for year ended December 31, 2020 included a one-time gain of $36.0 million
from land compensation for a return of land-use rights to the Guangzhou government and for the period ended September 28, 2021
included a one-time gain of $7.0 million for additional land compensation.
The following table shows the revenue of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan for the periods indicated.
The consolidated financial statements of these joint ventures are prepared in accordance with IFRS as issued by the IASB and are
presented separately elsewhere in this annual report.
Revenue
Other Ventures:
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan (1)
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
332,648
209,528
542,176
61.4
38.6
100.0
276,354
232,368
508,722
54.3
45.7
100.0
272,082
215,403
487,485
55.8
44.2
100.0
(1) On September 28, 2021, we completed the disposal of our equity interest in Hutchison Baiyunshan. Revenue in 2021 reflects the
period from January 1, 2021 to September 28, 2021.
The following table shows the amount of equity in earnings of equity investees, net of tax, of our non-consolidated joint ventures
for the years indicated.
Equity in earnings of equity investees, net of tax
Other Ventures:
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan(1)
Oncology/Immunology:
Others
Total
2021
Year Ended December 31,
2020
2019
$’000
%
$’000
%
$’000
%
44,678
15,919
20
60,617
73.7
26.3
33,502
45,641
42.4
57.7
30,654
9,899
—
100.0
(97)
79,046
(0.1)
100.0
147
40,700
75.3
24.3
0.4
100.0
(1) The amount for the year ended December 31, 2020 and for the period ended September 28, 2021 includes a one-time gain of $36.0
million and $7.0 million, respectively, from land compensation for a return of land use rights to the Guangzhou government. On
September 28, 2021, we completed the divestment of our shareholding interest in Hutchison Baiyunshan. Equity in earnings of
Hutchison Baiyunshan reflects the period from January 1, 2021 to September 28, 2021.
Investments in equity investees mainly consisted of our investment in Shanghai Hutchison Pharmaceuticals and historically, our
investment in Hutchison Baiyunshan. The fluctuations in the investments in equity investees was primarily due to recording our equity
in earnings of equity investees, net of tax, offset by dividends declared by the equity investees.
179
The following table shows our investments in our equity investees as of the dates indicated.
Shanghai Hutchison Pharmaceuticals
Hutchison Baiyunshan
Others
Total
As of December 31,
2021
2020
$’000
75,999
—
480
76,479
79,408
59,712
385
139,505
The following table shows the financial position of Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan as of the dates
indicated.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interests
Shanghai Hutchison
Pharmaceuticals
Hutchison Baiyunshan
2021
190,260
91,605
(128,993)
(7,131)
145,741
—
145,741
As of December 31,
2021(1)
$’000
2020
2020
175,965
93,361
(109,873)
(6,739)
152,714
—
152,714
— 177,888
—
95,731
— (137,179)
—
(16,034)
— 120,406
—
(982)
— 119,424
(1) On September 28, 2021, we completed the disposal of our shareholding interest in Hutchison Baiyunshan.
Results of Operations
The following table sets forth a summary of our consolidated results of operations for the years indicated, both in absolute amounts
and as percentages of our revenues. This information should be read together with our consolidated financial statements and related
notes included elsewhere in this annual report. Our operating results in any period are not necessarily indicative of the results that may
be expected for any future period.
2021
Year Ended December 31,
2020
2019
%
%
$’000
356,128
(258,234)
(299,086)
(37,827)
(89,298)
121,310
(8,733)
(11,918)
60,617
(167,041)
(194,648)
100.0
(72.5)
(84.0)
(10.6)
(25.1)
34.1
(2.5)
(3.3)
17.0
(46.9)
(54.7)
$’000
%
227,976 100.0
(188,519) (82.7)
(174,776) (76.7)
(11,334)
(5.0)
(21.9)
(50,015)
—
—
3.0
6,934
(2.1)
(4,829)
34.7
79,046
(115,517) (50.7)
(125,730) (55.2)
$’000
204,890
(160,152)
(138,190)
(13,724)
(39,210)
—
5,281
(3,274)
40,700
(103,679)
(106,024)
100.0
(78.2)
(67.4)
(6.7)
(19.1)
—
2.6
(1.6)
19.9
(50.6)
(51.7)
Revenues
Cost of revenues
Research and development expenses
Selling expenses
Administrative expenses
Gain on divestment of an equity investee
Other income/(expense)
Income tax expense
Equity in earnings of equity investees, net of tax
Net loss
Net loss attributable to our company
180
Cayman Islands
Taxation
HUTCHMED (China) Limited is incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on profits,
income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject to
withholding tax in the Cayman Islands. For more information, see Item 10.E. “Taxation—Overview of Tax Implications of Various
Other Jurisdictions—Cayman Islands Taxation.”
People’s Republic of China
Our subsidiaries and a joint venture incorporated in the PRC are governed by the EIT Law and regulations. Under the EIT Law, the
standard EIT rate is 25% on taxable profits as reduced by available tax losses. Tax losses may be carried forward to offset any taxable
profits for the following five years (extended to ten years for those with HNTE status, with effective from January 1, 2018).
HUTCHMED Limited and our non-consolidated joint venture, Shanghai Hutchison Pharmaceuticals, have been successful in their
respective applications to renew their HNTE status for three years from January 1, 2020 to December 31, 2022. Accordingly, these
entities are eligible to a preferential EIT rate of 15% for the years ended/ending December 31, 2020, 2021 and 2022. HUTCHMED
(Suzhou) Limited, a wholly owned subsidiary of HUTCHMED Limited, successful renewed its HNTE status for another three years
from January 1, 2021 to December 31, 2023. Accordingly, it is eligible for a preferential EIT rate of 15% for the years ended December
31, 2021, 2022 and 2023.
For more information, see Item 10.E. “Taxation—Taxation in the PRC.” Please also see Item. 3 “Key Information—Risk Factors—
Other Risks and Risks Relating to Doing Business in China—Our business benefits from certain PRC government tax incentives. The
expiration of, changes to, or our PRC subsidiaries/joint venture failing to continuously meet the criteria for these incentives could have
a material adverse effect on our operating results by significantly increasing our tax expenses.”
According to the EIT Law and its implementation regulations, dividends declared after January 1, 2008 and paid by PRC foreign-
invested enterprises to their non-PRC parent companies will be subject to PRC withholding tax at 10% unless there is a tax treaty
between the PRC and the jurisdiction in which the overseas parent company is a tax resident and which specifically exempts or reduces
such withholding tax, and such tax exemption or reduction is approved by the relevant PRC tax authorities. Pursuant to the tax
arrangement between PRC and Hong Kong, if a shareholder of the PRC enterprise is a Hong Kong tax resident and directly holds a 25%
or more equity interest in the PRC enterprise and is considered to be the beneficial owner of dividends paid by the PRC enterprise, such
withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax authorities. For more information, see Item
10.E. “Taxation—Taxation in the PRC” and “Taxation—Overview of Tax Implications of Various Other Jurisdictions— Hong Kong
Taxation.”
Hong Kong
Our company and certain of its subsidiaries are subject to Hong Kong Profits Tax laws and regulations. Hong Kong has a two-tiered
Profits Tax rates regime under which the first HK$2.0 million ($0.3 million) of assessable profits of qualifying corporations will be
taxed at 8.25%, with the remaining assessable profits taxed at 16.5%. Hong Kong Profits Tax has been provided for at the relevant rates
on the estimated assessable profits less estimated available tax losses, if any, of these entities as applicable.
Period-to-Period Comparison of Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues
Our revenue increased by 56.2% from $228.0 million for the year ended December 31, 2020 to $356.1 million for the year ended
December 31, 2021, which resulted from increased revenue in both the Oncology/Immunology and Other Ventures operations.
181
Revenue from Oncology/Immunology increased by 295.9% from $30.2 million for the year ended December 31, 2020 to $119.6
million for the year ended December 31, 2021, primarily due to an increase in revenue related to the sales of Elunate from $20.0 million
for the year ended December 31, 2020 (of which $11.3 million was revenue from sales of goods primarily to Eli Lilly, $4.9 million was
royalty revenue, and $3.8 million was revenue from promotion and marketing services to Eli Lilly which commenced in October 2020)
to $53.5 million for the year ended December 31, 2021 (of which $15.8 million was revenue from sales of goods primarily to Eli Lilly,
$10.3 million was royalty revenue and $27.4 million was revenue from promotion and marketing services to Eli Lilly). The increase
was also attributable to revenue generated from the commercial launch of Sulanda of $11.6 million and Orpathys of $11.3 million (of
which $6.5 million was revenue from sales of goods and $4.8 million was royalty revenue) in January 2021 and July 2021, respectively.
In addition, revenue related to collaboration research and development services increased from $9.8 million for the year ended December
31, 2020 to $42.7 million for the year ended December 31, 2021, primarily attributable to the receipt of a $25.0 million milestone
payment from AstraZeneca upon the commercial launch of Orpathys.
Revenue from our Other Ventures increased by 19.6% from $197.8 million for the year ended December 31, 2020 to $236.5 million
for the year ended December 31, 2021, primarily due to an increase in sales of prescription drug products. Revenue from sales of
prescription drugs increased by 23.6% from $165.1 million for the year ended December 31, 2020 to $204.1 million for the year ended
December 31, 2021 primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. Revenue from the sales of
our consumer health products remained relatively stable at $32.7 million and $32.4 million for the years ended December 31, 2020 and
2021, respectively.
Cost of Revenues
Our cost of revenues increased by 37.0% from $188.5 million for the year ended December 31, 2020 to $258.2 million for the year
ended December 31, 2021. This increase was primarily due to increased sales by both the Oncology/Immunology and Other Ventures
operations.
Cost of revenues from Oncology/Immunology increased by 270.0% from $12.1 million for the year ended December 31, 2020 to
$44.8 million for the year ended December 31, 2021, primarily due to an increase in sales of Elunate, including the provision of
promotion and marketing services to Eli Lilly which commenced in October 2020, and the commencement of sales of Sulanda which
launched in January 2021 and Orpathys which launched in July 2021.
Cost of revenues from our Other Ventures increased by 21.0% from $176.4 million for the year ended December 31, 2020 to $213.4
million for the year ended December 31, 2021, which was primarily due to increased sales.
Cost of revenues as a percentage of our revenues decreased from 82.7% to 72.5% across these periods primarily due to the increase
in revenue from Oncology/Immunology which has higher margins than Other Ventures.
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology increased by 71.1% from $174.8 million for the year
ended December 31, 2020 to $299.1 million for the year ended December 31, 2021, which was primarily due to an $84.2 million increase
in CROs and other clinical trial related costs and a $40.1 million increase in employee compensation related and other costs. These
increased costs were due to a significant expansion of clinical activities in the United States and rapid organizational growth to support
such expansion. In particular, this increase was attributable to the expansion of the fruquintinib, savolitinib, surufatinib, amdizalisib,
HMPL-306, HMPL-760 development programs and a $10.0 million payment in connection with our in-licensing agreement for
tazemetostat. As a result, research and development expenses as a percentage of our revenue increased from 76.7% to 84.0% across
these periods.
Selling Expenses
Our selling expenses increased by 233.7% from $11.3 million for the year ended December 31, 2020 to $37.8 million for the year
ended December 31, 2021, primarily attributable to the commencement of marketing activities following the commercial launch of
Sulanda in January 2021. Selling expenses as a percentage of our revenues increased from 5.0% to 10.6% across these periods.
182
Administrative Expenses
Our administrative expenses increased by 78.5% from $50.0 million for the year ended December 31, 2020 to $89.3 million for the
year ended December 31, 2021. This was primarily due to a $29.2 million increase in administrative expenses incurred by
Oncology/Immunology, which was mainly related to increased staff cost to support the expansion of our clinical activities. This increase
was also attributable to preparation costs for the potential launch of marketed products in the United States and other countries.
Administrative expenses as a percentage of our revenues increased from 21.9% to 25.1% across these periods.
Gain on Divestment of An Equity Investee
We had a gain on divestment of an equity investee of $121.3 million for the year ended December 31, 2021, before applicable
capital gain taxes and amounts attributable to non-controlling interests, which is related to the disposal of our shareholding interest in
Hutchison Baiyunshan.
Other Income/(Expense)
We had net other income of $6.9 million for the year ended December 31, 2020 compared to net other expense of $8.7 million for
the year ended December 31, 2021. The change was primarily due to a $12.5 million fair value loss recorded on a warrant to purchase
shares of Epizyme in 2021, a decrease in interest income of $1.2 million due to lower bank deposit rates, and a decrease in foreign
currency exchange gains of $1.6 million.
Income Tax Expense
Our income tax expense increased from $4.8 million for the year ended December 31, 2020 to $11.9 million for the year ended
December 31, 2021, primarily due to the capital gains taxes related to the disposal of our shareholding interest in Hutchison Baiyunshan.
Equity in Earnings of Equity Investees
Our equity in earnings of equity investees, net of tax, decreased by 23.3% from $79.0 million for the year ended December 31, 2020
to $60.6 million for the year ended December 31, 2021. This change was primarily due to the disposal of our shareholding interest in
Hutchison Baiyunshan in September 2021.
Shanghai Hutchison Pharmaceuticals
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated.
The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the
IASB and are presented separately elsewhere in this annual report.
Year Ended December 31,
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Equity in earnings of equity investee attributable to our company
2021
%
2020
%
($’000)
332,648
(77,559)
(131,821)
(22,627)
4,759
(15,896)
89,388
44,678
100.0
(23.3)
(39.6)
(6.8)
1.4
(4.8)
26.9
13.4
($’000)
276,354
(72,163)
(111,892)
(17,907)
3,473
(10,833)
67,020
33,502
100.0
(26.1)
(40.5)
(6.5)
1.3
(3.9)
24.3
12.1
Shanghai Hutchison Pharmaceuticals’ revenue increased by 20.4% from $276.4 million for the year ended December 31, 2020 to
$332.6 million for the year ended December 31, 2021, primarily due to an increase in sales of She Xiang Bao Xin pills, a vasodilator
used in the treatment of heart conditions. Sales of She Xiang Bao Xin pills increased by 22.8% from $250.0 million for the year ended
December 31, 2020 to $ 307.1 million for the year ended December 31, 2021.
183
Cost of sales increased by 7.5% from $72.2 million for the year ended December 31, 2020 to $77.6 million for the year December
31, 2021, primarily due to higher sales of She Xiang Bao Xin pills. Shanghai Hutchison Pharmaceuticals’ revenue increased at a higher
rate than cost of sales due to an increased proportion of sales of higher margin She Xiang Bao Xin pills.
Selling expenses increased by 17.8% from $111.9 million for the year ended December 31, 2020 to $131.8 million for the year
ended December 31, 2021, as a result of increased spending on marketing and promotional activities to support the increase in sales.
Administrative expenses increased by 26.4% from $17.9 million for the year ended December 31, 2020 to $22.6 million for the
year ended December 31, 2021, primarily due to an increase in research and development expenses for new products.
Other net operating income increased by 37.0% from $3.5 million for the year ended December 31, 2020 to $4.8 million for the
year ended December 31, 2021, primarily due to an increase in government grants and interest income.
Taxation charge increased by 46.7% from $10.8 million for the year ended December 31, 2020 to $15.9 million for the year ended
December 31, 2021, primarily due to an increase in taxable profit.
As a result of the foregoing, profit increased by 33.4% from $67.0 million for the year ended December 31, 2020 to $89.4 million
for the year ended December 31, 2021. Our equity in earnings of equity investees contributed by this joint venture was $33.5 million
and $44.7 million for the years ended December 31, 2020 and 2021, respectively.
Hutchison Baiyunshan
The following table shows a summary of the results of operations of Hutchison Baiyunshan for the periods indicated. The
consolidated financial statements of Hutchison Baiyunshan are prepared in accordance with IFRS as issued by the IASB and are
presented separately elsewhere in this annual report.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Gain on return of land
Other net operating income
Taxation charge
Profit attributable to equity holders of Hutchison Baiyunshan
Equity in earnings of equity investee attributable to our company
Period Ended
September 28, 2021
%
100.0
(47.0)
(35.5)
(10.3)
7.8
2.5
(2.3)
15.2
7.6
($’000)
209,528
(98,462)
(74,425)
(21,659)
16,433
5,306
(4,840)
31,850
15,919
Year Ended
December 31, 2020
%
100.0
(49.7)
(31.9)
(11.0)
36.4
2.6
(7.1)
39.3
19.6
($’000)
232,368
(115,564)
(74,066)
(25,664)
84,667
6,071
(16,494)
91,276
45,641
Fluctuations in revenue, cost of sales, administrative expenses and other net operating income between the periods presented is
primarily due to the disposal of Hutchison Baiyunshan on September 28, 2021.
Selling expenses as a percentage of revenue increased by 3.6% from 31.9% for the year ended December 31, 2020 to 35.5% for the
period ended September 28, 2021, primarily due to an increase in advertising expenses for brand building activities.
Gain on return of land was related to a one-time gain from land compensation for a return of land use rights to the Guangzhou
government, and the majority of the compensation amount was received and recognized in 2020.
Taxation charge decreased by 70.7% from $16.5 million for the year ended December 31, 2020 to $4.8 million for the period ended
September 28, 2021, primarily due to a decrease in gain on return of land between these periods.
As a result of the foregoing, profit attributable to equity holders of Hutchison Baiyunshan decreased by 65.1% from $91.3 million
for the year ended December 31, 2020 to $31.9 million for the period ended September 28, 2021. Our equity in earnings of equity
investees contributed by this joint venture was $45.6 million and $15.9 million for the year ended December 31, 2020 and the period
ended September 28, 2021, respectively.
184
For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of
Operations— Equity in Earnings of Equity Investees.”
Net Loss
As a result of the foregoing, our net loss increased from $115.5 million for the year ended December 31, 2020 to $167.0 million for
the year ended December 31, 2021. Net loss attributable to our company increased from $125.7 million for the year ended December
31, 2020 to $194.6 million for the year ended December 31, 2021.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenues
Our revenue increased by 11.3% from $204.9 million for the year ended December 31, 2019 to $228.0 million for the year ended
December 31, 2020, which was caused by increased revenue from both Oncology/Immunology and Other Ventures operations.
Revenue from Oncology/Immunology increased by 12.8% from $26.8 million for the year ended December 31, 2019 to $30.2
million for the year ended December 31, 2020, primarily due to an increase in revenue related to the sale of Elunate from $10.8 million
for the year ended December 31, 2019 (of which $2.7 million was royalty revenue and $8.1 million was revenue from sales to Eli Lilly)
to $20.0 million for the year ended December 31, 2020 (of which $4.9 million was royalty revenue, $11.3 million was revenue from
sales of goods primarily to Eli Lilly and $3.8 million was revenue from promotion and marketing services to Eli Lilly which commenced
in October 2020) as a result of the inclusion of Elunate in the 2020 China NRDL. Elunate was included on China’s NRDL at an
approximately 60% discount to its initial retail price. The inclusion of Elunate resulted in a substantial improvement in sales volume
due to the availability of third-party reimbursements. This increase was offset in part by a decrease in revenue related to collaboration
research and development services from $15.5 million for the year ended December 31, 2019 to $9.8 million for the year ended
December 31, 2020 as there was less clinical activity subject to reimbursement from our collaboration partners.
Revenue from our Other Ventures increased by 11.0% from $178.1 million for the year ended December 31, 2019 to $197.8 million
for the year ended December 31, 2020, primarily due to an increase in sales of prescription drug products. Revenue from sales of
prescription drugs increased by 17.0% from $141.1 million for the year ended December 31, 2019 to $165.1 million for the year ended
December 31, 2020 primarily due to increased sales by our consolidated joint venture Hutchison Sinopharm. The increase was offset in
part by lower provision of services which decreased from $2.6 million for the year ended December 31, 2019 to nil for the year ended
December 31, 2020 after the discontinuation of our distribution of Seroquel in May 2019. This increase was also offset in part by a
decrease in sales of consumer health products which decreased by 4.9% from $34.4 million for the year ended December 31, 2019 to
$32.7 million for the year ended December 31, 2020. This decrease was primarily attributable to decreased sales of infant nutrition
products.
Our Other Ventures’ results of operations are affected by seasonality. For more information, see “—Factors Affecting our Results
of Operations—Other Ventures—Seasonality.”
Cost of Revenues
Our cost of revenues increased by 17.7% from $160.2 million for the year ended December 31, 2019 to $188.5 million for the year
ended December 31, 2020. This increase was primarily due to increased sales by our Other Ventures. Our cost of revenues increased at
a higher rate than revenue due to an increased proportion of sales of lower margin products by Hutchison Sinopharm. As a result, cost
of revenues as a percentage of our revenues increased from 78.2% to 82.7% across these periods.
185
Research and Development Expenses
Our research and development expenses incurred by Oncology/Immunology increased by 26.5% from $138.2 million for the year
ended December 31, 2019 to $174.8 million for the year ended December 31, 2020, which was primarily attributable to a $18.1 million
increase in payments to CROs and other clinical trial related costs and a $18.5 million increase in employee compensation related and
other costs. These increased costs were due to a significant expansion of clinical activities in the United States and rapid organizational
growth to support such expansion. In particular, this increase was attributable to the expansion of the fruquintinib, surufatinib, HMPL-
306 and amdizalisib development programs. As a result, research and development expenses as a percentage of our revenue increased
from 67.4% to 76.7% across these periods.
Selling Expenses
Our selling expenses decreased by 17.4% from $13.7 million for the year ended December 31, 2019 to $11.3 million for the year
ended December 31, 2020, primarily due to decreased marketing activities after the COVID-19 outbreak. Selling expenses as a
percentage of our revenues from our Other Ventures decreased from 7.7% to 5.6% across these periods.
Administrative Expenses
Our administrative expenses increased by 27.6% from $39.2 million for the year ended December 31, 2019 to $50.0 million for the
year ended December 31, 2020. This was primarily due to $7.0 million increase in administrative expenses incurred by
Oncology/Immunology, which was mainly related to increased staff cost to support the expansion of our clinical activities. There was
also an increase of $3.0 million in administrative expenses incurred by our corporate head office for organizational expansion.
Administrative expenses as a percentage of our revenues increased from 19.1% to 21.9% across these periods.
Other Income/(Expense)
We had net other income of $5.3 million for the year ended December 31, 2019, compared to net other income of $6.9 million for
the year ended December 31, 2020. The increase was primarily due to foreign currency exchange gains of $3.0 million, offset in part
by a decline in interest income of $1.7 million due to lower bank deposit rates.
Income Tax Expense
Our income tax expense increased from $3.3 million for the year ended December 31, 2019 to $4.8 million for the year ended
December 31, 2020 primarily due to the accrual of withholding tax on the undistributed earnings in relation to the gain on return of land
by Hutchison Baiyunshan.
Equity in Earnings of Equity Investees
Our equity in earnings of equity investees, net of tax, increased by 94.2% from $40.7 million for the year ended December 31, 2019
to $79.0 million for the year ended December 31, 2020. This change was primarily due to the one-time gain on return of land recorded
by our former non-consolidated joint venture, Hutchison Baiyunshan, of which our attributable portion recorded to equity in earnings
of equity investees, net of tax, was $36.0 million for the year ended December 31, 2020.
186
Shanghai Hutchison Pharmaceuticals
The following table shows a summary of the results of operations of Shanghai Hutchison Pharmaceuticals for the years indicated.
The consolidated financial statements of Shanghai Hutchison Pharmaceuticals are prepared in accordance with IFRS as issued by the
IASB and are presented separately elsewhere in this annual report.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Other net operating income
Taxation charge
Profit for the year
Equity in earnings of equity investee attributable to our company
Year Ended December 31,
2020
2019
($’000)
276,354
(72,163)
(111,892)
(17,907)
3,473
(10,833)
67,020
33,502
%
100.0
(26.1)
(40.5)
(6.5)
1.3
(3.9)
24.3
12.1
($’000)
272,082
(77,313)
(110,591)
(14,761)
2,941
(11,015)
61,301
30,654
%
100.0
(28.4)
(40.6)
(5.4)
1.1
(4.0)
22.5
11.3
Shanghai Hutchison Pharmaceuticals’ revenue increased by 1.6% from $272.1 million for the year ended December 31, 2019 to
$276.4 million for the year ended December 31, 2020, primarily due to an increase in sales of She Xiang Bao Xin pills, a vasodilator
used in the treatment of heart conditions. Sales of She Xiang Bao Xin pills increased by 4.4% from $239.5 million for the year ended
December 31, 2019 to $250.0 million for the year ended December 31, 2020. Additionally, revenue from Shanghai Hutchison
Pharmaceuticals’ distribution business decreased from $11.1 million for the year ended December 31, 2019 to $5.4 million for the year
ended December 31, 2020, primarily due to lower provision of services after the discontinuation of our distribution of Seroquel.
Cost of sales decreased by 6.7% from $77.3 million for the year ended December 31, 2019 to $72.2 million for the year ended
December 31, 2020, primarily due to the discontinuation of our distribution of Seroquel. Additionally, Shanghai Hutchison
Pharmaceuticals’ revenue increased at a higher rate than cost of sales due to an increased proportion of sales of higher margin She Xiang
Bao Xin pills.
Selling expenses increased by 1.2% from $110.6 million for the year ended December 31, 2019 to $111.9 million for the year ended
December 31, 2020, in line with the increase in revenues.
Administrative expenses increased by 21.3% from $14.8 million for the year ended December 31, 2019 to $17.9 million for the
year ended December 31, 2020, primarily due to an increase in research and development expenses for new products.
Other net operating income is primarily comprised of government grants and interest income. Other net operating income increased
by 18.1% from $2.9 million for the year ended December 31, 2019 to $3.5 million for the year ended December 31, 2020, primarily due
to higher interest income of $0.4 million.
Taxation charge decreased by 1.7% from $11.0 million for the year ended December 31, 2019 to $10.8 million for the year ended
December 31, 2020, primarily due to more tax concessions received in the year ended December 31, 2020.
As a result of the foregoing, profit increased by 9.3% from $61.3 million for the year ended December 31, 2019 to $67.0 million
for the year ended December 31, 2020. Our equity in earnings of equity investees contributed by this joint venture was $30.7 million
and $33.5 million for the years ended December 31, 2019 and 2020, respectively.
187
Hutchison Baiyunshan
The following table shows a summary of the results of operations of our former non-consolidated joint venture, Hutchison
Baiyunshan, for the years indicated. The consolidated financial statements of Hutchison Baiyunshan are prepared in accordance with
IFRS as issued by the IASB and are presented separately elsewhere in this annual report.
Revenue
Cost of sales
Selling expenses
Administrative expenses
Gain on return of land
Other net operating income
Taxation charge
Profit attributable to equity holders of Hutchison Baiyunshan
Equity in earnings of equity investee attributable to our company
Year Ended December 31,
2020
2019
($’000)
232,368
(115,564)
(74,066)
(25,664)
84,667
6,071
(16,494)
91,276
45,641
%
100.0
(49.7)
(31.9)
(11.0)
36.4
2.6
(7.1)
39.3
19.6
($’000)
215,403
(100,279)
(74,013)
(23,817)
—
5,626
(3,634)
19,792
9,899
%
100.0
(46.6)
(34.4)
(11.1)
—
2.6
(1.7)
9.2
4.6
Hutchison Baiyunshan’s revenue increased by 7.9% from $215.4 million for the year ended December 31, 2019 to $232.4 million
for the year ended December 31, 2020, primarily due to an increase in sales of Banlangen, an anti-viral product, after the COVID-19
outbreak.
Cost of sales increased by 15.2% from $100.3 million for the year ended December 31, 2019 to $115.6 million for the year ended
December 31, 2020, primarily due to an increase in raw material costs for Banlangen.
Selling expenses remained stable at $74.0 million and $74.1 million for the years ended December 31, 2019 and 2020, respectively.
Administrative expenses increased by 7.8% from $23.8 million for the year ended December 31, 2019 to $25.7 million for the year
ended December 31, 2020, primarily due to an increase in general overhead costs incurred.
Other net operating income is primarily comprised of government grants, interest income, brand-licensing income and rental
income. Other net operating income increased by 7.9% from $5.6 million for the year ended December 31, 2019 to $6.1 million for the
year ended December 31, 2020, primarily due to higher government grants of $0.3 million and higher brand-licensing income of $0.2
million.
Taxation charge increased by 354% from $3.6 million for the year ended December 31, 2019 to $16.5 million for the year ended
December 31, 2020, primarily due to a tax of $12.7 million on a one-time gain on return of land for the year ended December 31, 2020.
As a result of the foregoing and the one-time gain on return of land of $84.7 million related to land compensation received from the
Guangzhou government, profit attributable to equity holders of Hutchison Baiyunshan increased by 361% from $19.8 million for the
year ended December 31, 2019 to $91.3 million for the year ended December 31, 2020. Our equity in earnings of equity investees
contributed by this joint venture was $9.9 million and $45.6 million for the years ended December 31, 2019 and 2020, respectively.
For more information on the financial results of our non-consolidated joint ventures, see “—Key Components of Results of
Operations— Equity in Earnings of Equity Investees.”
Net Loss
As a result of the foregoing, our net loss increased from $103.7 million for the year ended December 31, 2019 to $115.5 million for
the year ended December 31, 2020. Net loss attributable to our company increased from $106.0 million for the year ended December
31, 2019 to $125.7 million for the year ended December 31, 2020.
188
B. Liquidity and Capital Resources
To date, we have taken a multi-source approach to fund our operations, including through cash flows generated and dividend
payments from our Oncology/Immunology and Other Ventures operations, service and milestone and upfront payments from our
collaboration partners, bank borrowings, investments from other third parties, proceeds from our listings on various stock exchanges
and follow-on offerings.
Our Oncology/Immunology operations have historically not generated significant profits or have operated at a net loss, as creating
potential global first-in-class or best-in-class drug candidates requires a significant investment of resources over a prolonged period of
time. As a result, we anticipate that we may need additional financing for our Oncology/Immunology operations in future periods. See
Item 3.D. “Risk Factors—Risks Relating to Our Oncology/Immunology Operations and Development of Our Drug Candidates—
Historically, our in house research and development division, which is included in our Oncology/Immunology operations, has not
generated significant profits or has operated at a net loss. Our future profitability is dependent on the successful commercialization of
our drug candidates.”
As of December 31, 2021, we had cash and cash equivalents of $377.5 million and short-term investments of $634.2 million and
unutilized bank facilities of $157.4 million. Substantially all of our bank deposits are at major financial institutions, which we believe
are of high credit quality. As of December 31, 2021, we had $26.9 million in bank loans, all of which was related to a term loan from
HSBC. The total weighted average cost of bank borrowings for the year ended December 31, 2021 was 1.08% per annum. For additional
information, see “—Loan Facilities.”
Certain of our subsidiaries and joint ventures, including those registered as wholly foreign-owned enterprises in China, are required
to set aside at least 10.0% of their after-tax profits to their general reserves until such reserves reach 50.0% of their registered capital. In
addition, certain of our joint ventures are required to allocate certain of their after-tax profits as determined in accordance with related
regulations and their respective articles of association to the reserve funds upon their board approval. Profit appropriated to the reserve
funds for our subsidiaries and joint ventures incorporated in the PRC was approximately $51,000, $44,000 and $89,000 for the years
ended December 31, 2019, 2020 and 2021, respectively.
In addition, as a result of PRC regulations restricting dividend distributions from such reserve funds and from a company’s registered
capital, our PRC subsidiaries are restricted in their ability to transfer a certain amount of their net assets to us as cash dividends, loans
or advances. This restricted portion amounted to $0.1 million as of December 31, 2021. Although we do not currently require any such
dividends, loans or advances from our PRC subsidiaries to fund our operations, should we require additional sources of liquidity in the
future, such restrictions may have a material adverse effect on our liquidity and capital resources. For more information, see Item 4.B.
“Business Overview—Regulation—PRC Regulation of Foreign Currency Exchange, Offshore Investment and State-Owned Assets—
Regulation on Investment in Foreign invested Enterprises—Regulation on Dividend Distribution.”
In addition, our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals held $50.0 million in cash and cash equivalents
and no bank borrowings as of December 31, 2021. Such cash and cash equivalents are only accessible by us through dividend payments
from the joint venture. The level of dividends declared by the joint venture is subject to agreement each year between us and our joint
venture partner based on the profitability and working capital needs of the joint venture. As a result, we cannot guarantee that the joint
venture will continue to pay dividends to us in the future at the same rate we have enjoyed in the past, or at all, which may have a
material adverse effect on our liquidity and capital resources. For more information, see Item 3.D. “Risk Factors—Risks Relating to
Sales of our Internally Developed Drugs and Other Drugs—As a significant portion of the operations of our Other Ventures is conducted
through joint venture, we are largely dependent on the success of our joint venture and our receipt of dividends or other payments from
our joint venture for cash to fund our operations and our investment in joint venture subject to liquidity risk.”
189
We believe that our current levels of cash and cash equivalents, short-term investments, along with cash flows from operations,
dividend payments and unutilized bank borrowings, will be sufficient to meet our anticipated cash needs for at least the next 12 months.
In the long term, we believe that we can meet our need for cash through revenues generated from marketed products, public and private
sales of our securities and the potential disposals of our remaining non-core businesses. However, we may require additional financing
in order to fund all of the clinical development efforts that we plan to undertake to accelerate the development of our clinical-stage drug
candidates. For more information, see Item 3.D. “Risk Factors—Risks Relating to Our Financial Position and Need for Capital.”
Cash Flow Data:
Net cash used in operating activities
Net cash (used in)/generated from investing activities
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Effect of exchange rate changes
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Net Cash used in Operating Activities
2021
Year Ended December 31,
2020
($’000)
2019
(204,223)
(306,320)
650,028
139,485
2,427
235,630
377,542
(62,066)
(125,441)
296,434
108,927
5,546
121,157
235,630
(80,912)
119,028
(1,493)
36,623
(1,502)
86,036
121,157
Net cash used in operating activities was $62.1 million for the year ended December 31, 2020, compared to net cash used in
operating activities of $204.2 million for the year ended December 31, 2021. The net change of $142.1 million was primarily attributable
to higher operating expenses of $259.8 million from $424.6 million for the year ended December 31, 2020 to $684.4 million for the year
ended December 31, 2021, offset in part by an increase in revenues of approximately $128.1 million from $228.0 million for the year
ended December 31, 2020 to $356.1 million for the year ended December 31, 2021.
Net cash used in operating activities was $80.9 million for the year ended December 31, 2019, compared to net cash used in
operating activities of $62.1 million for the year ended December 31, 2020. The net change of $18.8 million was primarily attributable
to an increase in dividends received from Shanghai Hutchison Pharmaceuticals and Hutchison Baiyunshan of $58.6 million from $28.1
million for the year ended December 31, 2019 to $86.7 million for the year ended December 31, 2020. The net change was partially
offset by higher net losses, primarily due to an increase in research and development expenses of $36.6 million from $138.2 million for
the year ended December 31, 2019 to $174.8 million for the year ended December 31, 2020.
Net Cash (used in)/generated from Investing Activities
Net cash used in investing activities was $125.4 million for the year ended December 31, 2020, compared to net cash used in
investing activities of $306.3 million for the year ended December 31, 2021. The net change of $180.9 million was primarily attributable
to an increase in net deposits in short-term investment of $331.1 million from $103.5 million for the year ended December 31, 2020 to
$434.6 million for the year ended December 31, 2021. The net change was also attributable to the payment of $15.0 million during the
year ended December 31, 2021 to acquire a warrant to purchase Epizyme shares. The net change was partially offset by the proceeds
received from the divestment of Hutchison Baiyunshan of $159.1 million during the year ended December 31, 2021.
Net cash generated from investing activities was $119.0 million for the year ended December 31, 2019, compared to net cash used
in investing activities of $125.4 million for the year ended December 31, 2020. The net change of $244.4 million was primarily
attributable to a net withdrawal of deposits in short-term investments of $118.9 million for the year ended December 31, 2019 compared
to a net deposit in short-term investments of $103.5 million for the year ended December 31, 2020. The net change was also attributable
to a purchase of leasehold land of $11.6 million in Shanghai.
190
Net Cash generated from/(used in) Financing Activities
Net cash generated from financing activities was $296.4 million for the year ended December 31, 2020, compared to net cash
generated from financing activities of $650.0 million for the year ended December 31, 2021. The net change of $353.6 million was
primarily attributable to the net proceeds of $685.4 million from a private placement in April 2021 and from our public offering on the
SEHK in June and exercise of the over-allotment option in July 2021, as compared to net proceeds of $310.0 million from our follow-
on offering in the United States and private placements in 2020. This net change was partially offset by an increase in purchases of
ADSs by the trustee of our LTIP for the settlement of certain equity awards which totaled $12.9 million for the year ended December
31, 2020 as compared to $27.3 million for the year ended December 31, 2021, as well as an increase in dividends paid to non-controlling
shareholders of subsidiaries which totaled $1.5 million for the year ended December 31, 2020 as compared to $9.9 million for the year
end December 31, 2021.
Net cash used in financing activities was $1.5 million for the year ended December 31, 2019, compared to net cash generated from
financing activities of $296.4 million for the year ended December 31, 2020. The net change of $297.9 million was primarily attributable
to net proceeds of $310.0 million from our follow-on offering in the United States in January and February 2020 and private placements
in July 2020 and November 2020.
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2021. For more information on bank borrowings and
interest on bank borrowings, please see “—Loan Facilities.” Our purchase obligations relate to property, plant and equipment that are
contracted for but not yet paid. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of various
factories, warehouse, offices and other assets under non-cancellable lease agreements. For more information on purchase obligations
and lease obligations, please see “—Capital Expenditures.”
Bank borrowings
Interest on bank borrowings
Purchase obligations
Lease obligations
Total
Shanghai Hutchison Pharmaceuticals
Payment Due by Period
Less Than
Total
1 Year 1‑2 Years 2‑5 Years
More Than
5 Years
26,923
104
44,204
12,818
84,049
26,923
104
42,519
5,348
74,894
($’000)
—
—
125
3,434
3,559
—
—
1,560
3,241
4,801
—
—
—
795
795
The following table sets forth the contractual obligations of our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals
as of December 31, 2021. Shanghai Hutchison Pharmaceuticals’ purchase obligations comprise capital commitments for property, plant
and equipment contracted for but not yet paid. Shanghai Hutchison Pharmaceuticals’ lease obligations primarily comprise future
aggregate minimum lease payments in respect of various offices under non-cancellable lease agreements.
Purchase obligations
Lease obligations
Total
Payment Due by Period
Less Than
1 Year
1‑2 Years 2‑5 Years
More Than
5 Years
155
859
1,014
($’000)
—
784
784
—
1,506
1,506
—
—
—
Total
155
3,149
3,304
191
Loan Facilities
In November 2018, our subsidiary HUTCHMED Group (HK) Limited (formerly Hutchison China MediTech (HK) Limited),
renewed a three-year revolving loan facility with HSBC. The facility amount of this loan was HK$234.0 million ($30.0 million) with
an interest rate at the Hong Kong Inter-bank Offered Rate, or HIBOR, plus 0.85% per annum. This credit facility was guaranteed by us
and included certain financial covenant requirements. The revolving loan facility expired in November 2021.
In May 2019, HUTCHMED Group (HK) Limited entered into additional credit facility arrangements with HSBC for the provision
of unsecured credit facilities in the aggregate amount of HK$400.0 million ($51.3 million). The 3-year credit facilities include (i) a
HK$210.0 million ($26.9 million) term loan facility and (ii) a HK$190.0 million ($24.4 million) revolving loan facility, both with an
interest rate at HIBOR plus 0.85% per annum. These credit facilities are guaranteed by us and include certain financial covenant
requirements. In October 2019, we drew down HK$210.0 million ($26.9 million) from the term loan facility and as of December 31,
2021, no amount was drawn from the revolving loan facility.
In August 2020, HUTCHMED Group (HK) Limited entered into a 24-month revolving credit facility with Deutsche Bank AG in
the amount of HK$117.0 million ($15.0 million) with an interest rate at HIBOR plus 4.5% per annum. This revolving facility is
guaranteed by us and includes certain financial covenant requirements. As of December 31, 2021, no amount was drawn from the
revolving loan facility.
In October 2021, our subsidiary HUTCHMED Limited entered into a 10-year fixed asset loan facility agreement with Bank of
China Limited for the provision of a secured credit facility of RMB754.9 million ($118.1 million) with an annual interest rate at the 5-
year China Loan Prime Rate less 0.65%. This credit facility is guaranteed by HUTCHMED Limited’s immediate holding company,
HUTCHMED Investment (HK) Limited (formerly Hutchison MediPharma (HK) Investment Limited), and secured by the underlying
leasehold land and buildings, and includes certain financial covenant requirements. As of December 31, 2021, no amount was drawn
from the fixed asset loan facility.
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had no bank borrowings outstanding as of December 31,
2021.
Gearing Ratio
The gearing ratio of our group, which was calculated by dividing total interest-bearing loans by total equity, was 2.6% as of
December 31, 2021, a decrease from 5.2% as of December 31, 2020. The decrease was primarily attributable to the increase in equity
due to our primary offering of shares on the SEHK.
Capital Expenditures
We had capital expenditures of $8.6 million, $19.6 million and $16.8 million for the years ended December 31, 2019, 2020 and
2021, respectively. Our capital expenditures during these periods were primarily used for the purchases of leasehold land and property,
plant and equipment for a new large-scale manufacturing facility for innovative drugs in Shanghai, China and to expand the
HUTCHMED Limited research facilities and the manufacturing facility in Suzhou, China. Our capital expenditures have been primarily
funded by cash flows from operations and proceeds from our initial public and follow-on offerings in Hong Kong and the United States
and other equity offerings.
As of December 31, 2021, we had commitments for capital expenditures of approximately $44.2 million, primarily for the
construction of the new manufacturing facility in Shanghai. We expect to fund these capital expenditures through cash flows from
operations, bank borrowings and existing cash resources.
Our non-consolidated joint venture Shanghai Hutchison Pharmaceuticals had capital expenditures of $4.6 million, $2.4 million and
$3.4 million for the years ended December 31, 2019, 2020 and 2021, respectively. These capital expenditures were primarily related to
the renovation of new office and improvements to its production facilities in Shanghai. These capital expenditures were primarily funded
through cash flows from operations of Shanghai Hutchison Pharmaceuticals.
192
C.
Research and Development, Patents and Licenses, etc.
Full details of our research and development activities and expenditures are given in the “Business” and “Operating and Financial
Review and Prospects” sections of this annual report above.
D.
Trend Information.
Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or
events that are reasonably likely to have a material adverse effect on our revenue, income, profitability, liquidity or capital resources, or
that would cause our reported financial information not necessarily to be indicative of future operation results or financial condition.
E.
Critical Accounting Estimates.
For information on our critical accounting estimates, please see “—Operating Resulting—Critical Accounting Policies and
Significant Judgments and Estimates” section of this annual report above.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management.
Business Experience and Qualifications of our Directors
Below is a list of the names and ages of our directors and officers as of March 1, 2022, and a brief account of the business experience
of each of them. The business address for our directors and officers is c/o HUTCHMED (China) Limited, Level 18, The Metropolis
Tower, 10 Metropolis Drive, Hunghom, Kowloon, Hong Kong.
Name
Chi Keung To, Simon
Christian Lawrence Hogg
Chig Fung Cheng, Johnny
Weiguo Su
Dan Eldar
Edith Shih
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Shu Kam Mok, Tony
Marek Krzysztof Kania
Karen Jane Atkin
Zhenping Wu
Kin Hung Lee, Mark
Qingmei Wang, May
Hong Chen
Thomas R. Held
Charles George Rupert Nixon
Age
Position
70 Executive Director and Chairman
56 Executive Director and Chief Executive Officer
55 Executive Director and Chief Financial Officer
64 Executive Director and Chief Scientific Officer
68 Non-executive Director
70 Non-executive Director and Company Secretary
61 Senior Independent Non-executive Director
Independent Non-executive Director
64
Independent Non-executive Director
71
61
Independent Non-executive Director
59 Executive President, Managing Director and Chief Medical Officer
56 Executive Vice President and Chief Operating Officer
62 Senior Vice President, Pharmaceutical Sciences
44 Senior Vice President, Corporate Finance and Development
58 Senior Vice President, Business Development & Strategic Alliances
51 Senior Vice President and Chief Commercial Officer (China)
61 Senior Vice President, Commercial (U.S.)
52 Group General Counsel
193
Chi Keung To, Simon has been a director since 2000 and an executive director and chairman of our board of directors since 2006.
He is also a member of our nomination committee, remuneration committee and technical committee. He is the managing director of
Hutchison Whampoa (China) Limited and has been with Hutchison Whampoa (China) Limited for over 40 years, building its business
from a small trading company to a multi-billion dollar investment group. He has negotiated major transactions with multinational
corporations such as Procter & Gamble, or P&G, Lockheed, Pirelli, Beiersdorf, United Airlines and British Airways. He is currently
chairman of the board of directors of Gama Aviation Plc, which is admitted to trading on AIM, and formerly served as independent non-
executive director on the boards of China Southern Airlines Company Limited and Air China Limited. Mr. To’s career in China spans
more than 45 years. He is the original founder of the China healthcare business of Hutchison Whampoa Limited (currently a subsidiary
of CK Hutchison) and has been instrumental in its acquisitions made to date. He received a bachelor’s degree in mechanical engineering
from Imperial College, London and a master in business administration from Stanford University’s Graduate School of Business.
Christian Lawrence Hogg has been an executive director and our chief executive officer since 2006. He is also a member of our
technical committee and sustainability committee. He joined the business in 2000, as its first employee, and has since led all aspects of
the creation, implementation and management of our strategy, business and listings. This includes the establishment of our
Oncology/Immunology operations which now have an organization of about 1,500 scientific and commercial personnel involved in the
launch of its first three oncology drugs, Elunate, Sulanda and Orpathys in China, as well as the management of global clinical
development activities on our portfolio of twelve in-house discovered novel oncology drug candidates. Furthermore, Mr. Hogg oversaw
the acquisition and operational integration of assets that led to the formation of our Other Ventures operations, which today employs
about 3,100 personnel involved in manufacture, market and distribute prescription drugs and consumer health products, covering an
extensive network of hospitals across China. Prior to joining us, he spent ten years with P&G, starting in the United States in Finance
and then Brand Management in the Laundry and Cleaning Products Division. He then moved to China to manage P&G’s detergent
business, followed by a move to Brussels to run P&G’s global bleach business. Mr. Hogg received a bachelor’s degree in civil
engineering from the University of Edinburgh in and a master in business administration from the University of Tennessee.
Chig Fung Cheng, Johnny has been an executive director since 2011 and our chief financial officer since 2008. He is a member of
our sustainability committee. Prior to joining our company, Mr. Cheng was vice president, finance of Bristol Myers Squibb in China
and was a director of Sino-American Shanghai Squibb Pharmaceuticals Ltd. and Bristol-Myers Squibb (China) Investment Co. Ltd. in
Shanghai between 2006 and 2008. Mr. Cheng started his career as an auditor with Price Waterhouse (currently PricewaterhouseCoopers)
in Australia and then joined KPMG in Beijing before spending eight years with Nestlé China where he was in charge of a number of
finance and control functions in various operations. Mr. Cheng received a bachelor of economics from the University of Adelaide and
is a member of the Chartered Accountants Australia and New Zealand.
Weiguo Su has been an executive director since 2017 and has been our executive vice president and chief scientific officer since
2012. He is also a member of our technical committee. Dr. Su has headed all drug discovery and research since he joined our company,
including master-minding our scientific strategy, being a key leader of our Oncology/Immunology operations, and responsible for the
discovery of each and every small molecule drug candidate in our pipeline. Prior to joining our company in 2005, Dr. Su worked with
the U.S. research and development department of Pfizer, Inc. In 2017, he was granted the prestigious award by the China Pharmaceutical
Innovation and Research Development Association (PhIRDA) as one of the Most Influential Drug R&D Leaders in China. Dr. Su
received a bachelor of science degree in chemistry from Fudan University in Shanghai. He completed a Ph.D. and post-doctoral
fellowship in chemistry at Harvard University under the guidance of Nobel Laureate Professor E. J. Corey.
Dan Eldar has been a non-executive director since 2016. He has more than 30 years of experience as a senior executive, leading
global operations in telecommunications, water, biotech and healthcare. He is an executive director of Hutchison Water Israel Ltd (an
associated company of CK Hutchison) which focuses on large scale projects including desalination, wastewater treatment and water
reuse. He was formerly an independent non-executive director of Leumi Card Ltd., a subsidiary of Bank Leumi Le-Israel B.M., one of
Israel’s leading credit card companies. Dr. Eldar received a Ph.D. degree in government from Harvard University, master of arts degree
in government from Harvard University, master of arts degree in political science and public administration from the Hebrew University
of Jerusalem and a bachelor of arts degree in political science from the Hebrew University of Jerusalem.
194
Edith Shih has been a non-executive director and company secretary of our company since 2006 and the company secretary of
Group companies since 2000. She is also chairman of our sustainability committee. She has over 35 years of experience in legal,
regulatory, corporate finance, compliance and corporate governance fields. She is also an executive director and company secretary of
CK Hutchison. She has been with the Cheung Kong (Holdings) Limited group, or CKH, since 1989 and with Hutchison Whampoa
Limited, or HWL, from 1991 to 2015. Both CKH and HWL became wholly-owned subsidiaries of CK Hutchison in 2015. She has
acted in various capacities within the HWL group, including head group general counsel and company secretary of HWL as well as
director and company secretary of HWL subsidiaries and associated companies. Ms. Shih is in addition a non-executive director of
Hutchison Telecommunications Hong Kong Holdings Limited, Hutchison Port Holdings Management Pte. Limited as the trustee-
manager of Hutchison Port Holdings Trust and a member of board of commissioners of PT Duta Intidaya Tbk. In addition, Ms. Shih is
a director of certain substantial shareholders (within the meaning of the Securities and Futures Ordinance of Hong Kong) of our company
and certain companies controlled by substantial shareholders of our company. The aforementioned companies are either subsidiaries or
associated companies of CK Hutchison of which Ms. Shih has oversight as director of CK Hutchison. She is the immediate past
international president and current member of the executive committee of The Chartered Governance Institute, or CGI, as well as a past
president and current chairperson of the nomination committee of The Hong Kong Charted Governance Institute, or HKCGI, formerly
known as The Hong Kong Institute of Chartered Secretaries. She is also chairman of the process review panel for the Financial Reporting
Council, a panel member of the Securities and Futures Appeals Tribunal and a member of the Hong Kong-Europe Business Council.
Ms. Shih is a solicitor qualified in England and Wales and Hong Kong and Victoria, Australia. She is a fellow of both the CGI and
HKCGI, holding chartered secretary and chartered governance professional dual designations. Ms. Shih received a bachelor of science
degree and a master of arts degree from the University of the Philippines as well as a master of arts degree and a master of education
degree from Columbia University, New York.
Paul Rutherford Carter has been a senior independent non-executive director since 2017. He is also chairman of our remuneration
committee and a member of our audit committee and technical committee. He has more than 26 years of experience in the pharmaceutical
industry. From 2006 to 2016, Mr. Carter served in various senior executive roles at Gilead Sciences, Inc., or Gilead, a research-based
biopharmaceutical company, with the last position as executive vice president, commercial operations. In this role, Mr. Carter headed
the worldwide commercial organization responsible for the launch and commercialization of all of Gilead’s products. He also worked
as a senior executive at GlaxoSmithKline Plc. He is currently a director of Mallinckrodt plc. He is also a director of Immatics N.V. and
VectivBio Holding AG. He is chairman of Evox Therapeutics and a retained advisor to several firms active in the life sciences sector.
He was formerly a director of Alder Biopharmaceuticals, Inc. Mr. Carter received a degree in business studies from the Ealing School
of Business and Management (now merged into University of West London) and is a fellow of the Chartered Institute of Management
Accountants in the United Kingdom.
Karen Jean Ferrante has been an independent non-executive director since 2017. She is also chairman of our technical committee
and a member of our audit committee. She has more than 26 years of experience in the pharmaceutical industry. She was the former
chief medical officer and head of research and development of Tokai Pharmaceuticals, Inc., a biopharmaceutical company focused on
developing and commercializing innovative therapies for prostate cancer and other hormonally driven diseases. Dr. Ferrante previously
held senior positions at Millennium Pharmaceuticals, Inc. and its parent company, Takeda Pharmaceutical Company Limited, including
chief medical officer and most recently as oncology therapeutic area and Cambridge USA site head. She also held positions of increasing
responsibility at Pfizer Inc., or Pfizer, with the last position as vice president, oncology development. Dr. Ferrante is currently a member
of the board of directors of MacroGenics, Inc. and Cogent Biosciences, Inc. (formerly Unum Therapeutics Inc.). She is also a member
of the scientific advisory board of Kazia Therapeutics Limited. Dr. Ferrante was previously a director of Baxalta Incorporated until it
was acquired by Shire plc in 2016 and a director of Progenics Pharmaceuticals, Inc., until it was acquired by Lantheus Holdings, Inc. in
2020. She was also previously a member of the scientific advisory board of Trillium Therapeutics Inc. until it was acquired by Pfizer in
November 2021. She is an author of a number of papers in the field of oncology, an active participant in academic and professional
associations and symposia and holder of several patents. Dr. Ferrante received a bachelor of science degree in chemistry and biology
from Providence College and a doctor of medicine from Georgetown University.
195
Graeme Allan Jack has been an independent non-executive director since 2017. He is also chairman of our audit committee and a
member of our nomination committee and remuneration committee. He has more than 40 years of experience in finance and audit. He
retired as partner of PricewaterhouseCoopers in 2006 after a distinguished career with the firm for over 33 years. He is currently an
independent non-executive director of The Greenbrier Companies, Inc. (an international supplier of equipment and services to the freight
rail transportation markets) and Hutchison Port Holdings Management Pte. Limited, and also serves as the trustee-manager of Hutchison
Port Holdings Trust (a developer and operator of deep water container terminals). He was formerly a director of COSCO SHIPPING
Development Co., Ltd. (formerly China Shipping Container Lines Company Limited, an integrated financial services platform
principally engaged in vessel and container leasing). He received a bachelor of commerce degree from the University of New South
Wales, Australia and is a Fellow of the Hong Kong Institute of Certified Public Accountants and an Associate of Chartered Accountants
Australia and New Zealand.
Shu Kam Mok, Tony has been an independent non-executive director since 2017. He is chairman of our nomination committee and
a member of our sustainability committee and technical committee. Professor Mok has more than 31 years of experience in clinical
oncology with his main research interest focusing on biomarker and molecular targeted therapy in lung cancer. He is currently Li Shu
Fan Medical Foundation named professor and chairman of department of clinical oncology at The Chinese University of Hong Kong.
Professor Mok has contributed to over 250 articles in international peer-reviewed journals, as well as multiple editorials and textbooks.
In October 2018, Professor Mok was the first Chinese to be bestowed with the European Society for Medical Oncology (ESMO) Lifetime
Achievement Award, one of the most prestigious international honors and recognitions given to cancer researchers, for his contribution
to and leadership in lung cancer research worldwide. He is a non-executive director of AstraZeneca PLC, a board director of the
American Society of Clinical Oncology (“ASCO”) and a steering committee member of the Chinese Society of Clinical Oncology
(“CSCO”). He is also currently chairman of the board of ACT Genomics Holdings Ltd. (“ACT Genomics”) and a non-executive
independent director of Lunit USA Inc. He is past president of the International Association for the Study of Lung Cancer, and co-
founder of Sanomics Limited (acquired by ACT Genomics in November 2021) and Aurora Tele-Oncology Limited. Professor Mok is
also closely affiliated with the oncology community in China and has been awarded an Honorary Professorship at Guangdong Province
People’s Hospital, Guest Professorship at Peking Union Medical College Hospital and Visiting Professorship at Shanghai Jiao Tong
University. He received his bachelor of medical science degree and a doctor of medicine from University of Alberta, Canada. He is
also a fellow of the Royal College of Physicians and Surgeons of Canada, Hong Kong College of Physicians, Hong Kong Academy of
Medicine, Royal College of Physicians of Edinburgh and ASCO.
Marek Krzysztof Kania is our executive president, managing director and chief medical officer. Prior to joining our company in
2018, Dr. Kania spent 25 years with Eli Lilly where he led teams on multiple oncology products around the world. While at Eli Lilly, Dr.
Kania was involved in clinical research and development, global medical affairs including product launches and medical policy and
strategy. Prior to joining Eli Lilly, Dr. Kania practiced as an anesthesiologist and critical care physician. Dr. Kania is a member of the
American Society of Clinical Oncology and the American Association for Cancer Research. He received his medical training at the
Silesian School of Medicine in Katowice, Poland, and subsequently completed an anesthesiology and critical-care residency, with board
certification from Jagiellonian University School of Medicine in Krakow. Dr. Kania also holds an MBA degree from The
University of Chicago Booth Graduate School of Business.
Karen Jane Atkin is our executive vice president and chief operating officer. Prior to joining our company in 2021, Dr. Atkin spent
24 years at AstraZeneca in senior medical, regulatory, pharmacovigilance, R&D and commercial leadership roles, including as senior
vice president of medical for biopharmaceuticals, vice president of the global infection, neuroscience and autoimmunity therapy area
and the established brand business, country president of Indonesia and led China R&D for over four years. Dr. Atkin is also a
registered physician with advanced level qualifications in internal medicine and pharmaceutical medicine. Dr. Atkin holds three
bachelor’s degrees in physiology, medicine and surgery, respectively, from University College London. She graduated with a first
class honors degree in medicine, holds an MBA from the Open University, is a Member of the Royal College of Physicians and a
fellow of the Faculty of Pharmaceutical Medicine in the UK.
Zhenping Wu joined our company in 2008 and has been our senior vice president of pharmaceutical sciences since 2012. Dr. Wu
has over 28 years of experience in drug discovery and development. His past positions include senior director of pharmaceutical
sciences at Phenomix Corporation, a U.S.-based biotechnology company, director of pharmaceutical development at Pfizer Global
Research & Development in California (formerly Agouron Pharmaceuticals) and a group leader at Roche at its Palo Alto site. He is a
past chairman and president of the board of the Sino-American Biotechnology and Pharmaceutical Association. Dr. Wu received a
Ph.D. from the University of Hong Kong and a master in business administration from the University of California at Irvine.
196
Kin Hung Lee, Mark is our senior vice president of corporate finance and development and joined our company in 2009. He began
working in healthcare investment banking in the United States and Europe in 1998. Based in the New York and London offices of
Credit Suisse, Mr. Lee was involved in the execution and origination of mergers, acquisitions, public and private financings and
corporate strategy for life science companies such as AstraZeneca, Bristol-Myers Squibb and Genzyme, as well as other medical product
and service companies. Mr. Lee received his bachelor’s degree in biochemical engineering with first class honors from University
College London, where he was awarded a Dean’s Commendation. He also received a master of business administration from the
Massachusetts Institute of Technology’s Sloan School of Management.
Qingmei Wang, May is our senior vice president of business development & strategic alliances. Prior to joining our company in
2010, Dr. Wang spent 16 years with Eli Lilly where she was the head of Eli Lilly’s Asian Biology Research and responsible for
establishing and managing research collaborations in China and across Asia. Dr. Wang holds numerous patents, has published more
than 50 peer-reviewed articles and has given dozens of seminars and plenary lectures. Dr. Wang received a Ph.D. in biochemistry from
Purdue University.
Hong Chen is our senior vice president and chief commercial officer (China). Prior to joining our company in 2011, Mr. Chen spent
12 years with Bristol-Myers Squibb and was last serving as its national sales & marketing director in China. Mr. Chen received a
bachelor’s degree in medicine from Nanjing Medical University and an EMBA from Cheung Kong Graduate School of Business.
Thomas R. Held has been our senior vice president, commercial (U.S.) since 2020. He is responsible for establishing and
leading our commercial presence in the United States and building the commercial infrastructure for our international operations,
including launch strategy, marketing sales, market access and operational planning. Mr. Held has more than 30 years of
experience in the pharmaceutical industry with a majority of time spent in the oncology commercial space. In his most recent
position, he served as vice president of Daiichi Sankyo’s emergent Antibody Drug Conjugate strategic platform. Prior to Daiichi
Sankyo, he held commercial roles of increasing responsibility at Novartis Oncology, where he worked from 1997 to 2017, gaining
invaluable experience in the solid tumor arena, including importantly neuroendocrine tumors. Mr. Held received a bachelor’s degree
in economics from Allegheny College and an MBA from Ashland University.
Charles George Rupert Nixon has been our group general counsel since 2015 and has worked with us since 2006. Prior to joining
us, Mr. Nixon was group senior legal counsel for Hutchison Whampoa Limited (previously a listed company in Hong Kong and after a
restructuring, a subsidiary of CK Hutchison Holdings Limited) in both Hong Kong and London and prior to that senior legal counsel
for Three UK, a mobile phone operator. Mr. Nixon has been with the CK Hutchison Group since 2001. Mr. Nixon received an LL.B
(Hons) from Middlesex University and is a qualified solicitor in England & Wales with 30 years of experience.
Board Diversity
On August 6, 2021, the SEC approved the Nasdaq Stock Market’s proposal to amend its listing standards to encourage greater board
diversity and to require board diversity disclosures for Nasdaq-listed companies. Pursuant to the amended listing standards,
HUTCHMED, as a foreign private issuer, is required to have at least two diverse board members or explain the reasons for not meeting
this objective by 2025. Furthermore, a board diversity matrix is required to be included in the annual report on Form 20-F, containing
certain demographic and other information regarding members of our board of directors. HUTCHMED currently complies with the
diversity requirement, as we currently have two female and eight male members on our board of directors. The board diversity matrix
is set out below.
Board Diversity Matrix (As of March 1, 2022)
Place of Principal Executive Offices
Foreign Private Issuer
Disclosure Prohibited under Home Country Law
Total Number of Directors
Hong Kong
Yes
No
10
197
Part I: Gender Identity
Directors
Part II: Demographic Background
Underrepresented Individual in Place of Principal Executive Offices
LGBTQ+
Did Not Disclosure Demographic Background
Female
Male
Non-Binary
Gender
Did Not Disclose
2
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
B. Compensation.
Summary Compensation Table
Executive Officer Compensation
The following table sets forth the non-equity compensation paid or accrued during the year ended December 31, 2021 to our chief
executive officer, chief financial officer, chief scientific officer and other executive officers on an aggregate basis.
Name and Principal Position
Christian Lawrence Hogg
Chig Fung Cheng, Johnny
Weiguo Su
Other Executive Officers in the Aggregate
Notes:
Salary
and fees
($)
469,038 (1)(2) 1,000,000
390,412 (3)
410,256
470,065 (4)
834,621
Bonus(5)
($)
Taxable Non-taxable Pension
benefits
benefits
($)
($)
9,936
18,365
9,936
—
6,790
10,000
2,440,073 39,805
58,279
contributions
($)
30,250
27,903
34,946
129,843
Total
($)
1,527,589
838,507
1,356,422
5,106,670
2,438,670
(1) Director’s fees received from the subsidiaries of our company during the period he served as director that were paid to a subsidiary
or an intermediate holding company of our company are not included in the amounts above.
(2) Amount includes director’s fees of $77,151.
(3) Amount includes director’s fees of $72,151.
(4) Amount includes director’s fees of $75,000.
(5) In December 2013 and March 2014, we awarded cash retention bonuses to certain of our executive officers in the aggregate amount
of $2,977,751. Each such executive officer receives portions of his or her retention bonus upon certain dates in the future depending
on when the bonus was granted and, in each case, assuming he or she remains employed by our company on such future dates. No
amounts in relation to such cash retention bonuses were paid in 2021.
Employment Arrangements with our Executive Officers
Offer Letters for Executive Officers at HUTCHMED (China) Limited and HUTCHMED Holdings (HK) Limited (formerly
Hutchison MediPharma (Hong Kong) Limited)
We have entered into employment offer letters with each of our executive officers who is employed by our Hong Kong subsidiaries,
HUTCHMED Group (HK) Limited or HUTCHMED Holdings (HK) Limited, namely Mr. Christian Lawrence Hogg, Mr. Chig Fung
Cheng, Johnny, Ms. Karen Jane Atkin, Mr. Kin Hung Lee, Mark and Mr. Charles George Rupert Nixon. Under these our executives
receive compensation in the form of salaries, discretionary bonuses, participation in the Hutchison Provident Fund retirement scheme,
medical coverage under the CK Hutchison Group Medical Scheme, personal accident insurance and annual leave. None of the
employment arrangements provide benefits to our executive officers upon termination. We may terminate employment by giving the
executive three months’ prior written notice. The executive officer may also voluntarily terminate his/her employment with us upon
not less than three months’ prior written notice to us.
198
Each executive officer has agreed, for the term of employment with us and thereafter, not to disclose or use for his/her own purposes
any of our and our associated companies’ confidential information that the executive officer may develop or learn in the course of
employment with us. Moreover, each of our executive officers has agreed, for the term of employment with us and for a period of twelve
months thereafter, (i) not to undertake or be employed or interested directly or indirectly anywhere in Hong Kong in any activity which
is similar to and competitive with our company or associated companies in which the executive officer had been involved in the period
of 12 months prior to such termination and (ii) not to solicit for any employees of our company or our joint ventures or orders from any
person, firm or company which was at any time during the 12 months prior to termination of such employment a customer or supplier
of our company or associated companies.
Employment Agreements with Executive Officers at HUTCHMED Limited
We have entered into employment agreements with each of our executive officers who are employed directly by HUTCHMED
Limited, namely Dr. Weiguo Su, Dr. Qingmei Wang, May and Dr. Zhenping Wu. Under these employment agreements, we engage the
executive officer on either an open-ended or a fixed term. Our executive officers receive compensation in the form of salaries,
discretionary bonuses, annual leave, statutory maternity leave and nursing leave.
Under the terms of these agreements, we provide labor protection and work conditions that comply with the safety and sanitation
requirements stipulated by the relevant PRC laws. The employment agreements prohibit the executive officers from engaging in any
conduct and business activities which may compete with the business or interests of HUTCHMED Limited during the term of the
executive officer’s employment. These executive officers also enjoy the Hutchison Provident Fund retirement scheme, medical coverage
under the CK Hutchison Group Medical Scheme and personal accident insurance.
We may terminate an executive officer’s employment for cause at any time without notice. Termination for cause may include a
serious breach of our internal rules and policies, serious negligence in the executive officer’s performance of his or her duties, an
accusation or conviction of a criminal offence, acquisition of another job which materially affects the executive officer’s ability to
perform his or her duties for our company and other circumstances stipulated by applicable PRC laws. We may terminate an executive
officer’s employment with three months’ prior notice if the executive officer is unable to perform his or her duties (after the expiration
of the prescribed medical treatment period) because of an illness or non-work-related injury or the executive officer is incompetent and
remains incompetent after training or adjustment of his or her position.
The executive officer may voluntarily terminate his or her contract without cause with three months’ prior notice. The executive
officer may also terminate the employment agreement immediately for cause, which includes a failure by us to provide labor protection
and the work conditions as specified under the employment agreement. In case of termination for any reason, we agree to make any
mandatory severance payments required by the relevant PRC labor laws.
Offer Letters for Executive Officers at HUTCHMED International Corporation (formerly Hutchison MediPharma
(US) Inc. and Hutchison MediPharma International Inc.)
We have entered into employment offer letters with each of our executive officers who is employed by one of our U.S. subsidiaries,
HUTCHMED International Corporation, namely Mr. Marek Krzysztof Kania and Mr. Thomas R. Held. Under these offer letters, such
executives receive compensation in the form of salaries, discretionary bonuses, group medical, dental and other insurance 401(k) plan
and annual leave. We may terminate employment by giving the executive three months’ prior written notice. The executive officer may
also voluntarily terminate his employment with us upon not less than three months’ prior written notice to us. In the event that the
employment is terminated by us without cause or by the executive with good reason and the executive has completed at least 12 months
of service, the executive may be entitled to up to six months of salary and prorated annual target bonus. Mr. Marek Krzysztof Kania has
also agreed, for the term of employment with us and thereafter, not to disclose or use for his own purposes any of our and our associated
companies’ trade secrets or confidential information that he may develop or learn in the course of employment with us.
Employment Agreement with Executive Officer at Hutchison Sinopharm
We have entered into an employment agreement with Mr. Hong Chen, one of our executive officers, who is employed by Hutchison
Sinopharm. Under this employment agreement, Mr. Chen’s employment is for a fixed term, and he receives compensation in the form
of salaries, discretionary bonuses, annual leave, statutory maternity leave and nursing leave.
199
Under the terms of this agreement, we provide labor protection and work conditions that comply with the safety and sanitation
requirements stipulated by the relevant PRC laws. The employment agreement prohibits any conduct directly or indirectly which is
harmful to Hutchison Sinopharm during the term of the employment.
We may terminate Mr. Chen’s employment for cause at any time without notice. We may also terminate the employment with prior
notice and termination compensation if Mr. Chen is unable to perform his duties because of an illness or non-work-related injury or he
is incompetent and remains incompetent after training or adjustment of his position. Mr. Chen may voluntarily terminate his employment
agreement without cause with one month’s prior notice and immediately for cause.
Share Options
The following table sets forth information concerning the outstanding equity awards held by our chief executive officer, chief
financial officer, chief scientific officer and other executive officers on an aggregate basis as of December 31, 2021.
Date of grant of
share options
Name and Principal Position
Apr 28, 2020
Christian Lawrence Hogg
Dec 14, 2020
Christian Lawrence Hogg
Mar 26, 2021
Christian Lawrence Hogg
Apr 28, 2020
Chig Fung Cheng, Johnny
Mar 26, 2021
Chig Fung Cheng, Johnny
Weiguo Su
Jun 15, 2016
Mar 27, 2017
Weiguo Su
Weiguo Su
Mar 19, 2018
Apr 28, 2020
Weiguo Su
Weiguo Su
Dec 14, 2020
Mar 26, 2021
Weiguo Su
Dec 14, 2021
Weiguo Su
Jun 15, 2016
Other Executive Officers in the Aggregate
Other Executive Officers in the Aggregate
Apr 20, 2018
Aug 6, 2018
Other Executive Officers in the Aggregate
Other Executive Officers in the Aggregate
Dec 11, 2019
Apr 28, 2020
Other Executive Officers in the Aggregate
Other Executive Officers in the Aggregate
Dec 14, 2020
Other Executive Officers in the Aggregate Mar 26, 2021
Other Executive Officers in the Aggregate
Dec 14, 2021
Number of
unexercised shares
which are
exercisable
(#)
322,925 (=64,585 ADSs)
9,900 (=1,980 ADSs)
—
100,475 (=20,095 ADSs)
—
3,000,000
1,000,000
750,000
197,425 (=39,485 ADSs)
4,740 (=948 ADSs)
—
—
2,936,860
525,810
281,250
200,000
439,600 (=87,920 ADSs)
77,465 (=15,493 ADSs)
Number of
unexercised shares
which are
unexercisable
(#)
968,775 (=193,755 ADSs)
29,710 (=5,942 ADSs)
868,900 (=173,780 ADSs)
301,425 (=60,285 ADSs)
240,500 (=48,100 ADSs)
250,000
592,275 (=118,455 ADSs)
14,220 (=2,844 ADSs)
282,400 (=56,480 ADSs)
24,930 (=4,986 ADSs)
175,290
93,750
200,000
1,318,800 (=263,760 ADSs)
232,425 (=46,485 ADSs)
— 1,031,100 (=206,220 ADSs)
356,955 (=71,391 ADSs)
—
Number of
Number of
shares issued options lapsed/
upon exercise
in 2021
cancelled in
2021
Option
expiration
date
Exercise price
$
$
$
$
$
— £
— £
£
$
$
$
$
— £
£
£
£
$
$
$
$
22.090
29.000
27.940
22.090
27.940
1.970
3.105
4.974
22.090
29.000
27.940
35.210
1.970
4.645
4.860
3.592
22.090
29.000
27.940
35.210
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Apr 27, 2030
— Mar 25, 2031
— Jun 14, 2026
— Mar 26, 2027
— Mar 18, 2028
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
— Dec 19, 2023
— Apr 19, 2028
— Aug 5, 2028
— Dec 10, 2029
— Apr 27, 2030
— Dec 13, 2030
— Mar 25, 2031
— Dec 13, 2031
Note: The share options granted on or after April 28, 2020 were in the form of ADSs and the relevant exercise prices were stated
in U.S. dollars per ADS. For purposes of this table, these share options are presented in the form of ordinary shares (with
the corresponding number of ADSs where appropriate). Each ADS represents five ordinary shares.
Long-Term Incentive Compensation
The following table sets forth information regarding performance based LTIP awards granted to our chief executive officer, chief
financial officer, chief scientific officer and other executive officers on an aggregate basis in the year ended December 31, 2021.
Name and Principal Position
Christian Lawrence Hogg
Chig Fung Cheng, Johnny
Weiguo Su
Other Executive Officers in the Aggregate
Maximum
Aggregate
Value of
LTIP awards(1) (2)
1,616,538
657,211
1,622,123
2,738,802
$
$
$
$
200
Notes:
(1)
The amounts reflected in the table above represent the maximum aggregate value of all LTIP awards outstanding as of December
31, 2021. The LTIP awards are conditional upon the achievement of annual performance targets for the fiscal year 2021. The
amounts reflected in the table above assume the maximum amount that may be paid under these contingent LTIP awards. The LTIP
awards will be settled in a variable number of shares based on a fixed monetary amount awarded upon achievement of performance
targets. An independent third-party trustee who administers the LTIP purchased shares of our company on either the AIM or Nasdaq
market which will be used to settle the LTIP awards. See “Outstanding Awards and Grants of Awards” for more details.
(2) Vesting will occur two business days after the date of the announcement of our annual results for the financial year 2023.
The following table sets forth a summary of the compensation we paid to our directors other than Christian Lawrence Hogg, Chig
Fung Cheng, Johnny and Weiguo Su during 2021.
Director Compensation
rotceriD fo emaN
Chi Keung To, Simon
Dan Eldar
Edith Shih
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Shu Kam Mok, Tony
Notes:
Maximum Value of Non-
Fees Earned or Performance Based LTIP
hsaC ni diaP
$
$
$
$
$
$
$
85,000 (2) $
000,07
$
74,301 (3) $
$
000,711
102,500
$
$
000,111
$
99,011
detnarG sdrawA
(1)
250,000 (4)
000,052
250,000 (5)
000,052
250,000
000,052
250,000
(1) Such awards vest in equal installments of 25% over four years and are not subject to performance based criteria.
(2) Such director’s fees were paid to Hutchison Whampoa (China) Limited, a wholly owned subsidiary of CK Hutchison. Director’s
fees received from our subsidiaries during the period he served as director that were paid to a subsidiary or an intermediate holding
company of our company are not included in the amounts above.
(3) Such director’s fees were paid to Hutchison International Limited, a wholly owned subsidiary of CK Hutchison. Director’s fees
received from our subsidiaries during the period she served as director that were paid to a subsidiary or an intermediate holding
company of our company are not included in the amounts above.
(4) Such LTIP awards were not received by Mr. Chi Keung To, Simon but were received by or for the account of his employer,
Hutchison Whampoa (China) Limited.
(5) Such LTIP awards were not received by Ms. Edith Shih but were received by or for the account of her employer, Hutchison
International Limited.
Equity Compensation Schemes and Other Benefit Plans
We have two share option schemes. We refer to these collectively as the Option Schemes. Our shareholder adopted the first option
scheme, or the 2005 Option Scheme, in June 2005, and it was subsequently approved by the shareholders of Hutchison Whampoa
Limited, our then majority shareholder, in May 2006 and later amended by our board of directors in March 2007. This share option
scheme expired in 2016. In April 2015, our shareholders adopted the second option scheme, or the 2015 Option Scheme, which was
later approved by the shareholders of CK Hutchison, the ultimate parent of our then majority shareholder, in May 2016. The 2015 Option
Scheme was subsequently amended in April 2020.
We also have a long-term incentive scheme which was adopted by our shareholders in April 2015. We refer to this as our LTIP.
201
Our Option Schemes and LTIP each terminates on the tenth anniversary of their adoption. Each may also be terminated by its board
of directors at any time. Any termination of a scheme is without prejudice to the awards outstanding at such time. Options are no longer
being granted under the 2005 Option Scheme, but outstanding awards under the 2005 Option Scheme continue to be governed by the
terms thereof.
The following describes the material terms of our Option Schemes and LTIP, or collectively the Schemes.
Awards and Eligible Grantees. The Option Schemes provide for the award of share options exercisable for ordinary shares or ADSs
of our company to Eligible Employees (as defined in the Option Schemes) or non-executive directors (excluding any independent non-
executive directors under the Option Schemes).
Under our LTIP, awards in the form of contingent rights to receive either shares purchased from the market by the scheme trustee
or cash payments may be granted to the directors of our company, directors of our subsidiaries and employees of our company,
subsidiaries, affiliates or such other companies as determined by our board of directors in its absolute discretion.
Scheme Administration. Our board of directors has delegated its authority for administering our Option Schemes and our LTIP to
our remuneration committee. Each such plan administrator has the authority to, among other things, select participants and determine
the amount and terms and conditions of the awards under the applicable Schemes as it deems necessary and proper, subject to the
restrictions described in “—Restrictions on Grants” below.
Restrictions on Grants. Under the Option Schemes, grants may not be made to independent non-executive directors. Furthermore,
those grants may not be made to any of our employees or directors if such person is also a director, chief executive or substantial
shareholder of any of our direct or indirect parent companies which is listed on a stock exchange or any of its associates without approval
by the independent non-executive directors of such parent company (excluding any independent non-executive director who is a
proposed grantee). In addition, approval by our shareholders and the shareholders of such listed parent company is required if an option
grant under our Option Schemes is to be made to a substantial shareholder or independent non-executive director of a listed parent
company or any of its associates and, upon exercise of such grant and any other grants made during the prior 12-month period to that
shareholder, that individual would receive an amount of our ordinary shares equal or greater than 0.1% of our total outstanding shares
or with an aggregate value in excess of HK$5 million (equivalent to $0.6 million as of December 31, 2017).
In addition, options under our Option Schemes may not be granted to any individual if, upon the exercise of such options, the
individual would receive an amount of shares when aggregated with all other options granted to such individual under the applicable
Scheme in the 12-month period up to and including the grant date, that exceeds 1% of the total shares outstanding of the company
granting the award on such date. There are no individual limits under our LTIP.
Under our LTIP, no grant to any director, chief executive or substantial shareholder of our company may be made without the prior
approval of our independent non-executive directors (excluding an independent non-executive director who is a proposed grantee).
Vesting. Vesting conditions of options granted under the Schemes are determined by the respective board of directors at the time of
grant.
202
Under our Option Schemes, if a participant has committed any misconduct or any conduct making such participant’s service
terminable for cause, all options (whether vested or unvested) lapse unless the respective board of directors otherwise determines in its
absolute discretion. Options may be exercised to the extent vested where a participant’s service ceases due to the participant’s death,
serious illness, injury, disability, retirement at the applicable retirement age, or earlier if determined by the participant’s employer, or if
a participant’s service ceases for any other reason other than for cause.
Under our LTIP, if a participant’s employment or service with our company or its subsidiaries is terminated for cause or if the
participant breaches certain provisions in our LTIP restricting the transfer of awards by grantees and imposing non-competition
obligations on grantees, all unvested awards are automatically cancelled. Where a participant’s employment or service ceases for any
reason other than the reasons listed above (including due to the participant’s resignation, retirement, death or disability or upon the non-
renewal of such participant’s employment or service agreement other than for cause), our board of directors may determine at its
discretion whether unvested awards shall be deemed vested.
Exercise Price. The exercise price for each share pursuant to the initial options granted under the 2005 Option Scheme was a price
determined by our board of directors at the date of grant, and for grants made thereafter, the exercise price was the Market Value of a
share at the date of grant (as defined in our Option Schemes).
The exercise price for each share pursuant to the options granted under the 2015 Option Scheme must be the Market Value of a
share at the date of grant (as defined in our Option Schemes).
Non-transferability of Awards. Awards may not be transferred except in the case of a participant’s death by the terms of each
Scheme.
Takeover or Scheme of Arrangement. In the event of a general or partial offer for the shares of our company under our Option
Schemes, whether by way of takeover, offer, share repurchase offer, or scheme of arrangement, the affected company is required to use
all reasonable endeavors to procure that such offer is extended to all holders of options granted by such company on the same terms as
those applying to shareholders. Both vested and unvested options may be exercised up until (i) the closing date of any such offer and
(ii) the record date for entitlements under a scheme of arrangement, and will lapse thereafter. Certain options may also be exercised on
a voluntary winding up of our company.
Under our LTIP, in the event of a general offer for all the shares of our company, whether by way of takeover or scheme of
arrangement, or if our company is to be voluntarily wound up, our board of directors shall determine in its discretion whether outstanding
unvested awards will vest and the period within which such awards will vest.
Amendment. Our Option Schemes require that amendments of a material nature only be made with the approval of our shareholders.
Our board of directors may alter the terms of our LTIP, but amendments which are of a material nature cannot take effect without
shareholders’ approval, unless the changes take effect automatically under the terms of our LTIP.
Authorized Shares. Under our 2015 Option Scheme, our board of directors may “refresh” the scheme limit from time to time
provided that the total number of shares which may be issued upon exercise of all options to be granted under our Option Schemes shall
not exceed 10% of our total shares outstanding on such date. In addition, the limit on the number of shares which may be issued upon
exercise of all outstanding options granted and not yet exercised under the 2015 Option Scheme and any options granted and not yet
exercised under any other schemes must not exceed 10% of the outstanding shares of the company in issue from time to time. In April
2020, our shareholders approved a refresh of the 2015 Option Scheme.
Following the 2015 Option Scheme refresh discussed above, subject to certain adjustments for share splits, share consolidations
and other changes in capitalization, the maximum number of shares that may be issued upon exercise of all options granted may not in
the aggregate exceed 5% of our shares outstanding on April 27, 2020. Share awards under our LTIP may not exceed 5% of our shares
outstanding on the adoption date of our LTIP.
Outstanding Awards and Grants of Awards
Share options outstanding under the 2005 Option Scheme
203
The 2005 Option Scheme expired in 2016, and no further share options can be granted under it. As of December 31, 2021, options
to purchase an aggregate of 705,060 ordinary shares, representing approximately 0.1% of our outstanding share capital, with an exercise
price of £0.61 ($0.81) per ordinary share and an expiration date of December 19, 2023 remained outstanding under the 2005 Option
Scheme.
Share options outstanding and grants made in 2021 under the 2015 Option Scheme
As of December 31, 2021, options to purchase an aggregate of 36,485,530 ordinary shares, representing approximately 4.2% of our
outstanding share capital, at a weighted average exercise price of £3.72 ($4.95) per ordinary share and an expiration date of 10 years
from the respective date of grant remained outstanding under the 2015 Option Scheme. In the year ended December 31, 2021, we
granted options to purchase an aggregate of 10,174,840 ordinary shares, representing approximately 1.2% of our outstanding share
capital, at a weighted average exercise price of £4.47 ($5.96) per share under the 2015 Option Scheme. Such options vest in equal
instalments of 25% over a four-year period.
Grants and vesting of LTIPs
In the year ended December 31, 2021, we granted performance based awards under our LTIP to three of our executive officers and
704 employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an aggregate
maximum cash amount of $64,590,505. These awards are related to the achievement of performance targets and will vest two business
days after the date of the announcement of our annual results for the financial year 2023. For additional information on LTIP awards
held by our executive officers, please see “B. Compensation—Executive Officer Compensation—Long-Term Incentive Compensation.”
In the year ended December 31, 2021, we also granted non-performance based awards under our LTIP to each of our seven directors
and five employees, giving them a conditional right to receive ordinary shares to be purchased by the third-party trustee up to an
aggregate maximum cash amount of $2,453,077. The LTIP awards to our directors vest in equal installments of 25% over four years,
$603,077 of the LTIP awards to employees vest over a four-year period and $100,000 of the LTIP awards to an employee vest one year
after grant. For additional information on LTIP awards to our directors, please see “B. Compensation—Director Compensation.”
Vesting of our LTIP awards will also depend upon the award holder’s continued employment or continued service on our board, as
the case may be.
In the year ended December 31, 2021, an aggregate of 143,510 ordinary shares and 5,995 ADSs were given to award holders upon
the vesting of performance based LTIP awards, and 16,015 ordinary shares and 17,809 ADSs were given to award holders upon the
vesting of non-performance based LTIP awards.
C. Board Practices.
Our board of directors consists of ten directors including four executive directors, two non-executive directors and four independent
non-executive directors. Pursuant to a relationship agreement dated April 21, 2006, and amended and restated on June 13, 2019, by and
between our company and Hutchison Whampoa (China) Limited, a parent company of Hutchison Healthcare Holdings Limited, or the
Relationship Agreement, our board of directors must consist of at least one director who is independent of the CK Hutchison group if
Hutchison Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our
company. The Relationship Agreement will continue in effect until our ordinary shares cease to be traded on the AIM market or the CK
Hutchison group individually or collectively ceases to hold at least 30% of our shares.
Our directors are subject to a three-year term of office and hold office until such time as they wish to retire and not offer themselves
up for re-election, are not re-elected by the shareholders, or are removed from office by ordinary resolution at an annual general meeting
of the shareholders. Under our Articles of Association, a director will be vacated if, among other things, the director (i) becomes
bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; or (ii) becomes of unsound
mind. For information regarding the period during which our officers and directors have served in their respective positions, please see
Item 6.A. “Directors and Senior Management.”
204
Our board of directors has established an audit committee, remuneration committee, technical committee, nomination committee
Board Committees
and sustainability committee.
Audit Committee
Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack
serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meets the independence
requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that
Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our
audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock
Market.
Although we are a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit
committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for the
nomination, compensation and choice of our auditor, as well as control over the performance of their duties, management of complaints
made, and selection of consultants. Under Rule 10A-3, if the governing law or documents of a listed issuer require that any such matter
be approved by the board of directors or the shareholders of the company, the audit committee’s responsibilities or powers with respect
to such matter may instead be advisory. Our Articles of Association provide that the appointment of our auditor must be decided by our
shareholders at our annual general meeting or at a subsequent extraordinary general meeting in each year.
The audit committee formally meets at least twice a year and otherwise as required. The audit committee’s purpose is to oversee
our accounting and financial reporting process and the audit of our financial statements. Our audit committee’s primary duties and
responsibilities are to:
monitor the integrity of our financial statements, our annual and half-year reports and accounts and our announcements of
interim or final results;
provide advice, where requested by the board of directors, on whether the annual report and accounts, taken as a whole, are
fair, balanced and understandable, and provide the information necessary for shareholders to assess our company’s position
and performance, business model and strategy;
review significant financial reporting issues and the judgments which they contain;
review, whenever practicable without being inconsistent with any requirement for prompt reporting under applicable listing
rules, other statements containing financial information such as significant financial returns to regulators and release of price
sensitive information first where board of director approval is required; and
review and challenge where necessary:
the consistency of, and any changes to, accounting policies both on a year-on-year basis and across our company;
the methods used to account for significant or unusual transactions where different approaches are possible;
whether our company has followed appropriate accounting standards and made appropriate estimates and judgments,
taking into account the views of the external auditor;
the clarity of the disclosure in our financial reports and the context in which statements are made; and
all material information presented with the financial statements, such as any operations and financial review and any
corporate governance statements (insofar as it relates to the audit and risk management).
205
In relation to our internal controls and risk management systems, our audit committee, among other things:
reviews the effectiveness of our internal control and risk management systems;
reviews the policies and procedures for the identification, assessment and reporting of financial and non-financial risks and our
management of those risks in accordance with the requirements of the Sarbanes-Oxley Act and other applicable laws, rules and
regulations and the applicable requirements of any stock exchange;
approves the appointment and removal of the head of the internal audit function;
ensures our internal audit function has adequate standing and resources and is free from management or other restrictions;
reviews and monitors our executive management’s responsiveness to the findings and recommendations of the internal audit
function; and
reviews with management and our independent auditors the adequacy and effectiveness of our internal control over financial
reporting and disclosure controls and procedures.
In relation to our external auditor, our audit committee, among other things:
recommends the appointment, reappointment or removal of the external auditor and considers any issues relating to their
resignation, dismissal, remuneration or terms of engagement, subject to approval by the shareholders;
considers and monitors the external auditor’s independence, objectivity and effectiveness;
reviews and monitors the effectiveness of the audit process, considering relevant ethical or professional requirements;
develops and implements policy on the engagement of the external auditor to provide non-audit services, taking into any
relevant ethical guidance; and
pre-approves the external auditors’ annual audit fees and the nature and scope of proposed audit coverage, subject to approval
by our shareholders.
The audit committee is authorized to obtain, at our company’s expense, reasonable outside legal or other professional advice on
any matters within the scope of its responsibilities.
Remuneration Committee
Our remuneration committee consists of Paul Rutherford Carter, Graeme Allan Jack and Chi Keung To, Simon, with Paul
Rutherford Carter serving as chairman of the committee. The remuneration committee is responsible for considering all material
elements of remuneration policy and remuneration and incentives of our executive directors and key employees with reference to
independent remuneration research and professional advice. The remuneration committee meets formally at least once each year and
otherwise as required and make recommendations to our board of directors on the framework for executive remuneration and on
proposals for the granting of share options and other equity incentives. Our board of directors is responsible for implementing these
recommendations and agreeing the remuneration packages of individual directors. No director is permitted to participate in discussions
or decisions concerning his or her own remuneration.
Technical Committee
Our technical committee consists of Karen Jean Ferrante, Paul Rutherford Carter, Chi Keung To, Simon, Christian Lawrence Hogg,
Weiguo Su and Shu Kam Mok, Tony, with Karen Jean Ferrante serving as chairman of the committee. The technical committee’s
responsibility is to consider, from time to time, matters relating to the technical aspects of the research and development activities of
our Oncology/Immunology operations. It invites such executives as it deems appropriate to participate in meetings from time to time.
206
Nomination Committee
Our nomination committee consists of Shu Kam Mok, Tony, Graeme Allan Jack and Chi Keung To, Simon, with Shu Kam Mok,
Tony serving as chairman of the committee. Our nomination committee reviews the structure, size, diversity profile and skills set of the
board against its needs and makes recommendations on the composition of the board to achieve our corporate strategy as well as promote
shareholder value. It facilitates the board in the conduct of the selection and nomination of directors, makes recommendations to the
board on the appointment or reappointment of directors and succession planning for directors. It also assesses director independence
having regard to the criteria under the applicable corporate governance code, SEC or stock exchange rules.
Sustainability Committee
Our sustainability committee consists of Edith Shih, Christian Lawrence Hogg, Chig Fung Cheng, Johnny and Shu Kam Mok,
Tony, with Edith Shih serving as chairman of the committee. The sustainability committee is responsible for strengthening our corporate
governance and reporting framework. It advises our board of directors and management on and oversees the development and
implementation of our corporate social responsibility and sustainability initiatives, including reviewing related policies and practices as
well as assessing and making recommendations on matters pertaining to our sustainability governance, strategies, planning and risk
management.
U.K. Corporate Governance Code
The U.K. Corporate Governance Code 2018 published by the U.K. Financial Reporting Council, or the 2018 Code, is the primary
source of corporate governance standards for all companies with a premium listing on the Official List of the U.K. Financial Conduct
Authority, whether incorporated in the United Kingdom or elsewhere, and it is recognized as a best practice for the largest companies
by market capitalization on the AIM market. The 2018 Code is comprised of main and supporting principles of good governance
addressing the following areas: (i) board leadership and company purpose; (ii) division of responsibilities; (iii) board composition,
succession and evaluation; (iv) audit, risk and internal control; and (v) remuneration. Together with the U.K. Financial Reporting
Council’s Guidance on Board Effectiveness (published in July 2018), it also includes detailed recommendations derived from these
principles, such as the roles of board chairman and chief executive officer should not be exercised by the same individual and the
chairman of the board should ensure that new directors receive a full, formal and tailored induction on joining the board. The 2018
Code applies to accounting periods beginning on or after January 1, 2019. We adopted the principles of the UK Corporate Governance
Code applicable to companies listed on the premium segment of the London Stock Exchange main market, despite its shares being
traded on the AIM market and hence not required to comply with the UK Corporate Governance Code until our listing on the SEHK on
June 30, 2021.
Hong Kong Corporate Governance Code
Following the listing on the SEHK on June 30, 2021, our board of directors has adopted the Corporate Governance Code (“Hong
Kong Corporate Governance Code”) contained in Appendix 14 of the Rules Governing the Listing of Securities on SEHK in replacement
of the U.K. Corporate Governance Code 2018 and is in compliance with all code provisions of the Hong Kong Corporate Governance
Code.
Code of Ethics
Our board of directors has adopted a code of ethics to set standards for our directors, officers and employees as are reasonably
necessary to promote (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; (ii) full, fair, accurate, timely and understandable disclosure in the reports and documents that
we file or submit to the applicable stock exchanges, and in any other public communications; (iii) compliance with applicable
governmental and regulatory laws, rules, codes and regulations; (iv) prompt internal reporting of any violations of the code of ethics;
and (v) accountability for adherence to the code of ethics.
Code of Ethics for Business Partners
Our board of directors has adopted a code of ethics for our business partners, including our suppliers, vendors, customers, agents,
contractors, joint venture partners and representatives. This code of ethics contains general guidelines to promote the standards outlined
in our internal code of ethics as described above.
207
Complaints Procedures
Our board of directors has adopted procedures for the confidential receipt, retention, and treatment of complaints from, or concerns
raised by, employees regarding accounting, internal accounting controls and auditing matters as well as illegal or unethical matters. The
complaint procedures are reviewed by the audit committee from time to time as warranted to ensure their continuing compliance with
applicable laws and listing standards as well as their effectiveness.
Information Security Policy
Our board of directors has adopted an information security policy to define and help communicate the common policies for
information confidentiality, integrity and availability to be applied to us and our joint ventures. The purpose of the information security
policy is to ensure business continuity by preventing and minimizing the impact of security risks within our company and our joint
ventures. Our information security policy applies to all of our and our joint ventures’ business entities across all countries. It applies to
the creation, communication, storage, transmission and destruction of all different types of information. It applies to all forms of
information, including but not limited to electronic copies, hardcopy, and verbal disclosures whether in person, over the telephone, or
by other means.
Code on Dealings in Shares
Our board of directors has adopted a policy on the handling of material inside information, consisting of information which is either
“inside information” under the EU Market Abuse Regulation (Regulation (EU) 596/2014), or MAR, or “material non-public
information” under U.S. law. This policy, among other things, prohibits any employees, directors, other persons discharging managerial
responsibilities or their connected persons dealing in our securities or their derivatives, or those of our collaborators, business partners,
suppliers and customers, while in possession of material inside information. Certain members of our senior management or staff,
including persons discharging managerial responsibilities, and their connected persons are subject to additional compliance requirements
which are outlined in the code (including but not limited to obtaining written pre-clearance from designated members of management
prior to any dealing in any such securities is allowed).
Board Diversity Policy
Our board of directors has established a board diversity policy as our board of directors recognizes the benefits of a board of directors
that possesses a balance of skills, experience, expertise, independence and knowledge and diversity of perspectives appropriate to the
requirements of our businesses.
We maintain that appointment to our board of directors should be based on merit that complements and expands the skills,
experience, expertise, independence and knowledge of the board of directors as a whole, taking into account gender, age, professional
experience and qualifications, cultural and educational background, and any other factors that our board of directors might consider
relevant and applicable from time to time towards achieving a diverse board of directors. See also”—Directors and Senior
Management—Board Diversity.”
D. Employees.
As of December 31, 2019, 2020 and 2021, we had 853, 1,280 and 1,759 full-time employees, respectively. None of our
employees are represented by labor unions or covered by collective bargaining agreements. The number of employees by function as
of the end of the period for our fiscal years ended December 31, 2019, 2020 and 2021 was as follows:
By Function:
Oncology/Immunology
Other Ventures
Corporate Head Office
Total
2021
2020
2019
891
820
48
1,759
643
594
43
1,280
500
315
38
853
208
As of December 31, 2021, a total of 139 employees on our Oncology/Immunology research and development team have M.D. or
Ph.D. degrees. Additionally, our Other Ventures joint venture Shanghai Hutchison Pharmaceuticals employed a total of 2,883 full time
employees as of December 31, 2021, and such employees are represented by labor unions and covered by collective bargaining
agreements. To date, Shanghai Hutchison Pharmaceuticals has not experienced any strikes, labor disputes or industrial actions which
had a material effect on their business, and consider their relations with the union and our employees to be good.
We recognize the importance of high-quality human resources in sustaining market leadership. Salary and benefits are kept at
competitive levels, while individual performance is rewarded within the general framework of the salary, bonus and incentive system
of our company, which is reviewed annually. Employees are provided with a wide range of benefits that include medical coverage,
provident funds and retirement plans and long service awards. We stress the importance of staff development and provides training
programs on an ongoing basis. Employees are also encouraged to play an active role in community care activities.
E. Share Ownership.
See Item 6.B. “Compensation” and Item 7 “Major Shareholders and Related Party Transactions.”
209
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders.
We had 864,530,850 ordinary shares outstanding as of March 1, 2022. The following table and accompanying footnotes set forth
information relating to the beneficial ownership of our ordinary shares as of December 31, 2021 by:
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary shares;
each of our directors; and
each of our named executive officers.
Our major shareholders do not have voting rights that are different from our shareholders in general. Beneficial ownership is
determined in accordance with the rules and regulations of the SEC.
Name of beneficial owner
Executive Officers and Directors:**
Christian Lawrence Hogg
Chig Fung Cheng, Johnny
Chi Keung To, Simon
Edith Shih
Weiguo Su
Dan Eldar
Shu Kam Mok, Tony
Paul Rutherford Carter
Karen Jean Ferrante
Graeme Allan Jack
Marek Krzysztof Kania
Karen Jane Atkin
Zhenping Wu
Kin Hung Lee, Mark
Qingmei Wang, May
Hong Chen
Thomas R. Held
Charles George Rupert Nixon
All Executive Officers and Directors as a Group
Principal Shareholders:
Hutchison Healthcare Holdings Limited(5)
Capital International Investors(6)
Number of
Ordinary
Share held
Number of
American
Depositary
Share held
Appropriate
percent of Issued
Share Capital**
10,938,020
2,561,460
1,800,000
700,000
5,000,000 (2)
19,000
—
35,240
—
—
* (2)
—
* (2)
* (2)
* (2)
* (2)
—
* (2)
25,354,284 (3)
253,364 (1)
70,814 (1)
133,237
100,000
187,125 (1)
13,787
14,796
4,074
10,579
7,794
* (1)
—
* (1)
* (1)
* (1)
* (1)
* (1)
* (1)
1,124,923 (4)
1.4 %
*
*
*
*
*
*
*
*
*
*
—
*
*
*
*
*
*
3.6 %
332,478,770
10,524,720
—
13,957,242
38.46 %
9.3 %
*
Less than 1% of our total outstanding ordinary shares.
** Percentage of beneficial ownership of each listed person or group is based on 864,530,850 ordinary shares outstanding as of
March 1, 2022.
(1) Amount includes ADSs to be vested under the LTIP and ADSs issuable upon vesting of options within 60 days of March 1, 2022.
(2) Amount includes ordinary shares issuable upon vesting of options within 60 days of March 1, 2022.
(3) Amount includes ordinary shares and ordinary shares issuable upon vesting of options within 60 days of March 1, 2022 held by our
executive officers and directors as a group.
210
(4) Amount includes ADSs and ADSs issuable upon vesting of options within 60 days of March 1, 2022 held by our executive officers
and directors as a group.
(5) Hutchison Healthcare Holdings Limited, a British Virgin Islands company, is an indirect wholly owned subsidiary of CK Hutchison,
a company incorporated in the Cayman Islands and listed on The Hong Kong Stock Exchange. The registered address of Hutchison
Healthcare Holdings Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola VG1110, British Virgin
Islands.
(6) Based on information included in the Schedule 13G filed by Capital International Investors on February 11, 2022.
As of March 1, 2022, based on public filings with the SEC, AIM and SEHK, there are no other major shareholders holding 5% or
more of our ordinary shares or ADSs representing ordinary shares except as described above. As of March 1, 2022, there were three
ordinary shareholders of record with an address in the United States. Deutsche Bank Trust Company America, as depositary of our ADS
program, held 274,907,485 ordinary shares as of that date in the name of DB London (Investors Services) Nominees Limited.
To our knowledge, except as disclosed above, we are not owned or controlled, directly or indirectly, by another corporation, by any
foreign government or by any other natural or legal person or persons, severally or jointly. To our knowledge, there are no arrangements
the operation of which may at a subsequent date result in us undergoing a change in control. Our major shareholders do not have different
voting rights than any of our other shareholders.
B. Related Party Transactions.
Letters of awareness with respect to loans
Relationship with CK Hutchison
CK Hutchison has provided letters of awareness to certain of our lenders stating that it is aware that loan facilities have been
provided to us and that its current intention is that for so long as amounts are outstanding under such loan facilities, it will not reduce its
direct or indirect shareholding as to result in it ceasing to be the single largest indirect shareholder of our company.
Relationship Agreement with the CK Hutchison group
We entered into a relationship agreement dated April 21, 2006, which was amended and restated on June 13, 2019 with effect from
June 3, 2015, with Hutchison Whampoa (China) Limited, which is an indirect wholly owned subsidiary of CK Hutchison, with a view
to ensuring that our company is capable of carrying on its business independent of the CK Hutchison group. We refer to this agreement
as the Relationship Agreement. The Relationship Agreement provides, among other things, that all transactions between any of us or
our joint ventures, on the one hand, and the CK Hutchison group, on the other, will be on an arm’s length basis, on normal commercial
terms and in a manner consistent with the AIM Rules. The Relationship Agreement further provides that the approval of our board of
directors shall be required for any transaction between any of us or our joint ventures, on one hand, and the CK Hutchison group, on the
other hand and that in approving any such transaction, our board of directors must consist of at least one director who is independent of
CK Hutchison. Our board of directors must consist of at least one director who is independent of the CK Hutchison group if Hutchison
Whampoa (China) Limited is entitled to cast at least 50% votes eligible to be cast on a poll vote at a general meeting of our company,
see Item 6.C. “Directors, Senior Management and Employees—Board Practices.” Hutchison Whampoa (China) Limited has also agreed
to procure that each member of the Hutchison Whampoa (China) Limited group will not exercise its voting rights and powers so as to
amend our Memorandum or Articles of Association in a manner which is inconsistent with the Relationship Agreement. The
Relationship Agreement will continue to be effective until the first to occur of: (i) our shares ceasing to be traded on the AIM market
or; (ii) the CK Hutchison group individually or collectively cease to hold or control the exercise of at least 30% or more of the rights to
vote at our general meetings.
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Products sold to group companies of CK Hutchison
We have entered into agreements with members of the CK Hutchison group, including the retail grocery and pharmacy chains
PARKnSHOP and Watsons which are owned and operated by the A.S. Watson Group, an indirect subsidiary of CK Hutchison, in respect
of the distribution of certain of our consumer health products. For the year ended December 31, 2021, sales of our products to members
of the CK Hutchison group amounted to $4.3 million. In addition, for the year ended December 31, 2021, we paid approximately $0.4
million to members of the CK Hutchison group for the provision of marketing services associated with these products. Our sales to CK
Hutchison group companies are made pursuant to purchase orders issued by each purchaser periodically, the terms of which are on an
arm’s length basis on normal commercial terms.
See Item 3.D. “Risk Factors—Risks Relating to Our Dependence on Third Parties—There is no assurance that the benefits currently
enjoyed by virtue of our association with CK Hutchison will continue to be available” for more information on the risks associated with
our relationship with CK Hutchison’s group companies.
Intellectual property licensed by the CK Hutchison group
We conduct our business using trademarks with various forms of the “Hutchison,” “Chi-Med”, “Hutchison China MediTech”,
“HUTCHMED”, “Elunate” and “Sulanda” brands, the logos used by HUTCHMED Limited, as well as domain names incorporating
some or all of these trademarks. We have entered into a brand license agreement dated April 21, 2006 (as amended and restated on June
13, 2019 with effect from June 3, 2015 and as further amended and restated on June 15, 2021 with effect from March 4, 2021) with
Hutchison Whampoa Enterprises Limited, which is an indirect wholly owned subsidiary of CK Hutchison, pursuant to which we have
been granted a non-exclusive, non-transferrable, royalty-free right to use the “Hutchison,” “Hutchison China MediTech”, “Chi-Med”,
“HUTCHMED” trademarks, domain names and other intellectual property rights owned by the CK Hutchison group in connection with
the operation of our business worldwide. We refer to this amended and restated agreement as the Brand License Agreement. We are
also permitted to sub-license such intellectual property rights to our affiliates.
The Brand License Agreement contains provisions on quality control pursuant to which we are obliged to use the brands and related
materials in compliance with the brand guidelines, industry best practice and other quality directives issued by Hutchison Whampoa
Enterprises Limited from time to time. Under this agreement, we assign all intellectual property rights, including future copyrights in
any works incorporating brand-related material or translations thereof, to Hutchison Whampoa Enterprises Limited (subject to any third-
party rights).
Hutchison Whampoa Enterprises Limited may terminate the Brand License Agreement (or any sub-license) if, among other things,
we commit a material breach of the agreement, or within any twelve-month period aggregate direct or indirect shareholding in our
company held by CK Hutchison , our indirect shareholder, is reduced to less than 35%, 30% or 20%. On termination of the Brand
License Agreement, we (and any sub-licensees) must immediately cease using the brands and are obliged to withdraw from the sale of
any products bearing the brands; provided that if the agreement is terminated following a change in CK Hutchison’s aggregate direct or
indirect shareholding in our company, we will have a six-month transitional period during which we can continue to use the licensed
rights.
On June 15, 2021, we entered into a brand license royalty agreement with Hutchison Whampoa Enterprises Limited, pursuant to
which we will pay an annual fee of HK$12 million (up to an aggregate royalty payable of no more than HK$120 million) in consideration
of the grant of the royalty-free right to use the trademarks owned by Hutchison Whampoa Enterprises Limited to Hutchison Baiyunshan
and HBYS JV companies upon the completion of the disposal of shareholding interest in Hutchison Baiyunshan.
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Sharing of services with the CK Hutchison group
Pursuant to an amended and restated services agreement dated January 1, 2016 between us and Hutchison Whampoa (China)
Limited, an indirect wholly owned subsidiary of CK Hutchison, we share certain services with and receive operational support from the
CK Hutchison group including, among others, legal and regulatory services, company secretarial support services, tax and internal audit
services, shared use of accounting software system and related services, participation in the CK Hutchison group’s pension, medical and
insurance plans, participation in the CK Hutchison group’s procurement projects with third-party vendors/suppliers, other staff benefits
and staff training services, company functions and activities and operation advisory and support services. We refer to this amended and
restated agreement as the Services Agreement. The Services Agreement replaces our prior services agreement with Hutchison Whampoa
(China) Limited, dated April 21, 2006, which had substantially similar terms. We pay a management fee to Hutchison Whampoa (China)
Limited for the provision of such services. In addition, we make payments under the Services Agreement to Hutchison Whampoa (China)
Limited for our executive offices in Hong Kong. Furthermore, pursuant to the terms of the Services Agreement, Hutchison Whampoa
(China) Limited charges us management fees and other costs through Hutchison Healthcare Holdings Limited, its wholly owned
subsidiary.
The Services Agreement may be terminated by either party by giving three months’ written notice. Hutchison Whampoa (China)
Limited may also immediately terminate if its shareholding in our company falls below 30%. The services provided under the Services
Agreement are provided on an arm’s length basis, on normal commercial terms.
Any amount unpaid after 30 days accrues interest at the rate of 1.5% per annum. In the year ended December 31, 2021, we paid a
management fee of approximately $1.0 million under the Services Agreement. As of December 31, 2021, we had $0.4 million in unpaid
fees outstanding to Hutchison Whampoa (China) Limited.
Director and Executive Officer Compensation
Agreements with Our Directors and Executive Officers
See Item 6.B. “Compensation—Executive Officer Compensation” and “Compensation—Director Compensation” for a discussion
of our compensation of directors and executive officers.
Equity Compensation
See Item 6.B. “Compensation—Equity Compensation Schemes and Other Benefit Plans.”
Employment Agreements
We have entered into employment agreements with our executive officers. For more information regarding these agreements, see
Item 6.B. “Compensation—Executive Officer Compensation—Employment Arrangements with our Executive Officers.” No director
has a service contract with us not terminable by us within one year without payment of compensation (other than statutory
compensation).
Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. We also maintain a general
liability insurance policy which covers certain liabilities of our directors and executive officers arising out of claims based on acts or
omissions in their capabilities as directors or officers.
C. Interests of Experts and Counsel.
Not applicable.
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ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information.
See Item 18 “Financial Statements.”
A.7 Legal Proceedings.
There are no material legal proceedings pending or, to our knowledge, threatened against us. We are also not aware of any incidents
of non-compliance with laws and regulations that may have a significant impact on us which would have a material adverse effect on
our financial condition or results of operations. From time to time we become subject to legal proceedings and claims in the ordinary
course of our business, including claims of alleged infringement of patents and other intellectual property rights. Such legal proceedings
or claims, even if not meritorious, could result in the expenditure of significant financial and management resources.
A.8 Dividend Policy.
We have never declared or paid dividends on our ordinary shares. We currently expect to retain all future earnings for use in the
operation and expansion of our business and do not have any present plan to pay any dividends. The declaration and payment of any
dividends in the future will be determined by our board of directors in its discretion, and will depend on a number of factors, including
our earnings, capital requirements, overall financial condition, and contractual restrictions.
B. Significant Changes.
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this
annual report.
ITEM 9. THE OFFER AND LISTING
Not applicable except for Item 9.A.4 and Item 9.C.
Our ADSs are listed on the Nasdaq Global Select and our ordinary shares are admitted to trading on the AIM market under the
symbol “HCM.” In addition, our ordinary shares are listed on the SEHK under stock code “0013.”
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital.
Not applicable.
B. Memorandum and Articles of Association.
On May 29, 2019, we conditionally adopted an amended and restated memorandum and articles of association by special resolution
and effective on the date on which our shares are listed on the SEHK (the “Amended and Restated Articles”). On June 30, 2021, the
listing date of our shares on the SEHK, the Amended and Restated Articles replaced the then existing articles of association of our
company adopted by at the annual general meeting held on April 27, 2020.
C. Material Contracts.
Except as otherwise disclosed in this annual report (including the exhibits hereto), we are not currently, and have not been in the
last two years, party to any material contract, other than contracts entered into in the ordinary course of our business.
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D. Exchange Controls.
Foreign currency exchange in the PRC is primarily governed by the Foreign Exchange Administration Rules issued by the State
Council on January 29, 1996 and effective as of April 1, 1996 (and amended on January 14, 1997 and August 5, 2008) and the
Regulations of Settlement, Sale and Payment of Foreign Exchange which came into effect on July 1, 1996.
Under the Foreign Exchange Administration Rules, renminbi is freely convertible for current account items, including the
distribution of dividends payments, interest payments, and trade and service-related foreign exchange transactions. Conversion of
renminbi for capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is
still generally subject to the approval or verification of the SAFE.
Under the Regulations of Settlement, Sale and Payment of Foreign Exchange, foreign invested enterprises including wholly foreign
owned enterprises, may buy, sell or remit foreign currencies only at those banks that are authorized to conduct foreign exchange business
after providing such banks with valid commercial supporting documents and, in the case of capital account item transactions, after
obtaining approvals from the SAFE. Capital investments by foreign invested enterprises outside the PRC are also subject to limitations,
which include approvals by the MOFCOM, the SAFE and the NDRC.
In March 2015, the SAFE released the Circular on Reforming the Management Approach regarding the Foreign Exchange Capital
Settlement of Foreign-invested Enterprises, or FIEs, or the Foreign Exchange Capital Settlement Circular, which became effective from
June 1, 2015. This circular replaced the SAFE’s previous related circulars, including the Circular on Issues Relating to the Improvement
of Business Operation with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign Invested
Enterprises. The Foreign Exchange Capital Settlement Circular clarifies that FIEs may settle a specified proportion of their foreign
exchange capital in banks at their discretion, and may choose the timing for such settlement. The proportion of foreign exchange capital
to be settled at FIEs’ discretion for the time being is 100% and the SAFE may adjust the proportion in due time based on the situation
of international balance of payments. The circular also stipulates that FIEs’ usage of capital and settled foreign exchange capital shall
comply with relevant provisions concerning foreign exchange control and be subject to the management of a negative list. The Notice
of the SAFE on Policies for Reforming and Regulating Control over Foreign Exchange Settlement under the Capital Account, which
became effective from June 9, 2016 and supplements the Foreign Exchange Capital Settlement Circular, stipulates that the FIEs’ capital
and Renminbi capital gained from the settlement of foreign exchange capital may not be directly or indirectly used for expenditure
beyond the business scope of the FIEs or as prohibited by laws and regulations of the PRC. Such capital also may not be directly or
indirectly used for granting loans to non-affiliated enterprises except as permitted by the business scope of the FIE or for construction
or purchase of real estate other than self-use (exceptions only apply for real estate enterprises).
In addition, the payment of dividends by entities established in the PRC is subject to limitations. Regulations in the PRC currently
permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in
the PRC. Each of our PRC subsidiaries that is a domestic company is also required to set aside at least 10.0% of its after-tax profit based
on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the accumulative amount of such
reserves reach 50.0% of its respective registered capital. These restricted reserves are not distributable as cash dividends. In addition, if
any of our PRC subsidiaries or joint ventures incurs debt on its own behalf in the future, the instruments governing the debt may restrict
its ability to pay dividends or make other distributions to us.
For more information about foreign exchange control, see Item 3.D. “Risk Factors—Other Risks and Risks Relating to Doing
Business in China—Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.”
E. Taxation.
The following is a general summary of certain PRC, Hong Kong, Cayman Islands and U.S. federal income tax consequences
relevant to the acquisition, ownership and disposition of our ADSs. The discussion is not intended to be, nor should it be construed as,
legal or tax advice to any particular individual. The discussion is based on laws and relevant interpretations thereof in effect as of
March 1, 2022, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not
address U.S. state or local tax laws, or tax laws of jurisdictions other than the PRC, Hong Kong, the Cayman Islands and the United
States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and disposition of our
ADSs and ordinary shares.
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PRC Enterprise Income Tax
Taxation in the PRC
Under the EIT Law, which was promulgated on March 16, 2007 and subsequently amended on February 24, 2017 and December
29, 2018, and its implementation rules which became effective on January 1, 2008 and subsequently amended on April 23, 2019, the
standard tax rate of 25% applies to all enterprises (including FIEs) with exceptions in special situations if relevant criteria are met and
subject to the approval of the PRC tax authorities.
An enterprise incorporated outside of the PRC whose “de facto management bodies” are located in the PRC is considered a “resident
enterprise” and will be subject to a uniform EIT rate of 25% on its global income. In April 2009, the SAT, in Circular 82, specified
certain criteria for the determination of what constitutes “de facto management bodies.” If all of these criteria are met, the relevant
foreign enterprise will be deemed to have its “de facto management bodies” located in the PRC and therefore be considered a resident
enterprise in the PRC. These criteria include: (a) the enterprise’s day-to-day operational management is primarily exercised in the PRC;
(b) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or
personnel in the PRC; (c) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’
meeting minutes are located or maintained in the PRC; and (d) 50% or more of voting board members or senior executives of the
enterprise habitually reside in the PRC. Although Circular 82 only applies to foreign enterprises that are majority-owned and controlled
by PRC enterprises, not those owned and controlled by foreign enterprises or individuals, the determining criteria set forth in Circular
82 may be adopted by the PRC tax authorities as the test for determining whether the enterprises are PRC tax residents, regardless of
whether they are majority-owned and controlled by PRC enterprises. However, it is not entirely clear how the PRC tax authorities will
determine whether a non-PRC entity (that has not already been notified of its status for EIT purposes) will be classified as a “resident
enterprise” in practice.
Except for our PRC subsidiaries and joint ventures incorporated in China, we believe that none of our entities incorporated outside
of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination
by the PRC tax authorities, and uncertainties remain with respect to the interpretation of the term “de facto management body.”
If a non-PRC enterprise is classified as a “resident enterprise” for EIT purposes, any dividends to be distributed by that enterprise
to non-PRC resident shareholders or ADS holders or any gains realized by such investors from the transfer of shares or ADSs may be
subject to PRC tax. If the PRC tax authorities determine that we should be considered a PRC resident enterprise for EIT purposes, any
dividends payable by us to our non-PRC resident enterprise shareholders or ADS holders, as well as gains realized by such investors
from the transfer of our shares or ADSs may be subject to a 10% withholding tax, unless a reduced rate is available under an applicable
tax treaty. Furthermore, if we are considered a PRC resident enterprise for EIT purposes, it is unclear whether our non-PRC individual
shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual
shareholders. If any PRC tax were to apply to dividends realized by non-PRC individuals, it would generally apply at a rate of up to
20% unless a reduced rate is available under an applicable tax treaty.
According to the EIT Law, dividends declared after January 1, 2008 and paid by PRC FIEs to their non-PRC parent companies will
be subject to PRC withholding tax at 10% unless there is a tax treaty between the PRC and the jurisdiction in which the overseas parent
company is a tax resident and which specifically exempts or reduces such withholding tax, and such tax exemption or reduction is
approved by the relevant PRC tax authorities. Pursuant to the Arrangement, if the non-PRC immediate holding company is a Hong Kong
tax resident and directly holds a 25% or more equity interest in the PRC enterprise and is considered to be the beneficial owner of
dividends paid by the PRC enterprise, such withholding tax rate may be lowered to 5%, subject to approval by the relevant PRC tax
authorities in accordance with relevant tax regulations upon the assessment of beneficial ownership.
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Cayman Islands Taxation
Overview of Tax Implications of Various Other Jurisdictions
According to our Cayman Islands counsel, Conyers Dill & Pearman, the Cayman Islands currently levies no taxes on individuals
or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty.
There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may
be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is a party to a
double tax treaty entered into with the United Kingdom in 2010 but it is otherwise not a party to any double tax treaties that are applicable
to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to the Tax Concessions Act of the Cayman Islands, HUTCHMED (China) Limited has obtained an undertaking: (a) that
no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply
to us or our operations; and (b) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable (i) on
its shares, debentures or other obligations or (ii) by way of the withholding in whole or in part of any relevant payment as defined in the
Tax Concessions Act.
The undertaking is for a period of twenty years from December 31, 2020.
Hong Kong Taxation
Profits Tax
HUTCHMED (China) Limited is a Hong Kong tax resident. Hong Kong tax residents are subject to Hong Kong Profits Tax in
respect of profits arising in or derived from Hong Kong at the current rate of 16.5% (except portions eligible for the two-tiered profits
tax as discussed above). Dividend income earned by a Hong Kong tax resident is generally not subject to Hong Kong Profits Tax.
Hong Kong tax on shareholders and ADS holders
No tax is payable in Hong Kong in respect of dividends paid by a Hong Kong tax resident to their shareholders, including our ADS
holders.
Hong Kong Profits Tax will not be payable by our shareholders, including our ADS holders (other than shareholders / ADS holders
carrying on a trade, profession or business in Hong Kong and holding the shares / ADSs for trading purposes), on any capital gains made
on the sale or other disposal of the shares or ADSs. Shareholders, including our ADS holders, should take advice from their own
professional advisors as to their particular tax position.
U.S. Taxation
Corporate Tax
Our subsidiaries in the United States, HUTCHMED International Corporation (formerly Hutchison MediPharma International Inc.
Our subsidiaries in the United States, HUTCHMED International Corporation (formerly Hutchison MediPharma International Inc.
and Hutchison MediPharma (US), Inc) and HUTCHMED US Corporation, are subject to a federal corporate tax of 21%.
and Hutchison MediPharma (US) Inc) and HUTCHMED US Corporation, are subject to a federal corporate tax of 21%.
Material U.S. Federal Income Tax Considerations with Respect to Ordinary Shares and ADSs
The following summary, subject to the limitations set forth below, describes the material U.S. federal income tax consequences for
a U.S. Holder (as defined below) of the acquisition, ownership and disposition of ordinary shares and ADSs. It is not a comprehensive
description of all tax considerations that may be relevant to a particular person’s decision to acquire securities. This discussion is limited
to U.S. Holders who hold such ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended, or the Code, for tax purposes (generally, property held for investment). For the purposes of this summary, a
“U.S. Holder” is a beneficial owner of an ordinary share or ADS that is for U.S. federal income tax purposes:
a citizen or individual resident of the United States;
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a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) organized in or under the laws
of the United States or any state thereof, or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust if (i) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S.
court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of
its substantial decisions.
Except as explicitly set forth below, this summary does not address aspects of U.S. federal income taxation that may be applicable
to U.S. Holders subject to special rules, including:
banks or other financial institutions;
insurance companies;
real estate investment trusts;
regulated investment companies;
grantor trusts;
tax-exempt organizations;
persons holding our ordinary shares or ADSs through a partnership (including an entity or arrangement treated as a partnership
for U.S. federal income tax purposes) or S corporation;
dealers or traders in securities, commodities or currencies;
persons whose functional currency is not the U.S. dollar;
U.S. expatriates and certain former citizens or former long-term residents of the United States;
persons required under Section 451(b) of the Code to conform to the timing of income accruals with respect to our ADSs or
the ordinary shares represented by such ADSs;
persons holding our ordinary shares or ADSs as part of a position in a straddle or as part of a hedging, conversion or integrated
transaction for U.S. federal income tax purposes; or
direct, indirect or constructive owners of 10% or more of our equity (by vote or value).
In addition, this summary does not address the U.S. federal estate and gift tax or the alternative minimum tax consequences of the
acquisition, ownership, and disposition of our ordinary shares or ADSs. We have not received nor do we expect to seek a ruling from
the U.S. Internal Revenue Service, or the IRS, regarding any matter discussed herein. No assurance can be given that the IRS would not
assert, or that a court would not sustain, a position contrary to any of those set forth below. Each prospective investor should consult its
own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of our
ordinary shares and ADSs.
This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder and administrative and judicial
interpretations thereof, and the income tax treaty between the PRC and the United States, or the U.S.- PRC Tax Treaty, each as available
and in effect on the date hereof, all of which are subject to change or differing interpretations, possibly with retroactive effect, which
could affect the tax consequences described herein. In addition, this summary assumes representations made by the depositary to us in
the deposit agreement are true and assumes that the deposit agreement, and all other related agreements, will be performed in accordance
with their terms.
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If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our ordinary shares or ADSs, the tax
treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the
partnership. Such partner or partnership should consult its own tax advisors as to the U.S. federal income tax consequences of acquiring,
owning and disposing of our ordinary shares or ADSs.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE PARTICULAR
TAX CONSEQUENCES APPLICABLE TO THEIR SITUATIONS AS WELL AS THE APPLICATION OF ANY U.S. FEDERAL,
STATE, LOCAL, NON-U.S. OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS.
ADSs
A U.S. Holder of ADSs will generally be treated, for U.S. federal income tax purposes, as the owner of the underlying ordinary
shares that such ADSs represent. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying
shares represented by those ADSs.
The U.S. Treasury has expressed concern that parties to whom ADSs are released before shares are delivered to the depositary or
intermediaries in the chain of ownership between holders and the issuer of the security underlying the ADSs, may be taking actions that
are inconsistent with the claiming of foreign tax credits by U.S. Holders of ADSs. These actions would also be inconsistent with the
claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate U.S. Holders.
Accordingly, the creditability of non-U.S. withholding taxes (if any), and the availability of the reduced tax rate for dividends received
by certain non-corporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries. For
the purposes of the discussion below, we assume that intermediaries in the chain of ownership between the holder of an ADS and us are
acting consistently with the claim of U.S. foreign tax credits by U.S. Holders.
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Taxation of Dividends
As described in “Dividend Policy” above, we do not currently anticipate paying any distributions on our ordinary shares or ADSs
in the foreseeable future. However, to the extent there are any distributions made with respect to our ordinary shares or ADSs, and
subject to the discussion under “—Passive Foreign Investment Company Considerations” below, the gross amount of any such
distribution (including withheld taxes, if any) made out of our current or accumulated earnings and profits (as determined for U.S.
federal income tax purposes) will generally be taxable to a U.S. Holder as ordinary dividend income on the date such distribution is
actually or constructively received. Distributions in excess of our current and accumulated earnings and profits will be treated as a non-
taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs, as applicable, and thereafter
as capital gain. However, because we do not maintain calculations of our earnings and profits in accordance with U.S. federal income
tax accounting principles, U.S. Holders should expect to treat distributions paid with respect to our ordinary shares and ADSs as
dividends. Dividends paid to corporate U.S. Holders generally will not qualify for the dividends received deduction that may otherwise
be allowed under the Code. This discussion assumes that distributions made by us, if any, will be paid in U.S. dollars.
Dividends paid to a non-corporate U.S. Holder by a “qualified foreign corporation” may be subject to reduced rates of U.S. federal
income taxation if certain holding period and other requirements are met. A qualified foreign corporation generally includes a foreign
corporation (other than a PFIC) if (1) its ordinary shares (or ADSs backed by ordinary shares) are readily tradable on an established
securities market in the United States or (2) it is eligible for benefits under a comprehensive U.S. income tax treaty that includes an
exchange of information program and which the U.S. Treasury Department has determined is satisfactory for these purposes.
IRS guidance indicates that our ADSs (which are listed on the Nasdaq Global Select Market) are readily tradable for purposes of
satisfying the conditions required for these reduced tax rates. We do not expect, however, that our ordinary shares will be listed on an
established securities market in the United States and therefore do not believe that any dividends paid on our ordinary shares that are
not represented by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs
will be considered readily tradable on an established securities market in subsequent years.
The United States does not have a comprehensive income tax treaty with the Cayman Islands. However, in the event that we were
deemed to be a PRC resident enterprise under the EIT Law (see “—Taxation in the PRC” above), although no assurance can be given,
we might be considered eligible for the benefits of the U.S.-PRC Tax Treaty for the purposes of these rules. U.S. Holders should consult
their own tax advisors regarding the availability of the reduced tax rates on dividends paid with respect to our ordinary shares or ADSs
in light of their particular circumstances.
Non-corporate U.S. Holders will not be eligible for reduced rates of U.S. federal income taxation on any dividends received from
us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year unless, under certain
circumstances, the “deemed sale election” described below under “—Passive Foreign Investment Company Considerations—Status as
a PFIC” has been made.
In the event that we were deemed to be a PRC resident enterprise under the EIT Law (see “—Taxation in the PRC” above), U.S.
Holders might be subject to PRC withholding taxes on dividends paid by us. In that case, subject to certain conditions and limitations,
such PRC withholding tax may be treated as a foreign tax eligible for credit against a U.S. Holder’s U.S. federal income tax liability
under the U.S. foreign tax credit rules. For the purposes of calculating the U.S. foreign tax credit, dividends paid on our ordinary shares
or ADSs, will be treated as income from sources outside the United States and will generally constitute passive category income. If a
U.S. Holder is eligible for U.S.-PRC Tax Treaty benefits, any PRC taxes on dividends will not be creditable against such U.S. Holder’s
U.S. federal income tax liability to the extent such tax is withheld at a rate exceeding the applicable U.S.-PRC Tax Treaty rate. An
eligible U.S. Holder who does not elect to claim a foreign tax credit for PRC tax withheld may instead be eligible to claim a deduction,
for U.S. federal income tax purposes, in respect of such withholding but only for the year in which such U.S. Holder elects to do so for
all creditable foreign income taxes. The U.S. foreign tax credit rules are complex. U.S. Holders should consult their own tax advisors
regarding the foreign tax credit rules in light of their particular circumstances.
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Taxation of Capital Gains
Subject to the discussion below in “—Passive Foreign Investment Company Considerations,” upon the sale, exchange, or other
taxable disposition of our ordinary shares or ADSs, a U.S. Holder generally will recognize gain or loss in an amount equal to the
difference between the amount realized on such sale or exchange (determined in the case of sales or exchanges in currencies other than
U.S. dollars by reference to the spot exchange rate in effect on the date of the sale or exchange or, if sold or exchanged on an established
securities market and the U.S. Holder is a cash basis taxpayer or an electing accrual basis taxpayer, the spot exchange rate in effect on
the settlement date) and the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs determined in U.S. dollars. A U.S. Holder’s
initial tax basis will be the U.S. Holder’s U.S. dollar purchase price for such ordinary shares or ADSs.
Assuming we are not a PFIC and have not been treated as a PFIC during the U.S. Holder’s holding period for its ordinary shares or
ADSs, such gain or loss will be capital gain or loss. Under current law, capital gains of non-corporate U.S. Holders derived with respect
to capital assets held for more than one year are generally eligible for reduced rates of taxation. The deductibility of capital losses is
subject to limitations. Capital gain or loss, if any, recognized by a U.S. Holder generally will be treated as U.S. source income or loss
for U.S. foreign tax credit purposes. U.S. Holders are encouraged to consult their own tax advisors regarding the availability of the U.S.
foreign tax credit in consideration of their particular circumstances.
If we were treated as a PRC resident enterprise for EIT Law purposes and PRC tax were imposed on any gain (see “—Taxation in
the PRC” above), and if a U.S. Holder is eligible for the benefits of the U.S.-PRC Tax Treaty, the holder may be able to treat such gain
as PRC source gain under the treaty for U.S. foreign tax credit purposes. A U.S. Holder will be eligible for U.S.-PRC Tax Treaty benefits
if (for the purposes of the treaty) such holder is a resident of the United States and satisfies the other requirements specified in the U.S.-
PRC Tax Treaty. Because the determination of treaty benefit eligibility is fact-intensive and depends upon a holder’s particular
circumstances, U.S. Holders should consult their tax advisors regarding U.S.-PRC Tax Treaty benefit eligibility. U.S. Holders are also
encouraged to consult their own tax advisors regarding the tax consequences in the event PRC tax were to be imposed on a disposition
of ordinary shares or ADSs, including the availability of the U.S. foreign tax credit and the ability and whether to treat any gain as PRC
source gain for the purposes of the U.S. foreign tax credit in consideration of their particular circumstances.
Additional Tax on Net Investment Income
An additional 3.8% tax is imposed on the “net investment income” of certain U.S. citizens and resident aliens, and on the
undistributed “net investment income” of certain estates and trusts. Among other items, “net investment income” would generally
include dividends on and gains from the sale or other disposition of ordinary shares or ADSs. You should consult your own tax advisor
regarding the application of this tax.
Passive Foreign Investment Company Considerations
Status as a PFIC. The rules governing PFICs can result in adverse tax consequences to U.S. Holders. We generally will be
classified as a PFIC for U.S. federal income tax purposes if, for any taxable year, either: (1) 75% or more of our gross income consists
of certain types of passive income, or (2) the average value (determined on a quarterly basis), of our assets that produce, or are held for
the production of, passive income is 50% or more of the value of all of our assets.
Passive income generally includes dividends, interest, rents and royalties (other than certain rents and royalties derived in the active
conduct of a trade or business), annuities and gains from assets that produce passive income. If a non-U.S. corporation owns at least
25% by value of the stock of another corporation, the non-U.S. corporation is treated for the purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s
income. Under this rule, we should be deemed to own a proportionate share of the assets and to have received a proportionate share of
the income of our principal subsidiaries and joint ventures, including Shanghai Hutchison Pharmaceuticals Limited and Hutchison
Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited for the period up to September 28, 2021 (the effective date of
disposal), for the purposes of the PFIC determination.
Additionally, if we are classified as a PFIC in any taxable year with respect to which a U.S. Holder owns ordinary shares or ADSs,
we generally will continue to be treated as a PFIC with respect to such U.S. Holder in all succeeding taxable years, regardless of whether
we continue to meet the tests described above, unless the U.S. Holder makes the “deemed sale election” described below. Furthermore,
if we are treated as a PFIC, then one or more of our subsidiaries may also be treated as PFICs.
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Based on certain estimates of our gross income and gross assets (which estimates are inherently imprecise) and the nature of our
business, we do not believe that we are currently a PFIC. Notwithstanding the foregoing, the determination of whether we are a PFIC is
made annually and depends on particular facts and circumstances (such as the valuation of our assets, including goodwill and other
intangible assets) and also may be affected by the application of the PFIC rules, which are subject to differing interpretations. The fair
market value of our assets is expected to depend, in part, upon (a) the market price of our ADSs, which is likely to fluctuate, and (b) the
composition of our income and assets, which will be affected by how, and how quickly, we spend any cash that is raised in any financing
transaction. In light of the foregoing, no assurance can be provided that we are not currently a PFIC or that we will not become a PFIC
in any future taxable year. Prospective investors should consult their own tax advisors regarding our PFIC status.
U.S. federal income tax treatment of a shareholder of a PFIC. If we are classified as a PFIC for any taxable year during which
a U.S. Holder owns ordinary shares or ADSs, the U.S. Holder, absent certain elections (including the mark-to-market and QEF elections
described below), generally will be subject to adverse rules (regardless of whether we continue to be classified as a PFIC) with respect
to (1) any “excess distributions” (generally, any distributions received by the U.S. Holder on its ordinary shares or ADSs in a taxable
year that are greater than 125% of the average annual distributions received by the U.S. Holder in the three preceding taxable years or,
if shorter, the U.S. Holder’s holding period) and (2) any gain realized on the sale or other disposition, including a pledge, of such
ordinary shares or ADSs.
Under these rules (a) the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period, (b) the amount
allocated to the current taxable year and any taxable year prior to the first taxable year in which we are classified as a PFIC will be taxed
as ordinary income and (c) the amount allocated to each other taxable year during the U.S. Holder’s holding period in which we were
classified as a PFIC (i) will be subject to tax at the highest rate of tax in effect for the applicable category of taxpayer for that year and
(ii) will be subject to an interest charge at a statutory rate with respect to the resulting tax attributable to each such other taxable year. In
addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a
PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
If we are classified as a PFIC, a U.S. Holder will generally be treated as owning a proportionate amount (by value) of stock or
shares owned by us in any direct or indirect subsidiaries that are also PFICs and will be subject to similar adverse rules with respect to
any distributions we receive from, and dispositions we make of, the stock or shares of such subsidiaries. U.S. Holders are urged to
consult their tax advisors about the application of the PFIC rules to any of our subsidiaries.
If we are classified as a PFIC and then cease to be so classified, a U.S. Holder may make an election (a “deemed sale election”) to
be treated for U.S. federal income tax purposes as having sold such U.S. Holder’s ordinary shares or ADSs on the last day of our taxable
year during which we were a PFIC. A U.S. Holder that makes a deemed sale election would then cease to be treated as owning stock in
a PFIC. However, gain recognized as a result of making the deemed sale election would be subject to the adverse rules described above
and loss would not be recognized.
PFIC “mark-to-market” election. In certain circumstances, a holder of “marketable stock” of a PFIC can avoid certain of the
adverse rules described above by making a timely mark-to-market election with respect to such stock. For the purposes of these rules
“marketable stock” is stock which is “regularly traded” (traded in greater than de minimis quantities on at least 15 days during each
calendar quarter) on a “qualified exchange” or other market within the meaning of applicable U.S. Treasury Regulations. A “qualified
exchange” includes a national securities exchange that is registered with the SEC.
A U.S. Holder that makes a timely mark-to-market election must include in gross income, as ordinary income, for each taxable year
that we are a PFIC an amount equal to the excess, if any, of the fair market value of the U.S. Holder’s ordinary shares or ADSs that are
“marketable stock” at the close of the taxable year over the U.S. Holder’s adjusted tax basis in such ordinary shares or ADSs. An electing
U.S. Holder may also claim an ordinary loss deduction for the excess, if any, of the U.S. Holder’s adjusted tax basis in such ordinary
shares or ADSs over their fair market value at the close of the taxable year, but this deduction is allowable only to the extent of any net
mark-to-market gains previously included in income pursuant to the timely mark-to-market election. The adjusted tax basis of a U.S.
Holder’s ordinary shares or ADSs with respect to which the timely mark-to-market election applies would be adjusted to reflect amounts
included in gross income or allowed as a deduction because of such election. If a U.S. Holder makes an effective mark-to-market election
with respect to our ordinary shares or ADSs, gains from an actual sale or other disposition of such ordinary shares or ADSs in a year in
which we are a PFIC would be treated as ordinary income, and any losses incurred on such sale or other disposition would be treated as
ordinary losses to the extent of any net mark-to-market gains previously included in income.
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If we are classified as a PFIC for any taxable year in which a U.S. Holder owns ordinary shares or ADSs but before a timely mark-
to-market election is made, the adverse PFIC rules described above will apply to any mark-to-market gain recognized in the year the
election is made. Otherwise, a timely mark-to-market election will be effective for the taxable year for which the election is made and
all subsequent taxable years unless the ordinary shares or ADSs are no longer regularly traded on a qualified exchange or the IRS
consents to the revocation of the election. Our ADSs are listed on the Nasdaq Global Select Market, which is a qualified exchange or
other market for the purposes of the mark-to-market election. Consequently, if the ADSs continue to be so listed, and are “regularly
traded” for the purposes of these rules (for which no assurance can be given) we expect that the mark-to-market election would be
available to a U.S. Holder with respect to our ADSs.
A mark-to-market election is not permitted for the shares of any of our subsidiaries that are also classified as PFICs. Prospective
investors should consult their own tax advisors regarding the availability of, and the procedure for, and the effect of making, a mark-to-
market election, and whether making the election would be advisable, including in light of their particular circumstances.
PFIC “QEF” election. In some cases, a shareholder of a PFIC can avoid the interest charge and the other adverse PFIC tax
consequences described above by obtaining certain information from the PFIC and by making a timely QEF election to be taxed currently
on its share of the PFIC’s undistributed income. We do not, however, expect to provide the information regarding our income that would
be necessary in order for a U.S. Holder to make a timely QEF election if we were classified as a PFIC.
PFIC information reporting requirements. If we are classified as a PFIC in any year with respect to a U.S. Holder, such U.S.
Holder will be required to file an annual information return on IRS Form 8621 regarding distributions received on, and any gain realized
on the disposition of, our ordinary shares and ADSs, and certain U.S. Holders will be required to file an annual information return (also
on IRS Form 8621) relating to their ownership interest.
NO ASSURANCE CAN BE GIVEN THAT WE ARE NOT CURRENTLY A PFIC OR THAT WE WILL NOT BECOME A PFIC
IN THE FUTURE. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE OPERATION
OF THE PFIC RULES AND RELATED REPORTING REQUIREMENTS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES, INCLUDING THE ADVISABILITY AND EFFECTS OF MAKING ANY ELECTION THAT MAY BE
AVAILABLE.
Backup Withholding and Information Reporting and Filing Requirements
Backup withholding and information reporting requirements may apply to distributions on, and proceeds from the sale or disposition
of, ordinary shares and ADSs that are held by U.S. Holders. The payor will be required to withhold tax (currently at a rate of 24%) on
such payments made within the United States, or by a U.S. payor or a U.S. intermediary (and certain subsidiaries thereof) to a U.S.
Holder, other than an exempt recipient, if the U.S. Holder is not otherwise exempt and:
the holder fails to furnish the holder’s taxpayer identification number, which for an individual is ordinarily his or her social
security number;
the holder furnishes an incorrect taxpayer identification number;
the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest
or dividends; or
the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and
that the IRS has not notified the holder that the holder is subject to backup withholding.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s
U.S. federal income tax liability (if any) or refunded provided the required information is furnished to the IRS in a timely manner. U.S.
Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures
for obtaining such an exemption.
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Certain U.S. Holders of specified foreign financial assets with an aggregate value in excess of the applicable dollar threshold are
required to report information relating to their holding of ordinary shares or ADSs, subject to certain exceptions (including an exception
for shares held in accounts maintained by certain financial institutions) with their tax returns for each year in which they hold such
interests. U.S. Holders should consult their own tax advisors regarding the information reporting obligations that may arise from their
acquisition, ownership or disposition of our ordinary shares or ADSs.
THE ABOVE DISCUSSION DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A
PARTICULAR INVESTOR. PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISORS ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN OUR ORDINARY SHARES OR ADSs.
F. Dividends and Payment Agents.
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display.
We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with
the SEC. Shareholders may access our reports and other information filed with the SEC by viewing them on the SEC’s website, at
www.sec.gov. We also make available on our website’s investor relations page, free of charge, our annual report and the text of our
reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable
after they are electronically filed with or furnished to the SEC. The address for our investor relations page is www.hutch-med.com/
shareholder-information. The information contained on our website is not incorporated by reference in this annual report.
We are a “foreign private issuer” as such term is defined in Rule 405 under the Securities Act, and are not subject to the same
requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations
that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, we do not file
the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file or furnish to the SEC the continuous
disclosure documents that we are required to file on the AIM market.
We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include
a review of operation and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of
shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will
make such notices, reports and communications available to holders of ADSs and, upon our requests, will mail to all record holders of
ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
I. Subsidiary information.
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Most of our revenue and expenses are denominated in renminbi, and our consolidated financial statements are presented in U.S.
dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial
instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risks should be limited, the
value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and the renminbi because the value
of our business is effectively denominated in renminbi, while the ADSs will be traded in U.S. dollars.
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The value of the renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes
in China’s political and economic conditions. The conversion of renminbi into foreign currencies, including U.S. dollars, has been
based on rates set by the PBOC. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the
renminbi to the U.S. dollar. Under the revised policy, the renminbi is permitted to fluctuate within a narrow and managed band against
a basket of certain foreign currencies. This change in policy resulted in a more than 20% appreciation of the renminbi against the U.S.
dollar in the following three years. Between July 2008 and June 2010, this appreciation halted, and the exchange rate between the
renminbi and U.S. dollar remained within a narrow band. In June 2010, the PBOC announced that the PRC government would increase
the flexibility of the exchange rate, and thereafter allowed the renminbi to appreciate slowly against the U.S. dollar within the narrow
band fixed by the PBOC. At various times since then, the PBOC has significantly devalued the renminbi against the U.S. dollar. If we
decide to convert renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for
other business purposes, appreciation of the U.S. dollar against the renminbi would have a negative effect on the U.S. dollar amounts
available to us.
Credit Risk
Substantially all of our bank deposits are in major financial institutions, which we believe are of high credit quality. We limit the
amount of credit exposure to any single financial institution. We make periodic assessments of the recoverability of trade and other
receivables and amounts due from related parties. Our historical experience in collection of receivables falls within the recorded
allowances, and we believe that we have made adequate provision for uncollectible receivables.
Interest Rate Risk
We have no significant interest-bearing assets except for bank deposits. Our exposure to changes in interest rates is mainly
attributable to our bank borrowings, which bear interest at floating interest rates and expose us to cash flow interest rate risk. We have
not used any interest rate swaps to hedge our exposure to interest rate risk. We have performed sensitivity analysis for the effects on
our results for the year from changes in interest rates on floating rate borrowings. The sensitivity to interest rates used is based on the
market forecasts available at the end of the reporting period and under the economic environments in which we operate, with other
variables held constant. According to the analysis, the impact on our net loss of a 1.0% interest rate shift would be a maximum
increase/decrease of $0.3 million for the year ended December 31, 2021.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
Our ADSs representing our ordinary shares are currently traded on Nasdaq. Dealings in our ADSs on Nasdaq are conducted in U.S.
dollars.
ADSs may be held either:
(a) directly: (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific
number of ADSs registered in the holder’s name; or (ii) by having uncertificated ADSs registered in the holder’s name; or
(b) indirectly, by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or indirect
participant in The Depository Trust Company, also called DTC.
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The depositary for our ADSs is Deutsche Bank Trust Company Americas, whose office is located at 1 Columbus Circle, New York,
NY 10019, United States.
Fees and charges our ADS holders may have to pay
ADS holders will be required to pay the following service fees to Deutsche Bank Trust Company America, the depositary of our
ADS program, and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental
charges payable on the deposited securities represented by ADSs):
Service
To any person to which ADSs are issued or to any person to which a distribution is made in
respect of ADS distributions pursuant to stock dividends or other free distributions of stock,
bonus distributions, stock splits or other distributions (except where converted to cash)
Fees
Up to $0.05 per ADS issued
Cancellation or withdrawal of ADSs, including the case of termination of the deposit agreement Up to $0.05 per ADS cancelled
Distribution of cash dividends
Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale
Up to $0.05 per ADS held
Up to $0.05 per ADS held
of rights, securities and other entitlements
Distribution of ADSs pursuant to exercise of rights
Depositary services
Up to $0.05 per ADS held
Up to $0.05 per ADS held on
the applicable record date(s)
established by the depositary
bank (an annual fee)
ADS holders will also be responsible for paying certain fees and expenses incurred by the depositary bank and certain taxes and
governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited
securities represented by any of your ADSs) such as:
Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the
Cayman Islands (i.e., upon deposit and withdrawal of ordinary shares).
Expenses incurred for converting foreign currency into U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery of securities.
Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or
withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements
applicable to ordinary shares, ordinary shares deposited securities, ADSs and ADRs.
Any applicable fees and penalties thereon.
The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers
(on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients)
delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees
payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary
bank to the holders of record of ADSs as of the applicable ADS record date.
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The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of
distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank
charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name
of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record
date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its
fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and
custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn
charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS
holder.
Fees and other payments made by the depositary to us
The depositary has agreed to pay certain amounts to us in exchange for its appointment as depositary. We may use these funds
towards our expenses relating to the establishment and maintenance of the ADR program, including investor relations expenses, or
otherwise as we see fit. In 2021, we did not collect any reimbursements from the depositary for expenses related to the administration
and maintenance of the facility.
Ordinary Shares and Conversions
Our ordinary shares are admitted to trading on AIM and trade on the SEHK. Dealings in our ordinary shares on the AIM and SEHK
are conducted in pound sterlings and H.K. dollars, respectively.
In connection with the initial public offering of our ordinary shares in Hong Kong in June 2021, we established a branch register of
members in Hong Kong, or the Hong Kong share register, which will be maintained by our Hong Kong Share Registrar, Computershare
Hong Kong Investor Services Limited. Our principal register of members, or the Cayman share register, will continue to be maintained
by our Principal Share Registrar, Computershare Investor Services (Jersey) Limited. All ordinary shares offered in our initial public
offering in Hong Kong were registered on the Hong Kong share register in order to be listed and traded on the SEHK.
Details on the conversion process between SEHK, Nasdaq and AIM are available at https://www.hutch-med.com/shareholder-
information/investor-faqs/.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
A-D. Material Modifications to the Rights of Security Holders; Assets Securing Securities; Trustees; Paying Agents.
None.
E. Use of Proceeds.
Not applicable.
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ITEM 15. CONTROLS AND PROCEDURES
A. Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, management, including our chief executive officer and our chief financial
officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.
Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed
in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding our required disclosure. Based on such evaluation, our
management has concluded that, as of December 31, 2021, our disclosure controls and procedures were effective.
B. Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in
Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements in accordance with U.S. GAAP and includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance
with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with
authorizations of a company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our chief executive officer and chief financial officer, has assessed the effectiveness of
our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework
(2013 Framework). Based on this assessment, management concluded that our internal control over financial reporting was effective as
of December 31, 2021.
C. Attestation Report of the Independent Registered Public Accounting Firm.
Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian LLP (“PricewaterhouseCoopers Zhong
Tian”) , has audited the effectiveness of our internal control over financial reporting as of December 31, 2021, as stated in its report,
which appears in this annual report.
D. Changes in Internal Control over Financial Reporting.
There were no changes in our internal controls over financial reporting during the fiscal year ended December 31, 2021 that have
materially and adversely affected, or are reasonably likely to materially and adversely affect, our internal control over financial reporting.
ITEM 16. RESERVED
228
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTS
Our audit committee consists of Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante, with Graeme Allan Jack
serving as chairman of the committee. Graeme Allan Jack, Paul Rutherford Carter and Karen Jean Ferrante each meet the independence
requirements under the rules of the Nasdaq Stock Market and under Rule 10A-3 under the Exchange Act. We have determined that
Graeme Allan Jack is an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K. All members of our
audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the Nasdaq Stock
Market. For information relating to qualifications and experience of each audit committee member, see Item 6. “Directors, Senior
Management and Employees.”
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of ethics applicable to all of our employees, officers and directors, including our principal
executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. This
code is intended to qualify as a “code of ethics” within the meaning of the applicable rules of the SEC. Our code of ethics is available
on our website at https://www.hutch-med.com/shareholder-information/corporate-governance/code-of-ethics/. Information contained
on, or that can be accessed through, our website is not incorporated by reference into this annual report. See Item 6.C. “Board Practices—
Code of Ethics” for more information.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Principal Accountant Fees and Services
The following table summarizes the fees charged by PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers for certain
services rendered to our company, including some of our subsidiaries and joint ventures, during 2021 and 2020.
Audit fees(1)
Tax fees(2)
Other service fees(3)
Total(4)
Notes:
For the year ended
December 31,
2021
2020
(in thousands)
4,614
406
—
5,020
3,289
45
90
3,424
(1) “Audit fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by
PricewaterhouseCoopers Zhong Tian and PricewaterhouseCoopers for the audit of our annual financial statements and review of
our interim financial statements, filing of our Form F-3 and S-8, and professional services paid by us in connection with follow-on
offerings in the United States, initial public offering in Hong Kong and preparation for other capital market transactions.
(2) “Tax fees” means the aggregate fees billed in each of the fiscal years for professional services rendered by PricewaterhouseCoopers
for tax compliance and tax advice.
(3) “Other service fees” means the aggregate fees billed for professional services rendered by PricewaterhouseCoopers for information
technology system and security review.
(4) The fees disclosed are exclusive of out-of-pocket expenses and taxes on the amounts paid, which totaled approximately $164,000
and $117,000 in 2020 and 2021, respectively.
(5) On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and
dismissed PricewaterhouseCoopers. The fees for 2021 are fees payable to PricewaterhouseCoopers Zhong Tian. See also “Item
16F. Change in Registrant’s Certifying Accountant.”
229
Audit Committee Pre-approval Policies and Procedures
Our audit committee reviews and pre-approves the scope and the cost of audit services related to us and permissible non-audit
services performed by the independent auditors, other than those for de minimis services which are approved by the audit committee
prior to the completion of the audit. All of the services related to our company provided by PricewaterhouseCoopers Zhong Tian and
PricewaterhouseCoopers listed above have been approved by the audit committee.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On June 15, 2021, we engaged PricewaterhouseCoopers Zhong Tian as our independent registered public accounting firm, and
dismissed PricewaterhouseCoopers. The change of our independent registered public accounting firm had been approved by the audit
committee of our board of directors, and the decision was not made due to any disagreement between us and Pricewaterhouse Coopers.
The reports of PricewaterhouseCoopers on our consolidated financial statements for the fiscal years ended December 31, 2019 and
2020 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through June 15, 2021, there have
been no (i) disagreements between us and PricewaterhouseCoopers on any matter of accounting principles or practices, financial
statement disclosure, or audit scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers
would have caused them to make reference thereto in their reports on the consolidated financial statements for such years, or (ii)
reportable events as defined in Item 16F(a)(1)(v) of the instructions to Form 20-F.
We have provided PricewaterhouseCoopers with a copy of the disclosures hereunder and required under Item 16F of Form 20-F
and requested from PricewaterhouseCoopers a letter addressed to the Securities and Exchange Commission indicating whether it agrees
with such disclosures. A copy of PricewaterhouseCooper’s letter dated June 21, 2021 is attached as Exhibit 16.1 to our current report
on Form 6-K furnished to the SEC on June 21, 2021.
During each of the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through June 15, 2021, neither
we nor anyone on behalf of us has consulted with PricewaterhouseCoopers Zhong Tian regarding (i) the application of accounting
principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated
financial statements, and neither a written report nor oral advice was provided to us that PricewaterhouseCoopers Zhong Tian concluded
was an important factor considered by us in reaching a decision as to any accounting, audit or financial reporting issue, (ii) any matter
that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event
pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F.
230
ITEM 16G. CORPORATE GOVERNANCE
As permitted by Nasdaq, in lieu of the Nasdaq corporate governance rules, but subject to certain exceptions, we may follow the
practices of our home country which for the purpose of such rules is the Cayman Islands. Certain corporate governance practices in the
Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties
of care, Cayman Islands law has no corporate governance regime which prescribes specific corporate governance standards. For
example, we follow Cayman Islands corporate governance practices in lieu of the corporate governance requirements of the Nasdaq
Global Select Market in respect of the following:
(i)
the majority independent director requirement under Section 5605(b)(1) of the Nasdaq listing rules,
(ii) the requirement under Section 5605(d) of the Nasdaq listing rules that a remuneration committee comprised solely of
independent directors governed by a remuneration committee charter oversee executive compensation, and
(iii) the requirement under Section 5605(e) of the Nasdaq listing rules that director nominees be selected or recommended for
selection by either a majority of the independent directors or a nominations committee comprised solely of independent directors.
Cayman Islands law does not impose a requirement that our board of directors consist of a majority of independent directors, nor
does Cayman Islands law impose specific requirements on the establishment of a remuneration committee or nominating committee or
nominating process. We voluntarily comply with Hong Kong Corporate Governance Code. See Item 6.C. “Board Practice—Hong Kong
Corporate Governance Code” for more details.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
See Item 18 “Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
PART III
Our consolidated financial statements and the consolidated financial statements of our non-consolidated joint venture, Shanghai
Hutchison Pharmaceuticals, and our former non-consolidated joint venture, Hutchison Baiyunshan, are included at the end of this annual
report.
231
ITEM 19. EXHIBITS
EXHIBIT INDEX
1.1*
2.1
2.2
2.3
2.4*
2.5
4.1
4.2*+
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Amended and Restated Memorandum and Articles of Association of HUTCHMED (China) Limited
Form of Deposit Agreement and all holders and beneficial owners of ADSs issued thereunder (incorporated by reference
to Exhibit 4.1 to Amendment No. 4 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC
on March 4, 2016)
Form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to our Registration
Statement on Form F-1 (file no. 333-207447) filed with the SEC on March 4, 2016)
Form of Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.3 to Amendment No. 2 to our
Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on February 11, 2016)
Description of Ordinary Shares
Description of American Depositary Shares (incorporated by reference to Exhibit 2.5 to our annual report on Form 20-
F/A filed with the SEC on April 29, 2020)
Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited (formerly known
as Hutchison MediPharma Limited) and AstraZeneca AB (publ) dated as of December 7, 2020 (incorporated by
reference to Exhibit 4.1 to our annual report on Form 20-F filed with the SEC on March 4, 2021)
Amendment to the Amended and Restated License and Collaboration Agreement by and between HUTCHMED Limited
and AstraZeneca AB (publ) dated as of November 29, 2021
Amended and Restated Exclusive License and Collaboration Agreement by and HUTCHMED Limited, Eli Lilly
Trading (Shanghai) Company Limited and HUTCHMED (China) Limited dated as of October 8, 2013 (incorporated by
reference to Exhibit 4.2 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019)
First Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly
(Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of
December 18, 2018 (incorporated by reference to Exhibit 4.16 to our annual report on Form 20-F filed with the SEC on
March 11, 2019)
English translation of Sino-Foreign Joint Venture Contract by and between Shanghai Traditional Chinese Medicine Co.,
Ltd. and Shanghai HUTCHMED Investment Limited (formerly Hutchison Chinese Medicine (Shanghai) Investment
Limited) dated as of January 6, 2001 (incorporated by reference to Exhibit 4.6 to our annual report on Form 20-F/A
filed with the SEC on May 30, 2019)
English translation of First Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional
Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment Limited dated as of July 12, 2001 (incorporated by
reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on
October 16, 2015)
English translation of Second Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional
Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of November 5, 2007
(incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-207447) filed with
the SEC on October 16, 2015)
English translation of Third Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional
Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of June 19, 2012
(incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-207447) filed with
the SEC on October 16, 2015)
English translation of Fourth Amendment to Sino-Foreign Joint Venture Contract by and between Shanghai Traditional
Chinese Medicine Co., Ltd. and Shanghai HUTCHMED Investment (HK) Limited dated as of March 8, 2013
(incorporated by reference to Exhibit 4.10 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019)
English translation of Sino-Foreign Joint Venture Contract by and between Sinopharm Group Co. Ltd. and Hutchison
Chinese Medicine GSP (HK) Holdings Limited dated as of December 18, 2013 (incorporated by reference to Exhibit
4.11 to our annual report on Form 20-F/A filed with the SEC on May 30, 2019)
Form of Executive Employment Agreement for HUTCHMED Group (HK) Limited executive officers (incorporated by
reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on
October 16, 2015)
232
4.12
4.13
4.14
4.15*+
4.16*
4.17*
8.1*
12.1*
12.2*
13.1*
13.2*
15.1*
15.2*
15.3*
15.4*
15.5*
16.1
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*
English translation of Form of Executive Employment Agreement for HUTCHMED Limited executive officers
(incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-207447) filed with
the SEC on October 16, 2015)
Form of Indemnification Agreement for Directors and Officers (incorporated by reference to Exhibit 10.25 to our
Registration Statement on Form F-1 (file no. 333-207447) filed with the SEC on October 16, 2015)
Second Amendment to the Amended and Restated Exclusive License and Collaboration Agreement by and among Lilly
(Shanghai) Management Company Limited, HUTCHMED Limited and HUTCHMED (China) Limited dated as of July
28, 2020 (incorporated by reference to Exhibit 4.14 to our annual report on Form 20-F filed with the SEC on March 4,
2021)
License Agreement by and among Epizyme, Inc. and Hutchison China MediTech Investment Limited (now known as
HUTCHMED Group Investment Limited) dated as of August 7, 2021
Form of Offer Letter for Hutchison MediPharma (US) Inc. (now known as HUTCHMED International Corporation)
executive officer
Form of Offer Letter for Hutchison MediPharma International Inc. (now known as HUTCHMED International
Corporation) executive officer
List of Significant Subsidiaries of the Company
Certification of Chief Executive Officer Required by Rule 13a-14(a)
Certification of Chief Financial Officer Required by Rule 13a-14(a)
Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code
Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the
United States Code
Consent of PricewaterhouseCoopers Zhong Tian LLP, an independent registered accounting firm, regarding the
consolidated financial statements of HUTCHMED (China) Limited
Consent of PricewaterhouseCoopers, an independent registered accounting firm, regarding the consolidated financial
statements of HUTCHMED (China) Limited
Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated
financial statements of Shanghai Hutchison Pharmaceuticals Limited
Consent of PricewaterhouseCoopers Zhong Tian LLP, independent accountants, regarding the consolidated financial
statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consent of Conyers Dill & Pearman
Letter from PricewaterhouseCoopers to the Securities and Exchange Commission dated June 21, 2021 (incorporated
herein by reference to Exhibit 16.1 to the current report on Form 6-K furnished to the SEC on June 21, 2021)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definitions Linkbase Document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
† Furnished herewith.
+ Portions of the exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the
company if publicly disclosed.
233
The registrant hereby certifies that it meets all of the requirements for filing on annual report on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
Date: March 3, 2022
HUTCHMED (China) Limited
By:
/s/ CHRISTIAN LAWRENCE HOGG
Name: Christian Lawrence Hogg
Title: Chief Executive Officer
234
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of HUTCHMED (China) Limited
Report of Independent Registered Public Accounting Firm (PCAOB ID 1424 and 1389)
As at December 31, 2021 and December 31, 2020:
Consolidated Balance Sheets
For the Years Ended December 31, 2021, 2020 and 2019:
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Audited Consolidated Financial Statements of Shanghai Hutchison Pharmaceuticals Limited
Report of Independent Auditors
For the Years Ended December 31, 2021, 2020 and 2019:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at December 31, 2021 and December 31, 2020:
Consolidated Statements of Financial Position
For the Years Ended December 31, 2021, 2020 and 2019:
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Audited Consolidated Financial Statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company
Limited
Report of Independent Auditors
For the Period from January 1, 2021 to September 28, 2021 and the Years Ended December 31, 2020, and 2019:
Consolidated Income Statements
Consolidated Statements of Comprehensive Income
As at September 28, 2021 and December 31, 2020:
Consolidated Statements of Financial Position
For the Period from January 1, 2021 to September 28, 2021 and the Years Ended December 31, 2020 and 2019:
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-2
F-5
F-6
F-7
F-8
F-9
F-10
F-50
F-52
F-53
F-54
F-55
F-56
F-57
F-77
F-78
F-79
F-80
F-81
F-82
F-83
F-1
Refer to pages 92 to 150 in this annual report for the independent auditor’s report and the audited consolidated
financial statements of HUTCHMED (China) Limited.
F-2 to F-48
SHANGHAI HUTCHISON
PHARMACEUTICALS LIMITED
F-49
Report of Independent Auditors
To the Board of Directors of Shanghai Hutchison Pharmaceuticals Limited
Opinion
We have audited the accompanying consolidated financial statements of Shanghai Hutchison Pharmaceuticals Limited and its
subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2021 and 2020, and
the related consolidated income statements, consolidated statements of comprehensive income, of changes in equity and of cash flows
for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the
“consolidated financial statements”).
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2021 in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board .
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our
responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board , and for the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidatedfinancial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern
for at least, but not limited to, twelve months from the end of the reporting period, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high
level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS
will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they
would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with US GAAS, we:
● Exercise professional judgment and maintain professional skepticism throughout the audit.
●
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
F-50
● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Accordingly, no such opinion is expressed.
● Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluate the overall presentation of the consolidated financial statements.
● Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt
about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
March 3, 2022
F-51
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Income Statements
(in US$’000)
Note
5
6
7
15
8
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Finance costs
Profit before taxation
Taxation charge
Profit for the year
Year Ended December 31,
2020
276,354
(72,163)
204,191
(111,892)
(17,907)
3,473
77,865
(12)
77,853
(10,833)
67,020
2021
332,648
(77,559)
255,089
(131,821)
(22,627)
4,759
105,400
(116)
105,284
(15,896)
89,388
2019
272,082
(77,313)
194,769
(110,591)
(14,761)
2,941
72,358
(42)
72,316
(11,015)
61,301
The accompanying notes are an integral part of these consolidated financial statements.
F-52
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Profit for the year
Other comprehensive income/(loss) that has been or may be reclassified subsequently to
profit or loss:
Exchange translation differences
Total comprehensive income
Year Ended December 31,
2020
67,020
2021
89,388
2019
61,301
3,341
92,729
11,129
78,149
(4,670)
56,631
The accompanying notes are an integral part of these consolidated financial statements.
F-53
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Financial Position
(in US$’000)
Assets
Current assets
Cash and cash equivalents
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Total current assets
Property, plant and equipment
Right-of-use assets
Leasehold land
Other intangible asset
Deferred tax assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Trade payables
Other payables, accruals and advance receipts
Current tax liabilities
Lease liabilities
Total current liabilities
Deferred income
Lease liabilities
Total liabilities
Shareholders’ equity
Share capital
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
Note
2021
2020
December 31,
10
11
12
13
14
15
16
17
18
19
15
15
50,038
17,482
3,350
119,390
190,260
73,650
2,445
7,025
722
7,715
281,817
12,411
111,793
4,089
700
128,993
4,983
2,148
136,124
33,382
112,311
145,693
281,817
72,478
18,421
3,392
81,674
175,965
76,932
152
7,021
935
8,315
269,320
11,174
93,534
5,032
133
109,873
6,720
19
116,612
33,382
119,326
152,708
269,320
The accompanying notes are an integral part of these consolidated financial statements.
F-54
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Changes in Equity
(in US$’000)
As at January 1, 2019
Profit for the year
Other comprehensive loss
Exchange translation differences
Total comprehensive (loss)/income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2019
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2020
Profit for the year
Other comprehensive income
Exchange translation differences
Total comprehensive income
Transfer between reserves
Dividends declared to shareholders
As at December 31, 2021
Share
capital
33,382
—
—
—
—
—
33,382
—
Exchange General Retained
reserves
reserve
(3,854)
—
earnings
101,263
61,301
970
—
Total
equity
131,761
61,301
(4,670)
(4,670)
—
—
(8,524)
—
—
—
14
—
—
61,301
(14)
(41,654)
(4,670)
56,631
—
(41,654)
984 120,896 146,738
67,020
67,020
—
— 11,129
— 11,129
—
—
—
—
2,605
33,382
—
—
—
—
14
—
998
—
—
67,020
(14)
(72,179)
115,723
89,388
11,129
78,149
—
(72,179)
152,708
89,388
—
—
—
—
33,382
3,341
3,341
—
—
5,946
—
—
31
—
3,341
—
92,729
89,388
—
(31)
(99,744)
(99,744)
1,029 105,336 145,693
The accompanying notes are an integral part of these consolidated financial statements.
F-55
Shanghai Hutchison Pharmaceuticals Limited
Consolidated Statements of Cash Flows
(in US$’000)
Operating activities
Net cash generated from operations
Interest received
Income tax paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash used in investing activities
Financing activities
Dividends paid to shareholders
Lease payments
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
20
19
Year Ended December 31,
2020
2021
2019
93,970
1,116
(15,976)
79,110
112,609
912
(10,232)
103,289
(3,362)
32
(3,330)
(2,437)
63
(2,374)
76,784
518
(13,618)
63,684
(4,592)
9
(4,583)
15
(99,744)
(303)
(72,179)
(474)
(41,654)
(595)
(100,047)
(24,267)
1,827
(22,440)
(72,653)
28,262
2,972
31,234
(42,249)
16,852
(659)
16,193
72,478
50,038
41,244
72,478
25,051
41,244
The accompanying notes are an integral part of these consolidated financial statements.
F-56
Shanghai Hutchison Pharmaceuticals Limited
Notes to the Consolidated Financial Statements
1. General Information
Shanghai Hutchison Pharmaceuticals Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged
in manufacturing, selling and distribution of prescription drug products. The Group has manufacturing plants in the People’s Republic
of China (the “PRC”) and sells mainly in the PRC.
The Company was incorporated in the PRC on April 30, 2001 as a Chinese-Foreign Equity joint venture. The Company is jointly
controlled by Shanghai HUTCHMED Investment (HK) Limited (“SHHCMI(HK)L”) (formerly known as “Shanghai Hutchison Chinese
Medicine (HK) Investment Limited”) and Shanghai Traditional Chinese Medicine Co., Ltd (“SHTCML”).
These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been
approved for issue by the Company’s Board of Directors on March 3, 2022.
2. Summary of Significant Accounting Policies
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS.
The consolidated financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”). These
consolidated financial statements have been prepared under the historical cost convention.
During the year, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB
that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2021. The adoption of these new and
revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial
position.
The following standards, amendments and interpretations were issued but not yet effective for the financial year ended December
31, 2021 and have not been early adopted by the Group:
IFRS 3 (Amendments)(1)
IAS 16 (Amendments)(1)
IAS 37 (Amendments)(1)
Annual improvement 2018-2020(1)
IAS 1(2)
IAS 1 (Amendments)(2)
IAS 8 (Amendments)(2)
IAS 12 (Amendments)(2)
IFRS 17(2)
IFRS 10 and IAS 28 (Amendments)(3)
Reference to the Conceptual Framework
Property, Plant and Equipment: Proceeds before Intended Use
Onerous Contracts – Costs of Fulfilling a Contract
Improvements to IFRSs
Disclosure Initiative-Accounting Policies
Classification of Liabilities as Current or Non-current
Definition of Accounting Estimates
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
Insurance Contracts
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
(1) Effective for the Group for annual periods beginning on or after January 1, 2022.
(2) Effective for the Group for annual periods beginning on or after January 1, 2023.
(3) Effective date to be determined by the IASB.
The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects
on the Group’s results of operations or financial position.
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(a) Basis of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries.
The accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by
the Group.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized
losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
(b) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has
rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the
activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
(c) Foreign Currency Translation
Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its
subsidiaries is Renminbi (“RMB”) whereas the consolidated financial statements are presented in US$, which is the Company’s
presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions.
Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements.
The financial statements of the Company and its subsidiaries are translated into the Company’s presentation currency using the year
end rates of exchange for the statements of financial position items and the average rates of exchange for the year for the income
statement items. Exchange translation differences are recognized directly in other comprehensive income.
(d) Property, Plant and Equipment
Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing
the asset to its working condition and location for its intended use.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they
are incurred.
Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their
estimated useful lives. The principal estimated useful lives are as follows:
Buildings
Leasehold improvements
20 years
Over the unexpired period of the lease or 5 years,
whichever is shorter
Plant and equipment
Furniture and fixtures, other equipment and motor
vehicles
10 years
5 years
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The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and
are recognized in the consolidated income statements.
(e) Construction in Progress
Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost
less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery.
No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for its
intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated
in accordance with the policy as stated in Note 2(d).
(f) Other Intangible Asset
The Group’s other intangible asset represents promotion and marketing rights. Other intangible asset has a definite useful life and
is carried at historical cost less accumulated amortization and accumulated impairment losses, if any. Amortization is calculated using
the straight-line method to allocate its cost over its estimated useful life of ten years.
(g) Research and Development
Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and
testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic
benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development
expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as
an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a
straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount.
Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred
on the project is charged to the consolidated income statements.
(h) Impairment of Non-Financial Assets
Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be
recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such
as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there
are indications that the carrying value may not be recoverable.
(i) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The
cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal
operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.
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(j) Trade and Other Receivables
Trade and other receivables are recognized initially at fair value, which is the amount of consideration that is unconditional. Trade
and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the
objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective
interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which
uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been
grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have
low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of
the provision is recognized in the consolidated income statements.
(k) Cash and Cash Equivalents
In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term
highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value, if any.
(l) Financial Liabilities and Equity Instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and
other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method.
An equity instrument is any contract that does not meet the definition of a financial liability and evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in
equity as a deduction from the proceeds.
(m) Current and Deferred Income Tax
(i) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on
the basis of amounts expected to be paid to the tax authorities.
(ii) Deferred income tax
Inside basis differences
Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they
arise from the initial recognition of goodwill and deferred income tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable
profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability
is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is
a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority.
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Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, except for
deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable
that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, only to the
extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which
the temporary difference can be utilized.
(n) Employee Benefits
The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and
provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly
contributions to the plans calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake
to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than
the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of
its employees.
(o) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized
for future operating losses.
(p) Leases
A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by
the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease
term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that
option.
Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that
depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that
option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components,
such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease
commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined,
the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and
jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions.
An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement
of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any
initial direct cost incurred by the Group and any restoration costs.
After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are
recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for
each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease.
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases.
Leasehold land is accounted under IFRS 16.
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(q) Government Incentives
Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be
received and all attached conditions will be complied with.
Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary
to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included in other payables, accruals and advance receipts and
non-current liabilities as deferred income and credited to the consolidated income statements on a straight-line basis over the expected
lives of the related assets.
(r) Revenue and Income Recognition
Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts
collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific
revenue-producing transaction, that are collected by the Group from a customer, are also excluded from revenue. The Group recognizes
revenue when it satisfies a performance obligation by transferring control over a good to a customer.
The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes
possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue
recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct
discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method.
Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions
for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is
based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the
amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes
revenue from provision of services based on amounts that can be invoiced to the customer.
Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or
rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally
when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but
generally range from 45 to 180 days from the invoice date.
(s) Interest Income
Interest income is recognized on a time-proportion basis using the effective interest method.
(t) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers.
The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the steering committee that makes strategic decisions.
(u) General Reserves
In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes
appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff
bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors.
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3. Financial Risk Management
(a) Financial risk factors
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any
derivative financial instruments for speculative purposes.
(i) Credit risk
The carrying amounts of cash and cash equivalents, trade receivables (including bills receivables) and other receivables included in
the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation
to its financial assets.
Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes
are of high credit quality. The Group has a practice to limit the amount of credit exposure to any financial institution.
Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that
they will not expose the Group to any significant credit risk.
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are
made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers.
Management periodically assesses the recoverability of trade receivables and other receivables. The Group’s historical loss rates
are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the
receivables, and historical experience collecting receivables falls within the recorded allowances.
(ii) Liquidity risk
Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when
necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient
cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term.
As at December 31, 2021 and 2020, the Group’s current financial liabilities were mainly due for settlement within twelve months
and the Group expects to meet all liquidity requirements.
(b) Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return
that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes
adjustments to the capital structure in light of changes in economic conditions.
The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total
assets as shown on the consolidated statements of financial position.
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Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at
December 31, 2021 and 2020 was as follows:
Total liabilities
Total assets
Liabilities to assets ratio
(c) Fair value estimation
December 31,
2021
2020
(in US$’000)
136,124
281,817
48.3 %
116,612
269,320
43.3 %
The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s
current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial
liabilities, including trade payables and other payables and accruals, approximate their fair values due to their short-term maturities. The
carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially different from their fair values.
The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are
assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
4. Critical Accounting Estimates and Judgements
Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and
policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required
in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and
judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results
may differ from these estimates and judgements under different assumptions or conditions.
The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used
in the preparation of the consolidated financial statements.
(a) Sales rebates
Certain sales rebates are provided to customers when their business performance for an agreed period within the year and the
whole year meets certain criteria as stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of
sales rebates during the year is based on estimated sales transactions for the entire period stipulated and is subject to change based on
actual performance and collection status.
(b) Useful lives of property, plant and equipment
The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended
use of these assets may cause the estimated period of use or value of these assets to change.
(c) Deferred income tax
Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities
against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred
income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the
carrying amount of deferred tax in the period in which such determination is made.
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5. Revenue and Segment Information
Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined
that the Group has two reportable operating segments as follows:
—Manufacturing business—manufacture and distribution of drug products
—Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers
The operating segments are strategic business units that offer different products and services. They are managed separately because
each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed
based on a measure of operating profit/(loss).
The segment information is as follows:
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial instruments
and deferred tax assets)
Total segment assets
Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial instruments
Year Ended December 31, 2021
Manufacturing Distribution
business
PRC
business
PRC
Total
(in US$’000)
331,097
629
107,361
114
9,118
1,551
587
(1,961)
2
50
332,648
1,216
105,400
116
9,168
5,867
82
5,949
December 31, 2021
Manufacturing Distribution
business
PRC
business
PRC
Total
(in US$’000)
280,632
1,185
281,817
Year Ended December 31, 2020
Manufacturing Distribution
business
PRC
business
PRC
Total
(in US$’000)
270,954
396
78,069
11
8,670
5,400
579
(204)
1
65
276,354
975
77,865
12
8,735
and deferred tax assets)
3,037
57
3,094
Total segment assets
December 31, 2020
Manufacturing Distribution
business
PRC
business
PRC
Total
(in US$’000)
261,965
7,355
269,320
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Revenue from external customers
Interest income
Operating profit/(loss)
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
Year Ended December 31, 2019
Manufacturing
business
PRC
Distribution
business
PRC
260,986
300
74,319
33
7,913
(in US$’000)
11,096
282
(1,961)
9
185
Total
272,082
582
72,358
42
8,098
2,958
17
2,975
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$77.8 million for 2021
(2020: US$62.2 million; 2019: US$60.8 million). Sales between segments are carried out at mutually agreed terms. Revenue from
external customers from the manufacturing business is for sales of goods which are recognized at a point in time. Revenue from external
customers from the distribution business is for provision of services which are recognized over time.
6. Other Net Operating Income
Interest income
Net foreign exchange gain/(loss)
Government Incentives
Other operating income/(loss)
7. Operating Profit
Operating profit
Operating profit is stated after charging/(crediting) the following:
Cost of inventories recognized as expense
Research and development expense
Depreciation of property, plant and equipment
Loss/(Gain) on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible asset
Depreciation charge of right-of-use assets and lease expenses
Movement on the provision for trade receivables
Provision for excess and obsolete inventories
Auditor’s remuneration
Employee benefit expenses (Note 9)
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Year Ended December 31,
2020
2021
2019
1,216
25
2,999
519
4,759
(in US$’000)
975
70
2,601
(173)
3,473
582
(20)
2,370
9
2,941
Year Ended December 31,
2020
2021
2019
(in US$’000)
105,400
77,865
72,358
Year Ended December 31,
2020
2019
2021
(in US$’000)
50,637
9,350
8,100
60
172
233
663
—
(141)
223
100,311
47,299
6,301
7,878
(2)
160
217
725
(9)
2,447
198
80,728
55,653
4,422
7,148
11
161
218
724
9
1,062
194
80,647
8. Taxation Charge
Current tax
Deferred income tax (Note 16)
Taxation charge
15,082
814
15,896
(in US$’000)
12,520
(1,687)
10,833
10,300
715
11,015
The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s
weighted average tax rate as follows:
Year Ended December 31,
2020
2019
2021
Year Ended December 31,
2020
2019
2021
Profit before taxation
Tax calculated at the statutory tax rates of respective companies
Tax effects of:
Expenses not deductible for tax purposes
Utilization of unrecognized temporary differences
Tax concession (note)
Under/(over) provision in prior years
Taxation charge
105,284
26,321
1,946
(55)
(12,420)
104
15,896
(in US$’000)
77,853
19,463
1,137
(938)
(8,753)
(76)
10,833
72,316
18,079
2,938
(1,669)
(8,541)
208
11,015
Note: The Company has been granted the High and New Technology Enterprise status. Accordingly, the Company is
subject to a preferential income tax rate of 15% in 2021 and up to 2022 (2020: 15%; 2019: 15%). Certain research and
development expenses are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible
against taxable profits for tax purposes (2020: 175%; 2019: 175%).
The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%.The effective tax rate for the
year ended December 31, 2021 was 15.1% (2020: 13.9%; 2019: 15.2%).
9. Employee Benefit Expenses
Year Ended December 31,
2020
2019
2021
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
77,335
8,713
14,263
100,311
(in US$’000)
68,226
995
11,507
80,728
60,353
7,689
12,605
80,647
Employee benefit expenses of approximately US$20.1 million for the year ended December 31, 2021 (2020: US$16.4 million;
2019: US$18.8 million) are included in cost of sales.
10. Cash and cash equivalents
Cash and cash equivalents
December 31,
2021
2020
(in US$’000)
50,038
72,478
The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB
denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the
PRC government.
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11. Trade and Bills Receivables
Trade receivables—third parties
Trade receivables—related parties (Note 22(b))
Bills receivables
December 31,
2021
2020
(in US$’000)
9,555
649
7,278
17,482
13,996
1,384
3,041
18,421
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The
carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
Movements on the provision for trade receivables are as follows:
As at January 1
Increase in provision for trade receivables
Decrease in provision due to subsequent collection
As at December 31
12. Other Receivables, Prepayments and Deposits
Prepayments to suppliers
Interest receivables
Deposits
Others
13. Inventories
Raw materials
Work in progress
Finished goods
2021
2020
2019
(in US$’000)
9
—
(9)
—
—
—
—
—
—
9
—
9
December 31,
2021
2020
(in US$’000)
1,929
283
877
261
3,350
1,356
171
1,338
527
3,392
December 31,
2021
2020
(in US$’000)
54,585
39,668
25,137
119,390
31,501
32,684
17,489
81,674
F-68
14. Property, Plant and Equipment
Cost
As at January 1, 2021
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2021
Accumulated depreciation
As at January 1, 2021
Depreciation
Disposals
Transfers
Exchange differences
As at December 31, 2021
Net book value
As at December 31, 2021
Cost
As at January 1, 2020
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2020
Accumulated depreciation
As at January 1, 2020
Depreciation
Disposals
Exchange differences
As at December 31, 2020
Net book value
As at December 31, 2020
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor
vehicles
Construction
in progress
Total
73,480
28
—
224
1,855
75,587
15,699
3,763
—
93
428
19,983
55,604
(in US$’000)
578
68
(128)
314
16
848
504
100
(128)
(390)
8
94
25,173
535
(207)
298
639
26,438
12,288
2,347
(145)
—
327
14,817
12,273
929
(481)
1,982
330
15,033
7,570
1,890
(464)
297
205
9,498
2,685
1,453
(1,230)
(2,818)
46
136
1,196
—
(1,217)
—
21
—
114,189
3,013
(2,046)
—
2,886
118,042
37,257
8,100
(1,954)
—
989
44,392
754
11,621
5,535
136
73,650
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor
vehicles
(in US$’000)
22,606
581
(53)
361
1,678
25,173
8,760
2,786
(35)
777
12,288
9,526
935
(134)
1,155
791
12,273
5,665
1,511
(91)
485
7,570
Construction
in progress
Total
2,828
1,519
—
(1,850)
188
2,685
1,116
—
—
80
1,196
103,712
3,035
(187)
—
7,629
114,189
27,136
7,878
(126)
2,369
37,257
12,885
4,703
1,489
76,932
68,213
—
—
334
4,933
73,480
11,212
3,493
—
994
15,699
57,781
539
—
—
—
39
578
383
88
—
33
504
74
F-69
Buildings
situated in
the PRC
Leasehold
improvements
Plant
and
equipment
Furniture
and
fixtures,
other
equipment
and motor Construction
in progress
vehicles
(in US$’000)
22,583
334
(41)
337
(607)
22,606
6,786
2,229
(28)
(227)
8,760
7,934
1,511
(170)
500
(249)
9,526
4,614
1,361
(163)
(147)
5,665
3,508
856
—
(1,457)
(79)
2,828
1,146
—
—
(30)
1,116
Total
103,939
2,774
(211)
—
(2,790)
103,712
20,881
7,148
(191)
(702)
27,136
13,846
3,861
1,712
76,576
69,434
—
—
620
(1,841)
68,213
8,035
3,465
—
(288)
11,212
57,001
480
73
—
—
(14)
539
300
93
—
(10)
383
156
Cost
As at January 1, 2019
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2019
Accumulated depreciation
As at January 1, 2019
Depreciation
Disposals
Exchange differences
As at December 31, 2019
Net book value
As at December 31, 2019
15. Leases
Leases consisted of the following:
Right-of-use assets:
Offices
Lease liabilities—current
Lease liabilities—non-current
Lease activities are summarized as follows:
Lease expenses: Short-term leases with lease terms equal or less than 12 months
Depreciation charge of right-of-use assets
Interest expense (included in finance costs)
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from obtaining right-of-use assets
Lease contracts are typically within a period of 1 to 5 years. The weighted average remaining lease term and weighted average
discount rate as at December 31, 2021 was 3.7 years (2020: 0.89 years) and 4.75% (2020: 4.75%) respectively.
F-70
December 31,
2021
2020
(in US$’000)
2,445
700
2,148
2,848
152
133
19
152
Year Ended December 31,
2021
2020
(in US$’000)
508
663
116
303
2,936
245
480
12
474
58
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Between 2 to 3 years
Between 3 to 4 years
Total lease payments
Less: Discount factor
Total lease liabilities
16. Deferred Tax Assets
The movements in deferred tax assets are as follows:
December 31,
2021
2020
(in US$’000)
814
784
793
713
3,104
(256)
2,848
135
19
—
—
154
(2)
152
As at January 1
Credited/(debited) to the consolidated income statements
—Accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary
differences (note)
Exchange differences
As at December 31
2021
2020
2019
(in US$’000)
8,315
6,147
7,091
(814)
214
7,715
1,687
481
8,315
(715)
(229)
6,147
Note: During the year ended December 31, 2021, the Group utilized US$1.1 million deferred tax assets which was
recognized during the year ended December 31, 2019 on temporary differences arising from advertising and promotion
expenditures.
The Group’s deferred tax assets are mainly temporary differences including accrued expenses, provisions, deferred income,
accelerated depreciation and other temporary differences. The potential deferred tax assets in respect of tax losses which have not been
recognized in the consolidated financial statements were approximately US$26,000 as at December 31, 2021 (2020: US$0.7 million).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2021
2022
2023
2024
2025
2026
December 31,
2021
2020
(in US$’000)
—
7
—
83
7
6
103
35
7
2,550
76
7
—
2,675
F-71
17. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 22(b))
December 31,
2021
2020
(in US$’000)
12,030
381
12,411
8,711
2,463
11,174
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
trade payables approximates their fair values due to their short-term maturities.
18. Other Payables, Accruals and Advance Receipts
Accrued salaries and benefits
Accrued selling and marketing expenses
Value‑added tax and tax surcharge payables
Payments in advance from customers (note)
Others
December 31,
2021
2020
(in US$’000)
17,796
68,217
9,693
11,858
4,229
111,793
17,536
59,930
8,794
2,750
4,524
93,534
Note: Substantially all customer balances as at December 31, 2020 were recognized to revenue during the year ended
December 31, 2021. Additionally, substantially all customer balances as at December 31, 2021 are expected to be
recognized to revenue within one year upon transfer of goods or services as the contracts have an expected duration of
one year or less.
19. Current Tax Liabilities
As at January 1
Current tax (Note 8)
Tax paid
Exchange difference
Transfer (from)/to other receivables
As at December 31
2021
2020
2019
5,032
15,082
(15,976)
108
(157)
4,089
(in US$’000)
2,395
12,520
(10,232)
192
157
5,032
5,671
10,300
(13,618)
42
—
2,395
F-72
20. Notes to the Consolidated Statements of Cash Flows
(a) Reconciliation of profit for the year to net cash generated from operations:
Profit for the year
Adjustments to reconcile profit for the year to net cash generated from operations
2021
2020
2019
89,388
(in US$’000)
67,020
61,301
Taxation charge
Finance costs
Interest income
Depreciation on property, plant and equipment
Loss/(gain) on disposal of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible asset
Depreciation charge of right-of-use assets
Provision for excess and obsolete inventories
Movement on the provision for trade receivables
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Trade payables
Other payables, accruals and advance receipts
Deferred income
Total changes in working capital
Net cash generated from operations
15,896
116
(1,216)
8,100
60
172
233
663
(141)
—
(693)
10,833
12
(975)
7,878
(2)
160
217
480
2,447
(9)
2,057
939
(80)
6,360
(227)
(37,575) (11,804)
905
26,511
746
22,491
112,609
1,237
18,608
(1,737)
(18,608)
93,970
11,015
42
(582)
7,148
11
161
218
571
1,062
9
(1,439)
7,053
(218)
(8,459)
3,097
(3,271)
(935)
(2,733)
76,784
(b) Supplemental disclosure for non-cash activities
During the years ended December 31, 2021, there was a decrease in accruals made for purchases of property, plant and equipment
of US$0.3 million (2020 and 2019: an increase of US$0.6 million and a decrease of US$1.8 million respectively).
21. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
December 31,
2021
(in US$’000)
155
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
F-73
22. Significant Related Party Transactions
The Group has the following significant transactions with related parties which were carried out in the normal course of business
at terms determined and agreed by the relevant parties:
(a) Transactions with related parties:
Year Ended December 31,
2020
2019
2021
Sales of goods to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Purchase of goods from:
—SHTCML
—Fellow subsidiaries of SHTCML
Rendering of research and development services from:
—A fellow subsidiary of SHHCMI(HK)L
Provision of marketing services to:
—A fellow subsidiary of SHTCML
—A fellow subsidiary of SHHCMI(HK)L
Leasing office from:
—SHTCML
(in US$’000)
12,181
3,492
15,673
10,002
1,311
11,313
10,465
2,854
13,319
12,459
2,255
14,714
7,922
1,016
8,938
4,609
3,263
7,872
525
491
494
1,146
—
1,146
2,781
—
2,781
5,045
2,682
7,727
247
337
335
No transactions have been entered into with the directors of the Company (being the key management personnel) during the year
ended December 31, 2021 (2020 and 2019: nil).
(b) Balances with related parties included in:
Trade and bills receivables
—A fellow subsidiary of SHTCML
Other receivables, prepayments and deposits
—A fellow subsidiary of SHTCML
Right-of-use assets
—SHTCML
Trade payables
—SHTCML
— Fellow subsidiaries of SHTCML
Other payables, accruals and advance receipts
—Fellow subsidiaries of SHHCMI(HK)L
Lease liabilities
—SHTCML
December 31,
2021
2020
(in US$’000)
649
1,384
547
—
—
381
381
1,149
—
946
87
2,054
409
2,463
986
94
Balances with related parties are unsecured, interest-free and repayable on demand. The carrying values of balances with related
parties approximate their fair values due to their short-term maturities.
F-74
23. Particulars of Principal Subsidiaries
Place of
establishment
and
operation
Nominal value
of registered
capital
Equity
interest
attributable
to the Group
December 31,
2021
2020
2021
2020
Type of legal entity
Principal activity
(in RMB’000)
PRC
20,000
20,000
100 %
100 %
PRC
1,500
1,500
100 %
100 %
Limited liability
company
Limited liability
company
Distribution of
drug products
Agriculture and
sales of Chinese
herbs
Name
Shanghai Shangyao Hutchison
Whampoa GSP Company
Limited
Hutchison Heze Bio
Resources &
Technology Co., Limited
24. Subsequent Events
The Group evaluated subsequent events through March 3, 2022, which is the date when the consolidated financial statements
were issued.
F-75
HUTCHISON WHAMPOA GUANGZHOU
BAIYUNSHAN CHINESE MEDICINE
COMPANY LIMITED
F-76
Report of Independent Auditors
To the Board of Directors and Shareholders of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine
Company Limited
We have audited the accompanying consolidated financial statements of Hutchison Whampoa Guangzhou Baiyunshan Chinese
Medicine Company Limited and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as
of September 28, 2021 and December 31, 2020, and the related consolidated income statements, consolidated statements of
comprehensive income, of changes in equity and of cash flows for the period from January 1, 2021 to September 28, 2021 and each of
the two years in the period ended December 31, 2020.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the
basis of preparation mentioned in Note 2(1) to the accompanying consolidated financial statements; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant
to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited and its subsidiaries as of September 28, 2021 and
December 31, 2020, and the results of their operations and their cash flows for the period from January 1, 2021 to September 28, 2021,
and each of the two years in the period ended December 31, 2020 in accordance with the basis of preparation mentioned in Note 2(1) to
the accompanying consolidated financial statements.
Emphasis of Matter
We draw attention to Note 2(1) to the accompanying consolidated financial statements, which describes the basis of preparation.
On September 28, 2021, an intermediate holding company under HUTCHMED (China) Limited which wholly-owned Guangzhou
Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”), sold its entire shareholding in GZHCMHK which jointly
controls Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, to a third party. Our opinion is not modified
with respect of this matter.
/s/ PricewaterhouseCoopers Zhong Tian LLP
Guangzhou, the People’s Republic of China
December 7, 2021
F-77
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Income Statements
(in US$’000)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other net operating income
Operating profit
Share of profits/(losses) of a joint venture and associated companies, net
of tax
Finance costs
Gain on return of land
Gain on divestment of a subsidiary
Profit before taxation
Taxation charge
Profit for the period/year
Attributable to:
Shareholders of the Company
Non-controlling interests
Note
5
6
7
8
9
Period from
January 1, 2021
to September 28,
2021
209,528
(98,462)
111,066
(74,425)
(21,659)
5,306
20,288
29
(24)
16,433
—
36,726
(4,840)
31,886
31,850
36
31,886
Year Ended December 31,
2020
232,368
(115,564)
116,804
(74,066)
(25,664)
6,071
23,145
(84)
(57)
84,667
37
107,708
(16,494)
91,214
91,276
(62)
91,214
2019
215,403
(100,279)
115,124
(74,013)
(23,817)
5,626
22,920
60
(59)
—
—
22,921
(3,634)
19,287
19,792
(505)
19,287
The accompanying notes are an integral part of these consolidated financial statements.
F-78
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Comprehensive Income
(in US$’000)
Profit for the period/year
Other comprehensive income/(loss) that has been or may be reclassified
subsequently to profit or loss:
Exchange translation differences
Total comprehensive income
Attributable to:
Shareholders of the Company
Non‑controlling interests
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2019
2020
31,886
91,214
19,287
1,393
33,279
33,237
42
33,279
4,728
95,942
95,976
(34)
95,942
(3,353)
15,934
16,529
(595)
15,934
The accompanying notes are an integral part of these consolidated financial statements.
F-79
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Financial Position
(in US$’000)
Assets
Current assets
Cash and cash equivalents
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Total current assets
Property, plant and equipment
Right-of-use assets
Leasehold land
Goodwill
Other intangible assets
Investments in a joint venture and associated companies
Deferred tax assets
Other non-current assets
Total assets
Liabilities and shareholders’ equity
Current liabilities
Trade payables
Other payables, accruals and advance receipts
Dividend payable
Lease liabilities
Current tax liabilities
Total current liabilities
Deferred tax liabilities
Deferred income
Lease liabilities
Total liabilities
Company’s shareholders’ equity
Share capital
Reserves
Total Company’s shareholders’ equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholder’s equity
September 28
,
2021
December 31
,
2020
Note
11
12
13
14
15
16
17
18
19
20
24(b)
16
17
21
16
73,616
27,874
26,547
62,400
190,437
58,619
420
19,657
8,825
1,798
618
4,420
46
284,840
19,048
80,484
105,774
452
16,681
222,439
—
14,913
—
237,352
24,103
22,361
46,464
1,024
47,488
284,840
16,602
67,417
50,121
43,748
177,888
60,181
820
8,419
8,751
2,108
584
3,141
11,689
273,581
22,579
98,861
—
568
15,171
137,179
114
15,617
303
153,213
24,103
95,283
119,386
982
120,368
273,581
The accompanying notes are an integral part of these consolidated financial statements.
F-80
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Changes in Equity
(in US$’000)
Attributable to shareholders of the Company
Non‑
As at January 1, 2019
Profit/(loss) for the year
Other comprehensive loss
Exchange translation differences
Total comprehensive (loss)/income
Dividends declared to shareholders
As at December 31, 2019
Profit/(loss) for the year
Other comprehensive income
Share
capital
24,103
—
Exchange
reserve
1,220
—
General
reserves
131
—
Retained
earnings
96,487
19,792
Total
121,941
19,792
controlling
interests
3,113
(505)
Total
equity
125,054
19,287
— (3,263)
— (3,263)
—
—
24,103
(2,043)
—
—
—
—
19,792
—
— (93,957)
22,322
91,276
131
—
(3,263)
16,529
(93,957)
44,513
91,276
(90)
(595)
(3,353)
15,934
— (93,957)
47,031
91,214
2,518
(62)
Exchange translation differences
Total comprehensive income/(loss)
Dividends declared to shareholders
Acquisition of additional interest in a subsidiary
Divestment of a subsidiary to non-controlling interest
As at December 31, 2020
Profit for the period
Other comprehensive income
Exchange translation differences
Total comprehensive income
Dividends declared to shareholders
As at September 28, 2021
—
—
—
—
—
24,103
—
—
—
—
24,103
4,700
4,700
—
(9)
—
2,648
—
1,387
1,387
—
4,035
—
—
—
91,276
— (20,756)
(207)
(131)
—
—
— 92,635
31,850
—
4,700
95,976
(20,756)
(347)
—
119,386
31,850
4,728
28
(34)
95,942
— (20,756)
(1,884)
35
120,368
31,886
(1,537)
35
982
36
—
—
—
31,850
— (106,159)
— 18,326
1,387
33,237
(106,159)
46,464
1,393
6
42
33,279
— (106,159)
47,488
1,024
The accompanying notes are an integral part of these consolidated financial statements.
F-81
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Consolidated Statements of Cash Flows
(in US$’000)
Operating activities
Net cash generated from operations
Interest received
Finance costs paid
Income tax paid
Net cash generated from operating activities
Investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from return of land
Proceeds from disposal of leasehold land
Proceeds from disposal of property, plant and equipment
Government grants received relating to property, plant and equipment
Net cash generated from/(used in) investing activities
Financing activities
Dividends paid to shareholders
Acquisition of additional interest in a subsidiary
Lease payments
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents at beginning of period/year
Cash and cash equivalents at end of period/year
Note
22(a)
8
16
Period from
January 1, 2021
to September 28,
Year Ended December 31,
2021
2020
2019
17,785
205
(24)
(4,825)
13,141
(1,998)
(4)
46,154
—
—
10
44,162
—
—
(427)
(427)
56,876
138
57,014
16,602
73,616
60,756
271
(57)
(4,013)
56,957
(2,342)
—
40,422
231
730
963
40,004
(100,842)
(1,884)
(609)
(103,335)
(6,374)
1,555
(4,819)
21,421
16,602
26,237
160
(59)
(3,363)
22,975
(3,377)
(356)
—
—
—
950
(2,783)
(14,615)
—
(556)
(15,171)
5,021
(443)
4,578
16,843
21,421
The accompanying notes are an integral part of these consolidated financial statements.
F-82
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited
Notes to the Consolidated Financial Statements
1. General Information
Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited (the “Company”) and its subsidiaries (together
the “Group”) are principally engaged in manufacturing, selling and distribution of over-the-counter drug products. The Group has
manufacturing plants in the People’s Republic of China (the “PRC”) and sells mainly in the PRC.
The Company was incorporated in the PRC on April 12, 2005 as a Chinese-Foreign Equity joint venture. The Company is jointly
controlled by Guangzhou Hutchison Chinese Medicine (HK) Investment Limited (“GZHCMHK”) and Guangzhou Baiyunshan
Pharmaceutical Holdings Company Limited (“GBPHCL”). On September 28, 2021, an intermediate holding company under
HUTCHMED (China) Limited (“HUTCHMED”) which wholly-owned GZHCMHK, sold its entire shareholding in GZHCMHK to a
third party.
These consolidated financial statements are presented in United States dollars (“US$”), unless otherwise stated and have been
approved for issue by the Company’s Board of Directors on September 28, 2021.
2. Summary of Significant Accounting Policies
(1) Basis of Preparation
Except for the comparative periods which have been prepared in accordance with the Regulation S-X Rule 3-09 issued by the United
States Securities and Exchange Commission (“SEC”), the consolidated financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) and interpretations issued by the IFRS Interpretations Committee
applicable to companies reporting under IFRS. The consolidated financial statements comply with IFRS as issued by the International
Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared under the historical cost convention.
As at September 28, 2021, the Group was in a net current liabilities position of US$32.0 million, primarily due to the dividend
declaration on May 13, 2021 and September 23, 2021 of US$46.5 million and US$59.7 million respectively. Based on the Group’s
operating plan, the existing cash and cash equivalents along with the expected net cash to be generated from operating activities are
considered to be sufficient to meet the cash requirements to fund planned operations and other commitments for at least the next twelve
months (the look-forward period used) from the report issue date, and it is appropriate for the Group to prepare the consolidated financial
statements on a going concern basis.
F-83
(2) Summary of Significant Accounting Policies
During the period, the Group has adopted all of the new and revised standards, amendments and interpretations issued by the IASB
that are relevant to the Group’s operations and mandatory for annual periods beginning January 1, 2021. The adoption of these new and
revised standards, amendments and interpretations did not have any material effects on the Group’s results of operations or financial
position.
The following standards, amendments and interpretations were issued but not yet effective for the financial period from January 1,
2021 to September 28, 2021 and have not been early adopted by the Group:
IFRS 3 (Amendments)(1)
IAS 16 (Amendments)(1)
IAS 37 (Amendments)(1)
Annual improvement 2018-2020(1)
IAS 1(2)
IAS 1 (Amendments)(2)
IAS 8 (Amendments)(2)
IAS 12 (Amendments)(2)
IFRS 17(2)
IFRS 10 and IAS 28 (Amendments)(3)
Reference to the Conceptual Framework
Property, Plant and Equipment: Proceeds before Intended Use
Onerous Contracts – Costs of Fulfilling a Contract
Improvements to IFRSs
Disclosure Initiative – Accounting Policies
Classification of Liabilities as Current or Non-current
Definition of Accounting Estimates
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
Insurance Contracts
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
(1) Effective for the Group for annual periods beginning on or after January 1, 2022.
(2) Effective for the Group for annual periods beginning on or after January 1, 2023.
(3) Effective date to be determined by the IASB.
The adoption of standards, amendments and interpretations listed above in future periods is not expected to have any material effects
on the Group’s results of operations or financial position.
(a) Basis of Consolidation
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries, and also
include the Group’s interests in a joint venture and associated companies on the basis set out in Notes 2(d) and 2(e) below.
The accounting policies of subsidiaries, the joint venture and associated companies have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized
losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
Non-controlling interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.
(b) Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed, or has
rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the
activities of the entity. In the consolidated financial statements, subsidiaries are accounted for as described in Note 2(a) above.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
F-84
(c) Transactions with Non-controlling Interests
Transactions with non-controlling interests that do not result in a loss of control are accounted for as transactions with equity owners
of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired
of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are
also recorded in equity.
(d) Joint Arrangements
Investments in joint arrangements are classified either as joint operations or joint ventures depending on the contractual rights and
obligations of each investor. The Group has assessed the nature of its joint arrangement and determined it to be a joint venture. The joint
venture is accounted for using the equity method.
Under the equity method of accounting, the interest in joint venture is initially recognized at cost and adjusted thereafter to recognize
the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. The Group determines at
each reporting date whether there is any objective evidence that the investment in the joint venture is impaired. If this is the case, the
Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value
and recognizes the amount in the consolidated income statements.
(e) Associated Companies
An associate is an entity, other than a subsidiary or a joint venture, in which the Group has a long-term equity interest and over
which the Group is in position to exercise significant influence over its management, including participation in the financial and
operating policy decisions.
The results and net assets of associates are incorporated in these financial statements using the equity method of accounting, except
when the investment is classified as held for sale, in which case it is accounted for under IFRS 5, Non-current assets held for sale and
discontinued operations. The total carrying amount of such investments is reduced to recognize any identified impairment loss in the
value of individual investments.
(f) Foreign Currency Translation
Items included in the financial statements of each of the Group’s companies are measured using the currency of the primary
economic environment in which the entity operates (the “functional currency”). The functional currency of the Company and its
subsidiaries, joint venture and associated companies is Renminbi (“RMB”) whereas the consolidated financial statements are presented
in US$, which is the Company’s presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions.
Foreign currency gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the consolidated income statements.
The financial statements of the Company, subsidiaries, joint venture and associated companies are translated into the Company’s
presentation currency using the year end rates of exchange for the statements of financial position items and the average rates of
exchange for the year for the income statement items. Exchange translation differences are recognized directly in other comprehensive
income.
(g) Property, Plant and Equipment
Property, plant and equipment other than construction in progress are stated at historical cost less accumulated depreciation and any
accumulated impairment losses. Historical cost includes the purchase price of the asset and any directly attributable costs of bringing
the asset to its working condition and location for its intended use.
F-85
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to the consolidated income statements during the financial period in which they
are incurred.
Depreciation is calculated using the straight-line method to allocate asset costs less accumulated impairment losses over their
estimated useful lives. The principal estimated useful lives are as follows:
Buildings and facilities
Plant and equipment
Furniture and fixtures, other equipment and motor vehicles
10-30 years
10 years
5 years
The assets’ useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. An asset’s carrying amount
is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing net sales proceeds with the carrying amount of the relevant assets and
are recognized in the consolidated income statements.
(h) Construction in Progress
Construction in progress represents buildings, plant and machinery under construction and pending installation and is stated at cost
less accumulated impairment losses, if any. Cost includes the costs of construction of buildings and the costs of plant and machinery.
No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for its
intended use. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated
in accordance with the policy as stated in Note 2(g).
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of
the acquired subsidiary/business at the date of acquisition, or the excess of fair value of business over its fair value of the net identifiable
assets injected into the Company upon its formation. If the cost of acquisition is less than the fair value of the Group’s share of the net
identifiable assets of the acquired subsidiary, the difference is recognized directly in the consolidated income statements.
Goodwill is retained at the carrying amount as a separate asset, and subject to impairment test annually and when there are
indications that the carrying value may not be recoverable.
The profit or loss on disposal of a subsidiary is calculated by reference to the net assets at the date of disposal including the
attributable amount of goodwill.
(j) Other Intangible Assets
The Group’s other intangible assets mainly include distribution network and drugs licenses contributed from non-controlling
shareholders. Other intangible assets have a definite useful life and are carried at historical cost less accumulated amortization and
accumulated impairment losses, if any. Amortization is calculated using the straight-line method to allocate costs over the estimated
useful lives of ten years.
(k) Research and Development
Research expenditure is recognized as an expense as incurred. Costs incurred on development projects (relating to the design and
testing of new or improved products) are recognized as intangible assets when it is probable that the project will generate future economic
benefits by considering its commercial and technological feasibility, and costs can be measured reliably. Other development
expenditures are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as
an asset in a subsequent period. Development costs with a finite useful life that have been capitalized, if any, are amortized on a
straight-line basis over the period of expected benefit not exceeding five years. The capitalized development costs are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount.
F-86
Where the research phase and the development phase of an internal project cannot be clearly distinguished, all expenditure incurred
on the project is charged to the consolidated income statements.
(l) Impairment of Non-Financial Assets
Assets are reviewed for impairment to determine whether there is any indication that the carrying value of these assets may not be
recoverable and have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. Such impairment loss is recognized in the consolidated income statements. Assets that have an indefinite useful life such
as goodwill or intangible assets not ready to use are not subject to amortization and are tested for impairment annually and when there
are indications that the carrying value may not be recoverable.
(m) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average cost method. The
cost of finished goods comprises raw materials, direct labor, other direct costs and related production overheads (based on normal
operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling
expenses.
(n) Trade and Other Receivables
Trade and other receivables are recognized initially at fair value, which is the amount of consideration that is unconditional. Trade
and other receivables solely represent payments of principal and interest, if any, and the Group holds such financial assets with the
objective to collect its contractual cash flows. Therefore, the Group measures them subsequently at amortized cost using the effective
interest method, less any loss allowance. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which
uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been
grouped based on shared credit risk characteristics and the days past due. All other receivables at amortized cost are considered to have
low credit risk, and the loss allowance recognized during the period was therefore limited to 12 months expected losses. The amount of
the provision is recognized in the consolidated income statements.
(o) Cash and Cash Equivalents
In the consolidated statements of cash flows, cash and cash equivalents include cash on hand, bank deposits and other short-term
highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value, if any.
(p) Financial Liabilities and Equity Instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. Financial liabilities (including trade and
other payables) are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest method.
An equity instrument is any contract that does not meet the definition of financial liability and evidences a residual interest in the assets
of the Group after deducting all of its liabilities.
Ordinary shares are classified as equity. Incremental costs, net of tax, directly attributable to the issue of new shares are shown in
equity as a deduction from the proceeds.
(q) Current and Deferred Income Tax
(i) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the country where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns
with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on
the basis of amounts expected to be paid to the tax authorities.
F-87
(ii) Deferred income tax
Inside basis differences
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized
if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of
an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor
taxable profit or loss and does not give rise to equal taxable and deductible temporary differences. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the
related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilized. Deferred income tax assets and deferred income tax liabilities are offset when there is
a legally enforceable right to set off and when the deferred income taxes related to the same fiscal authority.
Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates
and joint arrangements, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Group
is unable to control the reversal of the temporary difference for associates. Only when there is an agreement in place that gives the Group
the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable
temporary differences arising from the associate’s undistributed profits is not recognized.
Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, associates
and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient
taxable profit available against which the temporary difference can be utilized.
(r) Employee Benefits
The employees of the Group participate in defined contribution retirement benefit plans managed by the relevant municipal and
provincial governments in the PRC. The assets of these plans are held separately from the Group. The Group is required to make monthly
contributions to the plans, calculated as a percentage of the employees’ salaries. The municipal and provincial governments undertake
to assume the retirement benefit obligations to all existing and future retired employees under the plans described above. Other than
the monthly contributions, the Group has no further obligations for the payment of the retirement and other post-retirement benefits of
its employees.
(s) Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognized
for future operating losses.
(t) Leases
A lease is recognized as a right-of-use asset with a corresponding liability at the date which the leased asset is available for use by
the Group. The Group recognizes an obligation to make lease payments equal to the present value of the lease payments over the lease
term. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Group will exercise that
option.
F-88
Lease liabilities include the net present value of the following lease payments: (i) fixed payments; (ii) variable lease payments that
depend on an index or a rate; and (iii) payments of penalties for terminating the lease if the lease term reflects the lessee exercising that
option, if any. Lease liabilities exclude the following payments that are generally accounted for separately: (i) non-lease components,
such as maintenance and security service fees and value added tax, and (ii) any payments that a lessee makes before the lease
commencement date. The lease payments are discounted using the interest rate implicit in the lease or if that rate cannot be determined,
the lessee’s incremental borrowing rate being the rate that the lessee would have to pay to borrow the funds in its currency and
jurisdiction necessary to obtain an asset of similar value, economic environment and terms and conditions.
An asset representing the right to use the underlying asset during the lease term is recognized that consists of the initial measurement
of the lease liability, any lease payments made to the lessor at or before the commencement date less any lease incentives received, any
initial direct cost incurred by the Group and any restoration costs.
After commencement of the lease, each lease payment is allocated between lease liability and finance costs. The finance costs are
recognized over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for
each period. The right-of-use asset is depreciated on a straight-line basis over the period of the lease.
Payments associated with short-term leases are recognized as lease expenses on a straight-line basis over the period of the leases.
Leasehold land is accounted under IFRS 16.
(u) Government Incentives
Incentives from government are recognized at their fair values where there is a reasonable assurance that the incentives will be
received and all attached conditions will be complied with.
Government incentives relating to costs are deferred and recognized in the consolidated income statements over the period necessary
to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred income and credited
to the consolidated income statements on a straight-line basis over the expected lives of the related assets.
(v) Revenue and Income Recognition
The Group principally generates revenue from sales of goods. Revenue from sales of goods is recognized when the customer takes
possession of the goods. This usually occurs upon completed delivery of the goods to the customer site. The amount of revenue
recognized is adjusted for expected sales incentives as stipulated in the contract, which are generally issued to customers as direct
discounts at the point-of-sale or indirectly in the form of rebates. Sales incentives are estimated using the expected value method.
Additionally, sales are generally made with a limited right of return under certain conditions. Revenues are recorded net of provisions
for sales discounts and returns.
Revenue from provision of services is recognized when the benefits of the services transfer to the customer over time, which is
based on the proportionate value of services rendered as determined under the terms of the relevant contract. Additionally, when the
amounts that can be invoiced correspond directly with the value to the customer for performance completed to date, the Group recognizes
revenue from provision of services based on amounts that can be invoiced to the customer.
Payments in advance from customers are deferred if consideration is received in advance of transferring control of the goods or
rendering of services. Accounts receivable is recognized if the Group has an unconditional right to bill the customer, which is generally
when the customer takes possession of the goods or services are rendered. Payment terms differ by subsidiary and customer, but
generally range from 45 to 180 days from the invoice date.
(w) Interest Income
Interest income is recognized on a time-proportion basis using the effective interest method.
F-89
(x) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers.
The Company’s Board of Directors, which is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the steering committee that makes strategic decisions.
(y) General Reserves
In accordance with the laws applicable to Foreign Investment Enterprises established in the PRC, the Company makes
appropriations to certain non-distributable reserve funds including the general reserve fund, the enterprise expansion fund and the staff
bonus and welfare fund. The amount of appropriations to these funds are made at the discretion of the Company’s Board of Directors.
3. Financial Risk Management
(a) Financial Risk Factors
The Group’s activities expose it to a variety of financial risks, including credit risk and liquidity risk. The Group does not use any
derivative financial instruments for speculative purposes.
(i) Credit risk
The carrying amounts of cash and cash equivalents, trade receivables (including bills receivables) and other receivables included in
the consolidated statements of financial position represent the Group’s maximum exposure to credit risk of the counterparty in relation
to its financial assets.
Substantially all of the Group’s cash and cash equivalents are deposited in major financial institutions, which management believes
are of high credit quality.
Bills receivables are mostly settled by state-owned banks or other reputable banks and therefore the management considers that
they will not expose the Group to any significant credit risk.
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that the sales of products are
made to customers with appropriate credit history and the Group performs periodic credit evaluations of its customers.
Management periodically assesses the recoverability of trade receivables and other receivables. The Group’s historical loss rates
are adjusted to reflect current and forward-looking information on specific factors affecting the ability of the customers to settle the
receivables, and historical experience collecting receivables falls within the recorded allowances.
(ii) Liquidity risk
Prudent liquidity management implies maintaining sufficient cash and cash equivalents and the availability of funding when
necessary. The Group’s policy is to regularly monitor current and expected liquidity requirements to ensure that it maintains sufficient
cash balances and adequate credit facilities to meet its liquidity requirements in the short and long term.
As at September 28, 2021 and December 31, 2020, the Group’s current financial liabilities were mainly due for settlement within
twelve months and the Group expects to meet all liquidity requirements. As at September 28, 2021, the Group’s consolidated current
liabilities exceed the consolidated current assets by US$32.0 million, which was mainly attributable to current dividends payable to
shareholders (refer to Note 24(b)), for which settlement will occur when sufficient cash and cash equivalents are available. In assessing
the Group’s liquidity, management prepared a cash flow forecast up to December 31, 2022 taking into consideration of ongoing
operations and the settlement of the current dividends payable, which indicates that the Group will have sufficient cash resources to
fund planned operations and other commitments for at least the next twelve months (the look-forward period used).
F-90
(b) Capital Risk Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to provide returns for shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Group regularly reviews and manages its capital structure to ensure an optimal balance between higher shareholders’ return
that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes
adjustments to the capital structure in light of changes in economic conditions.
The Group monitors capital on the basis of the liabilities to assets ratio. This ratio is calculated as total liabilities divided by total
assets as shown on the consolidated statements of financial position.
Currently, it is the Group’s strategy to maintain a reasonable liabilities to assets ratio. The liabilities to assets ratio as at
September 28, 2021 and December 31, 2020 was as follows:
Total liabilities (note)
Total assets
Liabilities to assets ratio
September 28, December 31,
2021
2020
(in US$’000)
237,352
284,840
153,213
273,581
83.3 %
56.0 %
Note: On May 13, 2021 and September 23, 2021, the Company declared dividends to shareholders of US$46.5 million
and US$59.7 million respectively, which were not settled as at September 28, 2021.
(c) Fair Value Estimation
The Group does not have any financial assets or liabilities which are carried at fair value. The carrying amounts of the Group’s
current financial assets, including cash and cash equivalents, trade and bills receivables and other receivables, and current financial
liabilities, including trade payables, and other payables and accruals and dividend payable, approximate their fair values due to their
short-term maturities. The carrying amounts of the Group’s financial instruments carried at cost or amortized cost are not materially
different from their fair values.
The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are
assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the
future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.
4. Critical Accounting Estimates and Judgements
Note 2 includes a summary of the significant accounting policies used in the preparation of the consolidated financial statements.
The preparation of consolidated financial statements often requires the use of judgements to select specific accounting methods and
policies from several acceptable alternatives. Furthermore, significant estimates and assumptions concerning the future may be required
in selecting and applying those methods and policies in the consolidated financial statements. The Group bases its estimates and
judgements on historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results
may differ from these estimates and judgements under different assumptions or conditions.
The following is a review of the more significant assumptions and estimates, as well as the accounting policies and methods used
in the preparation of the consolidated financial statements.
(a) Sales Rebates
Certain sales rebates are provided to customers when their business performance for the whole year meets certain criteria as
stipulated in the contracts. Sales rebates are considered variable consideration and the estimate of sales rebates during the year is based
on estimated sales transactions for the entire period stipulated and is subject to change based on actual performance and collection status.
F-91
(b) Useful Lives of Property, Plant and Equipment
The Group has made substantial investments in property, plant and equipment. Changes in technology or changes in the intended
use of these assets may cause the estimated period of use or value of these assets to change.
(c) Impairment of Non-financial Assets
The Group tests at least annually whether goodwill has suffered any impairment. Other non-financial assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount
in accordance with the accounting policy stated in Note 2(l). The recoverable amount of an asset or a cash-generating unit is determined
based on the higher of the asset’s or the cash-generating unit’s fair value less costs to disposal and value-in-use. The value-in-use
calculation requires the entity to estimate the future cash flows expected to arise from the asset and a suitable discount rate in order to
calculate present value, and the growth rate assumptions in the cash flow projections which has been prepared on the basis of
management’s assumptions and estimates.
(d) Deferred Income Tax
Deferred tax is recognized using the liability method on temporary differences arising between the tax bases of assets and liabilities
against which the deductible temporary differences and the carry forward of unused tax losses and tax credits can be utilized. Deferred
income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilized. Where the final outcomes are different from the estimations, such differences will impact the
carrying amount of deferred tax in the period in which such determination is made.
5. Revenue and Segment Information
Management has reviewed the Group’s internal reporting in order to assess performance and allocate resources, and has determined
that the Group has two reportable operating segments as follows:
—Manufacturing business—manufacture and distribution of drug products
—Distribution business—provision of sales, distribution and marketing services to pharmaceutical manufacturers
The operating segments are strategic business units that offer different products and services. They are managed separately because
each business requires different technology and marketing approaches. The performance of each of the reportable segments is assessed
based on operating profit.
The segment information is as follows:
Period from January 1, 2021 to September 28, 2021
Distribution
business
PRC
Manufacturing
business
PRC
Total
Revenue from external customers
Interest income
Operating profit
Share of profits of a joint venture and associated companies,
net of tax
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
190,619
141
18,212
29
18
5,515
2,405
(in US$’000)
18,909
64
2,076
—
6
98
—
209,528
205
20,288
29
24
5,613
2,405
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Total segment assets
251,178
33,662
284,840
Manufacturing
business
PRC
As at September 28, 2021
Distribution
business
PRC
(in US$’000)
Total
Manufacturing
business
PRC
Year Ended December 31, 2020
Distribution
business
PRC
Revenue from external customers
Interest income
Operating profit
Share of losses of a joint venture and associated companies,
net of tax
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
215,427
188
20,833
84
51
6,361
2,432
Manufacturing
business
PRC
(in US$’000)
16,941
83
2,312
—
6
123
1
December 31, 2020
Distribution
business
PRC
(in US$’000)
Total
232,368
271
23,145
84
57
6,484
2,433
Total
Total segment assets
243,578
30,003
273,581
Manufacturing
business
PRC
Year Ended December 31, 2019
Distribution
business
PRC
Revenue from external customers
Interest income
Operating profit
Share of profits of a joint venture and associated companies,
net of tax
Finance costs
Depreciation/amortization
Additions to non‑current assets (other than financial
instruments and deferred tax assets)
202,852
76
21,738
60
40
6,411
4,002
(in US$’000)
12,551
84
1,182
—
19
125
—
Total
215,403
160
22,920
60
59
6,536
4,002
Revenue from external customers is after elimination of inter-segment sales. The amount eliminated was US$0.2 million for the
period from January 1, 2021 to September 28, 2021 (for the years ended December 31, 2020 and 2019: US$0.1 million and US$0.7
million respectively). Sales between segments are carried out at mutually agreed terms. Revenue from external customers is primarily
for sales of goods which are recognized at a point in time, except for provision of services which are recognized over time of US$1.2
million for the period from January 1, 2021 to September 28, 2021 (for the years ended December 31, 2020 and 2019: US$3.7 million
and US$3.1 million respectively) and included in the manufacturing business operating segment.
F-93
6. Other Net Operating Income
Interest income
Gain on disposal of leasehold land
Loss on disposal of property, plant and equipment
Other operating income
Other operating expenses
7. Operating Profit
Period from
January 1, 2021
to September 28,
2021
205
—
(47)
5,631
(483)
5,306
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2019
2020
(in US$’000)
271
166
(643)
6,734
(457)
6,071
160
—
(162)
6,226
(598)
5,626
Year Ended December 31,
2019
2020
(in US$’000)
Operating profit
20,288
23,145
22,920
Operating profit is stated after charging/(crediting) the following:
Cost of inventories recognized as expense
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on disposal of leasehold land
Amortization of leasehold land
Amortization of other intangible assets
Depreciation charge of right-of-use assets and lease
expenses
Movements on the provision for trade receivables
Movements on the provision for excess and obsolete
inventories
Research and development expense
Auditor’s remuneration
Employee benefit expenses (Note 10)
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2019
2020
(in US$’000)
87,941
4,425
—
47
—
450
331
1,360
38
41
2,057
43
31,605
100,906
5,283
—
643
(166)
236
414
1,438
(20)
474
1,670
88
36,822
85,802
5,417
525
162
—
230
351
1,227
(70)
314
1,041
87
34,634
F-94
8. Gain on Return of Land
In June 2020, the Group entered into an agreement with the government to return the land use right for a plot of land in Guangzhou
to the government (the “Land Compensation Agreement”) for cash consideration which aggregated to RMB679.5 million
(approximately US$103.1 million). In November 2020, the Group completed all material obligations as stipulated in the Land
Compensation Agreement and recognized land compensation of RMB569.2 million (approximately US$86.1 million), resulting in a
gain of RMB559.7 million (approximately US$84.7 million). In June 2021, the Group received a completion confirmation from the
government and recognized an additional land compensation bonus of RMB110.3 million (approximately US$17.0 million), resulting
in a gain of RMB106.8 million (approximately US$16.4 million), after deducting costs of RMB3.5 million (approximately US$0.6
million). As at September 28, 2021, the Group has received RMB584.6 million (approximately US$86.6 million) and has recorded
RMB94.9 million (approximately US$14.6 million) in other receivables, prepayments and deposits.
9. Taxation Charge
Current tax
Deferred income tax (Note 17)
Taxation charge
Period from
January 1, 2021
to September 28,
2021
6,093
(1,253)
4,840
Year Ended December 31,
2020
(in US$’000)
17,108
(614)
16,494
2019
3,925
(291)
3,634
The taxation charge on the Group’s profit before taxation differs from the theoretical amount that would arise using the Group’s
weighted average tax rate as follows:
Profit before taxation
Tax calculated at the statutory tax rates of
respective companies
Tax effects of:
Expenses not deductible for tax purposes
Tax concession (note)
Tax losses for which no deferred tax
assets were recognized
Under/(over) provision in prior years
Utilization of tax losses for which no
deferred tax assets were recognized
previously
Taxation charge
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2020
2019
36,726
9,181
45
(3,781)
192
6
(803)
4,840
(in US$’000)
107,708
26,927
66
(10,834)
339
44
(48)
16,494
22,921
5,730
56
(2,569)
522
(17)
(88)
3,634
Note: The Company has been granted the High and New Technology Enterprise status. Accordingly, the Company is
subject to a preferential income tax rate of 15% and renewed the status in 2021. Certain research and development expenses
are also eligible for super-deduction such that 200% of qualified expenses incurred are deductible for tax purposes.
The weighted average tax rate calculated at the statutory tax rates of respective companies was 25%. The effective tax rate for the
period from January 1, 2021 to September 28, 2021 was 13.2% (for the years ended December 31, 2020 and 2019: 15.3% and 15.9%
respectively).
F-95
10. Employee Benefit Expenses
Wages, salaries and bonuses
Pension costs—defined contribution plans
Staff welfare
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2019
2020
23,705
6,679
1,221
31,605
(in US$’000)
28,380
6,954
1,488
36,822
25,066
8,282
1,286
34,634
Employee benefit expenses of approximately US$9.1 million for the period from January 1, 2021 to September 28, 2021 (for the
years ended December 31, 2020 and 2019: US$11.1 million and US$11.4 million repsectively) are included in cost of sales.
11. Cash and Cash Equivalents
Cash and cash equivalents
September 28,
2021
December 31,
2020
(in US$’000)
73,616
16,602
The cash and cash equivalents denominated in RMB were deposited with banks in the PRC. The conversion of these RMB
denominated balances into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the
PRC government.
12. Trade and Bills Receivables
Trade receivables—third parties
Trade receivables—related parties (Note 24(b))
Bills receivables
September 28,
2021
December 31,
2020
(in US$’000)
4,290
1,975
21,609
27,874
1,764
3,485
62,168
67,417
All trade and bills receivables are denominated in RMB and are due within one year from the end of the reporting period. The
carrying values of trade and bills receivables approximate their fair values due to their short-term maturities.
Movements on the provision for trade receivables are as follows:
As at January 1
Increase in provision for trade receivables
Decrease in provision due to subsequent collection
Exchange differences
As at September 28/December 31
2021
2020
(in US$’000)
2019
—
38
—
—
38
19
—
(20)
1
—
90
5
(75)
(1)
19
The impaired and provided receivables as at September 28, 2021 and December 31, 2019 were aged over 1 year.
F-96
13. Other Receivables, Prepayments and Deposits
Prepayments to suppliers
Value‑added tax receivables
Land compensation receivable
Others
14. Inventories
Raw materials
Work in progress
Finished goods
15. Property, Plant and Equipment
Cost
As at January 1, 2021
Additions
Disposals
Transfers
Exchange differences
As at September 28, 2021
Accumulated depreciation
As at January 1, 2021
Depreciation
Disposals
Exchange differences
As at September 28, 2021
Net book value
As at September 28, 2021
September 28,
2021
December 31,
2020
(in US$’000)
9,671
780
14,592
1,504
26,547
4,784
538
43,414
1,385
50,121
September 28,
2021
December 31,
2020
(in US$’000)
23,126
17,816
21,458
62,400
13,063
17,303
13,382
43,748
Buildings
and
facilities
61,267
396
(3)
—
516
62,176
16,368
1,763
(1)
137
18,267
Furniture and
fixtures, other
equipment
and motor
vehicles
Plant and
equipment
Construction
in progress
(in US$’000)
12,615
623
(78)
906
105
14,171
10,522
1,384
(69)
89
11,926
27,769
440
(97)
358
234
28,704
16,559
1,278
(61)
138
17,914
1,979
943
—
(1,264)
17
1,675
—
—
—
—
—
Total
103,630
2,402
(178)
—
872
106,726
43,449
4,425
(131)
364
48,107
43,909
10,790
2,245
1,675
58,619
F-97
Cost
As at January 1, 2020
Additions
Disposals
Disposal of a subsidiary
Transfers
Exchange differences
As at December 31, 2020
Accumulated depreciation
As at January 1, 2020
Depreciation
Disposals
Disposal of a subsidiary
Exchange differences
As at December 31, 2020
Net book value
As at December 31, 2020
Cost
As at January 1, 2019
Additions
Disposals
Transfers
Exchange differences
As at December 31, 2019
Accumulated depreciation
As at January 1, 2019
Depreciation
Disposals
Impairment
Exchange differences
As at December 31, 2019
Net book value
As at December 31, 2019
Buildings
and
facilities
59,099
224
(2,204)
(28)
28
4,148
61,267
14,021
2,201
(926)
(10)
1,082
16,368
Furniture and
fixtures, other
equipment
and motor
vehicles
Plant and
equipment
Construction
in progress
(in US$’000)
11,353
651
(522)
(27)
318
842
12,615
8,755
1,562
(464)
(23)
692
10,522
25,426
168
(187)
—
502
1,860
27,769
14,096
1,520
(150)
—
1,093
16,559
1,311
1,390
—
—
(848)
126
1,979
—
—
—
—
—
—
Total
97,189
2,433
(2,913)
(55)
—
6,976
103,630
36,872
5,283
(1,540)
(33)
2,867
43,449
44,899
11,210
2,093
1,979
60,181
Buildings
and
facilities
61,319
158
(1,005)
227
(1,600)
59,099
12,739
2,299
(887)
241
(371)
14,021
Furniture and
fixtures, other
equipment
and motor
vehicles
Plant and
equipment
Construction
in progress
(in US$’000)
10,700
533
(319)
741
(302)
11,353
7,707
1,549
(287)
17
(231)
8,755
25,866
415
(673)
502
(684)
25,426
12,929
1,569
(294)
267
(375)
14,096
1,423
1,395
—
(1,470)
(37)
1,311
—
—
—
—
—
—
Total
99,308
2,501
(1,997)
—
(2,623)
97,189
33,375
5,417
(1,468)
525
(977)
36,872
45,078
11,330
2,598
1,311
60,317
F-98
16. Leases
Leases consisted of the following:
Right-of-use assets:
Warehouses
Lease liabilities—current
Lease liabilities—non-current
Lease activities are summarized as follows:
September 28,
2021
December 31,
2020
(in US$’000)
420
452
—
452
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2020
2019
(in US$’000)
820
568
303
871
689
538
59
556
Lease expenses: Short-term leases with lease terms
equal or less than 12 months
Depreciation charge of right-of-use assets
Interest expense (included in finance costs)
Cash paid on lease liabilities
Non-cash: Lease liabilities recognized from
obtaining right-of-use assets
953
407
24
427
—
887
551
57
609
—
1,145
Lease contracts are typically within a period of 1 to 6 years. The weighted average remaining lease term and weighted average
discount rate as at September 28, 2021 was 0.83 year (as at December 31, 2020 and 2019: 1.56 years and 2.51 years respectively) and
4.75% (as at December 31, 2020 and 2019: 4.75% and 4.77% respectively) respectively.
Future lease payments are as follows:
Lease payments:
Not later than 1 year
Between 1 to 2 years
Total lease payments
Less: Discount factor
Total lease liabilities
17. Deferred Tax Assets and Liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
September 28,
2021
December 31,
2020
(in US$’000)
462
—
462
(10)
452
598
307
905
(34)
871
September 28,
2021
December 31,
2020
(in US$’000)
4,420
—
4,420
3,141
(114)
3,027
F-99
The movements in net deferred tax assets are as follows:
At January 1
Credited/(debited) to the consolidated income statements
—Tax losses
—Accrued expenses, provisions, depreciation allowances
Exchange differences
At September 28/December 31
2021
2020
2019
3,027
326
927
140
4,420
(in US$’000)
2,217
(396)
1,010
196
3,027
1,986
(27)
318
(60)
2,217
The Group’s deferred tax assets and liabilities are temporary differences including tax losses, accrued expenses, provisions and
depreciation allowances. The potential deferred tax assets in respect of tax losses which have not been recognized in the consolidated
financial statements were approximately US$1.6 million as at September 28, 2021 (as at December 31, 2020: US$1.6 million).
These unrecognized tax losses can be carried forward against future taxable income and will expire in the following years:
2021
2022
2023
2024
2025
2026
18. Other Non-Current Assets
Prepayment of leasehold land rights (note)
Others
September 28, December 31,
2021
2020
(in US$’000)
928
1,450
856
1,239
1,074
669
6,216
926
1,836
849
1,334
1,431
—
6,376
September 28, December 31,
2021
2020
(in US$’000)
—
46
46
11,160
529
11,689
Note: Balance as at December 31, 2020 represented prepayments for a land use right in which the title of the land was in
the process of registration, pending remaining administrative procedures. In 2021, the registration was completed, title was
transferred to the Company and the balance was reclassified to leasehold land.
19. Trade Payables
Trade payables—third parties
Trade payables—related parties (Note 24(b))
September 28, December 31,
2021
2020
(in US$’000)
15,519
3,529
19,048
16,852
5,727
22,579
All trade payables are denominated in RMB and due within one year from the end of the reporting period. The carrying value of
trade payables approximates their fair values due to their short-term maturities.
F-100
20. Other Payables, Accruals and Advance Receipts
Other payables and accruals
Accrued salaries and benefits
Accrued selling and administrative expenses
Value‑added tax and tax surcharge payables
Deposits received
Other payables to manufacturers
Others
Advance receipts
Payments in advance from customers (note)
Deferred government incentives
September 28, December 31,
2021
2020
(in US$’000)
5,384
35,266
2,588
4,748
8,794
5,934
62,714
16,310
1,460
17,770
80,484
4,715
27,872
2,207
5,866
8,794
6,017
55,471
41,963
1,427
43,390
98,861
Note: Substantially all customer balances as at December 31, 2020 were recognized to revenue during the period from
January 1, 2021 to September 28, 2021. Additionally, substantially all customer balances as at September 28, 2021 are
expected to be recognized to revenue within one year upon transfer of goods or services as the contracts have an expected
duration of one year or less.
21. Deferred Income
Deferred government incentives:
Buildings and other non‑current assets
Others
September 28, December 31,
2021
2020
(in US$’000)
11,272
3,641
14,913
11,890
3,727
15,617
F-101
22. Notes to the Consolidated Statements of Cash Flows
(a) Reconciliation of Profit for the Period/Year to Net Cash Generated from
Operations:
Profit for the period/year
Adjustments to reconcile profit for the period/year to net
cash generated from operations
Taxation charge
Finance costs
Interest income
Share of (profits)/losses of a joint venture and associated
companies, net of tax
Depreciation on property, plant and equipment
Depreciation charge of right-of-use assets
Loss on disposal of property, plant and equipment
Gain on return of land
Gain on disposal of leasehold land
Impairment of property, plant and equipment
Amortization of leasehold land
Amortization of other intangible assets
Movement on the provision for trade receivables
Movement on the provision for excess and obsolete
inventories
Amortization of deferred income
Gain on divestment of a subsidiary
Exchange differences
Changes in working capital:
Trade and bills receivables
Other receivables, prepayments and deposits
Inventories
Other non-current assets
Trade payables
Other payables, accruals and advance receipts
Total changes in working capital
Net cash generated from operations
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2020
2019
(in US$’000)
31,886
91,214
19,287
4,840
24
(205)
(29)
4,425
407
47
(16,433)
—
—
450
331
38
41
(845)
—
(470)
39,505
(5,248)
(18,693)
(139)
(3,531)
(18,616)
(6,722)
17,785
16,494
57
(271)
84
5,283
551
643
(84,667)
(166)
—
236
414
(20)
474
(1,689)
(37)
794
(19,124)
1,902
2,195
—
9,880
36,509
31,362
60,756
3,634
59
(160)
(60)
5,417
538
162
—
—
525
230
351
(70)
314
(2,187)
—
(1,120)
(1,524)
(2,886)
60
700
(2,965)
5,932
(683)
26,237
(b) Supplemental Disclosure for Non-cash Activities
During the period from January 1, 2021 to September 28, 2021, there was an increase of US$0.4 million in accruals made for
purchases of property, plant and equipment (for the years ended December 31, 2020 and 2019: an increase of US$0.1 million and a
decrease of US$0.9 million respectively).
F-102
23. Capital Commitments
The Group had the following capital commitments:
Property, plant and equipment
Contracted but not provided for
September 28,
2021
(in US$’000)
1,290
Capital commitments for property, plant and equipment are mainly for improvements to the Group’s plant.
24. Significant Related Party Transactions
The Group has the following significant transactions with related parties which were carried out in the normal course of business
at terms determined and agreed by the relevant parties:
(a) Transactions with Related Parties:
Sales of goods to:
—Fellow subsidiaries of GBPHCL
—A fellow subsidiary of GZHCMHK
Other services income from:
—An equity investee
—Fellow subsidiaries of GBPHCL
Purchase of goods from:
—An equity investee
—Fellow subsidiaries of GBPHCL
Advertising expenses to:
—A fellow subsidiary of GBPHCL
Interest paid to:
—A non-controlling shareholder of a subsidiary
Period from
January 1, 2021
to September 28,
2021
Year Ended December 31,
2019
2020
(in US$’000)
25,043
278
25,321
—
3,576
3,576
2,145
24,222
26,367
4,805
—
—
33,535
493
34,028
273
6,166
6,439
2,317
29,594
31,911
5,733
5
5
23,658
210
23,868
275
5,913
6,188
3,216
24,733
27,949
5,128
16
16
No transactions have been entered into with the directors of the Company (being the key management personnel) during the period
from January 1, 2021 to September 28, 2021 (for the years ended December 31, 2020 and 2019: nil).
F-103
(b) Balances with Related Parties Included in:
Trade and bills receivables
—An equity investee (note (i))
—Fellow subsidiaries of GBPHCL (note (i))
Trade payables
—Fellow subsidiaries of GBPHCL (note (i))
—An equity investee (note (i))
Other receivables and prepayments—related parties
—Fellow subsidiaries of GBPHCL (note (i))
—An equity investee (note (i))
Other payables, accruals and advance receipts
—Fellow subsidiaries of GZHCMHK (note (i) and (ii))
—Fellow subsidiaries of GBPHCL (note (i))
Dividend payable (Note 3(b))
—GZHCMHK
—GBPHCL
Notes:
September 28, December 31,
2021
2020
(in US$’000)
—
1,975
1,975
3,529
—
3,529
1,129
156
1,285
—
2,691
2,691
52,887
52,887
105,774
305
3,180
3,485
5,043
684
5,727
743
336
1,079
156
5,484
5,640
—
—
—
(i) Balances are unsecured, interest-free and repayable on demand. The carrying values of balances with related parties
approximate their fair values due to their short-term maturities.
(ii) Amounts payable to fellow subsidiaries of GZHCMHK were due to entities in HUTCHMED’s group. On September
28, 2021, HUTCHMED divested its entire interest in the Company and consequently, subsidiaries in HUTCHMED’s
group were no longer related parties of the Company.
F-104
25. Particulars of Principal Subsidiaries, Joint Venture and Associated Companies
All of the Group’s principal subsidiaries, joint venture and associated companies had a place of establishment and operation in the
PRC.
Name
Nominal value
of registered
capital
Equity interest
attributable
to the Group
September 28, December 31, September 28, December 31,
Hutchison Whampoa Guangzhou Baiyunshan Chinese
Medicine (Bozhou) Co. Ltd
Hutchison Whampoa Guangzhou Baiyunshan
Pharmaceuticals Limited
Hutchison Whampoa Guangzhou Baiyunshan Health &
Wellness Co. Ltd
Hutchison Whampoa Baiyunshan Lai Da Pharmaceuticals
(Shan Tou) Company Limited
Fuyang Baiyunshan Hutchison Whampoa Chinese
Medicine Technology Company Limited
Wenshan Baiyunshan Hutchison Whampoa Sanqi Co. Ltd.
Daqing Baiyunshan Hutchison Whampoa Banlangen
Technology Company Limited
Shen Nong Garden Traditional Chinese Medicine Museum
Guangzhou Hulu Cultural Communications
Company Limited
Bozhou Baiyunshan Pharmaceuticals Co Ltd (“Old
Bozhou”) (note)
Shen Nong Garden Pharmacy Company Limited
Joint Venture
Qing Yuan Hutchison Whampoa Baiyunshan Chinese
Medicine Company Limited
Associated companies
2021
2020
(in RMB’000)
100,000
100,000
10,000
10,000
10,000
3,650
2,000
1,020
1,000
1,000
—
200
10,000
10,000
10,000
3,650
2,000
1,020
1,000
1,000
500
200
2021
2020
Type of legal entity
Principal activity
100 %
100 %
100 %
100 %
75 %
51 %
51 %
100 %
100 %
—
100 % Limited liability company
100 % Limited liability company
100 % Limited liability company
100 % Limited liability company
75 % Limited liability company
51 % Limited liability company
51 % Limited liability company
100 %
Non‑profit making
organization
100 % Limited liability company
100 % Limited liability company
100 %
100 % Limited liability company
Manufacture, sales and
distribution of drug products
Sales and marketing of drug
products
Health supplemented food
distribution
Manufacture, sales and
distribution of drug products
Agriculture and sales of Chinese
herbs
Agriculture and sales of Chinese
herbs
Agriculture and sales of Chinese
herbs
Promote awareness of Chinese
herbs
Promote awareness of Chinese
herbs
Manufacture, sales and
distribution of drug products
Retail of drug products, health
foods and souvenirs
Agriculture and sales of Chinese
herbs
1,000
1,000
50 %
50 % Limited liability company
Linyi Shenghe Jiuzhou Pharmaceuticals Company Limited
Tibet Linzhi Guangzhou Pharmaceutical Development
Co. Ltd.
3,000
2,000
3,000
2,000
30 %
20 %
30 % Limited liability company
Agriculture and sales of Chinese
herbs
20 % Limited liability company
Trading of Chinese herbs
Note: In August 2021, Old Bozhou was voluntarily dissolved as it had no ongoing operating activities.
F-105
35
36
37
38
39
34 We also report changes in performance at constant exchange rate (“CER”)
which is a non-GAAP measure. Please refer to “Use of Non- GAAP Financial
Measures and Reconciliation” below for further information relevant to
the interpretation of these financial measures and reconciliations of these
financial measures to the most comparable GAAP measures.
SHPL = Shanghai Hutchison Pharmaceuticals Limited.
HBYS = Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine
Company Limited.
HKEX = The Stock Exchange of Hong Kong Limited.
Inmagene = Inmagene Biopharmaceuticals.
Hutchison Sinopharm = Hutchison Whampoa Sinopharm Pharmaceuticals
(Shanghai) Company Limited.
GAAP = Generally Accepted Accounting Principles.
Lilly = Eli Lilly and Company.
SG&A Expenses = selling, general and administrative expenses.
ADS = American depositary share.
EGFRm+ = Epidermal growth factor receptor mutation positive.
ORR = Objective response rate.
DCR = Disease control rate.
NEN = Neuroendocrine neoplasms.
SCLC = Small cell lung cancer.
DoR = Duration of response.
TRAE = Treatment related adverse event.
TN = Triple negative.
HR+ = Hormone receptor positive.
Her2- = Human epidermal growth factor receptor 2 negative.
SXBX = She Xiang Bao Xin.
HBYS’ adjusted net profit attributable to HUTCHMED equity holders (after 20%
non-controlling interest) in 2020 of $7.7 million is a non-GAAP measure which
is 40% of HBYS’ 2020 net profit of $91.3 million less $72.0 million gain on land
compensation, net of tax
HSBC = The Hongkong and Shanghai Banking Corporation Limited.
HIBOR = Hong Kong Interbank Offered Rate.
Deutsche Bank AG = Deutsche Bank AG, Hong Kong Branch.
PBOC = People's Bank of China.
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
1
In-market sales = total sales to third parties provided by Eli Lilly (ELUNATE®),
AstraZeneca (ORPATHYS®) and HUTCHMED (SULANDA®).
MET = Mesenchymal epithelial transition receptor.
NRDL = National Reimbursement Drug List.
R&D = Research and development.
NMPA = National Medical Products Administration.
ITP = Immune thrombocytopenia purpura.
FDA = Food and Drug Administration.
PDUFA = Prescription Drug User Fee Act.
EMA = European Medicines Agency.
EOP2 = End of Phase 2.
EGFR = Epidermal growth factor receptor.
TKI = Tyrosine kinase inhibitor.
ASCO = American Society of Clinical Oncology.
2
3
4
5
6
7
8
9
10
11
12
13
14 WCLC = World Conference on Lung Cancer.
15
16
17
18
19
20
21
VEGFR = Vascular endothelial growth factor receptor.
NEC = Neuroendocrine carcinoma.
Junshi = Shanghai Junshi Biosciences Co., Ltd.
PMDA = Japanese Pharmaceuticals and Medical Devices Agency.
BeiGene = BeiGene, Ltd.
PD-1 = Programmed Cell Death Protein-1.
ESMO IO = European Society for Medical Oncology Immuno-Oncology
Congress.
CgA = Chromogranin A.
BTC = Biliary tract cancer.
HCC = Hepatocellular carcinoma.
RCC = Renal cell cancer.
CSCO = Chinese Society of Clinical Oncology Annual Meeting.
Genor = Genor Biopharma Co. Ltd.
OS = Overall survival.
PI3Kδ = Phosphoinositide 3-kinase delta.
RP2D = Recommended Phase II dose.
Syk = Spleen tyrosine kinase.
ASH 2021 = the 63rd ASH Annual Meeting and Exposition in December 2021.
22
23
24
25
26
27
28
29
30
31
32
33 MAPK pathway = RAS-RAF-MEK-ERK signaling cascade.
444
REFERENCES AND ABBREVIATIONS INFORMATION FOR
SHAREHOLDERS
LISTING
The ordinary shares of the Company are listed
on The Stock Exchange of Hong Kong Limited
(“HKEX”), the AIM market of the London
Stock Exchange and in the form of American
depositary shares (“ADSs”) on the NASDAQ
Global Select Market. Each ADS represents
ownership of five ordinary shares of the
Company. Additional information and specific
enquiries concerning the ADSs should be
directed to the ADS Depositary at the address
given on this page.
STOCK CODES
HKEX: 13
Nasdaq/AIM: HCM
PUBLIC FLOAT CAPITALISATION
As at December 31, 2021:
Approximately US$3.6 billion (approximately
59.38% of the issued share capital of the
Company)
FINANCIAL CALENDAR
Closure of Register of Members
April 22, 2022 to April 27, 2022
Annual General Meeting
April 27, 2022
Interim Results Announcement
August 2022
REGISTERED OFFICE
P.O. Box 309, Ugland House
Grand Cayman, KY1-1104
Cayman Islands
Telephone:
Facsimile:
+1 345 949 8066
+1 345 949 8080
REFERENCES
PRINCIPAL PLACE OF BUSINESS
48th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
Telephone:
Facsimile:
+852 2128 1188
+852 2128 1778
PRINCIPAL EXECUTIVE OFFICE
Level 18, The Metropolis Tower
10 Metropolis Drive
Hunghom, Kowloon
Hong Kong
Telephone:
Facsimile:
+852 2121 8200
+852 2121 8281
PRINCIPAL SHARE REGISTRAR
Computershare Investor Services (Jersey) Limited
13 Castle Street, St. Helier
Jersey, Channel Islands JE1 1ES
Telephone:
Facsimile:
+44 (0)370 707 4040
+44 (0)370 873 5851
HONG KONG BRANCH SHARE REGISTRAR
Computershare Hong Kong Investor Services Limited
Shops 1712-1716, 17th Floor
Hopewell Centre, 183 Queen’s Road East
Wanchai, Hong Kong
Telephone:
Facsimile:
+852 2862 8628
+852 2865 0990
CREST DEPOSITARY
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
United Kingdom
Telephone:
Facsimile:
+44 (0)370 702 0000
+44 (0)370 703 6114
ADS DEPOSITARY
Deutsche Bank Trust Company Americas
1 Columbus Circle
New York, NY 10019
United States of America
Telephone:
Facsimile:
+001 212 250 9100
+001 732 544 6346
SHAREHOLDERS CONTACT
Please direct enquiries to:
48th Floor, Cheung Kong Center
2 Queen’s Road Central
Hong Kong
Attn:
Edith Shih
Non-executive Director &
Company Secretary
ediths@ckh.com.hk
+852 2128 1778
E-mail:
Facsimile:
INVESTOR INFORMATION
Corporate press releases, financial reports and
other investor information on the Company are
available online at the Company’s website.
INVESTOR RELATIONS CONTACT
Please direct enquiries to:
E-mail:
Telephone:
Facsimile:
ir@hutch-med.com
+852 2121 8200
+852 2121 8281
WEBSITE ADDRESS
www.hutch-med.com
Unless the context requires otherwise, references in this Annual Report to the “Group,” the “Company,” “HUTCHMED,” “HUTCHMED Group,” “we,” “us” and “our” mean HUTCHMED (China) Limited and its consolidated
subsidiaries and joint ventures unless otherwise stated or indicated by context.
PAST PERFORMANCE AND FORWARD-LOOKING STATEMENTS
The performance and results of operations of the Group contained within this Annual Report are historical in nature, and past performance is no guarantee of future results of the Group. This Annual Report contains
forward-looking statements within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by words like “will,”
“expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “pipeline,” “could,” “potential,” “first-in-class,” “best-in-class,” “designed to,” “objective,” “guidance,” “pursue,” or similar terms, or by express
or implied discussions regarding potential drug candidates, potential indications for drug candidates or by discussions of strategy, plans, expectations or intentions. You should not place undue reliance on these
statements. Such forward-looking statements are based on the current beliefs and expectations of management regarding future events, and are subject to significant known and unknown risks and uncertainties.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can
be no guarantee that any of our drug candidates will be approved for sale in any market, or that any approvals which are obtained will be obtained at any particular time, or that any such drug candidates will achieve
any particular revenue or net income levels. In particular, management’s expectations could be affected by, among other things: unexpected regulatory actions or delays or government regulation generally; the
uncertainties inherent in research and development, including the inability to meet our key study assumptions regarding enrollment rates, timing and availability of subjects meeting a study’s inclusion and exclusion
criteria and funding requirements, changes to clinical protocols, unexpected adverse events or safety, quality or manufacturing issues; the inability of a drug candidate to meet the primary or secondary endpoint of a
study; the inability of a drug candidate to obtain regulatory approval in different jurisdictions or gain commercial acceptance after obtaining regulatory approval; global trends toward health care cost containment,
including ongoing pricing pressures; uncertainties regarding actual or potential legal proceedings, including, among others, actual or potential product liability litigation, litigation and investigations regarding sales
and marketing practices, intellectual property disputes, and government investigations generally; and general economic and industry conditions, including uncertainties regarding the effects of the persistently weak
economic and financial environment in many countries, uncertainties regarding future global exchange rates and uncertainties regarding the impact of the COVID-19 pandemic. For further discussion of these and
other risks, see HUTCHMED’s filings with the U.S. Securities and Exchange Commission, on AIM and on HKEX. HUTCHMED is providing the information in this Annual Report as of this date and does not undertake any
obligation to update any forward-looking statements as a result of new information, future events or otherwise.
In addition, this Annual Report contains statistical data and estimates that HUTCHMED obtained from industry publications and reports generated by third-party market research firms. Although HUTCHMED believes
that the publications, reports and surveys are reliable, HUTCHMED has not independently verified the data and cannot guarantee the accuracy or completeness of such data. You are cautioned not to give undue weight
to this data. Such data involves risks and uncertainties and are subject to change based on various factors, including those discussed above.